Entire Agreement Clauses – Do They Work Or Not?

Introduction This client alert is intended to provide a summary which considers the effectiveness and limitations of entire agreement clauses. It also includes some suggestions as to how one might seek to enhance their effects to cater for certain situations and requirements.

Questions regarding the effectiveness of entire agreement clauses appear to arise with increasing frequency in disputes, particularly disputes relating to long term contracts such as joint ventures, long term supply agreements, long term financing arrangements or amendments and/or renewals to such agreements or arrangements where parties have had a long course of dealings.

The issues tend commonly to play out when disagreements arise with regard to the meaning and effect of such contracts or arrangements and where a party attempts to look outside the contract terms themselves to support a claim, defence or argument.

Entire agreement clauses are often put into the category of "boilerplate" clauses by contract draftsmen. Boilerplate clauses are normally uncontroversial and often inserted into contracts by the parties as a matter of routine, without much negotiation or regard to the context and background to the relevant contract. They are commonly referred to and treated as being "standard" which sometimes means that they do not always attract as much attention and consideration as other contract terms, particularly commercial terms.

What is an entire agreement clause? An entire agreement clause is a good example of a boilerplate provision which parties spend little time negotiating, but whose terms can have unforeseen or unintended consequences on the contract and the parties' rights.

A typical entire agreement clause might read as follows:

'This contract contains the final and entire agreement and understanding between the Parties and is the complete and exclusive statement of its terms. This contract supersedes all prior agreement and understandings, whether oral or written, in connection therewith.'

The purpose of this type of clause is to try to ensure that the terms and conditions governing the parties' obligations and their intentions are set out in a single contractual document. The aim, in turn, of this is to promote certainty and possibly to prevent parties from relying on statements or representations made in pre-contract negotiations in trying to ascertain what the contract requires by way of performance. Entire agreement clauses commonly seek to exclude representations and statements made by the...