Sutton Housing Partnership Ltd v Rydon Maintenance Ltd

[2017] EWCA Civ

Sutton engaged Rydon to carry out maintenance and repairs to housing stock based on the National Housing Federation’s standard form contract 2011. During 2014, difficulties arose and on 12 November 2014, Sutton served a notice asserting that Rydon had failed to achieve certain contractual MAPs (or minimum acceptable performance standards). They followed this with a termination notice. Following an adjudication and a TCC hearing, both of which were in favour of Rydon, the CA had to consider whether the MAPs were contractually binding or merely illustrative. If they were illustrative, Rydon could argue that the termination was invalid. 

LJ Jackson agreed with the TCC Judge that a court should proceed with care when determining whether contractual provisions are sufficiently clear to permit the termination of a relatively long-term contract. The contract here had a term of five years. Rydon said that the parties must have intended to specify MAPs and that their omission to do so was inadvertent. However, LJ Jackson noted the comments of Lord Neuberger in Re Sigma Finance Corp [2008] EWCA Civ 1303 that: 

“Further, I do not think it is normally convincing to argue that, if the parties had meant a phrase to have a particular effect, they would have made the point in different or clearer terms.”

LJ Jackson also noted that if the MAPs were not contractually binding then the termination provisions were not effective. The Judge considered it to be unlikely that parties could have intended to neutralise the principal contractual provision enabling the employer to terminate for poor service, even if there were other routes.

The Judge also considered that the KPI framework was a “poorly drafted document”. It was common ground that the parties must have intended to provide MAPs. Not only was it the case that if there were no MAPs, Sutton would lose a valuable mechanism for termination, but at the same time Rydon would also lose their entitlement to bonuses. It was not possible to calculate what bonuses (if any) were due without having a set of MAPs. The situation was that the contract was:

“a commercial one, made between a local authority and a building contractor. Self-evidently, Rydon intended to receive all the bonuses which were due to it under the incentivisation scheme. That was only possible if the contract specified MAPs. Also self-evidently, Sutton intended to retain their valuable power to terminate for poor service … That was only feasible if the contract contained MAPs.”

Therefore both parties must have intended (and “any reasonable or indeed unreasonable person standing in the shoes of either party would have intended”) the contract to specify MAPs. The only place where MAPs appeared was in the three so-called “examples” in the framework. Therefore they must have been actual MAPs not hypothetical MAPs by way of illustration. This, LJ Jackson concluded, was “the only rational interpretation of the curious contractual provisions” into which the parties had entered.

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