1) Entire agreement clauses
Are entire agreement clauses such as:
"This agreement constitutes the entire agreement between the parties, and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, between them” an effective way to exclude claims for misrepresentation, breach of collateral warranty and/or implied terms?
The short answer is no. When the entire agreement clause consists of just a basic entire agreement statement, like the statement above without specific and clear provision to misrepresentation, the clause is ineffective to exclude misrepresentations. The exclusion of liability for misrepresentation has to be clearly stated. Traditional ways of doing this include clauses which state the parties' agreement that no representations have been made; or that there has
been no reliance on any representations and an express exclusion of liability for misrepresentation.
A basic entire agreement statement is also ineffective to exclude terms being implied to give the contract business efficacy. However it does exclude collateral warranties and other implied terms. Click here for further explanation on this case and for some drafting tips, please click here
2) Right of first refusal
Right of first refusal clauses, whereby a party gives the other the possibility to quote and be awarded a further contract, a renewal or some additional right is common in commercial contracts. A party may be persuaded to grant such a right in the belief that since the right and the terms will need to be discussed and agreed they represent an agreement to agree and therefore unenforceable obligation.
Regarding the right of first refusal clause:
3) Limitation and exclusion of liability for deliberate breach
The above case helps to clarify also the question whether a limitation of liability applies to a deliberate breach. Previous case law indicated that this was not the case. So a clause such as the one set out below:
"No claims by [X] of any kind, whether as to the products delivered or for non-delivery of the products, or otherwise, shall be greater in amount than the purchase price of the product in respect of which such damages are claimed; and
failure to give written notice of claim within sixty (60) days from the date of delivery, or in the case of non-delivery, from the date fixed for delivery, shall constitute a waiver by [X] of all claims with respect thereto. In no case shall either party be liable for loss of profits or incidental or consequential damages."
Would also apply to breaches incurred deliberately. What you can do now. One option is of course not to do anything if you believe that your current terms reflect your business needs adequately. Alternatively you could:
- Amend your exclusion clause to state that the clause does not exclude or restrict liability for deliberate breach. If this is a correct statement of the law, businesses should assume that an exclusion clause will apply to a deliberate breach of contract. Therefore, if a business wants to be sure that a counterparty's liability will not be limited if that counterparty commits a deliberate breach of contract, it should amend the exclusion clause to state this expressly. Businesses are most likely to consider that they would benefit from this carve-out when buying goods, services or rights (as most of the major obligations under the contract will belong to the other party).
- Amend your exclusion clause to state that it covers liability for deliberate breach. This approach would now only be appropriate if a business wanted to put the matter beyond all doubt. The courts are averse to over-wide exclusions which allow parties to abandon performance of a contract and leave the non-defaulting party with no meaningful remedy, and construe them strictly. However such an exclusion is very unlikely to succeed in a standard terms and conditions, or if the clause is not genuinely negotiated by the parties.
All articles are for general purposes and guidance only and do not constitute legal or professional advice.
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