[2000] 2 Lloyd's Rep 611
Chancery Division
In 1996 the Inntrepreneur Pub Co leased a public house to East Crown Ltd for a term of 30 years. The lease contained one clause whereby East Crown Ltd had to purchase specified beers from Inntrepreneur Pub Co and another clause stating that the agreement constituted the entire agreement between the parties. East Crown Ltd began to reduce its beer orders to Inntrepreneur Pub Co and eventually ordered no beer from Inntrepreneur Pub Co. Inntrepreneur Pub Co sued East Crown Ltd for breach of the beer tie. East Crown Ltd counterclaimed that Inntrepreneur Pub Co had given a collateral warranty that the beer tie would be released from 28 March 1998. Inntrepreneur Pub Co denied any such warranty and, in the alternative, relied upon the 'entire agreement' clause of the August 1996 agreement.
Lightman J
Entire agreement clause
The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding, in the course of negotiations, some (chance) remark or statement (often long-forgotten or difficult to recall or explain) upon which to found a claim, such as the present, to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search, and the peril to the contracting parties posed by the need that may arise in its absence to conduct such a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that, accordingly, any promises or assurances made in the course of the negotiations (which, in the absence of such a clause, might have effect as a collateral warranty) shall have no contractual force, save in so far as they are reflected and given effect in that document. The operation of the clause is not to render evidence of the collateral warranty inadmissible in evidence, as is suggested in Chitty on Contract (28th ed) vol 1 para 12-102; it is to denude what would otherwise constitute a collateral warranty of legal effect.
Entire agreement clauses come in different forms. In the leading case of Deepak Fertilisers & Petrochemical Corporation v Davy McKee (London) Ltd [1998] 2 Lloyds Rep 139, at p 138, affirmed [1999] 1 Lloyd's Rep 387, the clause read as follows:
10.16 Entirety of Agreement
This contract comprises the entire agreement between the PARTIES . . . and there are not any agreements, understandings, promises or conditions, oral or written, express or implied, concerning the subject matter which are not merged into this CONTRACT and superseded thereby . . .
Rix J and the Court of Appeal held in that case (in particular focusing upon the words "promises or conditions") that this language was apt to exclude all liability for a collateral warranty. In Alman & Benson v Associated Newspapers Group Ltd 20 June 1980 (cited by Rix J at p 168), Browne-Wilkinson J reached the same conclusion where the clause provided that the written contract "constituted the entire agreement and understanding between the parties with respect to all matters therein referred to", focusing on the word "understanding". In this case, the formula used is abbreviated to an acknowledgement by the parties that the agreement constitutes the entire agreement between them. That formula is, in my judgment, amply sufficient to constitute an agreement that the full contractual terms to which the parties agreed to bind themselves are to be found in the agreement and nowhere else. That can be the only purpose of the provision. This view is entirely in accord with the judgment of Mr John Chadwick QC (as he then was), sitting as a deputy High Court judge in McGrath v Shah (1987) 57 P&CR 452. An entire agreement provision does not preclude a claim in misrepresentation, for the denial of contractual force cannot affect the status of a statement as a misrepresentation. The same clause in an agreement may contain both an entire agreement provision and a further provision designed to exclude liability, eg for misrepresentation or breach of duty. As an example, clause 14 in this case, after setting out in clause 14.1 the entire agreement clause, in clause 14.2 sets out to exclude liability for misrepresentation and breach of duty. Whether this latter provision is legally effective for this purpose may turn on the question of its reasonableness as required by section 3 of the Misrepresentation Act 1967: see eg Inntrepreneur Estates(CPC) Ltd v Worth [1996] 1 EGLR 84 (Editor's note: Also reported at [1996] 11 EG 136). But (contrary to the contentions of Crown) section 3 has no application to an entire agreement clause provision defining where the contractual terms between the parties are to be found: see McGrath v Shah (supra). It seems to me, therefore, that clause 14.1 of the agreement provides in law a complete answer to any claim by Crown based upon the alleged collateral warranty.
Conclusion
I accordingly: (1) dismiss the counterclaim; ... (3) grant to Inntrepreneur an injunction restraining Crown from purchasing, or agreeing to purchase, the beers specified in the 1996 lease from anyone other than Inntrepreneur or the nominated supplier as defined in the 1996 lease; and (4) order that there be an inquiry as to damages for breach of the tie. In particular, since this is a test case, I should add a general comment. As I have said, the whole purpose of an entire agreement clause is to avoid the cost and time of the court and the parties being expended on the investigation of claims to the existence of collateral warranties. In this case, perhaps half a day was spent upon the argument as to the construction of the entire agreement clause, and the balance of some two to three days was spent on cross-examination of witnesses and argument on the issue of whether there was a collateral warranty. In view of my decision on the construction of the clause, some two to three days' costs spent on the latter exercise were completely wasted...