Proforce Recruit Ltd v The Rugby Group Ltd

Contractual meaning is determined objectively from the agreement read as a whole, its commercial context and the relevant background known to the parties. Previous negotiations and subjective intentions are generally excluded. Exceptionally, negotiations may be considered where they establish that the parties agreed a particular dictionary meaning for ambiguous words, but the exception is narrow and seldom applicable. “Preferred supplier status” ordinarily denotes approved supplier status, not exclusivity, a right to be approached first, or a guarantee of work. An obligation to offer work first, or to refrain from using other suppliers, will not be implied unless necessary for business efficacy or obvious from the contract.

The claimant supplied cleaning services, labour and equipment to the defendant under a Service Cleaning Contract dated 31 July 2001. The contract guaranteed payment for specified services for at least two years and stated that, during that period, the claimant would hold “preferred supplier status”.

The claimant contended that this gave it the first opportunity to supply all contract labour and hire equipment required at the defendant’s Rugby site, or at least such requirements connected with cleaning and oxide shovelling. The defendant disputed that construction and relied on its continuing ability to use other approved suppliers. The central issue was the meaning and legal effect of “preferred supplier status”.

1. The claim was dismissed. The words “preferred supplier status” were construed objectively by reference to the contract, the parties’ relationship and the relevant factual background. The court applied the principles stated in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 and explained in subsequent authorities.

2. “Preferred supplier status” meant that the claimant was an approved supplier of personnel for cleaning services of the type covered by the Service Cleaning Contract. It meant that the claimant did not need to undergo a further tendering or evaluation process. It did not make the claimant the sole or exclusive supplier, give it a right to be approached first, guarantee it work, or prevent the defendant from designating other preferred suppliers.

3. The court rejected the claimant’s wider negotiated construction. The agreed-dictionary exception permits evidence of negotiations only where the parties negotiated on an agreed basis that words bore a particular meaning. That exception is narrow and must not become a means of circumventing the general exclusion of negotiations and subjective intentions. The evidence did not establish any agreed meaning giving the claimant priority over other suppliers.

4. No term would be implied requiring the defendant to offer the claimant a reasonable opportunity before obtaining labour or equipment elsewhere. Such a term was neither necessary to give the contract business efficacy nor obvious from the agreement. The defendant was therefore entitled to use Modern Plant, Hansons and other suppliers for cleaning or other work at the Rugby site.

The judgment records that the background was set out in judgments of the Court of Appeal dated 17 February 2006. The Court of Appeal decision is cited as [2006] EWCA Civ 69. The present judgment determined liability at first instance following that procedural history.