Shake up over ‘entire agreement’ clause
A High Court Judge has shaken things up by ruling that an ‘entire agreement’ clause, which made no reference to misrepresentation, is effective nonetheless.
Courts have historically rejected attempts to construe ‘entire agreement’ clauses to exclude or limit liability for misrepresentation, unless clear words are used to that effect. Additionally, clauses which attempt to do so are subject to the reasonableness test (in business to business transactions when one party is trading on the other’s standard terms) before they can be held to be enforceable.
The Judge used the following reasoning to explain his decision:
- The document (a share purchase agreement) obliged the seller to indemnify the buyer for losses arising from a misrepresentation of target’s liabilities (which is what the buyer what claiming for) in any event; and
- The entire agreement wording was more widely drafted than usual, including words such as “drafts, agreements, promises, negotiations and representations”, rather than merely “representations”. This, the Judge held, distinguished it from the Axa v Campbell  case, in which the opposite decision was made.
It may appear at first that ‘entire agreement’ clauses need not be quite as all-encompassing as they were before this decision. However, caution is advised: this is a decision that does not fit within the norm, and there are factors which suggest that the decision was largely based on the fact that other protections existed outside of the entire agreement clause on which the buyer could rely.