One Clause to Rule Them All – the Entire Agreement Clause

The entire agreement clause, as its name suggests, is essentially a statement in a contract where parties agree that the terms of the contract between them are found within the text of the contractual document and nowhere else.

Given its seemingly all-encompassing nature, it is understandable that an entire agreement clause is commonly used as a boilerplate contractual clause. A standard entire agreement clause may look something like this:

“This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof.”

This article explores the purpose of adopting an entire agreement clause in a contract, the treatment given by the Malaysian Courts towards an entire agreement clause, and whether there is any area of concern surrounding the insertion of an entire agreement clause.

Why incorporate an entire agreement clause?

A key benefit afforded by an entire agreement clause is certainty in contractual dealings.

In Bank Perusahaan Kecil & Sederhana Malaysia Berhad v Iskandar Zulkarnain Zainal Abidin [2013] MLJU 1648, the Court of Appeal held that an entire agreement clause has the effect of precluding any collateral promise to defeat the expressed intention of the parties as contained in a contract.

In the more recent Federal Court judgment of Wong Yee Boon v Gainvest Builders (M) Sdn Bhd [2020] 3 MLJ 571, the apex court (albeit in a dissenting judgment) held that the implication of the entire agreement clause means that no extraneous evidence may be considered to interpret, to supplement or to contradict the appellant’s obligations that had already been set out under clause 4 of that agreement.  

In other words, by ensuring that all the terms are reduced into a single contract, an entire agreement clause prevents parties from subsequently raising a claim that statements or representations made during contractual negotiations, and prior to the signing of the written contract, constitute additional terms of the agreement. See Inntrepreneur Pub Co v East Crown Ltd [2000] 3 EGLR 31. With the existence of an entire agreement clause, parties accept that the contract in question constitutes the whole agreement between parties. Contracting parties need only construe what is contained in the four corners of the final written agreement, without worrying about the inclusion of oral or written agreements made prior to the execution of the said final written agreement.

How do Malaysian courts treat an entire agreement clause?

Malaysian courts appear to often uphold an entire agreement clause found within an agreement. In this regard, having an entire agreement clause in an agreement can mean that the exceptions to section 92 of the Evidence Act 1950 cannot be resorted to. For completeness, section 92 provides that where a contract has been reduced to a written document, no evidence of any oral statement shall be admitted as evidence to contradict, vary, add to or subtract from the written terms. Limited exceptions to section 92 include the existence of a separate oral agreement which constitutes a condition precedent to the attaching of an obligation under the written contract or any fact which would show what manner the language of a document is related to existing facts.

Note that in Master Strike Sdn Bhd v Sterling Heights Sdn Bhd [2005] 3 MLJ 585 the Court of Appeal held at paragraph 9 as follows:

“…the principle on the entire agreement clause in Innterpreneur Pub was followed by Abdul Aziz J (as he then was) in Macronet Sdn Bhd v RHB Bank Sdn Bhd [2002] 3 MLJ 11. There he ruled that the entire agreement clause precluded variation by oral agreement. At p 25G the learned judge said that “My opinion is simply this. The entire agreement clause was an agreement between the plaintiffs and the defendants. In agreeing to the clause, the parties must be presumed to have known of the existence of section 92 and of the exceptions in it and to have intended what the clause intended, that is to exclude any attempt to vary the agreement by an oral agreement or statement, which attempt can only be made through the exceptions in section 92.”

It is important to note that an entire agreement clause can exclude liability for misrepresentation. In Berjaya Times Square Sdn Bhd v Twingems Sdn Bhd & Anor and another action [2012] 9 MLJ 510, the High Court held that by agreeing to the entire agreement clause, the plaintiffs agreed not to resort to any of the exceptions in s 92 of the Evidence Act 1950. The court held:

“[37] After having perused the the tenancy agreement I am satisfied that the plaintiff in this case can rely on cl 26 of the tenancy agreement also known as 'entire agreement clause' (p 49 document B) which clearly excluded any representations, undertakings and negotiations prior to the execution of the tenancy agreement.

[40] Based on the above I am of the view that the alleged misrepresentation raised by the defendants could not be sustained and shall not have any contractual force. The entire agreement clause was therefore binding on the defendants and further estopped the first and second defendants from denying their obligations under the tenancy agreement and letter of guarantee respectively.”

Likewise, in Segi Astana Sdn Bhd v Pusrawi Pharmacy & Health-Pro Sdn Bhd [2017] MLJU 205, the High Court held that the entire agreement clause in the tenancy agreement has the effect of negating any prior statements and conducts of both parties before the execution of the agreement itself - this would include representations or misrepresentations made before the signing of the agreement. It was determined that the effect of the entire agreement clause was that parties concede that the only words and statements which are relevant are as expressed in the agreement and nothing else.

Main area of concern

In terms of any areas of concern, what matters greatly is the construction to be given to the entire agreement clause to ensure that contracting parties are not blindsided by the scope of the clause. To illustrate this concern, the following should be noted:  

a. If the contract includes schedules or other attachments, one must ascertain that the definition of the “contract” includes these schedules or other attachments.

b. If there are multiple contracts forming part of the same transaction, it is imperative to include them in the wording of the entire agreement clause, for example: “This agreement and [list other agreements] constitute the entire agreement between the parties….”.

In short, it is crucial to scrutinize the ambit of the entire agreement clause. One such instance in question arose in the case of Solid Investments Ltd v Alcatel-Lucent (M) Sdn Bhd (previously known as Alcatel Network Systems (M) Sdn Bhd) [2014] 3 MLJ 785. There, the Federal Court held that the Court of Appeal had erred in failing to appreciate that such clauses operated only as between the contracting parties. In the present case, the defendant was not a party to the consultancy agreements. Therefore, the alleged collateral contract between the plaintiff and the defendant should be treated as a separate and distinct contract that could not fall under the scope of the consultancy agreements. In summary, the entire agreement clause did not preclude the plaintiff from setting up the purported collateral agreement between the plaintiff and the defendant.

Conclusion

An entire agreement clause may provide certainty to parties in commercial transactions. Nonetheless, given its potentially far-reaching effects, parties must take the utmost precaution when drafting the written agreement containing such a clause to ensure that contractual intentions are accurately documented.