Table of Contents
- What Does an Entire Agreement Clause Look Like?
- What is the Purpose of an Entire Agreement Clause?
- Should I Include an Entire Agreement Clause in My Contracts?
- How Effective is an Entire Agreement Clause?
- How Do Entire Agreement Clauses Work With the Australian Consumer Law?
- What are Some Potential Exceptions to an Entire Agreement Clause?
- Key Takeaways
- Frequently Asked Questions
When you reach an agreement with another party, you can use a written contract to define the terms of your agreement. In running your business, you enter contracts with clients, suppliers or contractors. Before drafting and signing a written contract, you often spend time negotiating the terms of the arrangement’s terms with the other party. Once both sides agree, you or your lawyer can draw up a contract. This final contract is usually based on your agreed understanding of the arrangement. An entire agreement clause states that the written contract represents the whole agreement between the contracting parties. This article explains this clause and its effectiveness.
What Does an Entire Agreement Clause Look Like?
You can ask a lawyer to draft an entire agreement clause in different ways. It usually includes wording similar to this example:
This Agreement contains the entire understanding between the Parties and supersedes all previous discussions, communications, negotiations, understandings, representations, warranties, commitments and agreements, in respect of its subject matter.
When negotiating contracts with clients, suppliers, or contractors, negotiations will likely happen through:
- phone conversations;
- email threads;
- Heads of Agreements (HoA);
- Letters of Intent (LoI);
- Memorandums of understanding (MoU); or
- in-person meetings.
In these situations, you spend time corresponding and negotiating the details of your arrangement with the other party. The final result of your negotiations may be quite different from what you, the other party, or both of you initially expected. Therefore, you can draft your written contract to reflect the outcome of your negotiations.
You may sign a HoA, MoU, or LoI with the other party during your negotiations. These types of agreements can be helpful documents that will assist when writing up the commercial and legal terms of the final contract. Typically, an entire agreement clause in the final contract will replace the HoA, MoU, or LoI signed between you and the other party. However, this will depend on how you draft the HoA, MoU, or LoI and whether either party intended for the agreement to be binding.
What is the Purpose of an Entire Agreement Clause?
An entire agreement clause makes your contract a complete statement of the terms written in the contract. This clause clarifies that any previous negotiations, including statements, promises or representations made by the parties outside the written contract, do not form part of the written contract. Therefore, they do not have any contractual force.
Therefore, you can use this clause to create contractual certainty. The clause limits the contract’s terms to what is written. The means it prevents the other party from claiming that the contract includes additional terms not in the written contract that the parties have signed.
Additionally, an entire agreement clause can also protect against one party’s attempt to rely on representations, assurances or warranties made by the other party’s agents or employees during pre-contract discussions. This protection applies especially if those statements directly conflict with the written terms of the contract. However, it’s important to note the Australian Consumer Law issues regarding unfair contract terms, which are set out later in this article.
Continue reading this article below the formShould I Include an Entire Agreement Clause in My Contracts?
Generally, you should include an entire agreement clause in your business contracts. This clause shows that the written contract is the full agreement between the parties. By including this clause, prior statements made during negotiations are less likely to be binding. If a dispute arises, the other party is less likely to rely on these statements.
Sometimes, you might forget or choose not to add an entire agreement clause. This can create confusion about what is included in the contract. Statements made during negotiations might be seen as part of the agreement. If you and the other party cannot resolve what terms are part of the contract, it could lead to a dispute.
How Effective is an Entire Agreement Clause?
An entire agreement is a good acknowledgement that the parties to a contract intend to exclude terms that the contract does not expressly state or include. However, there are limits to how effective this clause may be.
Entire agreement clauses have come under scrutiny concerning their potential to be deemed unfair contract terms under the Australian Consumer Law. These clauses, which aim to prevent parties from relying on representations outside the written agreement, could unduly restrict consumer rights and protections. The Australian Consumer Law sets out a regime for determining whether a term in a standard form consumer contract is unfair. A term may be unfair if it causes a significant imbalance in the parties’ rights and obligations arising under the contract, is not reasonably necessary to protect the legitimate interests of the party advantaged by the term, and would cause detriment to a party if relied upon.
Entire agreement clauses that purport to exclude or limit consumer guarantees, warranties, or remedies for misleading and deceptive conduct could potentially fall foul of these criteria. Such clauses might be viewed as creating a significant imbalance by denying consumers the ability to rely on pre-contractual representations, even if those representations induced them to enter the contract. Furthermore, these clauses may not be reasonably necessary to protect the supplier’s legitimate interests, especially in circumstances where the consumer had no opportunity to negotiate the terms.
How Do Entire Agreement Clauses Work With the Australian Consumer Law?
The Australian Competition and Consumer Commission (ACCC) has challenged the use of entire agreement clauses in consumer contracts, arguing they can unfairly limit consumer rights. While each case depends on its specific circumstances, businesses should exercise caution when including these clauses in consumer contracts to ensure they do not unduly restrict consumer protections under the Australian Consumer Law. Including unfair contract terms in agreements can lead to penalties of up to the greatest of: (a) $50,000,000 and (b) three times the value of the “reasonably attributable” benefit obtained from the conduct if the court can determine this; or if a court cannot determine the benefit, 30 per cent of adjusted turnover during the breach period. So significant amounts!
A contract may include a variation clause that gives parties the right to vary or modify the terms of the contract after both parties sign it. So, while an entire agreement clause is in place, it may still be possible to amend the contract terms and have additional terms to the original agreement. Before making amendments, it is best to engage a lawyer to ensure you are lawfully amending terms according to the contract’s variation clause.
What are Some Potential Exceptions to an Entire Agreement Clause?
In addition to the requirements under the ACL, there are some exceptions where the courts may still accept prior negotiations or statements, even with an entire agreement clause present. A few examples:
Although, a well-drafted entire agreement provision can limit the ability of what is included in the agreement, it does not automatically exclude all external representations from potentially forming part of the contractual arrangement in certain situations.
Know which key terms to negotiate when buying a business to protect your interests and gain a favourable outcome.
Key Takeaways
An entire agreement clause is a useful tool when drafting a business contract. Firstly, it clarifies that the written contract is the entire agreement and excludes any parties’ prior statements during negotiations. It also reduces the risk of a misunderstanding, which can lead to a dispute. When considering whether to include an entire agreement, it is also essential to note its effectiveness. You should keep in mind that you cannot contract out of statutory obligations like those in the Australian Consumer Law by using an entire agreement clause. Further, if there is a variation clause in the contract, you may amend certain terms in the future.
If you have any questions about an entire agreement clause, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
An entire agreement clause is a provision you can include in your contract. It clarifies that the contract in question outlines the entire contractual relationship between the parties and each person’s obligations. Notably, if the clause is legally binding, it clarifies that any previous negotiations do not form part of the written contract.
There are some limits to what you can contract out of. For example, you cannot contract out of consumer guarantees under the Australian Consumer Law (ACL). These laws apply if you supply goods or services to consumers. Likewise, your contract does not explicitly provide consumers with consumer guarantees. In that case, an entire agreement clause does not allow you to contract out of your obligations to provide consumer guarantees.
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