© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Collateral contracts
GENERAL
- Promise/assurance to persuade another to enter into a contract is binding
"[234] With the preliminary point decided in favour of the Claimants, I should say a little about the law surrounding collateral contracts, although I do not think that there is any doubt about the position. I need do no more that set out the citations contained in paragraph 11 of Mr Shepherd's Note to which I have already referred:
(i) Chitty on Contracts (14th ed) at 13-005:
"It is undoubtedly true that the courts are nowadays much more willing to accept that a pre-contractual assurance gives rise to a collateral contract, so that such collateral contracts are no longer rare.
(ii) Lord Denning MR in J. Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 W.L.R. 1078, 1081:
"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."
I note that this same passage had been relied on by Mr Shepherd in his written closing submissions at paragraph 27(x).
[235] In the light of my findings of fact in relation to TT, it can be seen that the ingredients of a collateral contract are present. In consideration of TT entering into the New Agreement, PIAC promised (i) that the ticket allocation would be reinstated (which it was) and (ii) that the APS under the New Agreement would continue to be paid beyond the period July to December 2012 "and well into the future". There was no representation or promise about how long "well into the future" would be, but, as I have said already, on any reasonable understanding of those words, commission would be payable for at least the calendar year 2013.
...
[240] In the light of my findings of fact in relation to NT, it can be seen that, as with TT, the ingredients of a collateral contract are present. In consideration of NT entering into the New Agreement, PIAC promised (i) that the ticket allocation would be reinstated (which it was) (ii) that the APS under the New Agreement would continue for 2013 and onwards (iii) that, as well as receiving the continuing APS, NT would receive the same benefits, if any, as the APTA agents achieved in their litigation." (Times Travel (UK) Limited v. Pakistan International Airlines Corporation [2017] EWHC 1367 (Ch), Warren J - overturned on other grounds above - see [2021] UKSC 40, §76)
- Where on party enters the main contract because the statement is an assurance on a certain point
"[32] In my view there was a collateral contract that if Porsche supplied a vehicle to Pendragon it would be allocated to Mr Hughes. The email of 23 March 2011 is a clear expression that that was what had been agreed, which Mr Mansfield accepted in his evidence. There is ample authority that the courts may treat a statement intended to have contractual effect as a contract collateral to the main transaction, in particular where one party enters the main contract because the statement is an assurance on a certain point. Mr Hughes was ordering the 911 GT3 RS4 from Pendragon and paying the deposit on 18 March 2011 because of the assurance that he would be first in the queue if Porsche allocated one to the dealership. Mr Mansfield's statement to that effect was endorsed by his "boss" on 18 March 2011 as was his 23 March 2011 email. In my view, the statement was intended to have contractual effect, the consideration for it being entry into the main contract, the written contract of 18 March 2011." (Hughes v. Pendragon Sabre Limited [2016] EWCA Civ 18)
- Tri-partite situations
"[48] In light of the authorities, the requirements for a claim for breach of a collateral warranty, in a 'tripartite' case, are as follows:
i) A warranty (ie a statement) was given to a third party by one of the parties to the main contract, in advance of the main contract being entered into;
ii) The warranty was not a mere representation but was intended to have contractual force;
iii) The third party provided consideration to the party which gave the warranty;
iv) In reliance upon the warranty, the third party caused another party to enter into the main contract with the party who gave the warranty;
v) The warranty was inaccurate;
vi) The third party suffered financial loss as a result; and
vii) There are no relevant exclusion clauses.
It is not necessary that the party which gave the warranty knew that it was false, or was negligent, let alone that the party was deliberately acting in a fraudulent manner." (New York Laser Clinic Limited v. Naturastudios Limited [2019] EWHC 2892 (QB), Cavanagh J)
INTENTION TO CREATE LEGAL RELATIONS
- Must have been intention to create legal relations
"[47] In my judgment it is clear that the parties reached a consensus on one matter, namely (and here I use the words which Mr Cousland uses in his witness statement) that Mr Hanoman should be able to "preserve any rights which he had to take the matters up with Southwark" after completion. Mr Cousland clearly did not regard this as an emply form of words; nor did Mr Hanoman. Thus, the parties' consensus in my judgment meets the tests set out by Lightman J. Those tests were
"(1) a pre-contractual statement will only be treated as having contractual effect if the evidence shows that parties intended this to be the case. Intention is a question of fact to be decided by looking at the totality of the evidence;
(2) the test is the ordinary objective test for the formation of a contract: what is relevant is not the subjective thought of one party but what a reasonable outside observer would infer from all the circumstances;
(3) in deciding the question of intention, one important consideration will be whether the statement is followed by further negotiations and a written contract not containing any term corresponding to the statement. In such a case, it will be harder to infer that the statement was intended to have a contractual effect because the prima facie assumption will be that the written contract includes all the terms the parties wanted to be binding between them;
(4) a further important factor will be the lapse of time between the statement and the making of the formal contract. The longer the interval, the greater the presumption must be that the parties did not intend the statement to have contractual effect in relation to a subsequent deal;
(5) a representation of fact is much more likely intended to have contractual effect than a statement of future fact or future forecast."
[48] These tests concern the question of intention to create legal relations, clearly an important issue in the context of a collateral contract because there may need to be an explanation why the parties made a separate collateral contract at the time they were making another contract. In this case, one can infer that there would have been some further negotiations on the terms of the lease after 29 May 2005, but no one suggests that anything happened in the course of those discussions that specifically touched on the question of preserving any rights to apply to the county court under s 181. Neither side sought to reflect the collateral agreement in the terms of the lease. Completion occurred relatively shortly after the parties reached their accord. The fifth requirement does not apply here because no misrepresentation is alleged. In the circumstances, I do not consider that there can be any real doubt but that on the facts of this case that the parties intended to create legal relations when they made the collateral contract." (Hanoman v. Mayor and Burgesses of Southwark [2008] EWC Civ 624, Arden LJ)
- Clear to party making representation that recipient will rely on it to enter into contract with maker + representation given to persuade them to do so
"[57] In my view, it is plain that it is not necessary that the person giving the warranty expressly states in terms that the warranty is intended to have contractual effect, as between the giver and the recipient. Indeed, in many 'tripartite' cases, the circumstances will be such that neither the giver or the recipient of the warranty will be expecting to enter into a contract with each other for the supply of goods or services. This will be the position, for example, where the giver of the warranty knows that the recipient will be obtaining the goods by means of hire purchase. However, the warranty must be given in circumstances in which it should be clear to the party giving it that the recipient will rely upon it to cause the recipient or someone else to enter into a contract with the giver of the warranty, and the warranty must be given with a view to persuading the recipient to enter into the contract or to procure the other person to enter into the contract with the giver. It must be more than a mere 'puff', and so, ordinarily, it will consist of a statement of something concrete and specific about the qualities or performance of the goods or services that are to be provided under the main contract.
...
[162] The case law makes clear that, when assessing whether there was the necessary contractual intention, the test is an objective one, to be applied by reference to all of the circumstances. The question is not to be determined by reference to the subjective intentions of the Defendant's representatives. Applying an objective test, and whilst bearing in mind the statement by the House of Lords in the Heilbut, Symons case that collateral contracts must from their very nature be rare, I am satisfied that the statements were made with the necessary contractual intention, and so were "warranties" for the purposes of a collateral warranty claim." (New York Laser Clinic Limited v. Naturastudios Limited [2019] EWHC 2892 (QB), Cavanagh J)
- Burden on C to show contractual intention
"[65] ... In my judgment, the statement in Chitty, paragraph 2-169, to the effect that the onus is on a Defendant to show that there was no intention to create legal relations refers to cases in which there was an express agreement between the parties in the context of an ordinary commercial transaction. Chitty was not dealing with cases concerning collateral warranties, and the cases cited in support of the proposition in the text are cases about ordinary business transactions (eg Edwards v Skyways Ltd [1964] 1 WLR 349 (Megaw J), 355). There is no suggestion in the authorities on collateral warranties, set out above, that the onus is upon the Defendant to show that there was no contractually enforceable warranty. It is true that the Amended Defence does not state in terms that it is denied that the warranties, if given, had contractual force. However, having denied that all but one of the statements relied upon by the Claimant were made, the Amended Defence goes on to deny that, even if the statements were made, they amounted to 'warranties'. In my judgment, this can only be interpreted to mean that the Defendant was putting in issue the question whether the statements relied upon had contractual force.
Accordingly, I proceed on the basis that the burden rests with the Claimant to show, not only that the statements relied upon as warranties were actually made, but that, in all the circumstances, they were intended to have contractual force." (New York Laser Clinic Limited v. Naturastudios Limited [2019] EWHC 2892 (QB), Cavanagh J)
- Representation in course of dealings for a contract for the very purpose of inducing other party to act on it prima facie presumed to be intended to be warranty
"[58] In Esso v Mardon, at page 817, Lord Denning MR said that:
"A representation as to the profits that had been made in the past was invariably held to be a warranty. Besides that experience, there have been many cases since I have sat in this court where we have readily held a representation – which induces a party to enter into a contract – to be a warranty sounding in damages" I summarised them in Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623 (CA), at 627, when I said:
"Looking at the cases once more, as we have done so often, it seems to me that if a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act upon it, and actually inducing him to act upon it, by entering into the contract, that is prima facie ground for inferring that it was intended as a warranty. It is not necessary to speak of it as being collateral. Suffice it that it was intended to be acted upon and was in fact acted on." (New York Laser Clinic Limited v. Naturastudios Limited [2019] EWHC 2892 (QB), Cavanagh J)
- Whether assurance may reasonably be regarded as being made with intention to have contractual force
"As between A (a potential seller of goods) and B (a potential buyer), two ingredients, and two only, are in my judgment required in order to bring about a collateral contract containing a warranty: (1) a promise or assertion by A as to the nature, quality or quantity of the goods which B may reasonably regard as being made animo contrahendi, and (2) acquisition by B of the goods in reliance on that promise or assertion. As K. W. Wedderburn expresses it in "Collateral Contracts" in Cambridge Law Journal, 1959, at p. 79: "... the consideration given for the promise is no more than the act of entering into the main contract. Going ahead with that bargain is a sufficient price for the promise, without which it would not have gone ahead at all." and a warranty may be enforceable notwithstanding that no specific main contract is discussed at the time it is given, though obviously an animus contrahendi (and, therefore, a warranty) would be unlikely to be inferred unless the circumstances show that it was within the present contemplation of the parties that a contract based upon the promise would shortly be entered into. Furthermore, the operation of the warranty must have a limitation in point of time which is reasonable in all the circumstances. But none of these considerations gives rise to difficulty in the present case." (Wells (Merstham) Ltd v Buckland Sand and Silica Ltd [1965] 2 QB 170, Davis J)
- Intelligent bystander test
[51] Whether a representation was intended to have contractual force is a question of fact in each case, and it may well not be an easy question to answer. Some helpful guidance may, however, be found in the authorities.
[52] It is clear that the test is an objective one, to be applied in light of all of the circumstances. As Denning LJ said in the Oscar Chess case, at page 375, applying the guidance given by the House of Lords in the Heilbut Symons case:
"The question whether a warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice."" (New York Laser Clinic Limited v. Naturastudios Limited [2019] EWHC 2892 (QB), Cavanagh J)
- Was representation intended to form part of the basis of the contractual relations?
"[55] In Esso v Mardon, Ormerod LJ said, at 826:
"In my view, following Lord Moulton in the Heilbut, Symons case, at p. 50, the test is whether on the totality of the evidence the parties intended or must be taken to have intended that the representation was to form part of the basis of the contractual relations between them."
[56] This was ultimately a matter of "applied common sense" (page 825)." (New York Laser Clinic Limited v. Naturastudios Limited [2019] EWHC 2892 (QB), Cavanagh J)
- Statement of belief v. contractual promise
"[50] It is worth looking in greater detail at requirement ii), ie that the warranty was intended to have contractual force. This was emphasised by the Court of Appeal in Oscar Chess Ltd v Williams [1957] 1 WLR 370. In that case, the seller of a car, an individual, represented that it had been manufactured in 1948. This was supported by the log book and it was on this basis that a car dealership agreed to take the car in part-exchange for a new model. It later transpired that the log book had been forged (unbeknownst to the seller) and the car had actually been manufactured in 1939. The dealer claimed damages for breach of warranty on the part of the seller. The judge rejected the claim, and the Court of Appeal dismissed the appeal, on the ground that the representation made by the seller had not been intended to have contractual force. The statement about the date of manufacture of the car had been no more than a statement of belief by the seller, not a contractual promise." (New York Laser Clinic Limited v. Naturastudios Limited [2019] EWHC 2892 (QB), Cavanagh J)
- Statements on matters peculiarly within the knowledge of the seller "easy to infer a warranty"
"[53] Denning LJ went on to say as follows:
"It is instructive to take some recent instances to show how the Courts have approached this question. When the seller states a fact which is or should be within his own knowledge and of which the buyer is ignorant intending that the buyer should act on it, and he does so, it is easy to infer a warranty….So also if he makes a promise about something which is or should be within his own control….But if the seller, when he states a fact, makes it clear that he has no knowledge of his own but has got his information elsewhere, and is merely passing it on, it is not so easy to imply a warranty."
[54] Hodson LJ took the view that no contractual warranty had been given in the Oscar Chess case because the seller was stating an opinion on a matter of which he had no special knowledge or on which the buyer might also be expected to have an opinion and to exercise his judgment." (New York Laser Clinic Limited v. Naturastudios Limited [2019] EWHC 2892 (QB), Cavanagh J)
- Distinguish mere statements of present intention/policy with lack contractual force
"Any assurance must, if it is to be capable of amounting to a collateral contract, be intended to bind as a contractual promise, as opposed to being merely a statement of present intention or policy which lacks contractual force. The principles are very clearly set out in the judgment of Ralph Gibson L.J. (with which Nicholls L.J. and Fox L.J. agreed) in Kleinwort Benson v Malaysian Mining Corporation 1989 1 WLR 379 . A comfort letter, even though not legally binding, may not be pointless since it may have important practical consequences: for instance in enabling a subsidiary company to borrow on more favourable terms than might otherwise be available, or in enabling auditors to sign off accounts on a going concern basis." (Wake v. Renault (UK) Limited [1996] WL 1091764 Robert Walker J - collateral contract not to revoke dealership without cause found)
- Slower to find contractual intention between parties to main contract which is intended to be reduced to detailed written contract
"[61] In my view, there is one respect in which the approach that should be taken to collateral warranties made by one party to the main contract to the other, on the one hand, and by a party to the main contract to a third party, on the other, may differ. The authorities on the first type of collateral warranties case demonstrate a concern that a collateral warranty might be used to override the detailed written terms that are subsequently agreed in a commercial contract between "arms-length" parties, and a concern that collateral warranties would be used to mean that pre-contractual discussions take on contractual force. This concern was raised, for example, by Lord Moulton in the Heilbut, Symons case at page 47, and cf Fuji Seal Europe Limited v Catalytic Combustion Corporation [2005] EWHC 1659 (TCC), at paras 149-158, per Jackson J. In particular, it does not feel right that a collateral warranty claim in such a case might be used to side-step an exclusion clause in the main contract which covers the subject-matter of the warranty. The solution to this difficulty will normally be that, if the warranty is given at a time when the giver and recipient both know that their eventual agreement will be set down in a detailed written contract, then the pre-contractual discussions will not give rise to warranties that were intended to have contractual force." (New York Laser Clinic Limited v. Naturastudios Limited [2019] EWHC 2892 (QB), Cavanagh J)
- Notice in shop that it would accept return of goods within 14 days would be collateral contract
"As I have said, the absence of express words of promise does not by itself prevent a statement from being treated as a contractual promise. The example given in argument by Mr Waller, namely of the shop stating by a notice that it is its policy to accept, within 14 days of purchase, the return in good condition of any goods bought, and to refund the price without question, seems to me to be a case in which a court would be likely to hold that the notice imported a promise that the policy would continue over the 14-day period. It would be difficult on those facts to find any sensible commercial explanation for the notice other than a contractual promise not to change the policy over the 14-day period. It would not be satisfactory or convincing to regard the notice as no more than the assumption of a moral responsibility by the shop giving such a notice to its customers. In such a case, and in the absence of any relevant factual context indicating otherwise, it seems to me that the court would probably hold that the statement was shown to have been intended to be a contractual promise." (Kleinwort Benson Limited v. Malaysian Mining Corporation Berhad [1986] WL 649870 (CoA))
Examples
- Comfort letter where D expressly refused to accept legal liability treated as binding on conscience only
In this case, however, the opposite seems to me to be clear. The context in which the comfort letter was requested and given is before the Court without dispute as to the relevance or admissibility of that context. That concession was, in my view, rightly made. The evidence showing the context in which the comfort letters were produced, as set out in the judgment of Hirst J., was evidence of the factual background known to the parties at or before the date of the contract and of the “genesis” and “aim” of the transaction: see Prenn v. Simmonds (1971) 1 W.L.R. 1381 : in short the provision of a comfort letter by the defendants, as the parent company of Metals to which the plaintiffs were intending to provide finance, in circumstances in which the defendants had refused to assume legal liability for the repayment of money lent to Metals by the plaintiffs, whether in the form of joint and several liability or of guarantee. Those facts are not available to show merely that the defendants did not themselves subjectively intend to assume legal liability and that, therefore, the words eventually included in the comfort letter provided by the defendants should be construed so as to exclude such liability. That, as I understand it, would be mis-applying the principles stated in Prenn v. Simmonds , by which evidence of the factual background is admitted. But the evidence of the refusal by the defendants to assume legal responsibility for the liabilities of Metals to the plaintiffs in the normal form of joint and several liability or of guarantee, and the consequent resort by the parties to what they described as a comfort letter substantially in the terms submitted by the plaintiffs to the defendants, is, in my judgment, admissible on the question whether, for the purposes of the test applied by this Court in Esso Petroleum Co. Ltd. v. Mardon , the defendants' affirmation in paragraph 3 appears on the evidence to have been intended as a warranty or contractual promise." (Kleinwort Benson Limited v. Malaysian Mining Corporation Berhad [1986] WL 649870 (CoA))
- Opinion as to throughput of petrol station collateral contract that statement made after careful assessment
"[60 A collateral warranty with contractual force may be a statement of fact or, in some circumstances, a statement of opinion. This is illustrated by Esso v Mardon. In that case, Mr Mardon was persuaded to acquire the lease to a petrol station from Esso by Esso's statement that the Company had estimated that the throughput of petrol sales at the station would be 200,000 gallons by the end of the third year. The Court of Appeal accepted that this was not an out-and-out guarantee that the throughput would be 200,000 gallons by the end of the third year, but the Court nonetheless found that it was a statement with contractual force, because it amounted to a statement that, having carried out a careful assessment, Esso had reached the conclusion that the throughput would be 200,000 gallons by the end of the third year. This was not accurate, as, in fact, Esso had not carried out a careful assessment." (New York Laser Clinic Limited v. Naturastudios Limited [2019] EWHC 2892 (QB), Cavanagh J)
INTERACTION WITH MAIN CONTRACT
- Clear and unequivocal assertions by seller about performance of product given in expectation that they would be relied on by C to enter into contract
[163] Each of the statements was a statement, given in clear and unequivocal terms, about the performance of, and results that would be achieved by, Magma Lasers. They were given in the expectation and in the hope that they would be relied upon by the Claimant and would induce the Claimant to arrange for the purchase of Magma Lasers from the Defendant. The Defendant was much better placed than the Claimant to satisfy itself that the statements were accurate, and asserted that it had satisfied itself about the qualities, performance of, and results to be achieved by, the Magma Lasers. The Defendant's brochure stated that, "We rigorously test every treatment and product to ensure correct and superior results." Indeed, the Claimant had no real alternative but to rely upon the statements made by the Defendant. Although there was a demonstration, it was inevitably short and it could not be expected to replicate or demonstrate the use of Magma Lasers in real situations, in which they would be used for a number of sessions on each client.
[164] In the Oscar Chess case, Denning LJ said:
"When the seller states a fact which is or should be within his own knowledge and of which the buyer is ignorant intending that the buyer should act on it, and he does so, it is easy to infer a warranty"
[165] This was the position in the present case." (New York Laser Clinic Limited v. Naturastudios Limited [2019] EWHC 2892 (QB), Cavanagh J)
- May take priority over the wording of written/signed contract
"[83] 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."
[84] 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." (Thinc Group v. Armstrong [2012] EWCA Civ 1227, Rix, Laws, McFarlane LJJ)
- Contractual discretion to allocate goods to other customers overridden by collateral contract
"[33] That collateral contract was contrary to the terms of clause 2(b) of the terms and conditions, which confers a discretion on Pendragon not to fulfil orders in the order they are received. But the effect of a collateral contract may be to vary the terms of the main contract and in my judgment that is what occurred here. The decision in Wake v. Renault (UK) Ltd, The Times August 1, 1996; [1996] Trading LR 514, not cited by either party, is illustrative. There a motor vehicle manufacturer attempted to terminate a dealership pursuant to a clause in the standard form dealer's agreement, but the dealer in that case had been given an oral reassurance that termination was highly unlikely. Robert Walker J (as he then was) held that this constituted a binding collateral contract which had the effect of varying the main contract. It was sufficiently certain to be distinct from a mere statement of intention and consideration for it was provided by the dealer committing himself to refinancing arrangements on the strength of it." (Hughes v. Pendragon Sabre Limited [2016] EWCA Civ 18)
- Pre-contractual assurance that there were no conditions which would permit recovery was collateral contract overriding written terms
"[88] 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." (Thinc Group v. Armstrong [2012] EWCA Civ 1227, Rix, Laws, McFarlane LJJ)
- Misrepresentation as to the effect of the contract giving collateral agreement
"[44] From time to time one party to a contract misrepresents to the other the content or effect of the document which is intended to embody their agreement. In such cases it has been held that the party making the misrepresentation is prevented from enforcing the contract in accordance with its terms. An example is to be found in the well-known case of Curtis v The Chemical Cleaning and Dyeing Co Ltd [1951] 1 K.B. 805 in which the defendant was prevented from relying on a general exemption clause on the back of the cleaning ticket after its shop assistant had induced the customer to sign it by telling her that it excluded liability only for damage to beads or sequins. The principle was applied by Woolf L.J. in Lloyds Bank Plc v Waterhouse [1993] 2 F.L.R. 97 in which the defendant was induced to sign a guarantee of a loan to his son by the bank's misrepresentation of its scope and content. He held that bank was unable to enforce the guarantee in accordance with its terms." (Peekay Intermark Limited v. Australia and New Zealand Banking Group Limited [2006] EWCA Civ 386, Moore-Bick, Chadwick, Lawrence Collins LJJ)
Exclusion clauses
- Collateral contract can override exemption clause framed in general terms
"[34] As to clause 18, I am not persuaded that the language, on its face, would catch a collateral contract. It is well established that a collateral contract can override an exemption clause framed in general terms: e.g., Couchman v. Hill [1947] KB 554; Mendelssohn v. Normand Ltd [1970] 1 QB 177. That to my mind is what happened here." (Hughes v. Pendragon Sabre Limited [2016] EWCA Civ 18)
INTERPRETATION OF COLLATERAL CONTRACT
- Term of collateral contract not construed to make protection illusory (e.g. by allowing counterparty to ensure it is not met)
"[90] 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." (Thinc Group v. Armstrong [2012] EWCA Civ 1227, Rix, Laws, McFarlane LJJ)
EXAMPLES
- C bought D's goods on hire purchase through finance company based on D's assurances of quality: collateral contract
"[162] For various reasons, it is sensible for me to begin my discussion with the claim in collateral contract. On the facts of the present case, I am in no doubt that, when the defendant sold the lathe to Paragon, a collateral contract came into existence between the claimant and the defendant. The parties had entered into discussions about the suitability of the defendant's lathe for the claimant's business, the lathe had been demonstrated to the claimant, and finally the claimant had placed an order with defendant for the lathe and paid the deposit directly. The claimant then took the finance business to Paragon, on the basis that Paragon would buy the lathe from the defendant, and the claimant would enter into a hire purchase agreement with Paragon.
[163] The obvious inference from these facts is that the claimant was relying on the defendant's representations as to the quality and suitability of the lathe in placing the business with Paragon and entering into the hire purchase agreement (which was the consideration for the defendant's promises), and the defendant was promising that the lathe would be of sufficient quality and suitability for the claimant's business. As Mr Birrell said in his evidence (and I accepted) if the defendant had not so promised, the claimant would have gone elsewhere. The fact that it would be financed by hire-purchase was entirely secondary." (Car-Wizard Limited v. Vixen Surface Treatments Limited [2026] EWHC 685 (Ch), HHJ Paul Matthews)
- Assurance that a person would obtain an interest if they entered into contract
"[46] ...The judge found that Mrs. Balasubramaniam gave Mr. Pawani to understand that if Peekay participated in the investment it would obtain an interest in a GKO. That is not the same thing by any means, but it is at least nearer the mark. An assurance of that kind about the consequences of a particular course of action might well give rise to a collateral contract, but it is not on the face of it a representation of the kind that will support a claim under section 2(1) of the Misrepresentation Act which must normally be a representation of fact: see Chitty on Contracts, 29th ed. paragraphs 6-004..." (Peekay Intermark Limited v. Australia and New Zealand Banking Group Limited [2006] EWCA Civ 386, Moore-Bick, Chadwick, Lawrence Collins LJJ)
- Assurance by paint manufacturer that paint was suitable, leading to C specifying that contractor should use that paint
"[40] In the Shanklin Pier case, which is perhaps the most well-known, the Claimant was the owner of a pier which had fallen into disrepair. The Claimant engaged contractors to repair the pier, and to paint it with two coats of paint. The Defendant, a paint manufacturer, persuaded the Claimant that its butiminous paint would be suitable to keep the pier's surface safe from corrosion for at least seven to ten years, and, in reliance upon the Defendant's statement about the quality of the paint, the Claimant specified to the contractor that the contractor had to use the Defendant's paint on the pier. The contract for supply of the paint that was then entered into was between the contractor and the paint supplier: The Claimant was not a party to it. In the event, the paint turned out to be unsatisfactory, and only lasted for three months, and the Claimant was put to the cost of repainting the pier with different paint. The Claimant brought a claim for breach of contract, relying on the breach of the collateral warranty that had been given by the Defendant about the quality and suitability of the paint.
[41] The claim succeeded. McNair J said,
"If, as is elementary, the consideration for the warranty in the usual case is the entering into of the main contract in relation to which the warranty is given, I see no reason why there may not be an enforceable warranty between A and B supported by the consideration that B should cause C to enter into a contract with A or that B should do some other act for the benefit of A." (New York Laser Clinic Limited v. Naturastudios Limited [2019] EWHC 2892 (QB), Cavanagh J)