entire agreement clauses under spotlight again
AXA SUN LIFE SERVICES v CAMPBELL MARTIN & OTHERS (CA) Part 1 [2011]
This dispute related to whether an entire agreement clause was effective to exclude claims for misrepresentation, breach of collateral warranties (effectively ‘side promises’) and/or implied terms. The Court of Appeal (“CA”) then considered the application of the Unfair Contract Terms Act 1977 (“UCTA”) to the entire agreement clause. Similar cases have been before the High Court (“HC”) recently but seemingly this was the first time these issues had come before the more authoritative CA.
facts:
- A appointed representatives using its standard form contracts to sell its financial products. The contracts contained provisions entitling the appointed representatives to commission, subject to a clawback mechanism for A where the customer cancelled. A calculated the commission due and such calculations were expressed to be binding on the appointed representative “save for manifest error”.
- A terminated the contracts and sought recovery of clawback commission and other sums due.
- The appointed agents contested the claims (and counterclaimed for losses suffered) arguing they were induced to enter into the contracts by negligent and fraudulent misrepresentations and/or by collateral warranties given by A and that the agreements incorporated certain implied terms imposing obligations on A which it was alleged to have breached.
- A sought to rely on the entire agreement clause to defend the counterclaim which stated “This Agreement and the Schedules and documents referred to herein constitute the entire agreement …in relation to the subject matter thereof. ...this Agreement shall supersede any prior promises, agreements, representations, undertakings or implications whether made orally or in writing with you and us relating to the subject matter of this Agreement.”
- The HC Judge found that the entire agreement clause did not exclude liability for misrepresentation. A appealed.
decision:
- The CA agreed with the HC Judge that the entire agreement clause was not effective to exclude liability for misrepresentation albeit for different reasons.
- The entire agreement clause was interpreted by the CA extremely narrowly. It ruled that as drafted it was difficult to read “representations” as covering “misrepresentations”. Crucially, it also stated that because of where the term “representation” appeared in the clause, being surrounded as it was by language related to contractual matters, the term was interpreted as only applying to representations, whether accurate or inaccurate, which might otherwise have become part of the contract itself (ie of a contractual nature) rather than excluding liability for inaccurate misrepresentations not forming part of the contract.
- Importantly, there was no statement that the parties agree that there has been no reliance on any representation not contained within the contract (known as ‘declaration of non-reliance’ wording) as part of the clause.
- One Judge held that the clause was also not effective to exclude implied terms which were required to give the agreements ‘business efficacy’. These were considered ‘intrinsic’ to the agreement and so were not “prior” to the Agreement. Therefore, they were not excluded by the entire agreement clause. A second Judge simply held that the clause did not exclude terms being implied.
- It was accepted by all parties that the drafting acted to exclude collateral warranties and representations and the CA decided that the clause could be subject to the UCTA reasonableness test in relation to these.
- This test was held to be satisfied on the basis that such a clause serves the useful purpose of providing both parties with certainty (even if their conclusion on misrepresentations seems at odds with this!).
points to note:
- Many will perhaps feel exasperated that the Courts are seen to be ignoring what appears to be the clear intent of the drafting and instead requiring parties to conform to more complex wording to achieve a particular commercial/legal objective.
- This case reinforces the need for a particular form of words when seeking to exclude liability for misrepresentation and implied terms. It may be best to exclude the application of representations separately in a distinct sub-clause, so that it is not tainted by association with other terms set out in any list of excluded items.
- An express statement of non-reliance should be included as well as an express exclusion of liability for misrepresentation. This now seems to be a critical part of the drafting of an entire agreement clause if it is to be effective in preventing liability for misrepresentations.
- If you wish to exclude implied terms, consider doing this as a separate clause rather than within the entire agreement clause. It will probably be sensible to separately exclude terms implied by statute, terms implied by trade custom or usage and terms/rights implied by common law. Terms which need to be implied to give a contract business efficacy may be difficult to exclude and it may not be sensible to do so anyway. However, some wording may be useful to indicate that the parties do regard the written document as being an exhaustive statement of their relationship.
- An entire agreement clause can constitute an exclusion of liability for breach of contract and so must satisfy the reasonableness test imposed by UCTA for an exclusion clause to be enforceable under English law.
- See also Axa v Campbell Part 2 for a review of the issues raised regarding the one-sided set-off and conclusive evidence clauses that were also examined in this case.