Entire Agreement Clauses: Hear No Evil, Speak No Evil

In a recent Court of Appeal decision the court considered whether an entire agreement clause prevented a party from relying on misrepresentation as a defence to a claim for payment, and whether such a clause was reasonable for the purposes of the Unfair Contract Terms Act.

Key facts

AXA (an insurer) engaged various businesses as its appointed representatives to sell financial and general insurance products to customers. The terms of appointment were based on standard form agreements, under which AXA could recoup certain monies where the appointments were terminated.

The contracts included the following entire agreement clause:

"This Agreement...constitute[s] the entire agreement and understanding between you and us in relation to the subject matter thereof...[and] shall supersede any prior promises, agreements, representations, undertakings or implications where made orally or in writing"

The relevant appointments of the businesses were terminated by AXA, which then brought a claim against the businesses for monies allegedly due. The businesses claimed that they had been induced to enter into the appointments by misrepresentations on AXA's part, which principally related to whether the businesses had to sell AXA's products exclusively.

What is an entire agreement clause?

Entire agreement clauses are contractual provisions that the contract contains the whole agreement between the parties, and are usually drafted (as was the clause in the AXA case) to make it clear that the contract supersedes any previous agreements between the parties and any representations (e.g. promises or assurances) the parties may have made to each other in the run up to signing on the dotted line. These clauses often include an acceptance that the only remedy the parties will have is for breach of contract.

Entire agreement clauses are intended to give the parties certainty as to the terms of their contract, with the ultimate aim of limiting the costs of litigation (or other dispute resolution), or avoiding it altogether.

Where does the Unfair Contract Terms Act come in?

As the various contracts were based on AXA's standard terms of business, section 3 of the Act applied. This section states that a party contracting on its standard terms cannot exclude or restrict any liability in respect of his breach unless the clause satisfies the test of reasonableness under the Act. The test is whether the clause is fair and reasonable having regard to the circumstances which...