Entire agreement clauses, misrepresentation and construction

Purpose of the clause

  • An entire agreement clause is intended to exclude representations, promises, statements and assurances made before a contract is signed. The aim is to ensure that any matter which was discussed or disclosed, which is not specified in a clause in the final contract is not included as part of the whole agreement.
  • There are no binding undertakings or warranties provided in any form relating to any data, information, promises or budgets debated or supplied prior to signature of the agreement.
  • Company A is not bound to person B or company C by those facts, inferences, information and details raised while the contract was being negotiated.
  • It has until recently been taken as fact that if an agreement contains a standard entire agreement clause, that all discussions, representations and documents raised before signature will be excluded under this clause unless specifically referred to in the agreement. Company A will not be under any obligation or liability to B, unless there has been active and deliberate fraud, deception, deceit or dishonesty to present facts which are in fact untrue.

Misrepresentation is not excluded

  • An entire agreement clause is not an automatic defence to an allegation of misrepresentation so that the claim may be struck out. The judgment of Al-Hasawi v Nottingham Forest Football Club Ltd & Ors [2018] EWHC 2884 in late 2018 makes it clear that an entire agreement clause does not automatically exclude a claim for misrepresentation, whether intentional or not.
  • Despite the fact that the parties had agreed a procedure and financial payment terms under an indemnity which were supposed to be implemented if the disclosed liabilities were later found to be wrong.
  • No presumption can now be made that everything pre-contract is excluded under an entire agreement clause even where the person complaining has carried out due diligence.
  • A purchaser bought all the shares in a football club for £1. The club came with liabilities which were confirmed in the form of a virtual data document as £6.566 million. The allegation was that in fact this figure had been misrepresented as it was nearer £10 million. On appeal it was found that the entire agreement clause in the share purchase agreement did not exclude a claim for misrepresentation and liability to the purchaser.
  • Misrepresentation prior to contract may come in many forms; inaccuracy, wrong but done innocently, fraud, dishonesty and negligence. An entire agreement clause does not per se exclude a claim for misrepresentation, however it may arise.

Construction and interpretation of a contract

  • The judgment made it clear that:
  • an agreement must be viewed as a whole, and that construction is a ‘unitary exercise’.
  • the exercise of construction is one of establishing the intention of the parties as they are expressed in the agreement.
  • construction is an objective exercise based on the language the parties have used and the context in which they have used it.
  • contractual language that provides for one type of claim does not carry an implication that other types of claims are excluded.
  • the court will not look at extraneous evidence about the subjective intention of the parties to the agreement.
  • the court will not go beyond the bounds of construction and improve the bargain which the parties have made. This means that they will not Insert clauses not actually contained in the written agreement.

New clauses for errors, omissions, misrepresentations, claims and liability

  • The entire agreement clause in that case was widely drafted. There were, however, no specific use of the words – ‘misrepresentations’, ‘errors’ or ‘omissions’ in the clause or as separate subjects in other parts of the agreement.
  • A person or company may have viewed facts, information, data and material which may or may not have affected their decision to enter into an agreement. You need to specifically exclude reliance on each specific matter such as marketing reports, asset lists, accounts, research material or profit forecasts. So that such sources are specifically agreed as excluded from any future claim for liability in the contract.
  • So an entire agreement clause will have an impact not only on the past but the future. If something is considered significant then it should be put in a clause in the contract. If a contract is based on projected income or royalties then targets should be set that must be achieved in the agreement and clauses which allow you to terminate the contract or be compensated if they are not fulfilled.
  • You may also want to add new clauses that clarify the consequences of any mistakes or errors or omissions and whether there can be a claim by either party. As well as to review or add disclaimer or limitation of liability clauses.
  • The intention of the parties is expressed by the language in the contract. So you need to provide as much detail as possible in the agreement to foresee potential problems or to ensure that promises are performed.
  • An entire agreement clause cannot therefore of itself stop a claim in misrepresentation. In order to exclude liability for misrepresentation or breach of contract then additional clauses are needed which relate very specifically to what has been promised or disclosed. You cannot exclude liability for personal injury or death, but there is no prohibition on arranging insurance cover.
  • A distinction was made in that case between ‘matters which have been agreed’ and ‘misrepresentations which may be innocent, negligent or fraudulent’. Where these misrepresentations have been relied upon and acted as an inducement then there may be a right to rescind the agreement or to make a claim in tort for the losses incurred.
  • Another clause in the share purchase agreement in that case relating to the preservation of rights and remedies was in fact used to make the point that other claims may be allowed or intended.
  • The court would not rely on words not set out in the agreement. There was no evidence in the agreement that misrepresentations, errors or omissions were excluded from a future claim for liability.
  • The use of the words ‘extinguishes’ and ‘supersedes’ in the entire agreement clause were interpreted as relating to previous agreements or terms only.

Deborah Fosbrook is the author of Contract and Copyright Drafting Skills, The A-Z of Contract Clauses, The Media and Business Contracts Handbook and The Complete A-Z of Contract Clauses Pack

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