Sutton Housing Partnership (Sutton) engaged Rydon Maintenance Limited (Rydon) to carry out maintenance and repairs to Sutton’s housing stock for a term of five years. This was under a contract based on the National Housing Federation’s standard form contract 2011 (Contract).
The Contract contained a right for Sutton to terminate if Rydon failed to achieve the minimum acceptable performance standards (MAPs). Rydon’s entitlement to payment was linked to achievement of both MAPs and key performance indicator targets (KPIs). Whilst the Contract specified figures for the KPIs, it did not include figures for the MAPs. In addition, it did not provide the mechanism for determining them. The Contract did however include three tables for MAPs headed ‘example’ which concerned the 2013/2014 period, each of which was 3% lower than the corresponding KPIs.
The Dispute
Sutton claimed to terminate the Contract, relying on Rydon’s failure to meet various MAPs during the period 2014/2015. Sutton calculated this on the basis of deducting 3% from the corresponding KPIs for that period.
Rydon maintained the position that the Contract did not contain any such MAPs levels and therefore the termination was unlawful. Rydon successfully brought a claim for damages for wrongful termination in adjudication.
Sutton sought a declaration challenging the outcome of the adjudication. The Technology and Construction Court (TCC) agreed with the adjudicator, that the contract did not contain MAPs levels to which Sutton subsequently appealed.
The Court of Appeal went on to consider the principal issue of whether the figures set out in the ‘example’ tables were contractually binding or merely illustrative.
The Final Decision
In considering this matter, the Court of Appeal agreed that it should proceed with care when determining whether contractual provisions are sufficiently clear to permit the termination of a relatively long-term contract. However, it did not favour the TCC’s view that if the Contract had intended the example MAPs to have been binding, it would have simply said so. It was common ground that the Contract was poorly drafted.
The Court of Appeal stated that if it was to find that there were no MAPs, Sutton would lose a valuable mechanism for termination. At the same time Rydon would also lose their entitlement to bonuses. As a result, it held that the ‘example’ tables must have been actual MAPs as opposed to hypothetical by way of illustration only. This was said to be ‘the only rational interpretation of the curious contractual provisions’ into which the parties had entered.
Comment
Although the decision turns on its own facts, it provides an example of the court interpreting a poorly drafted contract by determining what a reasonable person would have understood it to mean. It could be argued that the time, and no doubt the considerable costs which had been incurred in this lengthy legal dispute, could have been avoided if the Contract had been drafted to carefully reflect what both parties had almost certainly intended to achieve.
