Entire agreement

Entire agreement

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This precedent has been authored by Ilija Vickovich, Lecturer, Macquarie Law School and updated by Dr. Gordon Hughes, Principal, Davies Collison Cave Law.

Introductory note

Many commercial contracts are drafted to include an “entire agreement clause”. Such clauses are considered to be “boilerplate” provisions because they are often routinely used to deal with important aspects of contractual construction. It is true that entire agreement clauses frequently play a significant role when a court is deciding upon the effect of the contract as a whole, but practitioners should be aware of their pitfalls as well as their reputed strengths.

Entire agreement clauses are meant to assert the express intention of the parties to a written agreement, that the document they have executed constitutes the entirety of their agreement to the exclusion of any other purported agreement or terms.

An entire agreement clause may also focus on excluding liability for any representations that may have been made by the parties during the course of negotiations and prior to the drafting and execution of the final contractual document. Such a clause is often referred to as a “non-reliance clause”.

Purpose of entire agreement clauses

The aims of an entire agreement clause may be directed towards any or all of the following:

• to ensure that the only terms actually agreed upon by the parties are those contained in the document executed by them;

• to ensure that no assurances, indications or promises made by the parties during negotiations and prior to the execution of the final document may subsequently be incorporated as express terms of their agreement or be asserted as the basis for any alleged collateral contract between them (see Inntrepreneur Pub Co v East Crown Ltd [2000] All ER (D) 1100);

• to preclude, or at least limit, the possibility of a term being incorporated into the contract by implication, whether by custom and usage or by virtue of the factual matrix of the circumstances of the case;

• to preclude either party from claiming the other party induced them into the contract by way of a representation, later claimed to be false, that was made before the execution of the final document; and

• to render nugatory the effect of any prior agreements and arrangements, including any earlier drafts of the contract.

Limitations of entire agreement clauses

Although entire agreement clauses are used frequently, principally in contracts of a commercial nature, their limitations need to be kept in mind. Entire agreement clauses cannot be conclusive because any dispute about the incorporation or interpretation of contractual terms will be decided ultimately by a competent court on the facts of the case as a whole. The clear trend in recent decades has been for courts to adopt a “contextual” rather than literal approach.

The principal limitations of entire agreement clauses appear to be as follows:

• the executed document may not correctly or adequately express the actual agreement as intended by the parties, which is in fact made up by the totality of words and conduct manifested by the parties;

• a term may in certain circumstances be incorporated into the contract by necessary implication despite that the written contract expressly purports that there is no agreement or understanding between the parties that is not embodied in the document they have finally executed (see Hart v MacDonald (1910) 10 CLR 417; 16 ALR 585; [1910] HCA 13; BC1000031);

• entire agreement clauses will generally not be able to ensure the exclusion of contractual terms that may be implied by operation of law or that are expressly proscribed by statute. The most obvious example is section 64 of the Australian Consumer Law, which renders void any term of a consumer contract that purports to exclude, restrict or modify the application of any of the statutory consumer guarantees and express warranties provided by manufacturers and suppliers;

• entire agreement clauses will generally not be able to exclude or limit liability for fraudulent misrepresentation (see BSkyB Ltd v HP Enterprise Services UK Ltd [2010] All ER (D) 192 (Jan); [2010] EWHC 86 (TCC)). However, it is unclear whether they may be effective in limiting or excluding liability for a non-fraudulent misrepresentation in a commercial contract. In Byers v Dorotea Pty Ltd (1986) 69 ALR 715, the Federal Court held that an entire agreement clause validly excluded liability for an innocent misrepresentation. However, a majority of the Court of Appeal in Queensland expressed doubts this was possible in the decision of MacDonald v Shinko Australia Pty Ltd [1999] 2 Qd R 152; BC9800979;

• it also seems to be unsettled whether an entire agreement clause may be effective in displacing the resort by a contracting party to an estoppel argument based on pre-contractual representations. The view that parties may validly preclude an estoppel argument by way of an entire agreement clause was upheld by the NSW Supreme Court in Australian Co-operative Foods Ltd v Norco Co-operative Ltd (1999) 46 NSWLR 267; 45 IPR 228; [1999] NSWSC 274; BC9901307 and in Chint Australasia Pty Ltd v Cosmoluce Pty Ltd (2008) 14 BPR 26,279; [2008] NSWSC 635; BC200805082. However, the opposite position was adopted by the Federal Court in Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424; [2001] FCA 1833; BC200108132; and

• similarly, the effectiveness of an entire agreement clause in the context of the contractual duty of good faith remains contested. The following decisions are supportive of the view that an implied duty of good faith may be excluded by an express term (such as an entire agreement clause):

 o Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187; BC200103318;

o Central Exchange Ltd v Anaconda Nickel Ltd (2002) 26 WAR 33; [2002] WASCA 94; BC200201935;

o Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets (No 6) (2007) 63 ACSR 1; [2007] NSWSC 124; BC200702746;

o NT Power Generation Pty Ltd v Power & Water Authority (2001) 184 ALR 481; [2001] FCA 334; BC200101353; and

o Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd (2005) Aust Contract R 90-213; [2005] FCA 288; BC200501341.

However, the Federal Court was critical of the view that an implied duty of good faith may be excluded by an express term (such as an entire agreement clause) in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1; [2003] FCA 50; BC200300200.

Despite the above difficulties, it may be appropriate in some cases to include an entire agreement clause in a commercial contract. This may be the case where a party is concerned that protracted negotiations, previous draft agreements and considerable correspondence between the parties may have resulted in a number of positions being adopted and numerous representations being made. This will at least place that party in a stronger strategic position in the event litigation arises because the other party, having agreed to an entire agreement clause, will find it more difficult to convince a court that the executed document (which contains the clause) is merely part of a wider agreement.

Other factors to consider

• Before agreeing to the inclusion of an entire agreement clause in a contract, ensure that all the terms agreed upon are adequately contained and expressed in the contractual document to be executed by the parties.

• Where an entire agreement clause is contained in a contractual document, check that no other document exists that purports to contain rights and obligations not included in the contractual document to be executed by the parties.

• When drafting an entire agreement clause, try to confine its scope to the purpose that the clause addresses.

• Consider inserting separate and discrete contractual provisions (in addition to a general entire agreement clause) for the purpose of excluding or limiting liability in relation to specific areas of risk.