Most contracts are agreed upon after a series of exchanges and negotiations between the parties.  In some cases, it might be difficult for them to recall exactly what was promised in the exchanges leading up to the agreement. Consequently, contracts often include entire agreement clauses which state that the agreement between the parties is completely contained in the written agreement. The following example is taken from our License Agreement:

This Agreement, and the documents referred to in this Agreement, constitutes the entire understanding of the Parties relating to the subject matter of this Agreement and supersedes, cancels and replaces all prior agreements between the Parties which relate to the same subject matter whether written, oral, implied or which would be inferred from the correspondence, oral statements or conduct of the Parties and all such agreements, including the Letter of Intent, will be deemed to have been terminated by mutual consent with effect from the Effective Date.

This sounds great if you’re trying to limit your liability, and it’s a good first step, but courts have been known to look past it, as we’ll explore below.

 

Singh v. Trump

In Singh v Trump, the Plaintiffs purchased hotel units in the Trump International Hotel in Toronto, relying upon estimates of the costs and expenses provided by the Defendant before entering into an agreement. After several delays, development was completed, but the Plaintiffs’ actual expenses and costs were substantially greater than what was presented in the estimates. Despite the Entire Agreement clause included in the Purchase and Sale Agreement, the Ontario Court of Appeal found the Defendant guilty of and liable for negligent misrepresentation. The Court found that the consequence of allowing the Entire Agreement clause to stand would have been unconscionable, given the investors’ relative inexperience, and the way in which the clause had been hidden in the agreement. In other cases, however, courts have reviewed similar factors and found that the entire agreement clause precluded claims for negligent misrepresentation.

 

Taurus Ventures Ltd. v. Intrawest Corp.

In No. 2002 Taurus Ventures Ltd. v. Intrawest Corp., the BC Court of Appeal dismissed a claim for negligent misrepresentation, in part because both parties were sophisticated and understood the effects of an “entire agreement” clause.

 

The Appellants entered into a written contract to develop land for the Respondent. The Respondents claimed that the Appellants represented that the contract would include the development of ski runs and ski trails, at the expense of the Appellants. The written contract, however, did not provide for the construction of ski trails or ski runs. The Respondents sued for damages for a breach of collateral contract and negligent misrepresentation among other claims.

 

The trial judge found the defendant liable for negligent misrepresentation. Intrawest appealed, arguing that they could not be found liable for negligent misrepresentation because the written contract contained an “entire agreement” clause.  The Court found that the “entire agreement” clause prevented Taurus from claiming in tort for negligent misrepresentation. The Court did not say that an “entire agreement” will preclude an action for negligent misrepresentation in all cases.  Rather, it is to be determined on a case by case basis. In this case, the sophistication of the both parties were strong factors in the decision.

 

Drafters should keep in mind that this case dates before the Supreme Court of Canada decision in Bhasin v. Hryrew, and results may vary depending on the sophistication of the parties and the presence of dishonesty or unconscionability.

 

Takeaways:

  • An entire agreement clause can protect against future claims based on negligent misrepresentation, but the clause should be drawn to the attention of the other party
  • If the counterparty is not sophisticated in business, ensure that they have independent legal advice, especially with respect to entire agreement clauses and waivers
  • To avoid or expedite future litigation, consider listing all material assumptions as a schedule to the agreement or in the Representations and Warranties clause of your agreement

Author: Michael Krznaric

 

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