Whole of Agreement Clauses
A common feature of franchise agreements is a clause which proclaims authoritatively that the signed agreement constitutes the whole agreement between the parties. It usually goes on to say that the franchise agreement supersedes all previous agreements and representations. While there is little argument that a franchise agreement signed by both parties can supersede all previous agreements, the law is much less happy about accepting that it supersedes all previous representations. A franchisee may want to claim that representations made by the franchisor were more properly characterised as misrepresentations.
Legislative Prohibition of Misleading or Deceptive Conduct:
Section 52 of the Commonwealth Trade Practices Act 1974 and section 42 of the NSW Fair Trading Act both contain a general prohibition on misleading or deceptive conduct. These sections and their accompanying remedy sections provide the basis for a plaintiff to seek damages, including in a business or franchise purchase. Since the time of Henjo (1987) there has been a long line of cases to assist a plaintiff claiming misrepresentation by the defendant on which the plaintiff had reasonably relied. Prior to Henjo in Gould –v- Vaggelas (1985), Wilcox J paralleled the operation of s 52 (and hence s 42) with the Common Law Tort of deceit, thus establishing a long pedigree for this strand of the Common Law. Damages have been awarded in a large variety of cases where it could be demonstrated that there was misrepresentation with reference to past, present or even future circumstances on which the plaintiff had reasonably relied.
Exclusion Clauses:
What then is the situation where the misrepresenter has drawn up and executed a contract which contains an exclusion clause which seems to say to forget everything that has occurred before the signing of this document? In answering this question in Berry Estates (1984) Sweeney J said that an exclusion clause cannot operate to oust the effect of the Act. The judges have built upon this approach ever since.
The question, so far unanswered, is whether the evisceration of exclusion clauses can be extended to the type of clause which claims that the actual contract or agreement being signed amounts to the whole agreement, attempting to eliminate any focus on representations which may amount to misrepresentations, made in the negotiations leading up to the execution of the contract.
Whole of Agreement Clauses:
Decided law building upon Berry Estates and Henjo gives the clear indication that a "whole of agreement" clause, certainly in a franchise agreement or a purchase of business contract, would not be effective to exclude a franchisee or a purchaser from seeking damages based upon misrepresentations by the franchisor or vendor of the business. It seems clear that the legal rights of franchisees and purchasers are well protected by s 52 of the Trade Practices Act and s 42 of Fair Trading Act and the case law interpretation given to them by the judges of our superior courts.
DR BERNARD CAREY
Commercial and Corporate Law
