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Excluding Liability for Misrepresentation

Wednesday, 5 October 2011

An "entire agreement" or "whole agreement" clause can be found in many types of commercial agreements. What is the purpose of such a clause?

By inserting an entire agreement clause, a contracting party, for example the seller of shares in a company, is attempting to exclude liability on their part for any statements or representations they may have made to the purchase prior to the contract being signed. So if a statement is made to entice the purchaser into signing an agreement and that statement is false (ie. a misrepresentation), an entire agreement clause seeks to protect the seller by preventing the purchaser from then making a claim for damages or to rescind the contract based on the misrepresentation.

A typical excerpt from an entire agreement clause might read:

...the purchaser acknowledges that he is not relying on any statements or representations made by the seller in relation to the subject matter of this Agreement and that he shall have no rights or remedies against the seller with respect to such subject matter otherwise than under this Agreement.

The courts have handed down various decisions about whether entire agreement clauses can effectively exclude liability for false statements. In one prominent case, where an entire agreement clause attempted to protect the seller from claims based on fraudulent misrepresentations, the court decided that it was not fair and reasonable to give that protection having regard to the circumstances of the case. When preparing commercial agreements, it is therefore prudent for entire agreement clauses to expressly state that the seller is not attempting to exclude liability for fraudulent misrepresentations. This will increase the prospect that the seller is protected from claims based on other types of misrepresentations, that is, statements which are false but not made fraudulently. Having said this, courts have in the past ruled that entire agreement clauses which attempt to exclude fraudulent misrepresentations are valid and enforceable. It will all depend upon the particular circumstances of a case.

If you are entering into a commercial of business contract and require information on entire agreement clauses, please contact our Commercial solicitors via e-mail or by phone on 0207 611 4817.