Case law: Agreement could not exclude or restrict liability for prior misrepresentations outside subject matter of the agreement

Parties dealing with each other on more than one related project or transaction should ensure their agreements are clear as to which exclusions or restrictions of liabilities apply to which projects or transactions, and that the relevant clauses do not breach consumer protection laws, a recent case has highlighted.

A boatbuilder agreed to build a houseboat for a couple for £850,000, for them to live in permanently once they had sold their house. The parties entered into a construction agreement. The boatbuilder also promised to provide the couple with a 125-year licence to moor their boat lawfully at moorings he owned, before they signed the agreement.

The couple later discovered that mooring the boat under the licence breached planning laws and was unlawful. They claimed compensation on grounds of misrepresentation – the boatbuilder had induced them to buy the boat by misrepresenting that the purchase included the right to moor the houseboat at his moorings and live there lawfully as their permanent family home.

A clause in the agreement to build the boat stated that it constituted the entire agreement between the parties, and neither party could rely on statements or promises made before it was entered into. The boatbuilder argued that this 'entire agreement' clause meant the couple could not rely on the alleged misrepresentation as it was made before the agreement was signed. He demanded monthly mooring payments from them.

The court said that the boatbuilder could not rely on the 'entire agreement' clause to avoid paying compensation for misrepresentation because:

  • The agreement dealt with building the boat, not providing a mooring. While the entire agreement clause may have been effective to stop the couple suing on the basis of things said/promises made about the building of the boat before the agreement was signed, it could not stop them suing in relation to things said/promises made about the separate matter of the mooring
  • The entire agreement clause breached consumer protection laws which state that a term can only exclude or restrict liability for misrepresentation if it is reasonable to do so. A contractual term that has not been individually negotiated is to be treated as unfair, and therefore unenforceable, if it causes a significant imbalance in the parties' rights and obligations under the agreement, to the consumer's detriment

The court held that the clause was unfair and unreasonable, given that:

  • The couple had sold their house and devoted significant time and effort to preparing for their new life in a houseboat.
  • The boatbuilder had offered the couple the deal on a take it or leave it basis. Although the couple had instructed solicitors, there had been no negotiating.
  • The couple had previously paid a deposit of £70,000 to the boatbuilder to build a first boat, which had fallen through. They would have lost that deposit if they had not agreed to commission the boatbuilder to build a second boat.

Operative date

  • Now

Recommendation

  • Parties dealing with each other on more than one related project or transaction should ensure their individual agreement make clear which exclusions or restrictions of liabilities in the agreement apply to which project or transactions, and that the relevant clauses do not breach consumer protection laws

Case ref: Djurberg v Small (Ch D (Murray Rosen QC) 1/09/2017

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