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Does Your Contract Exclude What You Had Agreed?

It is common for commercial contracts to include an ‘Entire Agreement’ clause, which says that the parties have agreed only what is expressly included in the contract. If there is such a clause, make sure that the contract does contain everything that has been agreed.

Negotiations leading up to a commercial contract can be lengthy and tortuous. It can be difficult to establish what has actually been agreed. Accordingly it is good practice to try to ensure that everything that has been agreed has been put into the final contract document signed by the parties, so that there is no need to look back at the earlier negotiations. It is also good practice to include an “Entire Agreement” clause to prevent a party trying to bring in items that may have been raised in negotiations but never finally agreed. However, this approach has its dangers if matters that have been agreed are accidentally omitted from the final contract.

In a recent case, two IT companies (one a software developer and the other technology supplier) had negotiated a contract. They had entered into the heads of terms before the final contract was drawn up. The final contract included an entire agreement clause. A dispute subsequently arose, and the software developer claimed that the other party had not done everything that it had agreed to do. The relevant items were included in the heads of terms, but not the final contract.

The High Court held that the missing items were not a binding obligation on the technology supplier, and the software developer was unable to enforce them.