How does good faith affect the operation of termination clauses?

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TSG Building Services Plc –v- South Anglia Housing Limited (2013) Lawtel 15/2/2013 TCC

Facts

South Anglia Housing contracted with TSG to provide gas servicing work to its housing stock, for a 4 year period.  Each party was entitled to terminate at any time without cause.  South Anglia exercised this clause.  TSG objected to the termination and sued for damages.

TSG based its claim upon another clause which committed the parties to working together “in the spirit of trust, fairness and mutual co-operation for the benefit of the term programme” and to act reasonably and without delay in doing so.

HELD:

The trust and fairness clause was about how the contract operated, not how it came to an end.  Even if an implied term of good faith had been identified, that would not restrain either party from exercising its clear contractual right to terminate the contract without cause at any time if found convenient.  Each party took the same risk, i.e. that the other party could bring the contract to an end without cause at any time.

Comment

  1. After the recent flurry of cases on good faith, it is clear that the Courts are determined to put this doctrine back in the box.  Many contracts, especially in the public sector and also those inspired by the NEC3 suite of forms, contain obligations to work together in trust and co-operation.  It is clear that the fundamental English rules of contractual interpretation and performance have not been substantially affected and that just because the parties promise to be nice to each other does not restrain them from exercising their contractual rights to do the opposite.
  2. This case was an application to enforce the Adjudicator’s Decision.  South Anglia adopted an ingenious tactic.  They applied at the same time for summary determination of the underlying point of law.  The Judge therefore found that in law there was no right to compensation and therefore TSG’s application to enforce the Adjudication was pre-empted and dismissed.

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