A recent judgment raises questions over whether the courts should approach long-term contracts differently to shorter-term ones, insofar as termination provisions are concerned
The decision of the Court of Appeal in Sutton Housing Partnership Ltd vs Rydon Maintenance Ltd was handed down on 18 May of this year. There was some commentary on the court’s decision at the time, but I would like to focus on one particular point raised, rst, by the judge in the Technology and Construction Court (TCC) and then remarked upon by the Court of Appeal in just one sentence. Notwithstanding this very brief reference, this point raises an interesting issue which may yet develop further.
To set this in context, the case concerned the interpretation of a contract intended to run for ve years under which Rydon was engaged by Sutton Housing Partnership to carry out maintenance and repairs to the London borough of Sutton’s housing stock, which Sutton Housing Partnership managed. As is often the case in maintenance contracts of this nature, the contract set out certain minimum service level requirements linked to key performance indicators. If Rydon’s performance fell below certain minimum acceptable performance standards (MAPs) and did not improve following the issuing of written notices, Sutton would have the right to terminate the contract. This was precisely what happened. Sutton believed that Rydon’s performance breached the MAPs and, following a period of acrimonious correspondence, Sutton terminated the contract having served Rydon with a notice setting out its failure to achieve the MAPs in a number of respects.
What exactly is a ’relatively long-term contract? Is it at least five years, as in the Sutton case, or a shorter period?
The bulk of the case concerns the court’s interpretation of the contract, which was not as well drafted as it might have been, and whether there were in fact any MAPs in the contract at all. The judge in the TCC reached the conclusion that the contract did not provide for the MAPs. Sutton appealed to the Court of Appeal and on appeal this decision was reversed, the court reaching what it considered to be the “only rational interpretation of the curious contractual provisions into which the parties have entered”. The interesting point, for my purposes, relates to one of the four reasons why the judge in the TCC decided in Rydon’s favour and the Court of Appeal’s comment on that reason.
It was the judge’s view that “the court should proceed with some care before concluding that one party is entitled to terminate a relatively long-term contract unless the contract is clear as to the circumstances in which the party seeking to terminate is entitled to do so”. When considering this statement the Court of Appeal simply noted that: “The judge was […] correct to say that the court should proceed with care when determining whether contractual provisions are su ciently clear to permit the termination of a relatively long-term contract.”
This raises what appears to be a distinction between “relatively long-term contracts” and others. Is there a suggestion here that the courts should approach such long-term contracts di erently, at least insofar as their termination provisions are concerned, to other contracts which may not involve such a lengthy contractual relationship? If so, what exactly is a “relatively long-term contract”? Is it at least ve years, as in the Sutton case, or a shorter period? Can short-term, or shorter-term contracts be treated differently? Is this really about the nature of the contractual relationship between the parties in such longer-term arrangements?
Longer-term contracts, which are sometimes described as relational contracts, often occur in the context of maintenance obligations
As is the case in Sutton, longer-term contracts, which are sometimes described as relational contracts, often occur in the context of maintenance obligations, though not exclusively. There has been a tendency in a line of cases which have their basis in the 2013 decision in Yan Seng Pte Ltd vs International Trade Corp Ltd to be more ready to imply into relational contracts a core duty relating to honesty in the parties’ conduct which arises from the fact that the parties will be in an ongoing contractual relationship for a considerable period of time.
The comment about the clarity of termination provisions made in Sutton, which is not central to the court’s decision, seems to go slightly further in identifying a distinction between the way long-term contracts and others are treated. While it may be appropriate to consider whether such contracts should contain terms concerning the nature of the relationship between the contracting parties, should such distinctions be drawn in relation to provisions which by their nature should be as clear as possible irrespective of the nature of the contract?
Will this line of argument be developed further? Lawyers are paid to nd loopholes and exploit them in their clients’ interests and I wonder whether these remarks may resurface at some point in the future in the context of an arguments about the interpretation of long-term contracts and their termination provisions.
Simon Lewis is a partner in the construction and engineering team at Bond Dickinson