Thinc Group v Armstrong and another
FACTS
Thinc Group Ltd operates in the financial-services sector. Mr and Mrs Armstrong were financial advisers who had successfully built up their own business.
Thinc, which was expanding, wished to secure access to the Armstrongs’ client base. Thinc sought to recruit Mr and Mrs Armstrong as self-employed advisers in the provision of financial services under a contract for services. To induce them to join, Thinc offered a supplemental payment of £243,052, in effect to purchase the goodwill of their business.
During protracted negotiations in 2007, the Armstrongs wanted to be clear what conditions attached to the supplemental payment that might lead to it being repayable. They were assured that the only condition was that they stay with Thinc for three years and that there was no requirement for any minimum income from their client base.
Primary contracts were signed in March 2008, and a supplemental contract dealing with the supplemental payment was signed on 25 April 2008. The supplemental contract gave Thinc the right to terminate the contracts at any time on notice without cause and provided for repayment of the supplemental payment if the contract was terminated within three years.
In 2009, Thinc issued a termination notice terminating the Armstrongs’ contract on notice. There was no “entire agreement” clause (ie a clause stating that the contract represents the entire agreement between the parties) in their contract. Thinc brought a claim for repayment of the supplemental payment.
DECISION
The High Court held that the assurances given by Thinc during negotiations were a collateral warranty that prevented Thinc from recovering the supplemental payment. As there was no “entire agreement” clause in the contract, the collateral warranty prevailed over the express terms of the contract and Thinc were not entitled to recover the supplemental payment. The Armstrongs had not appreciated the inconsistency between the assurances and the contract and would not have entered into the contract if they had. By the time the Armstrongs received the contract dealing with the supplemental payment, they were already committed to Thinc.
Thinc appealed to the Court of Appeal. The Court of Appeal dismissed the appeal. The assurances given to Mr and Mrs Armstrong that the only condition attached to the supplemental payment was that they stayed with Thinc for three years was a collateral warranty that superseded the express terms of the contract.
IMPLICATIONS
This case clearly demonstrates the importance of including an “entire agreement” clause in a contract, particularly where there have been protracted negotiations before the contract is signed. Although in this case the contract was for services, the same issues may arise in the context of an employment contract.
Senior employees will often seek to negotiate golden handshakes or parachutes, and the circumstances in which those are payable or repayable will be crucial, particularly where large sums are involved. If oral assurances are given and the employee relies on those assurances when entering into the contract, the oral promises may prevail over the express written terms of the contract, in the absence of an “entire agreement” clause.
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Gurpreet Duhra, partner, DLA Piper
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