Professional Documents
Culture Documents
Entire Agreement Clauses - Do They Work or Not - Perspectives - Reed Smith LLP
Entire Agreement Clauses - Do They Work or Not - Perspectives - Reed Smith LLP
Questions regarding the effectiveness of entire agreement clauses appear to arise with increasing frequency
in disputes, particularly disputes relating to long term contracts such as joint ventures, long term supply
agreements, long term financing arrangements or amendments and/or renewals to such agreements or
arrangements where parties have had a long course of dealings.
The issues tend commonly to play out when disagreements arise with regard to the meaning and effect of
such contracts or arrangements and where a party attempts to look outside the contract terms themselves to
support a claim, defence or argument.
Entire agreement clauses are often put into the category of “boilerplate” clauses by contract draftsmen.
Boilerplate clauses are normally uncontroversial and often inserted into contracts by the parties as a matter
of routine, without much negotiation or regard to the context and background to the relevant contract. They
are commonly referred to and treated as being “standard” which sometimes means that they do not always
attract as much attention and consideration as other contract terms, particularly commercial terms.
What is an entire agreement clause? An entire agreement clause is a good example of a boilerplate
provision which parties spend little time negotiating, but whose terms can have unforeseen or unintended
consequences on the contract and the parties’ rights.
The purpose of this type of clause is to try to ensure that the terms and conditions governing the parties’
obligations and their intentions are set out in a single contractual document. The aim, in turn, of this is to
promote certainty and possibly to prevent parties from relying on statements or representations made in
pre-contract negotiations in trying to ascertain what the contract requires by way of performance. Entire
agreement clauses commonly seek to exclude representations and statements made by the parties which
may have been relied on by the parties when entering into the contract, but which have not been expressly
incorporated into the contract.
However, there are numerous limitations to the effectiveness of entire agreement clauses.
First, such a clause will not prevent the parties from relying on statements or documents ‘extrinsic’ to the
contract – i.e. those documents that can be used to cast light on the meaning of the contract (though such
extrinsic documents cannot be relied on to establish a separate contractual agreement between the parties).
In addition, case law has established four specific limitations to entire agreement clauses:
Recent case law indicates that an entire agreement clause will not
prevent a party from relying on estoppel to enforce a pre-contractual
agreement.
After the contract was signed, Shoreline discovered that the composite
code system had not resulted in the savings that had been hoped for.
Shoreline recalculated all prices according to the contractual pricing
formula and withheld approximately £300,000 in payment. Mears
sought to enforce the pre-contractual composite code prices.
Conclusions While an entire agreement clause is a useful and very common “boilerplate” provision, it is
not necessarily a total answer for excluding anything outside the written document itself. An entire
agreement clause will not serve this purpose unless carefully drafted with the intention of excluding such
other matters and even then it can be overridden. Parties are advised to think carefully about what they
want to be included or excluded from their contract. In some circumstances, there may be pre-contractual
exchanges, representations or statements on which a party does wish to rely. In that case, refraining from
inserting a provision may be more beneficial. If the clause is inserted, any pre-contractual statements which
that party wishes to be able to rely on would need to be included in the contract itself.
Further, parties might usefully consider whether there is any relevant pre-contractual conduct or custom
between the parties which could be excluded by an entire agreement clause. Consider the scenario where a
long-term contract is being renewed and an “Amended” or “Restated” agreement is signed by the parties. If
an accepted practice has developed during performance of that contract which is not in accordance with its
strict terms (e.g. issuing invoices after 30 days, when the contract says 14 days) but the restated contract is
not amended to reflect this and remains in its original form, arguably the parties have excluded their right
to rely on this previous conduct. To issue invoices after 30 days would now be a breach of contract under
the new, restated, agreement. Parties must consider carefully the inclusion of an entire agreement clause
both when entering into new contracts and when amending or restating existing contracts.
In summary, parties should ensure they have clarity up front as to what has been included and excluded
from the contract prior to its execution. As we have seen, additional clauses will often need to be inserted
into the contract to exclude implied terms or pre-contractual representations, or to include certain pre-
contractual agreements. Without this, a simple misunderstanding could lead to costly litigation further
down the line.
2. Misrepresentation occurs when one party (A) makes an untrue statement of fact or law, which induces
another party (B) to enter into a contract. A successful claim requires that party B relied on that
statement when deciding whether to enter into the contract. Thus a statement of non-reliance removes a
key element of misrepresentation.
3. [2015] EWHC 1396 (TCC)
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.