Entire Agreement Clauses

What is an Entire Agreement Clause?

The purpose of an entire agreement clause is to ensure that only the written contract agreed by the parties governs the agreed rights and responsibilities between them. This is important for many reasons and entire agreement clauses are common in commercial contracts.

The difficulty with entire agreement clauses is that there are situations where, in the event of a dispute, a court may decide not to base it’s findings solely on the written contract and to take into account extraneous circumstances. A recent case provides a useful example.

A particular area of difficulty with entire agreement clauses relates to such clauses referring to pre-contract negotiations, representations and discussions. As you will see from the case example below, an entire agreement clause may not override pre-contract misrepresentations.

In general terms, notwithstanding the importance of ensuring you have a comprehensive and clear contract, it’s important to remain alert to how the contract operates in practice. Care is generally needed with communications or conduct which may be interpreted as altering or varying the contract or waiving strict contractual rights.

This is the leading case in which the English Courts found that there are situations where Entire Agreement Clauses may not be fully binding. It’s also good practice to ensure you have clear limits on authority to communicate or agree any changes to contracts and that this is made clear both internally and with contract counterparties.

If you need lawyers for advice on contracts, need a contract drafted or reviewed, have a legal issue about entire agreement clauses or a contract dispute, please do get in contact with our experienced, practical specialist lawyers.

Case example – what can go wrong with entire agreement clauses?

The High Court case of MDW Holdings Ltd v Norvill [2021] EWHC 1135 related to the sale of a waste management company.

Requests were made by the buyer for disclosure of the waste management company’s internal test results, yet they were provided with falsified figures for copper and lead levels. The waste management company had also asked it’s water providers to increase its permitted limits for ammonia, but they refused to do so and this was not disclosed to the buyer.

As part of the buyer’s initial review, a legal due diligence questionnaire was sent to the sellers to be completed. The sellers failed to mention prior and ongoing breaches of water discharge regulations in their response. They also failed to provide a history of their communications with the water company regarding those issues.

The sellers and the buyer signed a Share Purchase Agreement which contained an entire agreement clause which including prior enquiries, discussions, representations and so on.

After the sale had been completed, the purchased company was notified of further breaches of the discharge consent and warned that prosecution was being considered in respect of the historic breaches. The buyer issued a claim against the sellers for their failure to disclose the breaches.

The Entire Agreement Clause and Misrepresentation

The buyer claimed both negligent misrepresentation and fraudulent misrepresentation, citing that they had relied upon the sellers’ responses to the due diligence questionnaire when considering whether to enter into the Agreement. The sellers denied having made any misrepresentations and argued that even if they had done so, their liability would be excluded by the entire agreement clause.

The court found in favour of the buyer and held that the sellers had made fraudulent misrepresentations. In making its decision, the court considered that the entire agreement clause did not exclude the sellers liability for misrepresentation. The clause merely clarified that nothing said, written or done before signing the Agreement created any contractual obligations or liabilities. Simply stating that the terms of the Agreement superseded previous terms was not enough to exclude the sellers’ liability for misrepresentation.

As is a clear from this case an entire agreement clause is generally not sufficient enough to exclude liability for misrepresentation. If an agreement intends to exclude liability for innocent or negligent misrepresentation, then clear wording must be used in the agreement to that effect.

Legal advice on contract issues

For further information and advice regarding share purchase agreements, entire agreement clauses and limiting liability for misrepresentation, please contact our Corporate and Commercial Department.

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