Thinc Group Ltd v Armstrong & Anor

A collateral warranty may qualify or override terms of a signed contract where an oral assurance induced entry into the contract. Its meaning is determined objectively in context, including the commercial purpose of the transaction. An assurance that a payment is repayable only if the recipient fails to stay for three years is inconsistent with a term allowing recovery at will by terminating without cause. Such a construction would make the assurance illusory and defeat the transaction’s commercial basis. A defence based on the assurance is not unfairly decided where the underlying facts and reliance on a collateral warranty were pleaded and explored, even if the final legal formulation was not pleaded verbatim.

Thinc recruited Mr and Mrs Armstrong as self-employed financial advisers and offered them a substantial supplemental payment reflecting the value of their existing client base. During negotiations, Thinc’s representatives assured them that the only condition attached to retaining the payment was that they remained with Thinc for three years.

The signed contracts provided that the payment became repayable if the contracts were terminated, or notice to terminate was given, within three years. Thinc terminated on notice without cause and claimed repayment. The High Court held that the assurances amounted to a collateral warranty, or alternatively supported an estoppel, preventing recovery. Thinc appealed on procedural fairness, construction, and reliance.

The Court of Appeal unanimously dismissed the appeal. The application concerning costs was also dismissed.

1. The complaint of procedural unfairness failed. The rule illustrated by The Vimeira [1984] 2 Lloyd’s Rep 66 (CA) and Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14 prevents a court or tribunal from deciding a case on an issue never raised or argued without giving the parties an opportunity to respond. This case was materially different. The assurances, their factual basis, and reliance on a collateral warranty had been pleaded, evidenced, and addressed in submissions.
2. A pleading need not set out the precise final legal formulation. Where the material assurances are pleaded and relied on as a collateral contract or warranty defeating the claim, their legal effect is a matter of interpretation and legal analysis.
3. An oral promise or assurance intended to induce entry into a contract, and relied on by entering it, may operate as a collateral warranty and prevail over inconsistent terms in a signed contract. The principle was supported by Curtis v The Chemical Cleaning & Dyeing Co Ltd [1951] 1 KB 805, Peekay Intermark Ltd v ANZ Banking Group Ltd [2006] EWCA Civ 386, and AXA Sun Life Services plc v Campbell Martin Ltd [2012] Bus LR 203.
4. Objectively construed in its commercial context, the assurance that the supplemental payment was subject only to the Armstrongs remaining for three years excluded recovery when Thinc terminated without cause during that period. A construction permitting recovery at Thinc’s whim, or for inadequate performance despite the assurance of no minimum requirement, would be absurd, uncommercial, and make the assurance illusory. The possible qualification for termination for cause did not assist Thinc because it had not terminated for cause.
5. Reliance was established. The assurances were repeatedly sought, the payment was critical to the transaction, and the High Court was entitled to find that the Armstrongs would not have contracted without them.
6. A new contractual argument based on clause 5.3, not advanced at trial or included in the grounds of appeal, was not open to Thinc. In any event, on the findings made, it could not reasonably be used to prefer the repayment clause over the collateral warranty.

• Court of Appeal (Civil Division) — [2012] EWCA Civ 1227: dismissed Thinc’s appeal and dismissed its costs application.
• Queen’s Bench Division, Liverpool District Registry — His Honour Judge Stephen Davies, sitting as a judge of the High Court: held that the assurances constituted a collateral warranty preventing recovery of the supplemental payment, alternatively supporting an estoppel.