A recent case, West Bromwich Commercial Limited v Muskesh Unadkat , assessed the effect of an oral variation where the document contained a clause stating that the written terms of the guarantees constituted the entire agreement between the parties.
- A claim was brought against Muskesh Unadkat (Guarantor) by West Bromwich Commercial Limited (Claimant) in relation to a number of guarantees.
- The Guarantor argued that he had been assured by the Claimant’s credit manager that the first guarantees would only be called upon in very limited circumstances (i.e. in the event that the Claimant did not receive payment of the full rental value for premises).
- It was held, for a number of reasons, that the Claimant had not promised that the Guarantor’s personal guarantees would only be enforced in said circumstances.
Common law defence
The Guarantor’s defence was that the oral representation made by the Claimant’s credit manager was a warranty that estopped the Claimant from calling on the guarantee contrary to the oral agreement. The Guarantor claimed he had only agreed to provide the guarantees in reliance upon the oral representations, made prior to the written guarantees.
The court rejected the Guarantor’s defence because the Guarantor could not establish a clear or unequivocal promise or representation on the part of the Claimant on the facts of the case.
The court considered that the reliability of the evidence presented by the Guarantor was crucial. The details regarding the alleged representation changed throughout the evidence and were repeatedly proven to be wrong.
This led to court’s conclusion that the Guarantor was an unsatisfactory witness and in turn his evidence could not properly be relied upon as to determine the nature of the assurances given.
Entire agreement clauses
The conditions included an ‘entire agreement clause’, albeit this was worded unusually, as follows:
“The Lender may from time to time waive any requirement of any Facility Document. No amendment or waiver of a Finance Document will be valid unless made to or agreed in writing by the Lender.”
An entire agreement clause generally is more explicit in stating that the parties have agreed that the terms of their contractual relationship are to be found entirely within the document and this supersedes all prior representations. Such a clause typically prevents the courts from finding that pre-contractual statements create a warranty.
The court decided that this particular ‘entire agreement clause’ did not apply to representations said to have been made before the relevant guarantee. Instead it applied to finance documents that were currently in force, on the basis that there was no document at the pre-contract stage to amend or waiver. So the Claimant could have faced problems if it had needed to rely on an entire agreement clause to avoid the consequences of pre-contractual oral representations. In fact, the Court in this case did not accept the Guarantor’s evidence that there was any such agreement so his purported defence failed.
Entire agreement clauses are common in many contracts including construction contracts.
That is because the parties do not want pre contractual negotiations or discussions to be construed as warranties but rather for the written contract to set out the terms ultimately agreed. This makes sense because it provides clarity as to what the parties have agreed: precisely those terms set out in the written agreement between them.
However, any parties seeking to include an entire agreement clause should make sure that it is carefully drafted and will apply to the contract. This case highlights the danger of relying on terms and conditions which are prepared as standard and then incorporated into contracts by reference. If the Guarantor in this case had been given a promise by the Claimant’s representative and had proved this was the arrangement which the parties had agreed, the Claimant in this case would not have been able to rely on its ‘entire agreement’ clause because it was not drafted so as to refer to the guarantees.