TSG Building Services Plc v South Anglia Housing Ltd

A dispute referred to adjudication may contain several issues or financial strands. Whether it is one dispute is a question of fact, assessed against the commercial background and without over-legalistic analysis. A single compensation claim remained one dispute even though it had three primary strands. In a commercial partnering contract, a general obligation to act in a spirit of trust, fairness and mutual co-operation, and to act reasonably, did not qualify an express, unconditional right to terminate for convenience. The obligation was directed principally to the parties’ agreed roles, expertise and responsibilities. An implied duty of good faith did not arise on these terms, and any such implied term could not circumscribe the express termination power.

TSG contracted with South Anglia for gas servicing and associated works under a partnering contract with an initial four-year term. South Anglia served notice under clause 13.3, which permitted termination on three months’ notice. TSG subsequently claimed compensation under three principal financial strands and referred the claim to adjudication. The adjudicator awarded TSG £383,778.91 for loss of overheads and profit following termination.

TSG sought enforcement of the adjudicator’s decision. South Anglia brought Part 8 proceedings seeking declarations that the adjudicator had no jurisdiction because multiple disputes had been referred and that clause 13.3 excluded the compensation claim. The central issues were whether the reference comprised one dispute and whether the partnering and reasonableness obligations constrained the termination right.

Disposition. South Anglia was entitled to the declaration that TSG had no entitlement to compensation for overheads and profit that would have been earned during the unexpired balance of the contractual term. The adjudicator had jurisdiction, but reached the wrong contractual conclusion. South Anglia was nevertheless required to pay the adjudicator’s fee of £12,564 plus VAT.

Adjudication jurisdiction

1. The court applied the approach in Witney Town Council v Beam Construction (Cheltenham) Ltd [2011] EWHC 2322(TCC). A dispute may contain one issue or several issues. Whether claims constitute one dispute is a question of fact, interpreted sensibly and commercially. The notice and referral are relevant but are not necessarily determinative.
2. TSG had historically advanced one compensation claim arising from termination. The three financial strands had been challenged together and were materially connected. They therefore comprised one dispute, not three separate disputes. The adjudicator had jurisdiction to determine all the issues.
3. The court declined to decide the alternative argument that the statutory and CIC wording permitted multiple disputes in one adjudication. It noted that the reasoning in Willmott Dixon Ltd v Newlon Housing Trust [2013] EWHC 798(TCC) on that issue had itself been obiter. Absent specific agreement, the established position suggested that only one dispute could be referred.

Contract construction and good faith

4. The contract had to be construed objectively and commercially, taking account of its wording, structure and relevant background. The general co-operation and reasonableness wording in clause 1.1 was directed principally to the parties’ agreed roles, expertise and responsibilities. It did not regulate every contractual right or power.
5. Clause 13.3 gave either party an unqualified right to terminate during the term. The four-year term was expressly subject to the termination provisions, which also distinguished termination for convenience from termination for insolvency or breach. Clause 1.1 did not impose a reasonableness condition on clause 13.3.
6. Following the construction approach in Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, a term could be implied only where the contract, read as a whole against its background, reasonably conveyed that meaning. The court could not imply a term merely to make the bargain fairer or more reasonable.
7. The court did not imply a general duty of good faith. The context-sensitive observations in Yam Seng v International Trade Corporation 2013 EWHC 111 (QB) did not establish a general principle applicable to this contract. In any event, an implied term could not circumscribe the express unrestricted termination power, consistent with Reda v Flag Ltd [2002] UKPC 38. Separate remedies might arise from antecedent misrepresentation or fraud in extreme circumstances, but none was alleged.