Lord Justice Rix :
- The appellant, Thinc Group Ltd ("Thinc"), recruited the respondents, Mr and Mrs Armstrong, to join them as self-employed advisers in the provision of financial services under a contract for services. To induce them to join the company after operating independently for many years in building up their own business, Thinc offered the Armstrongs a so-called "disturbance allowance" or "supplemental payment" based on (50% of) the Armstrongs' last year's gross income. In effect, this payment was to compensate the Armstrongs for bringing to Thinc their client base of 10,000 clients and the prospect of recurring as well as new commissions from that clientele. Although the contract between Thinc and the Armstrongs was not so expressed, in commercial terms Thinc was buying the goodwill of the Armstrongs' business. The supplemental payment concerned was £243,052.
- In the protracted negotiations between the parties, the Armstrongs wished to be assured in the clearest terms, and repeatedly so, whether any and if so what conditions might be attached to this payment. Were there any conditions under which it might have to be repaid? In the main the negotiations were conducted orally, between Ashley and Helen Armstrong on the one hand and, for Thinc, Mr Nicholas Boyle, at the relevant time its commercial director with particular responsibility for recruitment, and Ms Julie Martin, then director of area recruitment and development manager in Northern Ireland. However, there is some contemporaneous written record of the negotiations. At one point, Helen Armstrong sent an email to Ms Martin dated 23 August 2007, on the eve of a meeting the following day, listing questions she and Mr Armstrong wished to know the answers to. One of the questions was: "Upfront payment – are there any conditions?" Mrs Armstrong wrote the answers to the questions on to her copy of the email which she brought to the meeting. The answer to that question was "Stay 3 years only". Mrs Armstrong's evidence at trial was to that effect. She said (at para 23 of her witness statement):
"I checked this payment repeatedly with both Julie Martin and Nick Boyle and was told that the only stipulation was that we had to remain with the company for three years. However, this was not a worry as one of my drivers for even considering this further was the Adviser Annuity Scheme, which I could not access for 3 years so I did not want to move on. I wanted any move at that stage to most definitely be my last one."
Mr Armstrong gave similar evidence. There was no evidence to the contrary from Ms Martin and Mr Boyle. Indeed, they were witnesses on behalf of the Armstrongs.
- And so the judge, HH Judge Stephen Davies, sitting as a judge of the high court in the Liverpool mercantile court, found as a fact (at para 63(2) of his judgment) that –
"Mr Boyle and Ms Martin, knowing all this, intended to and did re-assure the defendants by stating that the only condition for the [Armstrongs] to retain the supplemental payment was that they stayed with [Thinc] for 3 years (emphasis added). That, as I have said, amounted to a clear statement that [Thinc] would not be able to recover the supplemental payment unless the [Armstrongs] terminated the principal contract."
The judge went on to hold that these assurances were a collateral warranty which prevented Thinc from recovering the payment when, within the three years, Thinc gave notice to the Armstrongs terminating their service contract.
- Thinc now appeals against that judgment, submitting that it was unfair and wrong. It was unfair, submits Mr Gavin Kealey QC on behalf of Thinc, because the collateral warranty was neither pleaded, nor the subject of evidence, nor the subject of submission. The first that Thinc knew of it was in the judge's judgment. It was wrong because no such assurance was ever given or understood in those terms, and it followed that there could have been no reliance on it. If any such assurance was given, it meant no more than the written contract between the parties provided, namely that the payment was repayable if for any reason at all, including Thinc merely serving notice of termination without cause, the parties parted company.
- The question on this appeal is whether those submissions are correct.
The parties and their negotiations
- Thinc is the claimant in these proceedings. It carries on business in the financial services sector. It is part of the Bluefin Group, which is itself a subsidiary of the AXA group, one of the largest insurance companies in Europe. It trades under the name of "Bluefin". In 2007 and 2008 Thinc was seeking to build up its presence by recruiting independent financial advisers, to be known as self-employed members of its "national adviser team". The judge referred to this as a period of "aggressive growth".
- The Armstrongs were at that time a married couple in their late fifties who were both financial advisers of considerable experience, established over some two decades. They had successfully built up their own financial adviser business. They operated their business through a company which they had renamed Paradigm Wealth Management Limited ("Paradigm"). They were, however, seeking to commit less of their time and effort to Paradigm. Mr Armstrong wished to devote more of his energies to a finance and property consultancy business he had recently created. Mrs Armstrong was about to become a grandmother twice over. Mr and Mrs Armstrong were both beginning to look forward to their retirement. The judge found:
"They believed, and their belief was shared by [Thinc], that they had a valuable asset in their client base which [Thinc] would be interested in securing, both because of the servicing rights and the prospect of new business from the existing client base. So far as the latter was concerned, it is common ground that there was a specific discussion about [Thinc] appointing employed representatives to assist the [Armstrongs] in securing new business from the existing client base, on the basis that the [Armstrongs] would still receive a percentage of the commission obtained on any such new business. The [Armstrongs] were also interested in an adviser annuity scheme promulgated by [Thinc] under which there was a prospect of the [Armstrongs] receiving annuity payments on their retirement."
- Mr Boyle and Ms Martin of Thinc began their courtship of the Armstrongs in 2006. Then, and again in early 2007, they attempted unsuccessfully to persuade them to join Thinc's wealth management division. In the summer of 2007, they tried again, using for the first time the inducement of a substantial introductory payment.
- It was important to the Armstrongs to know what if any strings might be attached to such a payment. For instance, since it reflected the purchase of the goodwill of the Armstrongs' client base, could it be recouped if that client base produced too little income? The Armstrongs were repeatedly assured there were no minimum income requirements, and that the only condition was that they stay with Thinc for three years. The Armstrongs were pressurised to put in their applications before the end of August 2007 with the prospect that otherwise the supplemental payment was being reduced. Even after the applications were submitted, the Armstrongs continued to seek these reassurances against the background that they wanted Thinc to understand that they were seeking a route to retirement, not to renewed commitment. They were assured that not only Mr Boyle and Ms Martin knew of their plans, but that that was so of Thinc's other senior managers and board.
- The judge accepted the Armstrongs' evidence that they would not have signed the contract had they not received such assurances from Thinc. The judge concluded that it was clear from their evidence that the assurances regarding the absence of minimum income requirements and the absence of any conditions for repayment of the supplemental payment went together.
- I have already referred to the confirmatory evidence to be obtained from Mrs Armstrong's email of 23 August 2007, with her manuscript addition of "Stay three years only" to the question "Upfront payment – are there any conditions?" That was the answer given at the meeting on 24 August.
- On 29 August 2007 Ms Martin wrote to the Armstrongs to confirm the "broad outline of our proposed offer", setting out the salient terms of the proposals. Reference was made to the disturbance allowance and how it was calculated, but nothing was said about any liability to repay it.
- The matter of any minimum income requirements assumed importance by the time of trial, because on 19 June 2009 Thinc had issued a termination notice to the Armstrongs, purporting to terminate their contracts on notice (ie not for cause), but giving as its reason ("The reason for our decision") the suggestion that "your issued production" for the first few months of 2009 (up to April/May, but inaccurately stated to be 2008) "falls considerably below our standards required".
- Among many other issues at trial was whether Thinc was entitled to do that, or had repudiated its contract. There was a counterclaim by the Armstrongs against Thinc.
- Mr Boyle and Ms Martin gave evidence for the Armstrongs against their former employer Thinc. In his first witness statement, Mr Boyle said this:
"Although [Thinc] had no minimum income standard at the time of recruitment, i.e. specific levels of business to be written at the time of recruitment, the anticipation was that even if there was there would be a sufficient level of recurring income to cover this (the minimum standard being suggested was £50k per adviser and the recurring income was £168,000 between the [Armstrongs]. This point was raised on a number of occasions by the [Armstrongs] as it was a major issue for them and confirmed by myself and Julie Martin."
Ms Martin gave the same evidence.
- Mr Boyle also said (in his second witness statement): "I also discussed with the [Armstrongs] that the contract required advisers to remain with the company for a minimum of three years and this fitted very well with the [Armstrongs'] plans to retire over the next 3 to 5 years." Neither he nor Ms Martin were cross-examined about this.
- Mr Boyle was cross-examined about minimum income requirements. He said that he believed that since 2003 Thinc's rules required a certain production level to be achieved, which he understood was £50,000 per annum but that this rule had never been used to justify termination. However he said in re-examination that he had no real knowledge of the position contractually. That was confirmed by Ms Martin who explained that she had more familiarity with the details, while Mr Boyle was more interested in the bigger picture. She confirmed that there were no minimum performance requirements, but she was aware that there were ongoing discussions at board level about introducing some, and that the figure then under discussion was £50,000. She said that she had told the Armstrongs that this was a possibility, and this chimed with the Armstrongs' evidence that "there were no minimum requirements, but that it could be notionally £50,000 issued business (the definition of which included new business and recurring income)." Thus the evidence of the Armstrongs and of Mr Boyle and Ms Martin was essentially consistent on these themes.
- The judge set out his conclusions as to pre-contractual discussions in these terms, at his para 57:
"In short, even though it is not supported in every particular by Mr Boyle and Ms Martin, nonetheless I accept the [Armstrongs'] evidence and find that (1) in the course of lengthy discussions with Mr Boyle and Ms Martin they were open about their plans, and in particular their intention to spend less time on their financial adviser business, which inevitably would result in their writing less new business in the future; (2) despite this, Mr Boyle and Ms Martin were still very keen to sign the [Armstrongs] up as national advisers, because [Thinc] was extremely interested, based on the figures provided by the [Armstrongs], in taking over the existing client base and the servicing rights associated therewith; (3) the [Armstrongs] specifically and repeatedly raised with Mr Boyle and Ms Martin the questions of what conditions were attached to the supplemental payment, and whether there was any minimum [performance] obligation, whether for new business or generally, in circumstances whereby Mr Boyle and Ms Martin must have known that the [Armstrongs] regarded these issues as being of great importance to their ultimate decision; (4) so far as the former was concerned, they were repeatedly assured in terms by Mr Boyle and Ms Martin that the only condition was that the [Armstrongs] should stay with [Thinc] for 3 years; (5) so far as the latter was concerned, they were assured that there was no formal minimum performance requirement, but that there was a proposal to bring in a minimum performance requirement, with the figure currently under discussion of £50,000 but that this was not a contractual requirement and would include repeat income from business already written as well as new business; (6) all parties considered that, based on the [Armstrongs'] pre-existing repeat income figures, they should have no difficulty in meeting that minimum performance requirement."
- There was no evidence to the contrary from Thinc, for the Armstrongs and Mr Boyle and Ms Martin comprised all four parties to the negotiations. The judge also said this about the witnesses before him: that his impression was uniformly favourable, and that they all came across as honest and truthful witnesses, largely seeking to assist the court as best they could rather than seeking to promote their own case or that of their employer or to pursue private grievances. As for Mrs Armstrong, the judge said this:
"Mrs Armstrong came across to me as an impeccably honest, knowledgeable, convincing and reliable witness…She was perfectly willing to accept points made to her in cross-examination where she considered them to be well-founded, and did not seem to me to seek to embellish her evidence to support her case."
Of Mr Armstrong, the judge said: "Overall I formed a very favourable impression of Mr Armstrong as well, and I repeat my overall assessment of Mrs Armstrong so far as he is concerned."
The contracts
- The difficulty in the case arose from the fact that the contracts entered into by the Armstrongs were not in line with these assurances, for the contracts purported to give Thinc the right to terminate the contracts at any time on notice without cause and specifically provided that if for any reason the contracts were so terminated within three years, then the supplemental payment was repayable. Since Thinc's primary claim in these proceedings was for the repayment of the supplemental payment, it was of the essence of that claim that Thinc should be able to say that the contracts superseded the assurances given to the Armstrongs by Mr Boyle and Ms Martin, and that the Armstrongs should not be able to say that the assurances superseded the contracts as warranties collateral thereto. I put the structure of the argument, not the burden of proof.
- There were in all three contracts. The first in time, which I shall call the "principal contracts" were addressed to Mr and Mrs Armstrong separately. The second in time, which I shall call the "supplemental contract" (dealing with the supplemental payment), was addressed to Mr and Mrs Armstrong together. The judge used similar expressions to describe the contracts.
- Although the Armstongs' applications, on Mr Boyle's and Ms Martin's urgings, were submitted at the end of August 2007, nothing happened for a while thereafter. The primary contracts were signed on 6 March 2008, and the supplemental contract was forwarded to the Armstrongs on 21 April 2008 and signed some time thereafter but before 25 April 2008. The judge made findings about the reason for these delays. Matters were first put on hold because Mrs Armstrong was fully occupied with the birth of the two grandchildren. For that and other logistical reasons the Armstrongs were unable to attend an induction programme arranged for new advisers until January 2008. Then full FSA authorisation had to be arranged. FSA approval did not arrive until early April 2008, and the judge found that the contract did not come into effect until then. The further delay until the forwarding of the supplemental contract was because Thinc was working through the process of confirming the Armstrongs' turnover for the purpose of calculating the supplemental payment. The judge added (at para 50):
"What is important for present purposes is, as I find, that at no time from late August 2007 to early March 2008 were there any further negotiations or discussions in relation to the principal contract, save that, as the [Armstrongs] said in their witness statements, there was a further meeting with Mr Boyle, apparently in December 2007, where they were assured that there was no problem."
- The principal contracts were headed "Your Registered Individual's Contract with Thinc". The contracts were eleven single spaced pages long, plus a number of schedules. They contained no performance requirements or targets. On the contrary, clause 2.2 stated that "You will not be obliged to undertake activity in relation to your Business, for example by giving advice or making sales, but, if you do, you must do so in accordance with this Contract and the general law." However, any such activity had to be performed exclusively for Thinc and under its name, and the rewards for such activity were spelled out in a schedule. Clause 6, headed "Duration and Termination", provided for (1) termination on three months' notice by either party; (2) automatic termination in the case of standard events such as insolvency; (3) summary termination by Thinc for cause, such as breach of warranty. Clause 6.4 stated that "On termination, whatever the reason and whichever party terminated the Contract", the provisions of Schedule 1 would apply. Nothing in either clause 6 or in Schedule 1 said anything about the return of the supplemental payment. However, following termination for whatever reason, there were restrictive covenants curtailing what the Armstrongs could do for a period of 12 months, such as soliciting any Thinc customer, save for the Armstrongs' prior clientele, ie "Adviser's Clients on Joining".
- Clause 9.3 provided for an acknowledgment by the Armstrongs that they had "relied on no representations in entering into this contract except for any written representations that are appended to it". By the end of the trial, however, Ms Muth, who had appeared on behalf of Thinc, accepted that this was not the equivalent of an "entire agreement" clause (see the judge's judgment at para 35). I understand from that a concession that clause 9.3 did not exclude the possibility of a collateral warranty. It was not submitted on appeal that it did.
- The supplemental contract was headed "Supplemental Offer for Helen & Ashley Armstrong". It provided as follows:
"1. Relationship with Your Thinc Group Limited Contract
...
1.3 The terms of this letter (your "Supplemental Offer") will, if you accept it, be incorporated in your Thinc Group Limited Contract. Except to the extent that your Supplemental Offer expressly provides otherwise, its terms will supplement, but not derogate from, Thinc Group Limited's rights under your Thinc Group Limited Contract.
2. Amount and Timing of Supplemental Payment
2.1 Your Supplemental Payment will be £.243,052.00
2.2 It will be payable to you in a single instalment no more than 30 days after you enter into your Thinc Group Limited Contract.
2.3 If any of the events which would cause the first Supplemental Payment to become repayable (see in particular 4 below) occur before it is paid to you, it [will] cease to be payable to you.
3. Supplemental Payment to be Non-Repayable if You Stay With Thinc Group Limited
Subject to the following provisions, Thinc Group Limited does not intend to ask you to repay your Supplemental Payments.
4. Repayment Events
4.1 If any of the following events ("Repayment Events") occurs within three years of the date on which Thinc Group Limited has made your first Supplemental Payment (the "Write Off Period"), the first Supplemental Payment will be repayable.
4.2 The Repayment Events are:
(a) termination of your Thinc Group Limited Contract, or notice to terminate it having been given, whatever the reason for termination or notice, and whether you, or Thinc Group Limited, terminated your Thinc Group Limited Contract or gave notice to do so; and/or
(b) any event which gives, or would give, Thinc Group Limited the right to terminate your Thinc Group Limited Contract, whether or not Thinc Group Limited exercises that right; and/or
(c) you (and if you are a company or partnership any of your directors or partners), selling any financial product or service in competition with, or of the same kind as, any sold by, or by any person on behalf of, or marketed by or through, Thinc Group Limited; or you (and if you are a company or partnership any of your directors or partners) being involved in the management or direction of any person or business that sells any such financial product or service.
4.4 For the avoidance of doubt, if a Repayment Event occurs, repayment will be due without Thinc Group Limited's having to make any demand.
4.5 If a Repayment Event occurs and, for whatever reason, Thinc Group Limited is not promptly repaid and/or takes no action to secure repayment:
(a) this will not prejudice Thinc Group Limited's right to repayment in respect of either the Repayment Event in question or any other;
(b) passage of time will not extinguish the right to repayment;
(c) inaction on the part of Thinc Group Limited will not prevent the charging of interest under 4.6 below.
For the avoidance of doubt, in order to be effective, any waiver must be in writing, signed by a director of Thinc Group Limited.
4.6 On the occurrence of a Repayment Event, the first (And, if at the time of the Repayment Event it has been made, second) Supplemental Payments, plus a sum equal to interest at the rate of 6% per annum, in relation to each Supplemental Payment, added daily (but compounded annually) as from the date on which the relevant Supplemental Payment was made to you, will immediately be treated as a debt under your Thinc Group Limited Contract; and, in particular, interest will immediately begin to be charged on the relevant balance, under the terms of your Thinc Group Limited Contract."
- Thus, under this clause, a Thinc adviser such as Mr or Mrs Armstrong may become liable to repay their supplemental payment, together with interest, even if Thinc chooses for any or no reason to give notice without cause to terminate the contract (clause 4.2(a)); and even if Thinc, having a right to terminate the contract (query with cause or merely on notice?), does not do so (clause 4.2(b)); and even without making any demand for repayment (clause 4.4); and even if some company or partnership colleague in error or ignorance sells some service "of the same kind" as sold by any person on behalf of Thinc (clause 4.2(c)); and even if (subject I suppose only to a six year limitation period) Thinc does nothing whatsoever to reclaim the supplemental payment (clause 4.5): as long as any of these repayment events (many of which may occur silently and without anyone noticing anything) occurs within three years of payment of the supplemental payment. Moreover, the right to repayment arises in all these circumstances, even though the commercial logic of the supplemental payment is that it is payment for the goodwill of the joining adviser's clientele, as well as for the novation to Thinc of the right to receive commissions recurring on past business transacted by the joining adviser for such clientele.
- One of the issues at trial was whether clause 4 of the supplemental contract was a particularly unusual or onerous clause which could not be said to become part of a contract unless the party seeking to include it has done sufficient fairly to bring it to the attention of the other party, under the doctrine of Interfoto Picture Library v. Stiletto Visual Programmes [1989] QB 433. The judge, who cited the clause in his judgment only down to clause 4.2(a), said that however commercially unwise it would be to agree such a clause (which, however, is not I think the point of the Interfoto doctrine), it could not conceivably be said that the clause fell within the doctrine (at para 76). There is no appeal from that holding, and so I accept that the clause is not within that doctrine. However, in dealing below with Thinc's submission that the assurances given to the Armstrongs should be regarded as consistent with rather than as superseding the terms of the supplemental contract, I consider that the court is entitled to have regard to the business sense of the arrangements as a whole.
- In that connection, I am puzzled that there appears to be nothing within either contract about the delivery of the Armstrongs' existing client base to Thinc as part of their contractual arrangements. It was common ground at trial that this was part of the essential logic of the transaction, and that as part of it there had to be a "novation" of rights to an income stream which product providers owed to the Armstrongs and the Armstrongs were now agreeing to cede to Thinc. The judge referred to this early in his judgment:
"10. It is common ground that [Thinc] was particularly interested in the [Armstrongs'] substantial existing client base (amounting to some 10,000 clients). This was of interest to [Thinc] not only because it represented a pool of potential repeat business, but also because the [Armstrongs] enjoyed contractual rights to payment of recurring initial commissions, and of renewal and trail commission, from particular financial services product providers where their clients had, acting on their advice, purchased relevant products from those providers. It was agreed that the [Armstongs] should transfer their rights to this future income ("servicing rights") to [Thinc] and, in order to make this effective, that [Thinc] should undertake the administrative process of procuring the providers to effect the transfer of those servicing rights."
Servicing rights are referred to in clause 8 of the principal contracts, but only in the context of post termination consequences.
- It follows that I cannot find where an essential aspect of the overall arrangements between Thinc and the Armstrongs was dealt with in the contractual documents; and that is both a matter of concern to me, but also seems to reflect a situation where the whole transaction between the parties was not committed to writing and was not to be found in the signed contracts. Be that as it may, there seems to be no doubt that it was the essence of the contract which Thinc submits that it made with the Armstrongs that it would obtain the Armstrongs' client base and rights to a commission stream and would be entitled at one and the same time (a) to retain both even after termination and (b) to recover the supplemental payment after termination, provided it merely gave notice to terminate (without need for any cause) within three years (or provided that any other repayment event occurred within those three years). One of the issues raised by the Armstrongs at trial under their counterclaim was that Thinc was obliged to "re-novate" their client base and/or the servicing rights back to them: but the judge rejected that submission as being utterly inconsistent with the principal contract (at para 35) and there is no appeal from that.
- It will have been observed from the chronology of the negotiations and contracts referred to above (ie negotiations completed by late August 2007, principal contracts signed on 6 March 2008, and supplemental contract signed towards the end of April 2008), that the transaction was long drawn out, and, in particular, that it is understandable, if the Armstrongs did not read the supplemental contract carefully, that they failed to realise the flaw in these arrangements regarding the supplemental payment. The principal contract may have said that Thinc was entitled to give three months notice at any time, but it said nothing about the supplemental payment. The supplemental contract may have spoken of repayment events, but it did not contain the basic clauses regarding termination. Moreover, clause 3 of the supplemental contract stated in bold lettering that "Supplemental Payment to be Non-Repayable if You Stay With Thinc Group Limited". Thereafter the supplemental contract had to be read carefully, together with the principal contract, to realise what absurdly broad rights to repayment the supplemental contract purported to give to Thinc despite that bold lettered rubric.
- In this connection an issue might have been raised as to whether the Armstrongs had read the supplemental contract carefully. As to this the judge's findings were that they had not and had not appreciated the inconsistency between contract and assurances. The judge made this point in a number of places. At para 49 he said this:
"There was no suggestion that the [Armstrongs] had been provided with a copy of a draft of the principal contract, which appears from the footnote to have been produced in February 2007, or with a copy of the draft of the supplemental contract, at any time other than shortly before they were first sent to them for signature. It was not suggested to them that they had actually read the contracts before signing them, or that at the time they entered into the contracts they were aware that the true effect of those contracts was that it was open to [Thinc] to give notice of termination at any time within the initial 3 year period, thereby triggering an entitlement to be repaid the supplemental payment, without having to give any justification for its decision."
At para 63(5) he said:
"I am quite satisfied that the [Armstrongs] would not have entered into the principal contract or the supplemental contract had they known the true position, because they would have appreciated how exposed they were to a claim for repayment of what was on any view a substantial amount at the sole and unfettered discretion of the claimant."
At para 63(6) he said:
"Because the draft principal contract and the draft supplemental contract were sent and signed at different times, the former before the latter, it would not have been apparent to the [Armstrongs] from a perusal of the former alone that it was inconsistent with the assurances they had received."
At para 63(7) he said:
"By the time the supplemental contract was provided as a draft, the [Armstrongs] were already committed to [Thinc]…In those circumstances, it is not surprising that the [Armstrongs] did not read the supplemental contract carefully with the principal contract, and appreciate that it allowed [Thinc] to terminate without cause on notice and recover the supplemental payment in full."
There is no appeal from these findings.
- The judge also said this, as to reliance:
"58. I also find that if the [Armstrongs] had not received the assurances set out in the previous paragraph at (4) and (5) they would not have entered into the principal contract or the supplemental contract with [Thinc]."
The collateral warranty found by the judge
- In this context, the judge founded on those assurances set out at para 57(4) and (5) of his judgment. They are cited in my [18] above as part of his findings on the evidence of the witnesses before him as to the state of the pre-contract negotiations. To recap, they are that "(4)…the only condition [attached to the supplemental payment] was that the defendants should stay with the claimant for 3 years; (5)…there was no formal minimum performance requirement…". The judge had to decide how to interpret those assurances, and whether to give them the status of a collateral warranty. There was, or ought to have been, no problem about the second of those assurances, for there was nothing in the contract which imposed any minimum performance requirement. However, its relevance was that although Thinc had purported to terminate the Armstrongs' contracts and thus to claim repayment of their supplemental payment on notice, ie without the need for any cause, it had cited the failure to generate sufficient income over the early months of 2009.
- There were a number of ways in which the judge could, at any rate in theory, have viewed the assurance in his para 57(4). He could have said that it simply failed to meet the demanding standards for a collateral warranty. He could have concluded that it did potentially have that quality, but that it meant nothing more than the supplemental contract would in due course provide: namely that there would be no obligation to repay the supplemental payment if the Armstrongs remained attached by their contracts as advisers to Thinc for a period of three years, but leaving open the whole raft of possibilities through which the Armstrongs might lose their contracts (some more foreseeable than others). Or he could have concluded that in context the meaning was that it was only if the Armstrongs chose to leave Thinc within those three years that they would be obliged to repay the supplemental payment. Or he might have favoured a position somewhat in between the previous two, and said that it meant that there would only be an obligation to repay if they failed to remain because of some fault or action of their own, such as either choosing to leave or committing some act or breach which entitled Thinc to terminate their contracts.
- What the judge chose to do was to ask himself the questions raised specifically by the facts and assertions of the case. Thinc was claiming repayment of the supplemental payment. It did so on the basis that it had terminated the contract on notice pursuant to clause 6.1 of the principal contract, ie without cause, although it cited in its notice letter a failure of generation of sufficient income. The judge therefore asked himself the question: Was an obligation to repay the supplemental payment in such circumstances consistent with the assurances which he had found had been given?
- The judge thus addressed the question of the meaning of the assurances given first, and then later moved on to the additional question of their status.
- As to that first question, the judge answered it as follows:
"59. Importantly, I also find that it was an obvious inference or necessary implication from the express assurances given by Mr Boyle and Ms Martin that [Thinc] would not be entitled to repayment of the supplemental payment by terminating the principal contract on the grounds of the Armstrongs' failure to write a minimum quantity of new business within the 3 year period. It must also follow in my judgment by the same reasoning process that it was an obvious inference or necessary implication that [Thinc] would not be entitled to repayment by terminating the principal contract on notice for no reason. What I mean is that I am satisfied, and I find, that the words used by [Thinc's] representatives, when considered on an objective basis having regard to the circumstances in which they were made, conveyed a clear assurance that the only circumstances in which [Thinc] would be entitled to repayment of the supplemental payment would be where the [Armstrongs] themselves terminated the principal contract within the first three years. It is irrelevant in my judgment that words in those precise terms were not used, because I am satisfied that the effect of what was conveyed was the same as if those words had been used."
- What is the judge saying here? In my judgment, he is principally answering the questions posed by the facts of the case, and asking himself whether Thinc's subsequent position is consistent with the assurances which he finds it to have given. At the end of that paragraph he appears to go further and state that the only circumstance for repayment consistent with the assurance in (4) is where the Armstrongs themselves terminated their contracts within the period in question. However, a subsequent passage in his judgment at para 66 would suggest that he was still thinking within the confines of the factual scenario of the case. Thus at para 66 he said:
"the plain fact is that [Thinc] gave clear assurances in August 2007 and cannot now rely so as to deprive those assurances of effect on difficulties caused by the particular terms of the termination provisions of the principal contract, which were not even before the parties at the time the assurances were given. If the end result is that in other, now necessarily hypothetical, circumstances, [Thinc] would also have been prevented from recovering the supplemental payment even if it had terminated the contract for cause under clause 6.3, or even if it had been able to show that the [Armstrongs] had failed to write £50,000 of business each in the first year, then it cannot use that as a justification of depriving the assurance of legal effect in circumstances where it was intended to have effect."
- What the judge is saying there is that how the assurances would operate as collateral warranties in other hypothetical circumstances can be left for another occasion. He only had to decide the case on the facts before him. As for any point arising from the "notional" £50,000 target, the judge dealt with that separately. It arose in this way. The Armstrongs said that Thinc had been in breach of contract in terminating their contracts under clause 6.3 for cause (namely failure of performance) when it was not justified in doing so. The judge pointed out that Thinc had terminated under clause 6.1 on notice without cause. If however it had been necessary for him decide about any failure on the part of the Armstrongs by reference to a minimum performance requirement, he would have held that there was no right in Thinc to terminate for cause on such a ground, for a raft of separate reasons, beginning with the absence of any minimum performance obligation and continuing with findings that on any view the Armstrongs had met any requirement that could have been based on that notional target of £50,000 (see para 73).
- Having established a meaning and effect for the assurances relevant for the purposes of answering the needs of the case, the judge went on to ask whether a collateral warranty had been created with the effect of superseding the terms of the contracts. He directed himself by reference to a summary of the law in relation to collateral warranties contained in Chitty on Contracts, 30th ed, at paras 12-003 to 12-005, and to two modern cases cited by Ms Muth on behalf of Thinc, namely Inntrepeneur Pub Co v. East Crown Ltd [2000] 2 Lloyd's Rep 611 and Peekay Intermark Ltd v. ANZ Banking Group Ltd [2006] EWCA Civ 386. He concluded that, especially in a case where the contracts had been signed, he "must be very careful" before finding that the assurances which he had found amounted to collateral warranties which would supersede the terms of the contracts which the Armstrongs had freely signed (at paras 61/62).
- The judge concluded, nevertheless, that the Armstrongs' collateral warranty defence against the claim for repayment succeeded. At para 63 he considered the factors in favour of the assurances having the status of a collateral warranty. At para 69 he considered the counter-arguments. In favour of a collateral warranty he stressed the following factors: (i) the context of the negotiations, including the facts that the offer of the supplemental payment was critical to the deal, and that the Armstrongs had made it plain that they were not willing to enter into a deal if it committed them to write a substantial amount of business or entitled Thinc to recover the payment for failure to do so; (ii) the assurances repeatedly given by Mr Boyle and Ms Martin to convince them that the only condition for retention of the supplemental payment was that the Armstrongs stayed with Thinc for three years; (iii) Mr Boyle was a senior director and Ms Martin a senior manager with Thinc; (iv) there was no draft contract available in August 2007 when these assurances were given and when the Armstrongs, persuaded by them and by the urgings of Mr Boyle and Ms Martin, applied to join Thinc, thus taking their decision in principle; (v) nothing occurred in the interim between August 2007 and the signing of the principal contracts in March 2008 to suggest that the basis upon which their decision had been taken had changed in any way; (vi) the Armstrongs would not have entered into the transaction if they had known the position under the contracts for they would have appreciated how exposed they would have been "at the sole and unfettered discretion of [Thinc]"; (vii) because the principal contracts and the supplemental contract came forward at different times, the Armstrongs would not have appreciated from the principal contracts alone that the combination of principal and supplemental contracts was inconsistent with the assurance which had been given about the absence of any other conditions regarding repayment; (viii) it was understandable that the Armstrongs did not read the supplemental contract carefully with the principal contract so as to realise that Thinc could recover the payment simply by terminating their contracts without cause on notice; (ix) while the Armstrongs were experienced in financial matters, they would also place great store in what they were told by people whom they believed they could trust.
- The judge then dealt with a number of counter-arguments and gave reasons why they were not compelling.
- He then concluded as follows:
"For all of these reasons, therefore, I hold that there was a collateral warranty given by [Thinc] that it should not be entitled to demand repayment of the supplemental payment on the ground that it had terminated the principal contract by notice or otherwise within 3 years of the date of the supplemental payment, and that therefore either the claim as advanced is contrary to the terms of the supplemental contract as varied by the collateral contract, and must fail on that basis (by way of strict legal analysis, either because the terms of the supplemental contract were varied by the collateral contract, or by application of the defence of circuity of action), or [Thinc] is estopped from relying on its own termination of the principal contract to seek repayment of the supplemental payment, and the claim fails on that basis as well."
- Although in this conclusionary paragraph the judge expressed himself in these terms, it seems to me that the true collateral warranty which the judge found (assurance (4)) was that the only condition which attached to the supplemental payment was that the Armstrongs stayed for three years. He construed that to have the effect of saying that Thinc would not be entitled to claim repayment if it terminated within three years without cause (or by reliance on some minimum performance requirement). Alternatively, Thinc was estopped from asserting a right to repayment which was inconsistent with that assurance.
"No pleading"
- Thinc's first submission on appeal is that the judge's finding of a collateral contract defence was not open to him, because it was not pleaded. As Thinc's skeleton put it: "The first time that the defence was ventilated was in the Judgment itself."
- This submission, however attractively it came to be put, is incorrect. The Armstrongs' re-amended defence and counterclaim provided as follows:
"2. The First and Second Defendants aver that the Claimant has (i) acted in breach of a collateral contract made between the parties, and/or (ii) is estopped from claiming such a sum as a result of representations made to the First and Second Defendants by its servants and agents, or alternatively, without prejudice to the foregoing, (iii) has acted in breach of contract by wrongfully terminating the contract of the First and Second Defendants and thereby wrongfully sought to create a "repayment event". Save as aforesaid, paragraph 1 of the Particulars of Claim is denied.
3. The First and Second Defendants aver that they signed the "Registered Individual's Contract with Thinc" ("the Contract") and the "Supplemental Offer" in consequence and pursuant to the representations made to them and/or agreement was reached collateral to the Contract and the "Supplemental Offer"."
- There then followed, under the heading of "Particulars", particulars of the whole of the negotiations and their background and context, which included details about the assurance that the supplemental payment was "not conditional upon a requirement to create any new business", and led up to the following allegations:
"(d) A meeting took place on or about July/August 2007 between the First and Second Defendants and Julie Martin and Nick Boyle whereupon discussions as to the details took place, especially the requirements to justify the Disturbance Allowance and reclaim conditions. It was explained to the First and Second Defendants that as long as they remained with the Claimant for 3 years there would be no other conditions…
(f) It was agreed that the disbursement allowance [sc the disturbance allowance] would be paid by the Claimant on condition that the First and Second Defendants supplied the Claimant with the previous 12 months' proof of income. This allowance was paid up front and not to be paid back on condition that the First and Second Defendants stayed for three years". [Emphasis added]
- The defence and counterclaim later referred to Thinc's termination letter, pleaded that it was a wrongful termination of the Armstrongs' contracts, and stated by way of particulars inter alia that -
"(vii) Further, the Claimant is wrongfuly seeking to and acting inconsistently with the terms of the collateral contract and the First and Second Defendant seek a declaration estopping the Claimant from so acting."
- In the circumstances, I find the submission that the collateral warranty defence went unpleaded and that the "first time the defence was ventilated was in the Judgment itself" simply to be unhelpful. The Armstrongs' defence pleaded the critical assurances given (see particulars (d) and (f) under para 3, cited above) and relied on them for the purpose of a collateral warranty agreement which provided a defence to the claim for repayment. Since the plea was that the assurances constituted a collateral contract and that that collateral contract provided a defence to the claim for repayment, it was perfectly obvious what the Armstrongs were saying "the only condition" assurance meant: that Thinc was not able to use a different and further condition ("provided we do not terminate your contracts on notice for any reason whatsoever within the three years", or "provided we do not (wrongly) assert that you have broken minimum performance requirements which have never been agreed and use that as an excuse for terminating on notice without cause") in order to claim repayment. The language of the legal analysis can no doubt be put in a number of different ways, probably all or most of which will in these circumstances come to the same thing. However, such more refined legal analysis is not the stuff of pleadings.
- What, then, is Thinc intending to say in its detailed submissions under this first ground that the collateral warranty defence went unpleaded? At its broadest, Thinc appears to be submitting that the judge has acted unfairly (it is not said deliberately so, but I suppose it is suggested that he did so in error) by finding and acting on a defence which had simply not been put forward. Thus Thinc's skeleton submits:
"26. It is clear on the authorities that for a court or tribunal to determine a dispute on the basis of a case not put forward by a party or not raised by the court or tribunal is unfair and not permissible."
- That proposition probably needs no citation of authority, but nevertheless the authorities cited by Thinc's skeleton are instructive. We were referred first to The Vimeira [1984] 2 Lloyd's Rep 66 (CA), where a shipowner claimed damages from his charterer because of damage suffered by his ship as a result of being ordered to an unsafe port. The unsafety was alleged to consist in insufficient depth of water. However the arbitrators, while rejecting that case, instead fastened upon an entirely different factual case, unpleaded and unargued, and one which the arbitrators had not even raised with the parties. Robert Goff LJ said this:
"but the fact remains that the award was made on the basis of a point which was never raised as an issue or argued before the arbitrators. There is plain authority that for arbitrators so to decide a case, without giving a party any warning that the point is one which they have in mind and so giving the party no opportunity of dealing with it, amounts to technical misconduct and renders the award liable to be set aside or remitted… [at 74 rhc]
In truth, we are simply talking about fairness. It is not fair to decide a case against a party on an issue which has never been raised in the case without drawing the point to his attention so that he may have an opportunity of dealing with it, either by calling further evidence or by addressing argument on the facts or the law to the tribunal. In my judgment, the arbitrators in the present case failed to give that opportunity to the charterers in respect of an issue not raised in the arbitration that the turning space at the entrance to the dock was insufficiently wide" [at 75 lhc].
- We were also referred to Zermalt Holdings SA v. Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14, another case from arbitration. The arbitrator there was appointed to determine rent under a rent review clause and had relied on matters of his own expertise which had never been the subject of reliance or comment at the arbitration. Bingham J said (at 15 rhc):
"Nevertheless, the rules of natural justice do require, even in an arbitration conducted by an expert, that matters which are likely to form the subject of decision, in so far as they are specific matters, should be exposed for the comments and submissions of the parties. If an arbitrator is impressed by a point that has never been raised by either side then it is his duty to put it to them so that they have an opportunity to comment. If he feels that the proper approach is one that has not been explored or advanced in evidence or submission then again it is his duty to give the parties a chance to comment. If he is to any extent relying on his own personal experience in a specific way then that again is something that he should mention so that it can be explored. It is not right that a decision should be based on specific matters which the parties have never had a chance to deal with, nor is it right that a party should first learn of adverse points in the decision against him. That is contrary both to the substance of justice and to its appearance…"
- Now in the present case, the "specific matters" (to pick up Bingham J's expression) or the basis of the case (to refer to the characteristics of an unsafe port), here the foundation of the alleged collateral warranty, namely Mr Boyle's and Ms Martin's assurances, were at the heart of Mr Maguire's pleadings. In my judgment, the present case is a long way from The Vimeira and Zermalt Holdings. Moreover, a consideration of some of the other features of the trial which have been drawn to the court's attention in the course of argument, although to some extent prayed in aid by Mr Kealey, in my judgment go further to demonstrate that the allegation of unfairness is unfounded.
- I begin with Thinc's opening skeleton argument prepared for trial by Ms Muth, dated 6 October 2011. That deals at some length with the subject of collateral contract or warranty, but, by choosing to ignore paragraph 3 of the defence entirely, which is where particulars of the plea of the collateral warranty defence were given, Ms Muth found herself able to make the submission that the only assurance relied upon for this purpose was something not mentioned until para 8 of the defence, where the further plea was made that it was a term of the collateral contract that Thinc would use all reasonable endeavours to collect renewal monies. Apart from that, it was submitted that the collateral contract relied upon was not identified. Where Thinc was not in a position to gainsay the critical pleaded assurances as a matter of evidence, this approach was, if deliberate, no doubt good tactics, but it was nothing more than that.
- I turn to Mr Maguire's opening skeleton argument, also dated 6 October 2011. This is tied up with an amended draft pleading which was disallowed on the first day of trial (which I need to deal with below), and therefore requires some explanation. The matter of "collateral contract" was addressed at paras 12-14. Reliance was there placed on the assurances given by Mr Boyle and Ms Martin. The two main assurances which formed the centre of the judge's findings of fact on this issue (judgment at para 57(4) and (5)) were the subject matter of separate paragraphs of the skeleton. Thus the assurances relating to the absence of minimum performance obligations were dealt with at para 12. This was given some prominence because of the terms of Thinc's termination notice. The assurance dealing with the general absence of conditions regarding the supplemental payment was dealt with at para 14. The language of para 14 did not precisely match the relevant pleading, because sub-para (d) of the para 3 particulars had undergone a draft amendment, and para 14 of the skeleton reflected that new draft.
- The draft amendment was as follows (the amendments are underlined and the disputed amendment is both underlined and in italics):
"(d) A meeting took place on or about July/August 2007 between the First and Second Defendants and Julie Martin and Nick Boyle whereupon discussions as to the details took place, especially the requirements to justify the Disturbance Allowance and reclaim conditions. It was explained to the First and Second Defendants that as long as they remained with the Claimant for 3 years there would be no other conditions, as their renewals would cover the minimum business level requirements of a notional amount of £50,000 issued business each per annum, (which is evidenced by the First Defendant's handwritten notes) and that the First and Second Defendants' income stream was sufficient to cover any such requirements…For the avoidance of any doubt, the First and Second Defendants were led to believe that they would be permitted to remain in their posts for three years, barring any misconduct, as their renewal and trail streams were by themselves sufficient to satisfy the Claimant, particularly given the fact that there was no minimum income standard."
- Para 14 of Mr Maguire's opening skeleton reflected this new amendment, thus:
"14. 1D and 2D were led to believe by Julie Martin and Nick Boyle that they would be permitted to remain in their posts for three years (Nick Boyle was aware that 1D proposed to retire within 3-5 years [4/570], barring any misconduct, as their renewal and trail streams were by themselves sufficient to satisfy C, particularly given the fact that there was no minimum income standard."
- Thus, although Mr Maguire chose to emphasise the amended part of the para 3(d) pleading in his skeleton, it could not be said by any means that there was any abandonment of the original pleading. The disputed amendment was arguably making two new points however. First, the assurance was being relied on, but only by way of analysis ("for the avoidance of doubt"), proactively as well as defensively: that is to say that it was being said not only that there was an assurance relating to (the absence of) any other conditions as to the repayment of the supplemental payment, but also that it was implicit in that that it would have been a breach of contract to seek to terminate the contract in the way that Thinc had purported to do. Secondly, in this proactive context, it was being allowed that the assurance would not prevent a termination justified by misconduct ("barring any misconduct").
- As it happens, the disputed part of the amendment was disallowed, and a re-amended defence and counterclaim was brought into being which omitted the offending final sentence of para 3(d). Mr Kealey relies on that disallowance, but to my mind this episode merely serves to emphasise how much the original and remaining defensive pleading regarding the assurance given by Mr Boyle and Ms Martin was at the heart of the Armstrongs' defence at trial. To repeat that critical pleading; "as long as they remained with the Claimant for 3 years there would be no other conditions".
- Thus almost the first matter dealt with on the opening day of trial (10 October 2011) was the disputed amendment. In the course of explaining his pleadings as a whole, Mr Maguire said with reference to the two essential assurances (at 793):
"that, I submit, encapsulates essentially the representations surrounding the one off payment, the supplemental payment, the disturbance payment and essentially, my Lord, the defendants' position condensed and the representation related to that is essentially that as long as the defendants remained with Thinc for three years that would be the only condition that was required and would be satisfied…"
- The judge, however, had a concern about the last sentence of para 3(d), and there was then the following dialogue, of which I will make selective extracts which I trust will give its flavour:
"Judge: The concluding sentence at paragraph 3(d) appears, at least to me, to introduce a further allegation which is that you say that your clients were led to believe that they would be permitted to remain in their posts for three years…At least at first blush that seems to me to be a separate and independent allegation which does not flow on from what is already pleaded and I wonder whether there is any evidence in your witness statement to support that last sentence.
Maguire: My Lord, if I can refer your Lordship to the top of that particular page and you will see…
"It was explained to the First and Second Defendants that as long as they remained with the Claimant for 3 years there would be no other conditions as their renewals would cover the minimum business level requirements."
Judge: But that is the condition of the entitlement to the disturbance allowance, is it not? I mean as I understand it, what is said in the sentence beginning, "It was explained…" that is consistent [sic, but sc inconsistent] with what the supplemental contract actually provided, but is there not a difference between that and the last part of paragraph 3(d) which effectively seems, at least to me, to go further and say that there was a positive assurance to the effect that there would be no termination -
Maguire: No, absolutely.
Judge: - within three years other than misconduct…but I think that what I think [Ms Muth] has said and will say is that if this amendment were allowed to stand as it is, it is not so much arguing the case in terms of what the proper construction is, it is arguing the case on the basis of specific oral representations or assurances. The argument, would be well, if that is not already out in the open in terms of the existing pleading or the witness statements then that is a new factual case and it would not be right to allow you to introduce that for the first time shortly before trial, so I think you need to deal with that point really…
Maguire: My Lord, I submit that the clear conclusion to be drawn from that is that the only requirement was that the first and second defendants remain in their positions, in their posts, for three years…
Judge: - but there is, and I do not think it is being pedantic, is it, to say that there is a difference between someone saying that and someone saying, "Actually we will not terminate you for three years."…
Maguire: …This, I submit, is just a mere clarification of that initial sentence…
Judge: - but I think Ms Muth would, I am sure, say, and again I would have some sympathy if she said, well, as it currently stands it does appear to suggest that you are trying to introduce a new factual argument and that for me to give permission it would have to be revised to make it clear that you are not and that all you are seeking to do is to draw out a conclusion from what is already in the pleaded case."
- Now, it seems to me to be absolutely clear from that discussion, right at the beginning of the trial, that the originally pleaded assurance towards the beginning of para 3(d), the "no other conditions" assurance, to which Mr Maguire repeatedly drew attention, was and remained emphatically at the heart of Mr Maguire's case: even if in his opening skeleton it had been expressed in terms of his new formulation, which he at any rate submitted (but the judge doubted) was not a new factual allegation but a drawing out of the meaning of the original pleading. I am at a loss to know how in these circumstances it can be submitted on behalf of Thinc at this appeal that the collateral warranty defence was neither pleaded, nor the subject of any submissions, that the first time the defence was "ventilated" was in the judgment itself, and that this was unfairness on the part of the judge.
- The judge's ruling on the final sentence of the redraft of para 3(d), given later that day, is consistent with that earlier dialogue. He ruled:
"There is then sub-paragraph 3(d)…Again, for the reasons which I indicated in argument, I am not satisfied that it would be fair to allow that amendment; because on its face it advances, I am quite satisfied, a positive allegation that things were said by employees of the claimant which led the defendants to hold that belief…In so far as it was said, as was suggested in the course of argument, to be only a drawing together of the threads from the existing pleaded case, in other words an inference rather than a new factual case, then it would be necessary, I am satisfied, for that to be absolutely clearly spelled out in the draft pleading, rather than for amendments to be made or approved on the assumption that it is to have only this limited effect…If Mr Maguire wants to renew an application with a revised version then it will, of course, have to be considered on its merits…"
Mr Maguire did not renew his application with a revised version, and Thinc seeks to rely on that fact: but I do not understand for what purpose. The Armstrongs' case in collateral warranty did not depend on what the judge regarded as a new factual case, for the original pleaded case remained.
- The difficulties for this first ground of appeal accumulate as the trial continued. Mrs Armstrong was cross-examined by Ms Muth on the basis of the collateral warranty defence (at 907), including the pleaded assurance about the absence of any minimum performance obligation (at 909), albeit unsuccessfully so, but she did not challenge her as to the other critical assurance relating to the "no other conditions" point. It appears that this may have been because Ms Muth chose to cross-examine not on the basis of Mr Maguire's pleadings, but on the basis of his skeleton argument (see at 907D). However, in the light of the discussion concerning the pleadings right at the beginning of the trial, that was a dangerous thing to do. So it was that, at the end of her cross-examination, the judge asked Ms Muth in effect whether she had any further questions regarding that point - albeit he began by mistakenly referring to paragraph 14 of Mr Maguire's skeleton argument, which reflected the disallowed extension of that point, instead of to the surviving para 3(d) of the re-amended defence. However, that confusion was in due course eliminated and it was Ms Muth who herself said (at 959):
"Now that has gone, of course, and the only other plea that is made is that there were no other conditions." [Emphasis added]
- The judge said that he had disallowed the amendment to the bottom of para 3(d) but that still left a collateral contract claim. Ms Muth then challenged the judge:
"But where exactly in the pleading? I simply cannot see where that is. If your Lordship would like me to cross-examine on that I will do it, but I formed the view when I was editing my prepared cross-examination following these various amendment applications and the bits that were not allowed, I think the only thing, perhaps, in 3(f)."
- I am not sure why Ms Muth spoke as she did, having a few lines earlier referred directly to "the only other plea that is made is that there were no other conditions", a direct reference to the original and surviving part of para 3(d).
- At any rate, para 3(f) (which she did cite) was the follow-up to the assurance pleaded in para 3(d). However, as soon as Ms Muth mentioned "3(f)", Mr Maguire interjected: "3(d). Look at 3(d)." Ms Muth queried "3(d)?" and Mr Maguire said: "It has been in there right from day one." He was correct to refer to para 3(d), which of course had been the topic of discussion on the first morning of the trial, when a distinction had been made between the original pleaded assurance and the amendment introduced as a last sentence to 3(d), which was disallowed. The essential difference was between an assurance as to the absence of any other conditions for repayment and an assurance as to when termination might be permitted. The former had always been an essential limb of the Armstrongs' case.
- Ms Muth then said that "I will put the question…It is as simple as that and then it is out of the way." The judge concurred, saying that "it would be undesirable for you not to cross-examine…".
- What then happened, however, is that Ms Muth did not cross-examine on the original pleading of para 3(d) (the "no other conditions" assurance, relating to conditions for claiming repayment), but on the disallowed sentence relating to termination rights. I do not know why that happened, but it did. Ms Muth may simply have become confused. She may have overlooked the original pleading, but she should not have done so and, a little earlier, had not done so. She may have been reluctant to cross-examine on the original point, thinking it would do her no favours. Whatever the explanation, I do not consider that Thinc is in a position to blame the judge (or Mr Maguire). The point had been highlighted by Mr Maguire on the first morning, it had plainly survived the disallowance of the amendment, and that discussion had only served to emphasise the different scope of the original, surviving, pleading which Mr Maguire had repeatedly cited as an essential part of his case. The absence of cross-examination was picked up by the judge, Ms Muth had herself referred to "the only other plea is that there were no other conditions" and to para 3(f), and for good measure Mr Maguire had referred to para 3(d) and said "It has been in there right from day one".
- The upshot of Ms Muth's renewed cross-examination was as follows (at 960/1):
"Q. And it is right to say, is it not, that there is nothing in the witness statements of Julie Martin or Nick Boyle in terms of an assurance that Thinc would not terminate your contract in the first three years? [emphasis added]
A. No.
Q. No. And that was not said, in fact?
A. Well, it was implied…
Q. – you then inferred Thinc would let you stay for three years. Is that right?
A. That's correct. It was implied by them and that's what we accepted. That's what we believed to be the case.
Q. Well how did they imply it?
A. Because they said that as long as we stayed three years that was the conditions for the supplemental payment.
Q. Yes but can you not see the difference…I mean the difference is that you can choose not to stay for three years, yes?
A. We weren't going to do that…Well, I'm sorry, that is what we took from that. That is what we thought we understood, yes.
Q. And you understood that from Julie Martin and Nick Boyle saying that you had to stay for three years?
A. Yes. We trusted them.
Q. That was the basis for your inference that Thinc would not terminate you in the first three years. Am I right –
A. Yes."
- That was impressive testimony. Questioned on a point not within the case (the "would not terminate" point), Mrs Armstrong gave her understanding of what the "no other conditions" assurance also involved, as a matter of inference, from the words used, which themselves were never challenged. Nor was there any challenge to Mrs Armstrong's primary testimony "that the only stipulation was that we had to remain with the company for three years…However, this was not a worry…I did not want to move on." If, as Mrs Armstrong confirmed in this cross-examination "they said that so long as we stayed three years that was the conditions for the supplemental payment", the question is immediately raised: But does this allow for a condition of repayment if Thinc terminated the contract at will? Ms Muth did not ask that question, but a different question regarding a right to terminate. I am not surprised by Mrs Armstrong's answer to that different question. It is a reasonable answer and I have no reason to doubt its honesty, although it was not within the case. However, it is entirely consistent with the Armstrongs' primary case that, provided the Armstrongs did not themselves choose to move on within three years, there could be no claim for repayment. Whether that meant in addition that the termination was wrongful is a separate question, not within the case. But the first question was whether Thinc could make that termination the occasion of a claim for repayment, and that question was never put in issue during cross-examination.
- It was submitted by Mr Kealey that this testimony showed that the Armstrongs did not believe in the case advanced or in the judge's conclusions. However, I would not accept that submission. The answers given were responsive to the questions asked. However, the questions asked were not responsive to the careful distinction which the judge had clarified in the discussion with Mr Maguire and in his ruling on the first day of trial. In the circumstances it was for the judge to come to his conclusions on the evidence before him.
- At the end of the trial there were oral submissions. In his closing submissions, Mr Maguire was (if he will forgive me) not perhaps as elegant in his analysis as he might have been, and there is some straying into submissions which might have partaken of the disallowed case. But what is nevertheless clear is that he was contending that the assurances relied on as creating a collateral contract operated so as to supersede clause 4 of the supplemental contract (see at 995F), ie to prevent a claim to repayment upon termination by Thinc without cause. For instance: "To utilise clause 4 would denude the collateral contract of any commercial good practice because what would have to happen is that an advisor would be on tenterhooks right up to the end of month 33". The judge said: "So what you are saying, are you, is it that clause 4 of the supplemental offer which, on the face of it, entitles Thinc to ask for and have the supplemental payment back…if they give notice within three years, is inconsistent with the collateral agreement…that you are saying was made, the only condition was, "You stay with us for three years"? To which Mr Maguire's answer was "Absolutely…Yes, yes." The judge continued:
"Judge: Well presumably what you are, I suppose you are saying is that if the supplemental payment is in effect representing payment for Thinc acquiring the valuable asset of your clients' client base –
Maguire: Yes
Judge: - then, in effect, they are sort of they would be taking with one hand and then taking away again if having acquired the client base but then within three years give notice for no good reason –
Maguire: Yes.
Judge: - and get the money back.
Maguire: Absolutely…"
- It seems to me that Ms Muth, who was listening to this dialogue, must have been on notice as to what the argument which she had to meet was, an argument which the judge ultimately accepted.
- Ms Muth's closing submissions came next. Her approach to the collateral warranty defence remained what it had been from the start of the case, namely a combination of an expression of puzzlement as to the case against her, and a focus on paragraph 12 of Mr Maguire's skeleton (see at 1018D) as the sole expression of that (seeing that the skeleton's para 14 was deemed to have gone with the disallowance of the last sentence of para 3(d) of the defence). She continued to ignore the central assurance which I have called the "no other conditions" point. Indeed, at first she appears to have sought to avoid dealing with collateral warranty at all, saying (but inaccurately) that "You have actually had no submission on this from my learned friend" (at 1017A). But when the judge began to prompt her to deal with the collateral warranty defence, she said this (at 1017B):
"My Lord, I have made a very careful note because I have been puzzled throughout this case as to what the terms are of the collateral contract. What I have written down now is that (1) there is no minimum performance standards; (2) no new business was to be written; (3) novation would be efficiently carried out; and (4) the renewal income would be sufficient to cover business levers [?]. Those are the four that I have, my Lord."
But she said nothing about the "no other conditions" assurance. My understanding of her position is, possibly, that, because para 14 of Mr Maguire's skeleton argument had in effect gone from the case together with the judge's first day ruling disallowing the last sentence of amended para 3(d) of the defence, therefore all that remained was para 12 of the skeleton. But if that was her thinking, I fear she was in error, an error of her own making.
- The judge then prompted her again (at 1017C):
"Well I think that the argument is that…clause 4 or invoking clause 4 termination by notice is inconsistent with the collateral [warranty] to the effect that the only condition on payment or reclaim conditions of the disturbance allowance is that you stay with us for three years."
That was an accurate summation of the submission put to the judge in the dialogue he had had with Mr Maguire during the latter's closing submissions.
- It was only on the judge's indication that he wished to be assisted on this point that Ms Muth finally turned to make submissions on collateral warranty, and those submissions were essentially of a legal rather than a factual basis: "his case is there was a collateral contract or certain collateral terms that have to be read together with the contract…Here we go there then…if I may take you to authority…"
- A little later, after some discussion of authority, the judge prompted Ms Muth again (at 1022D), and this led to the following dialogue, which, given the case of unfairness made on appeal and the use which Mr Kealey seeks to make of some of this passage, I fear I must set out in extenso:
"Judge: I keep on reminding you about this but I do think that what is in paragraph 14 of Mr Maguire's skeleton argument is what he is advancing to me as a collateral, a further collateral term.
Muth: But my Lord, in my respectful submission, if he was permitted to do that then he should have been allowed to amend his pleading. That was the amendment that was not allowed, my Lord.
Judge: Well I think that the position is that it was not allowed because it seemed to me that what he was seeking to introduce was an alternative claim of misrepresentation to that effect and on the basis of what you said, it seems to me that there were very powerful reasons why that should not be allowed…But it does seem to me and in fact my recollection is that this is something that we discussed and I mentioned to Mr Maguire when we were looking at this was that if that addition to paragraph 3(d) was being put on the basis that it was simply a conclusion which was said to follow from what was already pleaded…then it would not necessarily be objectionable…and I do think that certainly on my reading of the particulars of claim there is an allegation that there was a term or there was a collateral assurance or an assurance which took effect as a collateral term that…the only condition being a reclaim condition, was that the defendants stayed with Thinc for three years.
Muth: That is the high point, is it not? That is the high point of the evidence that we heard?
Judge: Yes
Muth: That the defendants would stay with Thinc for three years.
Judge: Yes.
Muth: Now that is entirely different from saying Thinc represented that it would not terminate the contract in the first three years and in fact if one looks at Mrs Armstrong's witness statement…They wanted to stay because they wanted to subscribe to this annuity scheme…and, in fact, this sits very comfortably with the way the case is pleaded because if we go to the defence…in paragraph 3(f)…it was not to be paid back on condition that the first and second defendant stayed for three years…Therefore it only deals with the motivation of the defendants. They had to remain with Thinc, they could not leave.
Judge: Well it seems to me at least and this is why I raised it, that on the face of it if, as Mrs Armstrong says in paragraph 23…that if she was told that the only stipulation is that we have to remain with the company for three years…that does appear on the face of it inconsistent with clause 4 of the supplemental agreement, under which the stipulation was not just that but it was that Thinc did not, itself, decide for its own reasons to give notice of termination within those three years.
Muth: Well my Lord, actually, there is no fetter on clause 4.1(a) I think it is. There is no such fetter, nor is it pleaded that there should be such a fetter and I would certainly object if that amendment was now being proposed. What I am saying is, simply what I am saying now is that on the evidence, again, in order to prove collateral term there has to be an assurance in evidence…that induced and was intended to induce the contract. Now in my respectful submission the high point of the defendants' case is to say that they had to remain...for three years…Nothing was said about what Thinc could, would or might do, nothing was said about that…and the other interesting point of course, my Lord, it has been said again Nick Boyle and Julie Martin gave this assurance. If that had been so important that it was a representation that induced, that was intended to induce and did induce the contract, surely they would recall it. Even in their very late witness evidence that was produced on Monday they do not deal with it.
Judge: Well there is a contemporaneous record, is there not? The hand-noted email about subjects to be covered at the meeting.
Muth: Yes but that does not take it any further because that again says "stayed three years"…It does not say they were entitled to stay three years.
Judge: Well it says, "Up front payment, are there any conditions?" Answer, "Stay three years only."
Muth: Yes, yes and she stayed, in my respectful submission, Mrs Armstrong has dealt with that in her paragraph 23 where she said, "Well I did not trouble you because I did not want to move on." My Lord I cannot take it any further than to say in order to prove a collateral term, my learned friend has to prove on the evidence that an assurance was given and he has now put it in his skeleton argument that the defendants would be permitted to remain in their posts for three years, barring any misconduct. I mean, where has that come from, for example? That is not mentioned anywhere. In my respectful submission, there simply is not the evidence to support that but it is of course a matter for your Lordship but in my respectful submission there simply is none and I did cross-examine on that and the case, to be fair to Mrs Armstrong, her case was completely consistent with what it says in her witness statement."
And there the matter was left.
- I have emphasised some passages in that extract in order to draw attention to certain features. What does this passage show? In my judgment it shows the following. (i) First and foremost, there was a thorough opportunity for Ms Muth to address the collateral warranty defence, both as Mr Maguire had addressed it and as the judge understood it. (ii) Although the judge may initially have been mistaken, in the light of his ruling on the first day, to have referred to paragraph 14 of Mr Maguire's skeleton, he very quickly reverted to the essential way in which he had discussed the matter with Mr Maguire, by asking whether the "no other conditions" assurance given to the Armstrongs was consistent with a right under clause 4 of the supplemental contract to reclaim the supplemental payment upon termination without cause by Thinc. Nor was his judgment in any way premised on the disallowed pleading. (iii) It is noticeable that, when prompted, Ms Muth recognised the "no other conditions" assurance as the "high point" of the Armstrongs' case; even if she acknowledged it only as "they had to remain for three years", which is to emphasise the condition, rather than the fact that it was the only condition. (iv) At one point Ms Muth sought to submit that this assurance was not proved, at any rate as a matter of sufficient importance to induce the contracts, by reference to the evidence of Ms Martin and Mr Boyle. This prompted the judge to ask her for her comments on the contemporaneously noted email. (v) At the last, Ms Muth reverted to the separate, albeit disallowed, case relating to a bar on termination, as distinct from a bar on reclaiming the payment. (vi) It seems to me to be impossible to say that the judge has acted unfairly, or that he has failed to put to Ms Muth what has troubled him about Thinc's claim and the Armstrongs' collateral warranty defence, or that his judgment could have come as an unfair surprise. (vii) The judge's judgment, whether right or wrong, was well within the pleadings, evidence, submissions and dialogue in court.
- If Thinc's broad submission of unfairness runs into the sand, is there another basis to this first ground of appeal? There is another possible view of it, which is that, at bottom, it is an extremely narrow submission to the effect that the precise formulation in which the judge concluded his judgment (in para 70) on the subject of collateral contract was not to be found in the pleadings. However, I consider that submission to be unattractive and wrong. In any event, the judge's analysis is really to be found in para 59 (and para 66) of his judgment, cited above, not in para 70. What was important, as pleadings go, is that the assurances were pleaded and they were relied on as creating a collateral warranty, and that collateral warranty was said to mean that Thinc was acting wrongfully in seeking to recover the supplemental payment. The rest was interpretation and legal analysis. The above citations show that all relevant matters were appropriately explored in dialogue with the judge.
- I have considered this ground of appeal carefully. Mr Kealey made attractive submissions in support of it, but when I have taken those submissions back to the original trial material, and tested them by reference to each stage of the trial, I have been left in no doubt that the submission must fail.
The merits
- I have headed this section of my judgment "The merits" because it deals with Thinc's second ground of appeal, which is that "The relevant "assurance" was not given and intended". This ground is developed over 56 paragraphs of Thinc's skeleton argument, but the essence of it is to revisit the submissions on the merits made at trial. This ground of appeal is summed up in the skeleton in these words:
"There was no (alternatively no sufficient) evidence before the learned Judge to support his conclusion and/or he was wrong as a matter of law and/or construction to conclude [as he did in his paragraphs 59 and 63(2) of his judgment, viz that there was an assurance that the only circumstances in which Thinc would be entitled to repayment would be where the Armstrongs themselves terminated the principal contracts] and that it was intended by the parties that this "assurance" would have contractual effect."
- Despite the length of Thinc's skeleton argument on this point, Mr Kealey's submissions on it were relatively brief. He accepted that the doctrine of collateral warranty could give effect to such a warranty so as to enable it to take precedence over the inconsistent wording of even a signed contract. He was right to do so, see, for instance Curtis v. The Chemical Cleaning v. Dyeing Co Ltd [1951] 1 KB 805, as explained in Peekay Intermark Limited v. ANZ Banking Group at [43]-[44] or AXA Sun Life Services plc v. Campbell Martin Ltd [2012] Bus LR 203 at 227-228, on the basis that the effect of the collateral warranty is to misrepresent the primary contract. As Lord Denning MR said in Mendelssohn v. Normand Ltd [1970] 1 QB 177 at 183H/184C:
"There are many cases in the books when a man has made, by word of mouth, a promise or a representation of fact, on which the other party acts by entering into the contract. In all such cases the man is not allowed to repudiate his representation by reference to a printed condition…The reason is because the oral promise or representation has a decisive influence on the transaction – it is the very thing which induces the other to contract – and it would be most unjust to allow the maker to go back on it. The printed condition is rejected because it is repugnant to the express oral promise or representation. As Devlin J said in Firestone Tyre and Rubber Co. Ltd. v. Vokins & Co. Ltd. [1951] 1 Lloyd's Rep 32, 39: "It is illusory to say: 'We promise to do a thing, but we are not liable if we do not do it'." To avoid this illusion, the law gives the oral promise priority over the printed clause."
- So here, it would be illusory for Thinc to say: "The only condition for our recovery of the supplemental payment is if you do not stay with us for 3 years" and then for its printed contract to enable it to reclaim the money at will within that period by mere dint of terminating the contract without cause. That would be to impose a new condition for repayment.
- Similarly, in J Evans & Son (Portsmouth) Ltd v. Andrea Merzario Ltd [1976] 1 WLR 1078 a forwarding agent promised that goods would be carried under deck and on that basis the shipper accepted (knowingly) a contract which gave the forwarding agent the right to ship goods on deck and also to be free of liability in the absence of wilful neglect or default. The goods were carried on deck and were lost overboard. It was held that the collateral promise overrode the printed conditions. Lord Denning MR said (at 1081):
"The judge held there was no contractual promise that these containers should be carried under deck. He thought that, in order to be binding, the initial conversation ought to be contemporaneous; and that here it was too remote in point of time from the actual transport. Furthermore, that, viewed objectively, it should not be considered binding. The judge quoted largely from the well known case of Heilbut Symons & Co. v. Buckleton [1913] AC 30, in which it was held that a person is not liable for damages in innocent misrepresentation; and that the courts should be slow to hold that there was a collateral contract. I must say that much of what was said in that case is entirely out of date…But even in respect of promises as to the future, we have a different approach nowadays to collateral contracts. When a person gives a promise or an assurance to another, intending that he should act on it by entering into a contract, and he does act on it by entering into the contract, we hold that it is binding: see Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd. [1965] 1 WLR 623."
- In the same case, Roskill LJ said (at 1084):
"It is said that even so [ie even if the collateral promise to ship under deck applies] these exemption clauses apply…With great respect, I think that is an impossible argument. In the words which Devlin J. used in Firestone Tyre and Rubber Co. Ltd. v. Vokins & Co. Ltd. [1951] 1 Lloyd's Rep. 32, 39, and approved by Lord Denning MR in Mendelssohn v. Normand Ltd. [1970] 1 Q.B. 177, 184, the defendants' promise that the container would be shipped under deck would be wholly illusory…It is a question of construction, interpreting the contract as I find it to be."
- So here, it is ultimately a question of construction. It is nevertheless submitted (in Thinc's skeleton argument) as a prior point that the judge erred in thinking that the "no other conditions" assurance was clearly proved. I reject that submission. There was no evidence to the contrary, and it was supported by the contemporaneous note made at the meeting of 24 August 2007 on the face of Mrs Armstrong's email of 23 August.
- It is next submitted (in Thinc's skeleton argument) that there was no subjective intention of making a contract (animus contrahendi) in terms of what Mr Boyle and Ms Martin said. I reject that submission. The supplemental payment was a critical feature of the deal. Without it, Mr Boyle and Ms Martin had not been able to interest the Armstrongs in joining Thinc. With the offer, the deal became negotiable, but only if the Armstrongs could be satisfied that the money could not be reclaimed. They pressed Mr Boyle and Ms Martin repeatedly on these features of the deal, and were repeatedly assured that there were no minimum performance requirements and no conditions which would permit recovery of the payment by Thinc provided the Armstrongs stayed for three years. I regard this submission as unrealistic (not that it was made by Mr Kealey orally). To whatever extent a subjective intention is relevant, it existed, and plainly so, on both sides.
- It is next submitted (in the skeleton argument) at some length that "even viewing the matters objectively", the judge was wrong to reach the conclusion that he did. Amongst the problems with that submission, however, was that Mr Kealey was reluctant to make a submission as to what the assurances did mean. The court asked him what they meant. He said that he had difficulty answering the question, without a properly explored context. I think he was suggesting that, for the reasons given on his first ground of appeal, the argument was not only at large but had not even been properly adjudicated. He even submitted that the question was unfair. On being pressed for an answer, he said that although Thinc would have been unable to terminate the contracts for lack of performance (presumably because of the absence of any performance requirements and the assurance that there were none), there was nothing in the assurances to prevent Thinc from terminating on notice without cause, even if the reason why it terminated on notice without cause was because of lack of performance. I am not satisfied that that is an answer as to the construction of the assurances. In any event it is structured in terms of Thinc's rights of termination. With the failure of the Armstrongs' other points and the refusal of the amendment in the last sentence of para 3(d), there is no issue as to Thinc's rights of termination. The question is and was at trial, whether on termination Thinc had a right to reclaim the supplemental payment. The judge ruled that it did not, because the critical assurance promised that there were no relevant conditions that could permit such a right to reclaim.
- Ultimately the question of construction, therefore, is whether the "no other conditions" assurance meant that Thinc could recover the supplemental payment because, even though the Armstrongs were willing to stay, they had been told to go: or whether the words of the assurance "as long as they remained with [Thinc] for 3 years there would be no other conditions" (see para 3(d) of the defence) entailed that the decision to go or stay was the Armstrongs'. In my judgment, in a choice between those two alternatives, there is no contest: the latter alternative must prevail. A construction that would permit Thinc to recover the supplemental payment on a whim (or, as bad, for lack of performance when the Armstrongs had been assured that there were no minimum performance requirements, and there were none) would be absurd. It would undo the very basis on which the Armstrongs were willing to join Thinc. It would, in the words of Devlin J, approved in subsequent cases in this court, make the assurance wholly illusory. Such a construction is so unreasonable, so uncommercial, that it is to my mind impossible.
- The only other construction which I would acknowledge as a possible alternative is that, as a matter of business efficacy, the "no other conditions" assurance would still allow a reclaim if the contracts terminated within three years for cause. However, that would not assist Thinc, because it did not terminate for cause, and could not.
- In my judgment, this ground of appeal must also fail.
"No reliance"
- The third ground of appeal, albeit only briefly addressed in Thinc's skeleton and by Mr Kealey, was that there was no reliance shown by the Armstrongs. The argument here is that there was no evidence that the Armstrongs understood the assurance in the same way as the judge interpreted it. I disagree. The judge made findings of reliance, which he was fully justified to make. There was evidence, and it stood to reason, that the Armstrongs relied on the "no other conditions" assurance when they applied to join up and signed up with Thinc. It is true that there could still be a question as to what the assurance amounted to – for instance could it be interpreted as permitting reclaim of the payment upon termination by Thinc without cause? However, it would be ridiculous to suppose that that is how they viewed the assurance, and it was plain from Mrs Armstong's evidence that they did not.
Clause 5.3
- Finally, I should mention clause 5.3 of the supplemental contract, which under the heading of "General" provided as follows:
"If there is a conflict between the terms of any agreement made pursuant to this Supplemental Offer and those of any other contract or agreement between you and Thinc Group Limited, Thinc Group Limited will determine reasonably which terms are to prevail."
Mr Kealey submitted that this clause entitled Thinc to say that the provisions of clause 4 were to prevail over the collateral warranty.
- This was an entirely new point. It appears not to have been advanced at trial, and figures nowhere in any grounds of appeal. It is not in Thinc's skeleton argument. In such circumstances, it is not open to Thinc, for there is no sign that Thinc purported at any time to operate this clause, and in any event it would raise new factual questions. However, it also seems to me to be something of an own goal. The supplemental contract itself contemplates that there may well be a collateral contract outside the supplemental contract. Thinc's provision for that eventuality is to claim a right for Thinc to "determine reasonably which terms are to prevail". However, although the point is not formally before the court, in the circumstances found by the judge it would appear to me to be impossible for Thinc "reasonably" to determine that clause 4 should prevail over the collateral warranty found. That would be to arrogate to itself the right to recover the supplemental payment for itself, without cause, by terminating on notice, having put forward a reason which the judge had found was invalid, and to keep for itself the client base of the Armstrongs for which the supplemental payment was the quid pro quo; and all against the background of the collateral contract which is the hypothesis of the exercise.
Conclusion
- For these reasons, I would dismiss the appeal. Both parties also sought an appeal on costs, but were refused permission to appeal on paper. The Armstrongs did not renew their application, but Thinc did, to be heard at the same time as this appeal. However, Thinc did not pursue its application at the hearing before us. Thinc's application is therefore dismissed.
Lord Justice McFarlane :
- I agree.
Lord Justice Laws :
- I also agree.
