Why it is important to read the boilerplate

United Kingdom

When a dispute arises between contracting parties, it often relates to something not contained in the contract itself but which was said by one or other party in the lead up to the contract. In legal terms, this is referred to as a representation and it may have been crucial in persuading one of the parties to sign up. However, whether or not that party is able to rely on the statement can depend on the precise wording of a boilerplate clause which the parties probably did not even read when negotiating their agreement. This is not to be confused with a separate issue of whether a party can be held to have warranted information provided during the term of the contract. This note relates only to statements made before the contract was entered into, or in some cases before it was amended.

If the representation was misleading, whether the party which relied on the statement can sue for any damage it suffered will often depend in part on the terms of the 'entire agreement clause'. These clauses usually appear in the boilerplate at the end of the contract, and are rarely open to negotiation but can have a crucial impact if a dispute arises. They often read something like this:

"This Agreement contains the entire and only agreement between the parties and supersedes all previous agreements between the parties respecting the subject matter hereof. Each party acknowledges that in entering into this Agreement it has not relied on any representation or undertaking whether oral or in writing save such as are expressly incorporated herein."

A clause such as that set out above may prevent the aggrieved party claiming that the statement relied on was a warranty forming part of the contract or a collateral contract between the parties. This is because the parties have, by the clause, expressed their intention that the document is to contain all the terms of their agreement. The justification for excluding such statements from the contract is that the party making such a statement may not have realised its importance to the other party and may not have intended the other party to rely on it - if it was crucial, the other party should have required it to be included in the written terms. However, it is often overlooked that under English law, the clause may not be effective to exclude liability for the tort of misrepresentation.

An exclusion of liability for misrepresentation, like all exclusions of liability, requires very clear words. To be effective, the clause set out above would need to go on to provide expressly that liability for misrepresentation was excluded. However, it is possible to go too far with such an exclusion. Since it is unreasonable for a party to attempt to exclude liability for its own fraud, a clause that does not distinguish between negligent or innocent misrepresentation on the one hand and fraudulent misrepresentation on the other and therefore purports to exclude liability for all of them, may be unreasonable and unenforceable under UCTA. This issue has been thrown into some confusion by conflicting decisions of the English courts, but the counsel of caution must be to limit the exclusion to negligent and innocent misrepresentation.

The position under Scots law is similar. Under the Contract (Scotland) Act 1997, if a document expressly states that it does indeed comprise the whole of the express terms of the contract, then that term is conclusive and no contrary evidence is allowed. However, as in English law an entire agreement clause may not relieve the contracting parties of liability for misrepresentation unless this is expressly excluded.

When drafting contracts, parties should consider whether they are more likely to make representations which they would not wish to be bound by, or to wish to rely on statements made by the other party, and then check the boilerplate!

For further information please contact Judith Aldersey Williams at judith.aldersey-williams@cms-cmck.com or on +44 (0) 1224 622002.