Not entirely the whole?

The decision in North Eastern Properties Ltd v Coleman & Anor [2010] EWCA Civ 277 displays a fascinating bending of contractual terms by the Court of Appeal to get around the unfortunate rigidity of section 2 Law of Property (Miscellaneous Provisions) Act 1989 and to prevent a contract from being rendered void.

Without a doubt, the terms of section 2 of the 1989 Act are too restrictively drawn: if the contracts exchanged between the parties do not include a term that the parties have expressly agreed, the whole contract is void. Such a rigid provision opens a very wide door to those intent on escaping from a done deal. All a recalcitrant party needs to do is identify a term that the exchanged contracts have not incorporated, and then plead invalidity under section 2. However, this case shows that the last thing a court wants to do is to allow an agreement clearly reached between the parties to be rendered void – especially when the party pleading invalidity is the one who initially asked for the “missing term” to be hived-off to a separate agreement. Mr Justice Briggs stated that: “it was no part of Parliament's intention by enacting section 2 of the 1989 Act to make it easier for people who have genuinely contracted to escape their contractual obligations.” Lord Justice Longmore agreed, saying that: “This section is not intended to be a charter for those wishing to disown apparent contracts for the sale of property to go behind the document and search for statements made in pre-contract negotiations, then to claim that they were intended to be terms of the contract and thus bring the whole contractual edifice crashing to the ground.”

The Court of Appeal viewed the missing term (a 2% finders fee for residential flat investment buyers) as a hived-off part of a composite agreement, performance of which term was not a conditional aspect of the performance of the main land contract. Hence, the land contract contained all expressly agreed terms: the missing term was a non-conditional collateral agreement. How did the court arrive at this result? It did so by viewing the contract’s Entire Agreement Clause as meaning, not that the written contract contained the entire agreement between the parties (as appeared to be said “on the tin”), but that the written contract contained the entire land agreement between the parties. Briggs J said: “In my judgment the primary meaning of an entire agreement clause (namely that there are no other contractual provisions at all between the parties) must yield to the commercial reality in the present case that there was a finders fee agreement [(the missing term)]. But that merely reinforces the need to find some rational secondary meaning to [the] clause, rather than simply to blue pencil it. I would have concluded, even in the absence of [the] clause, that the 2% finders fee agreement did not form part of the terms of any of the land contracts, in the sense that they were not in any sense conditional upon it, for the reasons already given.”

Hence, a just outcome was achieved, with inventiveness, and stretched language, in the face of statutory rigidity; and an interesting twist was given to the standard Entire Agreement Clause. When the parties said: "This Agreement contains the entire agreement between the parties" they may not necessarily have meant "entire" in the OED sense of the word (i.e. "with no part left out; whole; without qualification; absolute"), but more that their "entire" agreement may have had various composite parts to its entirety, one of which may have been left out, and hived off to some other part of their "agreement", leaving behind a land contract that was "entire". Or something like that...