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Editorial

Entire Agreement Clauses

This article discusses the Singapore Court of Appeal’s recent statement on the relationship between entire agreement clauses and implied terms.

Entire agreement clauses are so commonly found in commercial contracts that they often seem to have become standardised. How much attention do you really need to pay to them? A recent case has demonstrated that the effect of entire agreement clauses may not be as straightforward as drafters of commercial contracts would like to think such clauses to be.

The Singapore Court of Appeal has had the opportunity to restate the law on implied terms in the recent cases of Giap Hon v. Westcomb Securities Pte. Ltd. and Others [2009] SGCA 19 (decision date: 29 April 2009) (‘Ng Giap Hon,') and in Chua Choon Cheng and Others v. Allgreen Properties Ltd. and Another Appeal [2009] SGCA 21 (decision date: 28 May 2009).

The decision of Ng Giap Hon is however, noteworthy, as the Singapore Court of Appeal has also had to deal with the novel question and with the specific issue of whether an entire agreement clause, usually drafted at the end of the contract, operated to exclude the implication of terms into a contract.

The appellant in Ng Giap Hon had entered into an Agency Agreement (the ‘Agreement') dated 3 May 2005 with the first respondent, a well-known stock broking company. By the terms of the Agreement, the appellant was appointed as a remisier to trade and deal with stocks, shares and other marketable securities. The pertinent clauses of the Agreement, as relevant to the issues on appeal, are as follows:

6. Commission

The Company shall pay the Remisier a commission equivalent to 40 per cent of the commission charged by the Company to clients on transactions that are dealt by or through the Remisier in the name of [the] Company during the period twelve months from the date of commencement of this Agreement. Thereafter, the commission rate will be adjusted to 50 per cent of the commission charged by the Company to clients on transactions that are dealt by or through the Remisier in the name of [the] Company....

18. Entire Understanding

This Agreement embodies the entire understanding of the parties and there are no provisions, terms, conditions or obligations, oral or written, expressed or implied, other than those contained herein. All obligations of the parties to each other under previous agreements ([if] any), are hereby released, but without prejudice to any rights which have already accrued to either party....

In summary, by Clause 6 of the Agreement, the appellant was entitled to a 40 per cent commission on all transactions dealt by or through the appellant for the first twelve months from the date of the Agreement. The commission rate would be increased to 50 per cent after twelve months.

By Clause 18 of the Agreement, the Agreement represented the entire agreement between the appellant and the first respondent, and that there were no other provisions, terms, conditions, or obligations, written or oral, expressed or implied, other than the terms in the Agreement.

The appellant claimed that he was entitled to commission for transactions dealt by or through him during the term of the Agreement. The appellant claimed that he had handled the account opening forms for certain transactions, but for the interception of the account opening forms by the Respondents without the appellant's knowledge.

The transactions were:

1. Placement shares in an Initial Public Offering (‘IPO') that were allocated to one Mr Julian Lionel Sandt, who subscribed for 1,500,000 placement shares in Natural Cool Holdings at $0.20 per share for an aggregate amount of S$300,000.00; and

2. Placement shares in an IPO that were allocated to an Austrian investment company known as Aktieninvestor, which subscribed for 750,000 shares in Sweiber Holdings Ltd. at $0.355 per share for an aggregate amount of S$266,250.

 

Collectively (the ‘IPO Transactions')

 

The Singapore High Court had dismissed the appellant's claim, reasoning that the appellant's claim for commission was in respect of the IPOs which were not deals done through the appellant or deals which would have been done through the appellant. Further, there was no obligation for the Respondents to charge commission in respect of the IPO Transactions. It was the first respondent's prerogative not to charge commission, and if no commission were charged, the appellant would be unable to rely on Clause 6 of the Agreement, which was premised on commission charged by the first respondent.

Issues on appeal

The appellant's appeal was based on implied terms in the Agreement. The appellant contended that there were two implied terms in the Agreement. First, there was an implied duty of good faith between the appellant and the first respondent as between agent and principal. Next, there was an implied term of the Agreement that the first respondent would not do anything to deprive the appellant from earning his commission.

The Court of Appeal therefore had to consider whether Clause 18 of the Agreement operated to exclude the implication of terms into the Agreement. If Clause 18 of the Agreement did not operate to exclude the implication of terms, the question then, would be whether terms ought to be implied into the Agreement in favour of the appellant.

The Court of Appeal's decision on entire agreement clauses

The Court of Appeal side-stepped the question whether Clause 18 of the Agreement operated as an entire agreement clause. With respect, this intentional omission is apt because holding Clause 18 of the Agreement as worded as an entire agreement clause, or otherwise, would be setting a precedent for future cases. Each case falls to be decided not only on the precise wording of the clause in question, but also on the contextual matrix. Indeed, the Court of Appeal held that whether a clause operated as an entire agreement clause is, ‘essentially a matter of contractual interpretation and will necessarily depend upon its precise wording and context.'

The purpose of entire agreement clauses, said the Court of Appeal, was to confine the parties' rights and obligations within the four corners of the written document to preclude any attempt to qualify or supplement the contract by reference to pre-contractual representations. Such clauses would mean that the agreement is a full binding agreement between the parties, that the full contractual terms are to be found in the contract containing the entire agreement clause and not elsewhere, and that, any promises or assurances made in the course of negotiations shall have no contractual force.

The Court of Appeal however, held that the presence of an entire agreement clause in a contract would not, as a matter of general principle, exclude the implication of terms into that contract. The arguments in support of this conclusion were as follows:

An implied term, by its very nature, would not, ex hypothesi, have been in the contemplation of the contracting parties to begin with when they entered into the contract.

If a term were implied on, so to speak a ‘broader' basis 'in law' (as opposed to on a 'narrower' basis 'in fact', it would follow a fortiori, that such a term would not have been in the contemplation of the parties for a term implied ‘in law' (unlike a term which is implied ‘in fact') is not premised on the presumed intention of the contracting parties.

It is clearly established in contract law that a term cannot be implied if it is inconsistent with an express term of the contract concerned.

Where it is necessary to imply a term in order to make the express terms work, such an implied term may not be excluded by an entire agreement clause because it could be said that such a term is to be found in the document or documents forming part of the contract.

The Court of Appeal, accordingly left open the possibility of an implication of terms into a contract even if the contract contained an entire agreement clause:

We are not prepared to state that an entire agreement clause can never exclude the implication of terms into a contract. However, for an entire agreement clause to have this effect, it would need to express such effect in clear and unambiguous language..

Entire agreement clauses therefore do not necessarily exclude implied terms.

Entire agreement clauses are meant to promote certainty and preclude any argument that the Contract is qualified or supplemented by any oral collateral warranty or implied term existing outside the four corners of the written document. It is precisely the desire of contracting parties to insulate commercial agreements from collateral term arguments that has in part, led to the emergence of entire agreement clauses. In light of the Court of Appeal's decision in Ng Giap Hon, it is unclear what the threshold is before a Court would construe a contract containing an entire agreement clause as permitting an implication of terms.

What is clear from the decision of Ng Giap Hon is that particular attention should now be paid to entire agreement clauses, to ensure that the respective rights of the contracting parties are not circumvented through the permeation of implied terms into the four corners of a contract.

For example, written contracts for construction work frequently include clauses requiring that any modification of the original written agreement be in writing and state that the written contract constitutes the entire agreement of the parties. Such clauses are variously worded:

This contract constitutes the entire agreement between the Employer and the Contractor with respect to the subject matter and supersedes all prior and contemporaneous proposals, agreements, negotiation, representations, writing, understanding and all other communications, whether written or oral, between them with regards to the subject matter of this contract.

This Agreement, which includes the Contract Documents, constitutes the entire agreement between the parties hereto and neither party shall be bound by any promises, representations or agreements except as are herein expressly set forth. Except as expressly provided otherwise in this Agreement, no modifications of this Agreement shall be binding unless made in writing and signed by the party against whom it is to be enforced.

Not all construction contracts however, contain entire agreement clauses. The Public Sector Standard Conditions of Contract for Construction Works 2008 (the 'PSSCOC') for example, developed to enable a common contract form to be used in all public sector construction projects, does not contain such clauses. On the contrary, the PSSCOC contemplates the existence of implied terms, as evident by Clauses 2 and 18.2(c) of the PSSCOC, which provides for the powers of the Superintending Officer, and the cost of remedying defects, respectively.

It is often the case that you will find an entire agreement clause in contracts. In view of the Court of Appeal's findings in Ng Giap Hon, this sort of clause is no longer necessarily a blanket cover to say that everything agreed between the contracting parties are set out in the agreement being signed. Particular attention must now be paid to such clauses.

An entire agreement clause prevents the parties from referring to oral agreements, but it also restricts references to trade custom between contracting parties. In retrospect, had Clause 6 of the Agreement in Ng Giap Hon contained express wording precluding the remisier from earning any commission on the ground of trade custom, such wording would have pre-empted the appellant's argument that he was entitled to commission because the customary rate of commission for remisiers, where placement shares were dealt by or through the remisier, was one per cent of the value of the placement shares.

 

 www.harryelias.com.sg  


 

John Lim*MSIArb

Harry Elias Partnership

E-mail: john.lim@harryelias.com.sg

 

* The author is solely responsible for any error in this article.

 

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