Termination of contract for breach

January 6th, 2016

In BT Cornwall Ltd v Cornwall Council [2015] EWHC 3755 (Comm), a services provider brought a claim against the local authority and other public sector bodies for an injunction to prevent the termination of a potentially long duration £160 million agreement between them.  The claim failed. The agreement covered services such as health, transport, communications and public safety.  It also provided for the creation of new jobs for local residents.

The agreement contained a clause entitling the local authority to waive key performance indicator scores resulting from service failures if it was satisfied that a remedial plan was in place. There were substantial problems with performance.  A number of key performance indicators fell consistently below target level.  A backlog of work accrued.

The parties established an executive forum aimed at resolving the issues. Later, however, the local al authority stated its intention to terminate the agreement for material breach.  It also claimed that the service provider’s failure to meet its annual jobs guarantee gave rise to an obligation to provide a remediation plan, which it had failed to do.  The service provider claimed that a large number of faults had been caused by the local authority.  It also claimed that a separate agreement had been entered into for the backlog to be cleared, with the implication that the key performance indicator results which fell below breach level would not be used to justify termination, and that the local authority was in any event estopped from relying on breaches in terminating for material breach.

Knowles J held that the failure to create new jobs resulted at least in part from the local authority’s failure to secure a health contract, which would have accounted for 70 new jobs. There was no contractual requirement for a remediation plan.  Accordingly, the service provider was not in breach of the agreement in that respect.  Moreover, there was no evidence that the waiver clause in the agreement had been exercised nor was there any reason to imply a waiver.  The service provider was contractually obliged to resolve the backlog and was not entitled to protection from the consequences of its failure to do so.

Knowles J further held that there was no basis for a case on estoppel or affirmation. The fact that the local authority was prepared to engage with the executive forum and to work collaboratively with the service provider was not to be held against it and did not signal that it would refrain from taking action under the agreement.   There had been no material delay on the local authority’s part, and neither its actions nor the passage of time were to be taken as an election not to terminate for material breach.

In conclusion, the service provider had failed to provide the service it had promised to the required standard. There was no capriciousness or bad faith on the local authority’s part in expecting it to clear the backlog or take the contractual consequences if doing so resulted in further breaches of the key performance indicators.  Accordingly, the service provider was in breach of the agreement such as to justify termination.

James Goudie QC

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