IMPORTANCE OF ENTIRE AGREEMENT CLAUSES
One of the typical boilerplates found in contracts is an “entire agreement” clause. And Cradle Wealth Solutions v MTN Consultants & Building Management Pte. Ltd. & Anor [2023] SGHC 307 is a good illustration of the importance of such clauses.
Background. The dispute in Cradle Wealth Solutions v MTN Consultants & Building Management Pte. Ltd. & Anor [2023] SGHC 307 (“Cradle Wealth v MTN”) has been succinctly set out by Justice Lee Seiu Kin at Cradle Wealth v MTN [1], and we can do no better than to excerpt the relevant passage below:
“1 This suit arises from a contractual dispute over a settlement agreement in writing by which the defendants undertook to pay a sum of US$4,000,000 to the claimant by 29 June 2020, with time being of the essence. The settlement agreement resulted from a dispute between the parties over the claimant’s investments in the first defendant’s business. The claimant’s case is a straightforward enforcement of the settlement agreement. The defendants’ primary case is that the settlement agreement in writing was a sham. The defendants also ran the alternative case that, notwithstanding the presence of an entire agreement clause in the settlement agreement, the parties had orally agreed not to enforce the settlement agreement until the successful “monetisation” of certain alexandrite gemstones which the second defendant had in his possession. As the alexandrite gemstones were never monetised, the defendants claimed that they were not obliged to make the payment under the settlement agreement. The issues in this case requires a consideration of the proper interpretation of s 94(c) of the Evidence Act (Cap 97, 1997 Rev Ed) (the “EA”). Hitherto, there has not been much judicial consideration on this exception to the parol evidence rule which pertains to evidence to prove an oral condition precedent, and to the effect of an entire agreement clause on the same.”
The entire agreement clause. Before proceeding further, we set out below the entire agreement clause in question:
“5. This Agreement contains the entire agreement between the Parties with regard to the matters set forth herein. No representations, inducements, promises or agreements, oral or otherwise that are not embodied herein shall be of any force or effect.”
For some of our readers, the wording of this clause will, no doubt, be familiar, as it is a fairly typical entire agreement clause.
Parties’ positions. And as alluded to in Cradle Wealth v MTN [1], the defendants’ alternative case before Lee J was that notwithstanding the entire agreement clause, there was a separate oral agreement that contained a “condition precedent”, and that the defendants were entitled to rely upon s 94(c) EA to admit extrinsic evidence of the said “condition precedent” (Cradle Wealth v MTN [72]).
The claimant disagreed with the defendants’ case, arguing that the Settlement Agreement constituted the “entire agreement”, and that s. 94(c) EA does not assist the defendants as it does not allow, in gist, for the extrinsic evidence to be admitted where it contradicted, varied, added to or subtracted from the terms of the Settlement Agreement (Cradle Wealth v MTN [73]).
Approach. How did Lee J approach this issue?
Lee J first recognized that s 94 EA, which is the statutory embodiment of the parol evidence rule, only applies if the contract was intended by the parties, in the first place, to contain all the terms of the agreement (Cradle Wealth v MTN [74] – [75]).
Lee J found that the defendants’ main hurdle was the entire agreement clause embodied in Cl. 5 of the Settlement Agreement (Cradle Wealth v MTN [76]).
While Lee J accepted the defendants’ argument that the effect of each entire agreement clause depends on the contract in question, being a question of contractual interpretation, nonetheless, Lee J held that this does not bring the defendants’ far “… unless the Defendants can sustain an interpretation of cl 5 of the Settlement Agreement that would allow recourse to an oral condition precedent” (Cradle Wealth v MTN [76]).
Lee J then referred at Cradle Wealth v MTN [77] to the cases of Wen Wen Food Trading Pte Ltd v Food Republic Pte Ltd [2019] SGHC 60 and Lee Chee Wei v Tan Hor Peow Victor and others and another appeal [2007] 3 SLR(R) 537, and in particular, the Court of Appeal’s observation that “… whilst the facts as pleaded might possibly have given rise to a claim based on an oral collateral contract provable under s 94(b) of the EA, such a claim would be precluded by the entire agreement clause in the license agreement which effectively deprived any pre-contractual or collateral agreement of legal effect.” Lee J observed that such principles should likewise apply in the context of Cradle Wealth v MTN.
Application. Turning to the facts, Lee J disagreed with the defendants’ submissions on the context and circumstances under which Cl. 5 of the Settlement Agreement was drafted (Cradle Wealth v MTN [78] – [79]).
In doing so, Lee J found that:
The defendants’ counsel had reviewed the terms of the Settlement Agreement and had in fact advised them not to sign (Cradle Wealth v MTN [80]);
The plain language of Cl. 5 of the Settlement Agreement was clear and the second defendant, who was the sole director and shareholder of the first defendant, had read and understood the clause before signing (Cradle Wealth v MTN [81]); and
While the defendants are seeking to admit extrinsic evidence to interpret Cl. 5 of the Settlement Agreement, the defendants’ proposed interpretation is to nullify the effect of Cl. 5 of the Settlement Agreement. However, “… it is not permissible to use extrinsic evidence to advance a construction that is well outside the scope of the meaning that the actual words of the clause can reasonably bear, much less one that directly contradicts the express words of the clause” (Cradle Wealth v MTN [82]; emphasis in original).
Wrapping up, Lee J stated that “… cl 5 is a clause that clearly purports to deprive any pre-contractual or collateral agreement of legal effect …” and held that the alleged condition precedent as pleaded by the defendants were caught by Cl. 5 of the Settlement Agreement such that “… any claim based on a separate oral agreement constituting a condition precedent provable under s 94(c) of the EA is likewise precluded by the entire agreement clause (cl 5) in the Settlement Agreement” (Cradle Wealth v MTN [83]).
Cannot rely on s 94(c) EA. For completeness, Lee J also found that even if Cl. 5 of the Settlement Agreement does not preclude recourse to an alleged oral condition precedent, the defendants would nonetheless not have been able to rely on s 94(c) EA (Cradle Wealth v MTN [84]).
After referring to various authorities on the rationale for the parol evidence rule (Cradle Wealth v MTN [86] – [87]), Lee J disagreed with the claimant’s interpretation of s 94(c) EA at Cradle Wealth v MTN [89] – [95], but held that even then, the facts “… do not disclose the oral condition precedent as pleaded by the Defendants.” (Cradle Wealth v MTN [95] – [98]).
For ease of reference, we set out Cradle Wealth v MTN [96] – [97] below:
“96 In Romar Positioning Equipment Pte Ltd v Merriwa Nominees Pty Ltd [2004] SGCA 44 the Court of Appeal affirmed (at [22]) that the words “condition precedent” in the context of contracts can be “used to describe a condition which does not prevent the existence of a binding contract, but which suspends performance of it until fulfilment of the condition”, citing Kim Lewison’s The Interpretation of Contracts (3rd Ed, 2004) at para 15.02. The courts will be slow to construe an oral agreement as a condition precedent where “the written agreement [has] already become binding and [has] been performed” (Wen Wen Food Trading at [32]). Cradle Wealth had performed its part of the bargain under the Settlement Agreement by its discontinuance of Suit 940 on 2 March 2020.
97 Owing to the significant factual overlap between the Defendants’ case premised on sham and their alternative case premised on condition precedent (see [28] above), and given that the Defendants in fact relied on the exact same extrinsic material in seeking to prove the terms of the alleged Actual Agreement and the existence of the alleged condition precedent, I considered that much of my findings above at [34]–[70] after considering the totality of the evidence were equally applicable to the latter question of condition precedent. I therefore repeat my finding that whilst the topic of Nazarisham’s Alexandrite Gemstones was at the very least mentioned by the parties during the day of the mediation, and the parties anticipated working together to achieve a “comeback” for their respective businesses, such an expectation never extended to agreeing that the Alexandrite Gemstones must be successfully monetised before Cradle Wealth would become entitled to be paid the sum of US$4,000,000 under the Settlement Agreement. In other words, parties never intended for cl 1(1) of the Settlement Agreement to not take effect until the fulfilment of some condition precedent as pleaded by the Defendants.”
Conclusion. When reading a contract, sometimes, it is tempting to skim through the boilerplates and not give them much thought.
As set out in Cradle Wealth v MTN, this temptation ought to be resisted. It is important to go through the boilerplates carefully and ask yourself if they are relevant to the contract and context in question.
If a contract is supposed to be based upon a certain oral understanding or agreement, and this oral understanding or agreement is not captured (or not clearly captured) in the terms of the contract, you should ask yourself if you need to amend the contract, especially if there is an entire agreement clause that is found inside the said contract.
If not, you may find yourself in the position of having to argue against the entire agreement clause in order to rely on the oral understanding or agreement, and this can be an uphill task.
This publication is not intended to be, nor should it be taken as, legal advice; it is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking, actions based on this publication. Chancery Law Corporation is not responsible for, and does not accept any responsibility for, any loss or damage that may arise from any reliance based on this publication.