By Nick Gabay, Partner. Contact Thomson Snell and Passmore 01892 510000.
Many standard commercial contracts contain a clause along the lines of “This agreement constitutes the entire agreement between the parties”, with the intention that any statements made during pre-contract negotiations are excluded from the final terms agreed in the contract.
However, this wording may not adequately protect a party if he made a statement to the other party about the subject matter of the contract which turns out to be inaccurate.
This is because, although the wording confirms the terms of the contract between the parties, it does not prohibit the other party from bringing a claim for misrepresentation, which is a tortious, rather than a contractual, remedy.
A party successfully claiming misrepresentation may be able to rescind the contract completely or recover damages resulting from the misrepresentation.
It may be possible to extend the scope of an entire agreement clause to protect against misrepresentation, although not completely.
It is not possible to exclude or limit liability for fraudulent misrepresentation, which is where the maker of the statement knew it to be false, had no belief in its truth or made it recklessly, careless as to whether it was true or false.
The enforceability of clauses limiting or excluding liability for negligent or innocent misrepresentation will be subject to a reasonableness test, taking into account who you are contracting with and their relative bargaining power.
Please contact us if you require a clause to provide you with more comprehensive protection against claims for pre-contract misrepresentation.