Have you ever heard of entire agreement or exclusive remedies clauses in your contracts?
Would you know one if you saw it, and are they good or bad from the contractor or subcontractor perspective?
Entire agreement clauses
These provide that neither party to the contract may rely on any statements, documents or representations that have been made between the parties prior to the contract being signed, and that are not included in the contract. The aim is to have certainty about what is in the contract and what isn’t. This is to avoid there being an argument as to whether, for example, a statement made during tender negotiations can be relied upon by either party later. If there is an entire agreement clause, what was said at negotiation stage will not count.
But what if one of the parties states it has been misled by these statements and might not have taken the action it did, if it had been in possession of the true facts? Entire agreement clauses may exclude reliance on these statements as well, but only if the clause expressly refers to that type of misleading or misrepresentation.
These clauses don’t always bite, but to avoid the significant consequences if they do, it is best to make as sure as possible that all tender and pre-tender statements and negotiations upon which you wish to rely, are included within the contract documents.
Exclusive remedies clauses come from the same principle as that behind the entire agreement, namely that the written contract is king. Most standard form contracts don’t have these clauses and they state that any remedies for breach of contract expressed within the contract are “without prejudice to the rights and remedies which the parties may have at common law” for example, damages; specific performance and so on.
However, bespoke contracts commonly contain an exclusive remedies clause that prevents reliance on these underlying rights at common law. The only remedies available to a party are stated to be those set out in the contract. This is a major innovation on the common law, so must be looked at with care.
The Courts will interpret them very narrowly against the party relying upon them. They may come from an employer that wants to narrow down what rights a contractor may have. But equally, a contractor may wish to limit its liability for its defective performance to, for example, the obligation to put it right – such as, no damages, or liquidated damages only.
An exclusive remedies clause is a major limitation of liability clause by the back door, and its effect must be understood when the contract is being negotiated.
- Entire agreement clauses mean that what you include in the contract documents is critical.
- Exclusive remedies clauses limit parties’ liabilities to those expressed in the written contract.
- If effective, they exclude common law rights and remedies.
- In each case the court will interpret them very narrowly against the party relying on them.
Ruth Wilkinson is a solicitor at Dundas & Wilson