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Oh No, the ‘Entire Agreement’ Clause is Missing!

Oh No, the ‘Entire Agreement’ Clause is Missing!

Thinc Group v Armstrong and another [2012] EWCA Civ 1227

The facts

Thinc, a company which conducts its business in the financial sector, sought to recruit the Armstrongs as self-employed financial advisors under a contract for services, as part of its plans to expand.

In 2007 it was orally agreed between the parties that Thinc would purchase from the Armstrongs their portfolio of existing clients for a supplementary payment of £243,052, as payable pursuant to the agreement. Within those negotiations, it was repeatedly assured by Thinc, enough to have induced the Armstongs to enter into the agreement, that this supplementary payment came attached with only one condition. The sole condition was for the Armstrongs to remain with Thinc for a period of no less than three years.

Subsequently, in 2008, the parties entered into a written agreement. However, a supplementary agreement, which formed part of the contract, provided Thinc with rights contrary to those negotiated earlier in 2007, including the right to terminate the contract on notice for ‘whatever reason’ and a right of repayment of the supplementary sum should the contract be terminated within the three year window. The written agreement, however, failed to include therein a clause which represented the entire agreement (the ‘entire agreement’ clause).

The sole condition was for the Armstrongs to remain with Thinc for a period of no less than three years.

In 2009 Thinc terminated its agreement with the Armstrongs, on notice and before the expiration of the three years. The decision to terminate the agreement was due to the defendants’ failure to meet the income requirements as had been estimated within Thinc’s plans for growth. Thinc brought a claim for repayment of £243,052, representing the supplementary sum.

The decision

Agreeing with the decision of the High Court, the Court of Appeal emphasised that the assurance offered by Thinc amounted to a collateral warranty and this superseded the written express terms of the contract. Because the written agreement was absent of an entire agreement clause, the negotiations of 2007 amounted to collateral warranties and thereby prevented Thinc from retrieving the supplementary sum.

The Court of Appeal affirmed that the only condition which attached to the supplementary sum was for the Armstrongs to remain with Thinc for the full three years. The only circumstance which would allow for Thinc to retrieve the supplementary sum would be if the Armstrongs themselves terminated the agreement within the three years. To give the agreement the construction in favour of Thinc and allow the company the right to recover should they decide to end the agreement would ‘undo the very basis on which the Armstrongs were willing to join Thinc’. [1]

The claimant’s appeal to the Court of Appeal was dismissed.

Comment

It is difficult to conceive, in the absence of an entire agreement clause, that the assurance given by the claimant amounted to a collateral warranty even when the written agreement made provision for a ‘no reliance’ clause in attempts to remove any liability that may have attached to those earlier representations.

… the Court of Appeal emphasised that the assurance offered by Thinc amounted to a collateral warranty and this superseded the written express terms of the contract.

In the context of this case, the decision itself may not have been illogical or unjust. In fact, it seems quite the opposite. First, the no reliance clause did not remove the possibility of there being a collateral warranty attaching to those representations. Accordingly, the defendants were in the position to have placed reliance on those assurances. [2] Second, to have allowed the claimant to succeed in their construction would, it is argued, have added yet another condition for the defendants to adhere to in order for them to have kept hold of the supplementary sum; a condition which the defendants would not have accepted. Thus they would not have entered into an agreement with the claimant. The condition here would have required the defendants to meet Thinc’s income requirements.

Had the defendants been made aware of this requirement, then their failure to have reached those targets would put the claimant in a secure enough position to terminate the contract, through no intentional fault of the defendants. Had they met the income requirements, should the estimates not have been tampered with upon them meeting them, it is submitted, that the claimant could find yet another reason — one which the defendants would have been made unaware of — to terminate the contract and retrieve the supplementary sum. The Court moved awkwardly through position of collateral warranties in this case and felt that the supplementary payment in fact should represent the price for the goodwill the Armstrongs would bring to Thinc in the form of new business.

On the one hand, to incorporate the entire agreement clause inevitably avoids a ‘construction that is so unreasonable and so uncommercial’. [3] However, the absence of an entire agreement clause in this case avoided the claimant’s ‘…unreasonable, and… uncommercial’ construction, and it may be more beneficial for it to be missing in an agreement should the next client find themselves in a position not that different from Armstrongs. The implications of this case are strong and extend into the realms of employment agreements where ’employees would often seek to negotiate golden handshakes or parachutes’ [4] and the need for an entire agreement clause could be grand.

 

Mohammed Saleem Tariq received his LLB with Honours at the University of Liverpool, LLM in International Commercial Law at the University of Nottingham, and has since become an ADRg Accredited Civil and Commercial Mediator. He is pursuing the BPTC at BBP Law School in Holborn, London. His interests are sparked by the current trends and ongoing developments in the field of commercial law.

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