Avoid a contractual own goal – the importance of entire agreement clauses
Associate Michael Budd looks at the importance of clarity when drafting entire agreement clauses
The interpretation of entire agreement clauses has appeared before the courts once again, this time before the high court in the recent case of Al-Hasawi v Nottingham Forest Football Club (and others) [Nov 2018]. The clause in question appeared in a share purchase agreement relating to the sale and purchase of shares in the club. The issue was whether the wording of the entire agreement clause prevented the buyer from commencing a claim against the seller for misrepresentation.
In simple and general terms, in order to claim misrepresentation, a claimant must show a misrepresentation of fact or law aimed at inducing the other party to enter into a contract and in respect of which the claimant has suffered loss.
If a claimant can show that the defendant has made a misrepresentation to it, the claimant’s remedy is to be placed in the position it would have been in had the misrepresentation not been made, which means damages will be the amount by which the claimant has lost as a result of relying on the misrepresentation. Depending on the type of misrepresentation the remedy of rescission may be available to the claimant under which the parties are restored, so far as possible, to the their pre-contractual position.
As regards entire agreement clauses themselves, these are typically boilerplate provisions appearing towards the end of the main body of an agreement and so it is perhaps easy to overlook their importance.
Generally, the object of entire agreement clauses is for the parties to record all of their obligations in relation to a transaction in one document (or related documents) and to exclude any other documents or statements from having legal effect. Their purpose and effect was expressed in Inntrepreneur Pub Co v East Crown Ltd :
“…they preclude a party to a written agreement from threshing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim… such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere and that accordingly any promises or assurances made in the course of the negotiations… shall have no contractual force, save insofar as they are reflected and given effect in that document.”… READ FULL ARTICLE