Do you know what is in your contracts?
Thursday, 9th June 2011
How closely should you pay attention to the boilerplate of contracts? Can you rely on the fact that wording is standard and of less interest than the more juicy parts of the contract? In Axa Sun Life Services plc v Campbell Martin Ltd and others ([2011] EWCA Civ 133), the Court of Appeal reminded us of the perils of complacency in relation to boilerplate.
Axa had entered into sole-tie representation agreements with a number of financial advisers. It was seeking to recover debts from those advisers, most of whom argued that they had been duped by Axa into thinking they were entering into multi-tie agreements.
The question before the court was this: does the following "entire agreement" clause:
"this Agreement shall supersede any prior …representations [and agreements]"
preclude the parties from alleging misrepresentation?
In other words, should the financial advisers be restricted by the above clause from alleging that they had been misled?
You would be forgiven for answering yes to the above questions. Surely, you may think, courts will not interfere with business contracts to assist those who fail to read their contracts properly? The Court of Appeal was more sympathetic; indeed, the law is increasingly willing to intervene in business-to-business contracts.
Entire agreement clauses are intended to prevent disgruntled parties from:
"threshing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim" (Lightman J).
However, this clause failed in that respect. The court decided that the clause did not affect any misrepresentations. The contract had not said either that:
> the parties agreed that no representations had been made; or
> there had been no reliance on any representations;
nor was either party released from any liability for misrepresentation.
The mere reference to an agreement superseding prior representations or agreements was not, of itself, enough to exclude liability for misrepresentation. The financial advisers were therefore free to allege misrepresentation.
For those responsible for concluding or advising on contracts, the lessons are that:
> real care has to be taken over all clauses in a contract;
> the way in which courts are construing contracts is increasingly uncertain. There is therefore a premium on drafting contracts absolutely precisely;
> courts will intervene to give effect to the intentions of the parties but only if the language has gone very badly wrong and if the actual intentions are clear; and
> courts will only allow parties to exclude or modify really valuable rights if the language is absolutely clear that that is the intention.
The ultimate lesson is not to make any assumptions about the legal significance of boilerplate, but to read the contract and analyse whether it meets your aims.
This feature was provided by UK200Group.
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