Settlement Agreements and Entire Agreement Clauses

In the recent case of Axa Sun Life Services v Campbell Martin Ltd and others, the Court of Appeal considered the effectiveness (or otherwise) of an entire agreement clause and, in so doing, has provided helpful guidance on the use of such a clause to exclude liability for misrepresentation. The conclusion reached is that an entire agreement clause will not work to exclude liability for misrepresentation.

Why is this significant?

Most commercial contracts and agreements contain an entire agreement clause, the purpose of which is to provide that the contract in question contains the whole agreement between the parties. The intention is for the contracting parties to be clear that the written contract supersedes any previous agreement or anything said in the course of negotiations and so avoid or, at least limit, litigation. Part of the problem is that what is sometimes seen as “boilerplate” by many commercial lawyers is becoming “bread and butter” to litigators as entire agreement clauses regularly feature in disputes in the courts. Parties have tried to rely on entire agreement clauses as a defence against liability for misrepresentation, arguing that an entire agreement clause shows the parties intend the contract to be the complete statement of their rights and liabilities towards each other in relation to the contract's subject matter.

The Axa judgment and implications

The Axa judgment makes it clear that an entire agreement statement won’t be effective to exclude liability for misrepresentation and parties must not rely on such wording to do so. Any exclusion of liability for misrepresentation must be specific and clearly stated; for example a statement that no representations have been made, or there has been no reliance on any such representations.

On a separate, but connected, note, in any contract with a consumer, an entire agreement clause may be vulnerable to challenge and unenforceable as the OFT believes that consumers tend to rely on what is said to them by salespeople and employees, and so sellers and suppliers should honour those representations.

If you are involved in any type of dispute or need confidential advice on a settlement agreement or any other legal matter then please book a free consultation to suit you now. digg stumbleupon buzzup BlinkList mixx myspace linkedin facebook google yahoo