Provisions based on Anglo-American law are often used in drawing up commercial contracts, such as the Entire Agreement clause. The Entire Agreement clause has sometimes been regarded as a panacea to force a court to give a purely linguistic interpretation to the agreement. That notion is incorrect, as two judgments showed earlier this year. The Entire Agreement clause is nevertheless not irrelevant or useless in contract interpretation.
An example of such a clause
“This Agreement constitutes the entire agreement between the Parties and supersedes any earlier written or oral arrangements and agreements made between the Parties relating to the subject matter of this Agreement and it is expressly declared that no variations of this Agreement shall be effective unless made in writing and executed by the Parties..”
“This Agreement constitutes the entire agreement between the Parties and supersedes any earlier written or oral arrangements and agreements made between the Parties relating to the subject matter of this Agreement and it is expressly declared that no variations of this Agreement shall be effective unless made in writing and executed by the Parties.”
Origin: parol evidence rule (four corners of the contract)
The Entire Agreement clause is related to the parol evidence rule. In many cases that rule prohibits the provision of oral or other evidence to prove that the parties made agreements other than those recorded in the contract. In principle, only the provisions “within the four corners of the contract” apply. By including an Entire Agreement clause in the contract, the parties agree that the parol evidence rule applies in full to the agreement.
Contract interpretation under Dutch law
Unlike Anglo-American law, Dutch law provides that contracts must be interpreted on the basis of the parties’ intentions. The Dutch Supreme Court formulated a standard for that purpose in what is known as the “Haviltex judgment”. That standard provides that “the meaning that the parties could reasonably give to those provisions in the circumstances of the case and what they could reasonably expect of each other in that regard” is decisive in the interpretation of contractual provisions. The Haviltex standard makes it possible also to take statements or actions of parties during the period preceding the conclusion of the agreement into account in interpreting the agreement.
It is apparent from later judgments of the Dutch Supreme Court that in certain circumstances more weight may be attributed in the interpretation of a contract provision to the most obvious linguistic meaning of the provision than to the parties’ intentions. There is in fact a sliding scale, with the parties’ (subjective) intentions on the one hand and the (objective) text of the agreement (and its linguistic interpretation) on the other hand. The following circumstances determine where on that sliding scale the judge must make the interpretation:
(i) the nature of the transaction (commercial transaction or consumer transaction?);
(ii) the scope and level of detail of the contract;
(iii) the manner of conclusion of the contract (Were negotiations conducted? Where the parties represented by advisers?); and
(iv) the existence of an Entire Agreement clause.
Effect of the Entire Agreement clause
Under Anglo-American law the Entire Agreement clause is intended to further demarcate the subject of the agreement and thereby also the subject of the interpretation. The Entire Agreement clause provides that all the agreements can be found in the contract documentation; no conflicting or additional oral or written provisions apply between the parties. In principle, the Entire Agreement clause does not regulate how the provisions recorded in the contract documentation must be interpreted.
Under Dutch law, the Entire Agreement clause does not necessarily have any special meaning. It follows from the Dutch Supreme Court judgment of 5 April 2013 and the judgment of the Court of Appeal for Arnhem-Leeuwarden of 21 May 2013 that, in principle, the Entire Agreement clause is not an interpretation provision. Also, the Entire Agreement clause does not (necessarily) stand in the way of significance also being attributed in interpreting an agreement to statements or actions of parties during the period preceding its conclusion. The significance that must be attributed to such a clause is determined on the basis of the Haviltex standard and the circumstances referred to above.
Is the Entire Agreement clause useless?
So is the Entire Agreement clause irrelevant or useless under Dutch law? No, not necessarily. In commercial contracts it may still be a relevant provision to influence the interpretation of the contract and to limit the influence of the parties’ intentions. In that case the parties must be able to prove that they also negotiated on the Entire Agreement clause, and that it is not merely a standard provision.
Sources: HR 5 april 2013, RCR 2013/44, LJN BY8101, ECLI:NL:PHR:2013:BY8101,ECLI:NL:HR:2013:BY8101; Hof Arnhem-Leeuwarden 21 mei 2013, RCR 2013/54, LJN CA0777,ECLI:NL:GHARL:2013:CA0777; Prof. mr R.P.J.L. Tjittes, ‘De betekenis van de parol evidence rule in het Amerikaanse contractenrecht’, Contracteren 2002/1, p. 4-12)