Developments in contract: Entire agreement clauses

Principles

• Entire agreement clauses are standard boilerplate in commercial contracts. Their purpose is to ensure that the document in which they appear constitutes the whole agreement between the contracting parties.

• On their own, standard entire agreement clauses rarely preclude claims for misrepresentation. This is on the basis that entire agreement clauses prevent pre-contractual representations becoming terms of a contract; they do not exclude liability for false pre-contractual representations.

• However, the English courts do not interpret entire agreement clauses in isolation: these clauses are interpreted within the context of the agreement as a whole (per the usual rules of contractual interpretation).

• The historic approach of the courts has been to interpret entire agreement clauses strictly. In Axa Sun Life Services Plc v Campbell Martin Limited, the Court of Appeal stated that an exclusion of liability for misrepresentation must be clearly stated. This is ordinarily achieved by the inclusion of standard exclusion language, eg ‘no-reliance’ language or express waivers in respect of specific representations.

Recent developments

• In NF Football Investments Limited v NFFC Group Holdings Limited, the buyers of Nottingham Forest Football Club brought a claim for misrepresentation on the basis that the sellers had misstated the liabilities of the club in pre-contractual documentation.

• At first instance the Master held that an entire agreement clause in the SPA effectively excluded liability for misrepresentation, despite the absence of any express exclusion to that effect, because the SPA created a full contractual framework for the resolution of any claims arising out of, or in respect of, the SPA. The Master interpreted this framework as showing the parties’ intention for the framework to act as the exclusive forum for such claims.

• On appeal, the Judge noted that while the claim in misrepresentation was very similar to contractual claims expressly dealt with in the SPA, claims for other forms of misrepresentation might be brought and there was no reason why they should be excluded. The entire agreement clause should therefore not be interpreted to exclude actions for misrepresentation.

What this means

• While there is no absolute requirement for an explicit exclusion of liability for misrepresentation in order to avoid such liability, this case demonstrates that in practice the courts will seldom interpret a clause to exclude liability for misrepresentation unless it is mentioned by name.

• Parties wanting to exclude liability for misrepresentation should include standard exclusion wording in their contracts and thereby avoid any uncertainty and the need for judicial determination. A common formulation is a ‘no reliance’ clause; such clauses give rise to a contractual estoppel preventing a party from alleging that they relied on a misrepresentation.