Misrepresentation & Entire Agreement Clauses – Ensuring Your Contract Contains Everything You Want It To

Many may be surprised to discover that sometimes, despite one party to a contract making misrepresentations which have induced the other into a contract, the contract can still (in some cases) be enforceable. Entire Agreement Clauses make this possible.

What are Entire Agreement Clauses?

Entire Agreement Clauses were introduced to prevent parties from relying on a “chance remark or statement” to form the basis of a claim (Inntrepreneur Pub Co v East Crown Ltd [2000]). In short, they state that the entire agreement is contained within the contract (sometimes other documents can also be named), thereby excluding any other terms that could potentially bind the parties and form the basis of the contract, outside of the named documents. It also usually contains a non-reliance statement, which states that the parties have not entered into the contract in reliance on any other representation or warranty. Both are commonplace and can usually be found in most contracts.

The Court have held that parties to a contract are free to define the basis on which they entered into the contract, even if it is factually incorrect. This will prevent parties from claiming that the true facts were different (even if the true facts were different) (as in Peekay Intermark v Australia and New Zealand Banking Group [2006] and later affirmed in Springwell Navigation Corp v JP Morgan Chase Bank [2010]).

What if I have entered into a contract with an Entire Agreement Clause but there has been a misrepresentation?

While Entire Agreement Clauses can limit liability for misrepresentation, this is not always possible. The Courts consider each case individually on its facts and have found that certain Entire Agreement Clauses were unenforceable, taking into account the circumstances in which the parties entered into the contract.

Entire Agreement Clauses have to be fair and reasonable in the circumstances, as they are still the subject of the reasonableness test (as set out in section 3 of the Misrepresentation Act 1967 and section 11 of the Unfair Contract Terms Act). Surprisingly, it can be reasonable and fair to limit liability for misrepresentation. In considering the circumstances of the case, the Courts have taken into account the bargaining position of the parties, whether any professional duties were owed, the level of the misrepresentation (e.g. was it negligent or fraudulent), and the clarity of the wording in the Entire Agreement Clause (i.e. was it clear that it was intended to limit liability for misrepresentation). A number of other factors will also be relevant, depending on the particular circumstances of someone’s case.

However, as each case is taken on its facts, it requires a legal argument to be set out if there is a contractual dispute – which can be time consuming and costly. Therefore, it is important to ensure that you have read and understood the contract in its entirety before agreeing to it. It is also important to ensure that everything you believe should be included, is expressly stated within the contract.

How Nelsons can helpEntire Agreement Clauses

Kristina Ford is a Trainee Solicitor at Nelsons.

If you require any further advice in relation to the subjects discussed in this article, please contact a member of our Dispute Resolution team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online enquiry form.