Collidge v Freeport Plc

Where a compromise agreement makes payment subject to and conditional upon later terms, and describes a warranty as a strict condition, compliance may be a condition precedent to liability to pay. The construction depends on the agreement’s language, structure and context. A warranty in such terms promises that the warranted facts are true at the agreement date; it does not merely require the warranty to be given. If the facts are untrue, no payment is due, without any need for the employer to elect to accept a repudiatory breach. This construction may also avoid the uncertainty of assessing damages for a package of interdependent benefits.

The claimant, founder, chief executive and director of Freeport plc, entered into a compromise agreement under which he resigned and Freeport agreed to make payments and provide other benefits. Clause 7(b) contained a warranty that there were no circumstances of which he was aware, or ought reasonably to have been aware, constituting a repudiatory breach of his employment contract.

The agreement followed board concerns about financial impropriety. The High Court, before Mr Justice Jack, held that clause 7(b) was a condition precedent to Freeport’s liability and dismissed the claims (EWHC QB 1216). Permission to appeal was limited to issues of construction and related legal analysis. The central issue was whether the warranty merely created ordinary contractual remedies or instead made Freeport’s payment obligations conditional upon the warranted facts being true.

1. Appeal dismissed. Lord Justice Tuckey gave the principal reasons. Lord Justice Sedley and Lord Justice Waller agreed, and the court ordered that the appeal be dismissed.
2. On the true construction of the agreement, Freeport’s obligations to make the specified payments and provide the specified benefits were expressly made subject to and conditional upon the claimant’s compliance with the following terms. Clause 7 began with the words “You warrant as a strict condition”. Those words, read with the structure of the agreement, meant that clause 7 did not merely require the warranties to be given. It promised that the warranted facts were true when the agreement was made.
3. The surrounding circumstances confirmed that construction. Freeport’s board had proposed suspending the claimant while investigating allegations of misconduct. The claimant instead negotiated termination arrangements, while the investigation continued. The warranty protected Freeport if the investigation later established that the claimant’s promise was untrue. Accordingly, the truth of the warranty was a condition precedent to Freeport’s liability to pay.
4. The argument that the other warranties could only be ordinary conditions was unpersuasive. On that argument, breach could itself be repudiatory and, if accepted, would end the agreement and Freeport’s obligations. The construction adopted by the court avoided that consequence arising through an uncertain damages assessment for a package of benefits.
5. For completeness, the court considered the alternative analysis. If clause 7(b) were merely a contractual condition, Freeport’s failure to elect to accept the repudiation would not necessarily prevent recovery of loss caused by the breach. However, the amount of any damages would be difficult, possibly impossible, to assess because the consideration was an undivided package. This alternative reasoning was unnecessary to the decision. The insurance-warranty analogy was likewise only descriptive of the agreement’s effect.

• Court of Appeal (Civil Division) dismissed the appeal and upheld the construction adopted below.
• High Court, Queen’s Bench Division (Mr Justice Jack) dismissed the claimant’s claims under the compromise agreement (EWHC QB 1216).