Case law: ‘Entire agreement clause’ in an agreement will not stop a court from later implying terms into it

Parties to an agreement who wish to stop terms from later being implied into it cannot rely on an ‘entire agreement clause’ to do so, and should therefore consider other ways to preclude terms from being implied, a recent legal ruling makes clear.

A property developer and the bank funding one of his developments entered into an agreement that the bank should sell the properties on the development and retain the proceeds as repayment of the loan. In the meantime, the developer had to manage the properties and pass rents received (less maintenance costs) over to the bank. The bank later assigned its rights under the agreement to third party.

The properties were not sold, and the third party purported to end the agreement on grounds the developer had not paid it any rental income. The developer went to court asking for an order forcing the third party to sell the properties. He argued that a term should be implied into the agreement that the properties would be sold ‘within a reasonable time’ and that failure to comply was a material breach of the agreement.

The third party argued that the agreement contained an ‘entire agreement’ clause – one saying that ‘this agreement forms the entire agreement between the parties’ - which meant additional terms could not be implied into it.

The court agreed with the developer, and implied a term into the agreement that the properties be sold within a reasonable time. Its grounds were:

• Business and common sense
• The context and background known to the parties at the time.
• The omission from the agreement of any indication that its terms were intended to continue to apply into the foreseeable future.

Since an implied term is part of any agreement, an entire agreement clause does not preclude it from applying.

Operative date

• Now

Recommendation

• Parties to agreements:
  
  • Should consider whether any of its terms could be subject to an implied term that they should be performed within a reasonable time and, if this is not satisfactory, how the implied term can be precluded from applying.
  • Should not rely on entire agreement clause as a way to exclude implied terms, as such clauses are not effective to do so.

Case ref: William John Burnside v Promontoria (Chestnut) Limited [2017] CSOH 157