Compromise Agreements – subsequent discovery of misconduct

I remember Collidge -v- Freeport plc [2008] EWCA Civ 485 when it was at first instance, dealing as it does with the very common clause found in compromise agreements that:

“Subject to and conditional upon the terms set out below, [Freeport] will pay to you the sum of £445,680 gross as compensation in respect of the termination of your employment…

“You warrant as a strict condition of this agreement that as at the date hereof… there are no circumstances of which you are aware or of which you ought reasonably to be aware which would constitute a repudiatory breach on your part of your contract of employment which would entitle or have entitled the company to terminate your employment without notice”.

… in other words that subject to the warranty being true, we’ll pay you lots of money. The warranty was not true. Collidge had done bags of things which would have entitled Freeport to summarily dismiss him.

The judgment confirms that in this agreement, the warranty was a condition precedent. In other words, all performance by Freeport of its obligations under the agreement was subject to the warranty – rather than it simply having a remedy of damages for its breach. Compromise agreements are tricky – they have to be very tightly drafted according to the individual circumstances, but increasingly are simply run off as precedents. Given that the context in which the agreement was signed, Collidge may well have thought that he was protected from subsequent discoveries of impropriety, so this case emphasises both the quality draftmanship required on compromise agreements as well as the thoroughness with which the employee’s solicitors must advise.

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