Can you imply a term into a contract that has an Entire Agreement clause?

Can you imply a term into a contract that has an Entire Agreement clause?

A summary of Hipwell & Son v Szurek [2018]

This was the nub of the issue in the Court of Appeal decision in J N Hipwell & Son v Szurek [2018] EWCA Civ 674 (28 March 2018).

But first, what is meant by an Entire Agreement clause?

In a nutshell, the Entire Agreement clause is there to make clear that all terms of the agreement are contained within the written document.

In a leading earlier case, the Entire Agreement clause had been explained as precluding:

“… 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) on which to found a claim … The entire agreement clause obviates the occasion for any such search and the peril to the contracting parties posed by the need which 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 negotiations (which in the absence of such a clause might have effect as a collateral warranty) shall have no contractual force, save insofar as they are reflected and given effect in that document.”

So, by way of example, the particular Entire Agreement clause in Hipwell stated that the Lease:

“…constitutes the entire agreement and understanding of the parties relating to the transaction contemplated by the grant of this Lease and supersedes any previous agreement between the parties relating to the transaction.”

How does this interplay with a claim to imply a term into a contract, where that contract includes an Entire Agreement clause? Well, in short, the answer in Hipwell was that the Court of Appeal had no difficulty in accepting the proposition that, even where an Entire Agreement clause is included within the contract, it would still be possible to imply a term into that contract, so long as the relevant grounds for implying terms were met.

As a reminder, the Court of Appeal repeated the relevant principles for implying terms into a contract:

  1. The starting point is to determine whether there is any provision in the agreement in question which expressly covers the point: only if there is not can the implication of a term be appropriate, for the jurisdiction is to restore efficacy not improve that which, though not optimal, is workable.
  2. The Court must take into account the possibility that the parties deliberately decided not to include the term sought to be implied: it is tempting but wrong to fashion and interpolate a term simply to reflect the merits of the situation as they appear when the issue arises.
  3. The question whether a term is to be implied is to be judged at the date when the contract is made.
  4. The test is necessity, not reasonableness; but “absolute necessity” may put the bar too high, and it may be more helpful to ask the question whether without the term the contract would lack commercial or practical coherence.
  5. Although the process of construction and the process of implying terms both involve determining the scope and meaning of the contract, the process of implication involves a rather different exercise from that of construction, and calls for strict restraint.

In Hipwell, electrical problems and a small fire at the premises had caused a tenant to close her business, repudiate the lease and sue for business loss. There was a gap in the lease, in lacking any express obligations in respect of the exterior of the premises or the plumbing and electrical supply and installations.

In those circumstances, to ensure that the lease did not lack commercial or practical coherence, or as a matter of business necessity, the Court of Appeal found that this obvious gap was to be plugged by implying a covenant on the part of the landlord such that the electrical installation and other service media provided was safely installed and continued to be covered by any requisite certificate.

The court at first instance had held that the landlord having responsibility for these items accorded with the intentions of both parties, but, for the purpose of the appeal, this was actually not important. Instead, according to the Court of Appeal, the obligation was imposed, not by their agreement but by a process of necessary implication or interpolation, to which the Entire Agreement clause had no application.

William Lawrence