Tramtrack Croydon Ltd v London Bus Services Ltd

An agreement requiring parties to act in good faith and reasonably to agree financial arrangements is enforceable where it provides an objective standard and expert determination mechanism. A non-contractual assurance may be relevant to whether a party acts reasonably, but does not dictate the contractual result. Compensation means making good loss caused by the introduction of additional tickets or passes, rather than conferring a windfall.

The claimant operated Croydon Tramlink under an agreement with London Regional Transport, whose rights and obligations had passed to the defendant. The agreement required the claimant to accept additional tickets and passes specified by the regulator. Clause 23.3 of the Amended and Restated Concession Agreement required the parties to agree reasonably and in good faith the financial arrangements compensating the claimant.

The dispute concerned Bus Passes, the relevance of a non-binding 1996 Side Letter, and whether various staff and police passes were additional passes.

1. Clause 23.3 was enforceable. The obligations to act reasonably and in good faith, together with the expert determination mechanism, supplied sufficient certainty. The court and expert could determine which considerations were relevant or unreasonable.
2. The Side Letter was not contractual, but ignoring it altogether would be unreasonable. It did not require cash-fare compensation. Objectively, it contemplated payment through cash, the Off-Tram Revenue Agreement, or payment by LRT or another person for free tickets or passes.
3. Compensation meant making good loss caused by introducing additional tickets or passes. It did not require payment producing a better position than if the passes had not been introduced, or compensation for unrelated fare-setting and competing-bus risks.
4. LBSL could reasonably apply a no-better-no-worse principle. Its application depended on the characteristics and usage of the new pass and its effect on existing revenue. The precise method was for agreement or expert determination.
5. The obligation to negotiate arose only on introduction of an additional ticket or pass, not merely from changing eligibility criteria. Staff nominee passes outside the contractual definition were additional passes. Kent constables and special constables held defined Police Passes and did not trigger compensation.
6. The agreed issues were answered accordingly and the court indicated the declarations it was minded to make, subject to further argument.