Can a good faith duty affect the right of termination?

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TSG Building Services –v- South Anglia Housing [2013] BLR.TCC

Facts

South Anglia Housing (SAH) was a housing company with 5,000 properties and TSG Building Services (TSG) contracted to supply gas servicing to its housing stock using the ACA standard form of contract for term partnering.  The partnering team members promised to work together and individually “in the spirit of trust, fairness and mutual co-operation for the benefit of the term programme….in all matters governed by the Partnering Contract they shall act reasonably…“.

Unfortunately for TSG, the agreement also contained a clause entitling SAH to terminate the appointment of TSG at any time on 3 months’ notice.  SAH became dissatisfied with TSG and gave notice to terminate.  TSG argued that this was unreasonable, and a breach of the duty of good faith.

Held:

  1. The duty of good faith only applies to the working activities of the parties and their necessary co-operation.
  2. It was not unreasonable for a party to exercise the power to terminate which had been freely agreed by the other party (who could have objected but did not).
  3. Neither good faith nor reasonableness applied to the exercise of the option to terminate on notice without fault.

Comment

With this case the TCC is obviously returning to orthodoxy.  Despite the fanfare around partnering agreements, it does not seem that the Courts are going to treat them as being much different from conventional contractual arrangements.  The parties should accordingly be careful in their contract administration, particularly remembering to serve notices, comply with procedures, and above all, keep records.

For more information, help or advice please contact Rob Langley on 0191 211 7975.