«Contents 1 THE ARTICLE IN CONTEXT 1.1 Introduction 1.2 Entire agreement clauses 1.3 Scope of article 1.4 Anglo-American Contract Models Project 1.5 ...»
ENTIRE AGREEMENT CLAUSES
Henrik Wærsted Bjørnstad 1
1 THE ARTICLE IN CONTEXT
1.2 Entire agreement clauses
1.3 Scope of article
1.4 Anglo-American Contract Models Project
1.5 Placing the EA-clause in a contractual context
2 ENGLISH LAW OF CONTRACTS
2.2 Interpretation of contracts under English law.
2.3 The distinction between terms and (mis)representations
2.4 Legal effects of EA-clauses under English law
2.5 Do entire agreement clauses have conclusive or only persuasive effect?
2.6 Waiving the entire agreement clause
A COMPARATIVE VIEW OF NORWEGIAN LAW
3 1 Magister Juris (University of Oxford).
I 3.1 Introduction
3.2 The distinction between substantive and evidentiary law
3.3 Freedom of contract and emphasizing predictability
3.4 Legal effects of false statements under Norwegian and English law
3.5 Broad concept of interpretation under Norwegian law
4 EA-CLAUSES IN CONTRACTS GOVERNED BY NORWEGIAN LAW
4.2 Interpretation of EA-clauses
4.3 Mandatory rules of law
1.1 Introduction A contractual relationship is commonly based on statements, expectations, acts and omissions out of which some will, and others will not, give rise to contractual obligations.
To avoid uncertainty as to what is agreed, the contract parties often enter into a written contract that is supposed to express the final agreement between them.
When a written agreement is validly entered into, it would generally enhance certainty if the legal system ensured a literal interpretation of the wording and prevented the parties from relying on rights and obligations not set out in the written contract. However, a high level of certainty may be in conflict with substantial fairness in a specific case. The conflict between certainty and fairness in a specific case has been treated quite differently by legal systems in the past – with common law jurisdictions traditionally focusing more on certainty than civil law jurisdictions, and civil law jurisdictions having had a somewhat stronger emphasis on what the courts deem fair. The Norwegian Formation of Contracts Act 1918, s. 36, is an example of the latter.
The differences must, however, not be over-estimated. It is common ground in both civil and common law jurisdictions that a contractual relationship may be governed by additional terms not included in the written contract and that the wording is to be understood in a different manner than what the words literally express. This fact is in many ways evidenced by the type of clause considered in this article, the aim of which is to determine exactly what is agreed to and to rule out any claim based on alleged collateral
warranties. An entire agreement clause may read as follows:
“The Contract contains the entire contract and understanding between the parties hereto and supersedes all prior negotiations, representations, undertakings and agreements on any subject matter of the Contract.” 2 2 Article XVIII of Standard Form Norwegian Shipbuilding Contract 2000.
1.2 Entire agreement clauses An entire agreement clause (also named “integration clause”, “entire contract clause”, “merger clause” and “whole agreement clause”) is described in Black’s Law Dictionary as “[a] contractual provision stating that the contract represents the parties’ complete and final agreement and supersedes all informal understandings and oral agreements relating to the subject matter of the contract.” This type of clause is an example of a so-called “boilerplate” clause – a contract provision that may be included in a variety of commercial contracts not depending on a particular subject-matter. The use of boilerplate clauses is extensive in commercial practice, and they often appear at the end of contracts under the heading “miscellaneous”. One may sometimes suspect that they have been included more out of custom than from serious contemplation. 3 Entire agreement clauses appear primarily in two versions, one simply stating that the contract constitutes the entire agreement, and the other also providing that no other statement or representation has been relied upon by either party when entering into the contract. The former, hereafter referred to as the “entire agreement clause simpliciter”, merely regulates the content and possibly also the interpretation of the contract; while the latter, hereafter referred to as an “acknowledgement of non-reliance”, even seeks to prevent liability for misrepresentation (a false statement inducing the other party to enter into contract) 4.
Because of the potential exclusion of tortious liability for misrepresentation, the acknowledgement of non-reliance is generally considered more controversial than an entire agreement clause simpliciter. The courts have thus held that the wording must be sufficiently clear for such a clause to give rise to the intended legal effects. 5 When it comes to enforceability, it is a matter of “notorious uncertainty” whether section 3 of the Misrepresentation Act 1967 applies, making the clause unenforceable as a prohibited exclusion of liability for misrepresentations in situations where it does not pass the test of reasonableness as set out in the Unfair Contract Terms Act 1977. 6
1.3 Scope of article The English regime on misrepresentations is part of tort and statutory 7 law, as opposed to the law of contracts. To discuss both entire agreement clauses simpliciter and acknowledgements of non-reliance in this article would require detailed studies of liability in tort, statute and contract, and such a task would be too comprehensive considering the time available.
3 See Wood, p. 407, quoting a letter from a lawyer to his client in which the former asks the latter to review a draft contract. The lawyer’s comment to section 14 (“boilerplate”) is: “You can mostly skip this part, Al, since it’s the boilerplate”).
4 The nature of misrepresentation will be discussed in section 2.3 below.
5 Thomas Witter Ltd v TBP Industries Ltd , All ER 573.
6 “[T]he law is in a bit of a mess on this issue”, cf. Peel, Standard Terms, p. 44.
7 Misrepresentation Act 1967 2 Since not all entire agreement clauses contain an acknowledgement of non-reliance, I will focus on entire agreement clauses simpliciter for the moment. When I use the term “entire agreement clause” in the following, it is to be understood as entire agreement clause simpliciter.
1.4 Anglo-American Contract Models Project The dissertation of which this article is a summary is a part of the project “Anglo-American Contract Models”, organised through the Law Faculty’s Department of Private Law, University of Oslo. The aim of the project is to analyse the legal effects of contract models originating from common law systems when they are used in contracts governed by civil law jurisdictions. To avoid too many generalisations this article focuses on Norwegian and English law, the latter being preferred to American law because of the English contract law experts participating in the project. 8 In accordance with the premises of the project, the article focuses on EA-clauses appearing in individually negotiated commercial agreements. Thus, consumer regulations and standard terms are outside the scope. For the discussion of Norwegian law, it is presupposed that the parties have the level of knowledge of English contract law as may be considered normal for a Norwegian legal professional.
1.5 Placing the EA-clause in a contractual context Before considering the legal effects of EA-clauses, and before considering the differences of such under English and Norwegian law, it is necessary to analyse two basic features of such contract provisions: what they mean, and whether it is possible for a contract to constitute the entire agreement.
What does it mean that the contract constitutes the entire agreement?
The UNIDROIT Principles art 2.1.17 regarding EA-clauses operate with a distinction between the determination of the terms of the contract and their subsequent interpretation with the consequence that, even though the writing of the contract contains all the terms of the agreement, other statements or agreements may be used “to interpret the writing”. A similar principle is set out in PECL art. 2:105(1), cf. (3), even though these rules allow for the preclusion of pre-contractual statements even for interpretative purposes when expressly stated. However, it follows from the provision that something more than an ordinary EA-clause is required to achieve this effect. The distinction between determination of terms and interpretation has also been suggested in legal theory. 9 8 Edwin Peel (Fellow and Tutor in Law, Keble College, University of Oxford) and Jim Percival (British Nuclear Fuels) 9 Haaskjold, p. 109.
3 The distinction between determination of terms and their interpretation seems sensible as a tool for explaining the effects of EA-clauses superficially, but by relying on the characterisation of a question as either interpretative or substantive one runs the risk of unjustified generalisation. For, whereas the parol evidence rule, which operates under English law, has required this distinction and characterisation for a long time (by limiting the ability to submit evidence that contradicts or adds to the wording), the same cannot be said of Norwegian law. As a consequence, the Norwegian concept of interpretation may vary from that under English law. There is no inherent logic in using the same terminology to describe legal effects under two legal systems if the same terminology is understood differently in the two.
Even if one accepted the distinction between interpretation and determination of terms as a framework to describe the legal effects of EA-clauses, it is hard to see what is gained. The difficulty will still be to determine when one goes from the interpretation of ambiguous statements over to supplementing or contradicting a statement that is considered sufficiently clear. As will be shown in the following, the Norwegian courts have on several occasions claimed to “interpret” contracts in a way that would clearly be seen as contradicting or supplementing the wording under English law.
One further argument against applying the above-mentioned distinction is that its significance is disputed in relation to EA-clauses. The CISG Advisory Council, opposed to having legal effects determined by the distinction between interpretation and determination of terms, has thus stated that an EA-clause has two objectives: Firstly, “to bar extrinsic evidence that would otherwise supplement or contradict the writing” and, secondly, “to prevent recourse to extrinsic evidence for the purpose of contract interpretation”. 10 It seems that the distinction between determination of terms and interpretation does not get us any further in analysing the effects of EA-clauses, other than perhaps to illustrate certain points. Rather, this analysis should start with the basic approach that, because the EAclause sets out the contract as an exhaustive regulation, one must ask the following question: Is the relevant term substantiated by the contract document itself? 11 An answer to this question requires a more complex process than simply to ask whether the solution is a result of “interpretation”, as understood under Norwegian law.
Can a contract constitute the entire agreement?
When the contract provides a clear solution to a question, either by unambiguous wording or by the wording giving rise to an obvious deduction as to the parties’ intentions, the contract may constitute the entire agreement – the contract itself is sufficient for solving the relevant question.
10 CISG AC Opinion no. 3, section 4.1.
11 Under Norwegian administrative and criminal law, there is a similar consideration in the so-called principle of legality (“legalitetsprinsippet”) by which the actions of the authorities are to be governed by law or administrative regulations laid down in accordance with law.
4 However, independent of jurisdiction and notwithstanding how detailed the contract is, a situation may arise that is not solved by the contract. An example would be a situation in which it is clear from the contract that one party is obliged to pay damages, but the measure of such damages seems to be uncertain. In such situations, it is a matter of some difficulty to claim that the contract is exhaustive unless one is willing to accept some form of randomness. 12 To enforce the EA-clause in such situations may thus be a matter of notorious difficulty. This is discussed in more detail in section 4.2 below.
12 Høgberg, p. 57.
2 ENGLISH LAW OF CONTRACTS
2.1 IntroductionBecause the EA-clause seeks to preclude evidence that is extrinsic to the contract, it is necessary for evaluating its effects initially to analyse the admissibility of such evidence without contract regulation. Thus, this section starts by providing an overview of relevant aspects of contract interpretation under English law (section 2.2). Secondly, the distinction between pre-contractual statements as contract terms and such statements as misrepresentations making the contract void will be discussed in section 2.3. Finally, the legal effects of EA-clauses are discussed in section 2.4.
2.2 Interpretation of contracts under English law.
The distinction between “determination of terms” and subsequent interpretation Under English law, “interpretation” appears as a narrower concept than under Norwegian law and has traditionally been an exercise of determining the literal meaning of the words used.