Coping With Entire Agreement Clauses
“This contract represents the entire agreement between the parties. The contract supersedes all prior negotiations, representations or agreements, either written or oral, including the bidding documents.”
This clause, or something similar to it, is known as an entire agreement clause. It is often included within commercial contracts to limit the parties’ liability to the contract’s four corners. In other words, it prevents one party from asserting that the other breached a contractual promise made but not recorded within the contract. This creates legal certainty by lifting the final contract out of the messiness of negotiations. However, there are several circumstances where entire agreement clauses will not be strictly applied.
Where the parties are sophisticated or where they have legal representation during the contract’s negotiations, an entire agreement clause may be strictly enforced.[1] Where there is an asymmetry of bargaining power between the parties, however, the entire agreement clause must have been brought to the weaker party’s attention prior to the contract’s formation.[2] Following from this reasoning, courts have held that an entire agreement clause within a standard form contract will be given less weight; this is because the parties are less likely to have read and understood the clause’s meaning.[3]
Entire agreement clauses will not necessarily prevent a party from suing for negligent misrepresentation of terms not included within the contract. Between sophisticated parties or parties with legal representation, the Supreme Court of Canada has held that protection from liability for negligent misrepresentation is implicitly included within an entire agreement clause.[4] For unsophisticated or unrepresented parties, the possibility remains open. That is, they may sue the other party for breaching a representation made prior to but excluded from the final written contract. Such lawsuits are especially likely to succeed where that representation induced them to enter the contract.[5]
Finally, entire agreement clauses will not shield parties from liability for acting in bad faith. In the 2014 decision of Bhasin v. Hrynew, the Supreme Court of Canada created a new common law duty of honest performance in contracts.[6] Parties cannot use an entire agreement clause to contract out of this duty. Therefore, fraudulent misrepresentations during a contract’s formation will always remain actionable.
If you’re entering a commercial contract be mindful of the entire agreement clause and its effect on any representations the other party has made to you during the negotiations. For more information please call our office at (250) 753-2202.
[1] No. 2002 Taurus Ventures Ltd. v. Intrawest Corp., 2007 BCCA 228; Power Consolidated (China) Pulp Inc. v. British Columbia Resources Investment Corp., [1989] B.C.J. No. 114 (B.C.S.C.).
[2] Zippy Print Enterprises Ltd. v. Pawliuk, [1995] 3 W.W.R. 324.
[3] Turner v. DiDonato, 2009 ONCA 235, at para. 46; Wright v. 2137737 Ontario Inc., 2010 ONSC 2956;
Parkland Industries Ltd. v. Smart Gas and Auto Detailing Ltd., 2013 BCSC 1046.
[4] Bow Valley Husky Ltd. v. St. John Shipbuilding Ltd. [1997] 3 SCR 1210, 1997 CanLII 307 (SCC)
[5] Tilden Rent-A-Car Co. v. Clendenning, 1978 CanLII 1446 (ON CA)
[6] 2014 SCC 71