A seller of luxury houseboats has recently been found to be liable for misrepresentation and breach of contract, despite his attempted reliance on an entire agreement clause.

The High Court found that the entire agreement clause did not exclude from the contract the seller's representations and promises made in the run up to the sale in relation to mooring rights for the houseboats. The court also found that even if the clause was effective, it would still fail as it did not satisfy the reasonableness test under section 11 of the Unfair Contract Terms Act 1977 (UCTA).

Facts

In the case ofDjurberg (t/a Hampton Riviera) v Small (unreported but available here), the owner of Hampton Riviera Marina, Mr Djurberg, agreed to sell luxury houseboats to two couples (the Smalls and the Johnstone-Sydneys, together "the Buyers"). The Buyers claimed that Mr Djurberg had induced them to buy the houseboats by representing that the purchase of the houseboats included long-term mooring rights at Hampton Riviera and the right to occupy them as permanent family homes.

After completion of the purchases, Mr Djurberg sought to charge an additional premium for licence fees, contending that the sale had not included mooring rights. It also transpired that there was no planning permission for houseboats to be permanently moored at the marina. The Buyers were unable to meet the costs of the additional licence fees and were forced to move out. They subsequently claimed damages pursuant to section 2(1) of the Misrepresentation Act and for breach of contract.

In his defence, Mr Djurberg argued, amongst other things, that the sale documents did not include any contractual terms in relation to the grant of mooring rights and that the entire agreement clause in the Johnstone Sydneys' construction contract excluded his oral representations in relation to the grant of mooring rights.

Mooring licences

Despite conflicting evidence, the judge concluded that the Buyers had intended to purchase the houseboats to reside in them permanently, that Mr Djurberg was aware of this and that he had expressly or impliedly told them that this would be possible and that the licence was included in the purchase price. The written agreements could not therefore be considered to be comprehensive. The judge considered the contracts to be partly written, partly oral and whilst the Bills of Sale did not refer to mooring rights the agreements were not inconsistent with these being part of the sale.

The judge recalled the comments of Steyn LJ in the case of First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] BCLC:

“… A theme that runs through our law of contract is that the reasonable expectations of honest men must be protected. It is not a rule or a principle of law. It is the objective which has been and still is the principal moulding force of our law of contract. It affords no licence to a judge to depart from binding precedent. On the other hand, if the prima facie solution to a problem runs counter to the reasonable expectations of honest men, this criterion sometimes requires a rigorous re-examination of the problem to ascertain whether the law does indeed compel demonstrable unfairness…”.

The judge concluded that the moorings were 'included' in the sale of the houseboats and Mr Djurberg's claim afterwards that unspecified and ever-increasing further sums were payable 'not only smacks of sharp practice, but flies in the face of commercial common sense'.

Entire agreement clause

One of the contractual documents (a construction contract) entered into in relation to the purchase by the Johnstone-Sydneys contained the following entire agreement clause:

This Agreement forms the entire agreement between the Parties and unless specifically agreed by the Designer/Builder in writing after the date of this Agreement, no warranty, condition, description or representation is given or to be implied by anything said or written in the negotiations between the Parties or their representatives prior to this Agreement.”

The judge swiftly concluded that the construction contract (relating only to the construction of the houseboat and not to the wider transaction) was clearly not the entirety of the agreement reached with Johnstone-Sydneys, nor could this clause make it so. Although the representations as to mooring at Hampton Riviera were not covered in either the construction contract or any other sale document, they were basic to the parties' bargain.

If the entire agreement clause had covered those representations, the judge pointed out that it would nevertheless have been unfair and unreasonable applying the reasonableness test in section 11 of UCTA, by virtue of both:

  • Section 3 of the Misrepresentation Act 1967, which provides that a contractual term purporting to exclude or restrict liability for misrepresentation is of no effect except insofar as it satisfies the reasonableness test; and
  • Section 3(2)(b)(i) of UCTA, which provides that a party cannot claim to be entitled to render a contractual performance substantially different from that reasonably expected, save insofar as the term satisfies the reasonableness test. The judge confirmed that this can apply in the case of an entire agreement clause, citing AXA Sun Life Services Plc v Campbell Martin Ltd [2011] EWCA Civ 133.

On the facts of the case, the reasonableness test was not satisfied in view of the bargaining position of the parties and the lack of negotiations over the terms of the agreement.

The Buyers were granted damages based on the difference between what had been paid for the houseboats and their values taking into account the prospect of obtaining alternative moorings.

Entire agreement clauses are controversial boilerplate provisions and frequently the cause of disputes.

This case acts as a useful reminder that an entire agreement will not necessarily have the intended effect of excluding other terms, particularly if the agreement in which it is included only relates to a specific part of the transaction. A court will look very closely at an entire agreement clause where a party contends that it excludes from the contract terms which appear to be basic to the parties' bargain. Reliance on a clause which is not tailored to the particular circumstances of the transaction in question increases the risk that matters not contained within the written agreement will be considered to be terms of the parties' agreement.

Where an entire agreement clause is subject to the reasonableness test in section 11 of UCTA, there is, as this case confirms, no bullet proof wording that can be used to create an effective exclusion. A court will look at the effect of the clause in the particular set of circumstances whether it is fair and reasonable for the clause to be included in the contract.

This case also highlights the importance of coherent contractual documentation, which fits together without overlap or inconsistency and which captures important terms in writing to reduce the risk of needing a court decision on what the parties intended their agreement should be.