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You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Portsmouth City Council v Ensign Highways Ltd [2015] EWHC 1969 (TCC) (14 July 2015) URL: https://www.bailii.org/ew/cases/EWHC/TCC/2015/1969.html Cite as: [2015] EWHC 1969 (TCC) |
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QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Rolls Building, 7 Rolls Buildings London, EC4A 1NL |
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B e f o r e :
____________________
Portsmouth City Council |
Claimant |
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- and - |
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Ensign Highways Ltd |
Defendant |
____________________
(instructed by Bevan Brittan LLP) for the Claimant
Sean Brannigan Esq, QC and Richard Osborne Esq
(instructed by Dentons UKMEA LLP) for the Defendant
Hearing dates: 19th and 20th May 2015
____________________
Crown Copyright ©
Mr. Justice Edwards-Stuart:
Introduction
The contract in outline
"A PCC's objective is to provide a highway network which is safe affordable and facilitates the economic development of Portsmouth in a manner consistent with its other wider policies.
B PCC desires to achieve best value from the existing highway infrastructure in Portsmouth."
"... make arrangements to secure continuous improvement in the way in which its functions are exercised, having regard to a combination of economy, efficiency and effectiveness."
"Incidents on the highway are reported by council staff, members of the public or councillors either by phone call, letter or email to the City Helpdesk. The incident is then logged on the Public Enquiry Manager (PEM) database and sent to the contractor on a real time basis to respond to the various incidents in accordance with the contract, within the required timescales. Different incidents will have different requirements and timescales. If the contractor does not respond in accordance with the contract these are then deemed as 'failures to' and service points can be awarded.
Service points are monitored on a schedule which is sent to the contractor on a monthly basis. They respond giving their comments within two weeks. The monthly schedule is then produced at the council's monthly contract review meeting where representatives from across the council meet to discuss, review and agree on whether the service points should be awarded or not.
Each service point has a maximum event value ranging from one to five which can be adjusted to reflect the severity of the failure. Once the decision has been made the schedule and an official letter is sent to the contractor advising of the award and the reasons. At present there is no formal meeting with the contractor to agree the service points awarded.
A graph report is produced monthly at the progress meeting and quarterly at the network board meeting. In addition the graph report is sent to Atkins (lenders technical advisors). Appendix 5 shows the service points awarded from the commencement of the contract.
In addition to the process above where the contractor gets service points for highway related incidents, the council can also award them for things like failing to produce information/reports or for failing to respond to a resident or even a PEM."
Clause 24 and Schedule 17
"24.1.1 [Ensign] shall notify PCC's Representative of the occurrence of any matters specified in Schedule 17 [Service Points] and any other breach of its obligations under this Agreement as soon as practicable after it becomes aware of such matter but in any case within 7 days of such matter becoming apparent to [Ensign] …
24.1.2 If at any time PCC's Representative is reasonably of the opinion that [Ensign] has failed to perform any of its obligations under this Agreement ... and such failure is capable of remedy, then PCC's Representative may serve a notice on [Ensign] requiring [Ensign] (at its own cost and expense) to remedy such failure ... within a reasonable period (the Remedial Period) provided always that no notice may be served in accordance with this Clause in relation to a breach of a Core Service Requirement…
24.2.1 If at any time:
(a) any Report indicates or PCC's Representative is notified or otherwise becomes aware that [Ensign] has failed to perform any of its obligations under this Agreement;
(b) PCC's Representative serves a notice under Clause 24.1.2 and [Ensign] fails to remedy the failure within the Remedial Period; or
(c) ...
then PCC's Representative may (without prejudice to any other right or remedy available to PCC) by notice to [Ensign] award points (herein called Service Points) calculated by reference to the table set out in Schedule 17 [Service Points] ...
24.2.2 The Parties agree that:
(a) Schedule 17 [Service Points] provides a list of examples of matters which may attract Service Points but is only by way of illustration of the matters for which Service Points may be awarded and the severity attributed to such defaults and in no way restricts PCC's Representative's right to award Service Points for other failures by [Ensign] to perform its obligations under this Agreement …
(b) where the number of Service Points attributable to a failure or default is not identified in Schedule 17 [Service Points] the level of points awarded shall be decided by the Network Board and as a guide, the level of points should correspond to the level set, under Schedule 17 for breaches of equivalent seriousness to the breach under review;
(c) where a single event is a breach of more than one obligation under this Agreement then the maximum number of Service Points awarded shall be that relating to the most serious of the breaches only (and no Service Points shall be awarded for the lesser breaches) provided always that this will not in any way limit PCC's Representative's ability to award further Service Points if there are failures to comply with obligations related to dealing with the consequence of any such single event;
(d) subject to [Ensign] acting in good faith, for a period of 6 months after the Commencement Date Service Points will be awarded (if at all) at 50% of the value set out in Schedule 17 [Service Points].
24.2.3 [Ensign] may within 28 days of receipt of any notice pursuant to Clause 24.1.2 or 24.2.1 object to the issue of the notice (in the case of Clause 24.1.2), or to the award of Service Points or, where Service Points have been awarded in respect of a matter which is not set out in Schedule 17 [Service Points], to the number of such Service Points. If PCC's Representative and [Ensign] are unable to reach agreement on any such matter within 14 days of subject objection by [Ensign], either may refer the Dispute for resolution under the Disputes Resolution Procedure. In respect of any Dispute as to the number of Service Points to be awarded pursuant to Clause 24.2.2, the issue for decision shall be how many Service Points should be awarded in comparison with the number of Service Points set out in Schedule 17 [Service Points] for defaults of equivalent severity."
(My emphasis)
SCHEDULE 17
SERVICE POINTS
Where PCC intends to award Service points for a Default Event other than those listed below such intention shall be first made known to the Network Board.
Default Event | Maximum Event Value |
Traffic Management
Failure to provide a schedule of annual lane closures in accordance with Clause 12.3.1 | 3 |
Failure to remove or modify any lane closures in accordance with Clause 12.3.3 | 2 |
Failure to remove any traffic cones in accordance with Clause 12.3.8 | 1 |
Failure to provide information for the purposes of any public information service in accordance with Clause 12.4 | 1 |
Signing and Communications
Direct any sign on the Network without compliance with Clause 13.1 | 3 |
Failure to install any notification sign in accordance with Clause 13.2 | 2 |
Failure to place or remove any traffic sign as directed by the PCC in accordance with Clause 13.3 | 1 |
Fossils and Antiquities
Failure to provide access for the Archaeologist in accordance with Clause 15.1.1 | 10 |
Failure to prevent the removal or damage of any Fossils and Antiquities in accordance with Clause 15.3 | 10 |
Failure to inform the PCC of the discovery of any Fossils and Antiquities in accordance with Clause 15.3 | 10 |
Insurance
Failure to submit details of any Insurance or changed insurance in accordance with Clause 17.1.5 | 5 |
Failure to furnish any insurance policy (or a copy thereof certified in a manner acceptable to the PCC) in accordance with Clause 17.1.5 | 1 |
Failure to provide evidence of compliance with Clause 17.1.5 requested by the project | 1 |
Failure to obtain and forward to the PCC renewal certificates in accordance with Clause 17.1.7 | 1 |
Failure to allow inspection of the register of claims and incidents | 3 |
Clause 44 and the duty of good faith
"[Ensign] acknowledges that:
(a) PCC is subject to the Best Value Duty; and
(b) the provisions of this Clause 44 [Best Value] are intended to assist PCC in discharging its Best Value Duty in relation to the Service
(c) The provisions of this Clause 44.1 [PCC's Best Value Duty] shall apply in respect of the obligations of [Ensign] and PCC concerning the Best Value Duty and the 1999 Act generally"
And, by clause 44.1.2:
"[Ensign] shall, throughout the Contract Period, but only to the extent of its obligations in this Contract, make arrangements to secure continuous improvement in the way in which the Service is provided, having regard to a combination of economy, efficiency and effectiveness."
"If, in PCC's reasonable opinion, the provision, performance or delivery of the Service (or any part of the Service) may be more effective, efficient and economic having regard to the Annual Service Report, and the Best Value Duty, then PCC may serve a written notice upon [Ensign] (a Best Value Service Change Notice) stating the nature and timing of the changes to the provision, performance or delivery of the Service (or the relevant part of the Service) which PCC desires."
"44.4.1 PCC and [Ensign] shall deal fairly, in good faith and in mutual co-operation with one another and with Interested Parties.
44.4.2 PCC and [Ensign] shall each take the respective steps necessary to establish and maintain the Network Board. Such steps shall include the following:
(a) PCC shall appoint and keep appointed two representatives of PCC to the Network Board, such representatives to be PCC's City Engineer (or such other person of similar stature as is nominated by PCC) and PCC's Representative (or a nominee of PCC's Representative having equivalent authority to PCC's Representative);
(b) PCC shall appoint and use reasonable endeavours to keep appointed to the Network Board a Partnering Facilitator who shall have been nominated by the Network Board from a list of partnering facilitators provided by PCC, provided that in the absence of consensus on the part of the members of the Network Board with regard to such nomination PCC shall nominate the Partnering Facilitator; and
(c) [Ensign] shall appoint and keep appointed two representatives to the Network Board, such representatives to be [Ensign's] Representative (or a nominee of [Ensign's] Representative having equivalent authority to [Ensign's] Representative) and a director of [Ensign] nominated for such purpose by [Ensign] (or a nominee of such director having equivalent authority)."
"During the drafting process of this BVR, the council faces the need to reduce the overall costs of the contract, primarily as a result of the reduction in the council's cash settlement. During 2012, the council and contractor will begin in-depth discussions with a joint aim to maximise efficiencies and savings within the contract. For this reason, some of the recommendations (e.g. insurance, additional works and third-party revenue limit) have now been taken out of the scope of the BVR and will now be considered as part of the wider in-depth discussions."
And, at pages 16 and 17:
"The original Schedule 17 service point events and default values tend to be focussed on the process rather than outcome for the end user. As part of the BVR these have been examined and Appendix 4 contains an initial council recommendation both in terms of the number and value of default events which should be negotiated with the contractor.
...
The contractor has proposed an alternative set of values which has the effect of reducing the risk assessment back to the existing value. The council and contractor will need to negotiate an agreed set of default events and values which more accurately reflect the end user perception of performance."
The authorities
"5.11. Lord Hoffmann made clear in ICS that the process of interpretation is such that the meaning of a phrase, clause or provision may not be the same thing as the meaning of its words. The Court should be open to the possibility that the drafted words may not reflect the objectively ascertained intention of the parties and that the parties may therefore have used the wrong words or syntax. The Court should be alive to the fact that parties do not normally make linguistic mistakes, particularly in formal documents such as a contract, but that it is nevertheless possible for something to have gone wrong with the language. At the same time, the Court should not attribute to the parties intentions that they plainly did not have.
5.12. Circumstances may arise where a particular term is credibly open to more than one interpretation. The Supreme Court confirmed in Rainy Sky v Kookmin Bank [2011] 1 WLR 2900 (SCE) at [21] that the correct approach is to start (and finish) by looking for and adopting the interpretation that most accords with commercial common sense. The exercise of identifying the parties' commercial intention should be carried out from the outset, and is not simply a tool to be deployed once it has first been concluded that the natural meaning of the words produces a result that appears to have been unintended (see [20]). The Court must therefore conclude what interpretation accords with 'business common sense'."
"The Trust and the contractor will cooperate with each other in good faith and will take all reasonable action as is necessary for the efficient transmission of information and instructions and to enable the Trust or, as the case may be, any Beneficiary to derive the full benefit of the contract. At all times in the performance of the Services, the contractor will cooperate fully with any other contractors appointed by the Trust or any Beneficiary in connection with other services at the Location."
"... Where such performance criteria or standards have not been met by the contractor in the performance of the Services then the Trust shall be entitled to levy payment deductions against the monthly amount of the Contract Price payable to the contractor in accordance with the terms of the Payment Mechanism. In addition, the Trust may by notice to the contractor award Service Failure Points depending on the performance of the Services as measured in accordance with the Service Level Specification. Service Failure Points which are agreed or determined to have been awarded in circumstances where such award was not justified shall be deemed to have been cancelled."
"Where A and B contract with each other to confer a discretion on A, that does not render B subject to A's uninhibited whim. In my judgment, the authorities show that not only must the discretion be exercised honestly and in good faith, but, having regard to the provisions of the contract by which it is conferred, it must not be exercised arbitrarily, capriciously or unreasonably. That entails a proper consideration of the matter after making any necessary enquiries. To these principles, little is added by the concept of fairness: it does no more than describe the result achieved by their application."
"… such an obligation is likely to be implicit in any commercial contract under which one party is given the right to make a decision on a matter which effects both parties whose interests are not the same."
"82. In each of the above cases the implied term was intrinsic. The contract would not make sense without it. It would have been absurd in any of those cases to read the contract as permitting the party in question to exercise its discretion in an arbitrary, irrational or capricious manner. By reference to Baroness Hale's classification in Société Générale, London Branch v Geys [2012] UKSC 63 at paragraph 55, [2013] ICR 117, that implied term falls into the first category.
83. An important feature of the above line of authorities is that in each case the discretion did not involve a simple decision whether or not to exercise an absolute contractual right. The discretion involved making an assessment or choosing from a range of options, taking into account the interests of both parties. In any contract under which one party is permitted to exercise such a discretion, there is an implied term. The precise formulation of that term has been variously expressed in the authorities. In essence, however, it is that the relevant party will not exercise its discretion in an arbitrary, capricious or irrational manner. Such a term is extremely difficult to exclude, although I would not say it is utterly impossible to do so."
"90. Against this background, the question arises whether there is an implied term that the Trust would not act in an arbitrary, capricious or irrational manner in relation to awarding service failure points or making deductions.
91. The discretion which is entrusted to the Trust in relation to service failure points and deductions in the present case is very different from the discretion which existed in the authorities discussed above. The Trust is a public authority delivering a vital service to vulnerable members of the public. It rightly demands high standards from all those with whom it contracts. There may, of course, be circumstances in which the Trust decides to award less than the full amount of service failure points or to deduct less than it is entitled to deduct from a monthly payment. Nevertheless the Trust could not be criticised if it awards the full number of service failure points or if it makes the full amount of any deduction which it is entitled to make. The discretion conferred by clause 5.8 simply permits the Trust to decide whether or not to exercise an absolute contractual right.
92. There is no justification for implying into clause 5.8 a term that the Trust will not act in an arbitrary, irrational or capricious manner. If the Trust awards more than the correct number of service failure points or deducts more than the correct amount from any monthly payment, then that is a breach of the express provisions of clause 5.8. There is no need for any implied term to regulate the operation of clause 5.8."
"The Trust and the contractor will cooperate with each other in good faith and will take all reasonable action as is necessary:
(1) for the efficient transmission of information and instructions; and
(2) to enable the Trust or, as the case may be, any Beneficiary to derive the full benefit of the contract."
i) There was no finding by the judge that the Trust was acting dishonestly, as opposed to mistakenly applying the provisions of a complicated contract.
ii) The deductions were irrelevant to the two stated purposes. In particular, an award of service failure points under clause 5.8 of the conditions was not "… the transmission of information and instructions" within clause 3.5.
"It seems to me to be clear that whatever the scope of the duty it can be no more than a duty to co-operate in good faith. My difficulty is to see in what sense the unilateral decision by the Trust to award [service failure points] or to assert a right to levy Deductions (or even the actual levying of Deductions) is something that requires co-operation at all."
"152. ... In my judgment, [the judge's] approach meant that, in determining the scope of the obligations under clause 3.5, he gave insufficient weight to the other provisions of the contract and, to this extent did not take sufficient account of the context of clause 3.5.
153. As awarding excessive service failure points and making excessive deductions from the payments put the Trust in breach of clauses 5.8, 6.3 and 6.5 of the contract, it was not necessary to give clause 3.5 a wide meaning which meant that these matters also constituted a breach of that provision. Absent a wide meaning to clause 3.5 and a broad interpretation of the two stated purposes, awarding excessive service failure points and making excessive deductions from payments were not relevant to the two stated purposes for the reasons given by Jackson LJ at paragraphs 114 and 116 of his judgment.
154. The contract in the present case is a detailed one which makes specific provision for a number of particular eventualities. The specific provisions include clauses 5.8, 6.3 and 6.5. In a situation where a contract makes such specific provision, in my judgment care must be taken not to construe a general and potentially open-ended obligation such as an obligation to 'co-operate' or 'to act in good faith' as covering the same ground as other, more specific, provisions, lest it cut across those more specific provisions and any limitations in them."
The submissions of the parties on the Service Points issue
"PCC's Representative may (without prejudice to any other right or remedy available to PCC) by notice to [Ensign] award points (herein called Service Points) calculated by reference to the table set out in Schedule 17",
together with the heading "Maximum Event Value" in the schedule itself, shows very clearly that the figures given in Schedule 17 represent the top of the range of points that may be given, at the discretion of PCC's Representative, for any particular Default Event. He submits that the word "maximum" is a word with a clear meaning: it means the upper limit of a possible or permissible range.
"… so I have worked since day one on the contract, and worked with service points since day one of the contract, so I have seen every single service point that has come through and I think it is quite hard because you cannot put a matrix or a - something in place that will say how you award the number that you do for each event. It is not possible. Because every event is completely different."
A little later she said this:
"... any health and safety issues I would tend to award a higher number of points. Unfortunately we didn't have an item under Schedule 17 for health and safety which caused a few problems for that. But I think I would always judge on things like whether - if, for example, it was a pothole that was in a high pedestrianised area that Colas hadn't fixed, that they had gone outside the timescale, the location, various factors would determine how many I would issue."
My conclusions on the Service Points issue
The submissions of the parties on the extent of the duty of good faith
"English law has traditionally drawn a sharp distinction between certain relationships - such as partnership, trusteeship and other fiduciary relationships - on the one hand, in which the parties owe onerous obligations of disclosure to each other, and other contractual relationships in which no duty of disclosure is supposed to operate. Arguably at least, that dichotomy is too simplistic. While it seems unlikely that any duty to disclose information in performance of the contract would be implied where the contract involves a simple exchange, many contracts do not fit this model and involve a longer term relationship between the parties which they may make a substantial commitment. Such 'relational' contracts, as they are sometimes called, may require a high degree of communication, cooperation and predictable performance based on mutual trust and confidence and involve expectations of loyalty which are not legislated for in the express terms of the contract but are implicit in the parties' understanding and necessary to give business efficacy to the arrangements. Examples of such relational contracts might include some joint venture agreements, franchise agreements and long term distributorship agreements."
"I can think of no provision of the Contract more likely to improve efficiency and effectiveness than the Service Point Regime. Unless and until sufficient Service Points are accumulated to a 12 month cumulative total that will trigger a warning notice or an act of default, the Service Points appear to have no contractual consequence. They do not lead to deductions. The main purpose of the Service Points is self-evidently, to provide a formal way of notifying Ensign of failures so that Ensign's performance can be improved."
My conclusions on the clause 44.4.1 issue
"… care must be taken not to construe a general and potentially open-ended obligation such as an obligation to 'co-operate' or 'to act in good faith' as covering the same ground as other, more specific provisions, lest it cut across those more specific provisions and any limitations in them".
The submissions of the parties on the nature of the implied term
"The exercise of the discretion by PCC under clause 24.2.1(c) in whether to award Service Points must be taken on proper grounds and for proper purposes, and without dishonesty or deceit."
"PCC is to ensure that, when issuing Service Points, its Representative will hold the balance fairly as between PCC and Ensign and will act in a manner which is independent, impartial, fair and honest."
"When performing his decision-making function, the decision-maker is required to act in a manner which has variously been described as independent, impartial, fair and honest. These concepts are overlapping but not synonymous. They connote that the decision-maker must use his professional skills and his best endeavours to reach the right decision, as opposed to a decision which favours the interests of the employer."
"When assessing the number of Service Points to be awarded under clause 24.2.1(c) of the Agreement, PCC's Representative is to act honestly and on proper grounds and not in a manner that is arbitrary, irrational or capricious."
Conclusions
Note 1 In fact, there are two limbs to the regime: one in respect of Services which comprise Core Service Requirements, the other in respect of other Services. The matters in dispute that are the subject of this judgment concern the latter. [Back] Note 2 The Schedule was revised in December 2008 to reduce the maximum figure from 10 to 5 in the circumstances described in paragraph 23 below. [Back] Note 3 See, for example, AG for Belize v Belize Telecom [2009] 1 WLR 1988 (PC), at [16] and [21]. [Back] Note 4 As Mr. Brannigan put it: “Here we start with the clause itself” (Day 2/107). [Back]