Portsmouth City Council v Ensign Highways Ltd

Contractual service-point values expressed as maximum values permit an award within a range, having regard to the gravity and circumstances of the breach. They are not fixed tariffs unless the contract clearly provides otherwise. A contractual discretion to assess the number of points must be exercised honestly, on proper grounds, and without arbitrariness, irrationality or caprice.

An express good-faith and mutual-co-operation clause is not automatically an overarching obligation applying throughout a commercial agreement. Its scope depends on the language and structure of the contract. Specific contractual machinery should not be supplemented by a general obligation which cuts across its provisions.

Portsmouth City Council sought declarations concerning the operation of a service-point regime in a 25-year PFI highways agreement with Ensign Highways Ltd. Schedule 17 listed default events and corresponding figures under the heading Maximum Event Value. The parties disputed whether those figures were fixed tariffs or upper limits within a range.

They also disputed whether an express obligation to deal fairly, in good faith and in mutual co-operation applied to the service-point provisions, or whether a different term should be implied to control the manner in which points were awarded.

1. Construction of Schedule 17. The figures headed Maximum Event Value were maximum values, not fixed tariffs. The word maximum naturally indicated the upper limit of a range, and the flexible interpretation accorded with commercial common sense. The parties’ continued use of that heading after extensive amendments, having operated the regime flexibly for several years, reinforced that conclusion. Where the maximum was 1, only one point could be awarded.
2. The number of points awarded for a breach was to be assessed by reference to all the circumstances, including the gravity of the breach. Clause 24.2.3 could be construed consistently with that interpretation by allowing a further period for objection where the Network Board determined the number of points.
3. Express good faith obligation. Clause 44.4.1 did not apply to the Agreement as a whole or to clause 24. Its language and the existence of more specific good-faith and assistance provisions indicated a confined purpose. Clause 24 involved unilateral decisions by PCC and did not require co-operation in order to operate. A general obligation should not be construed as covering the same ground as detailed provisions.
4. Implied term. The parties agreed that some control on the exercise of the service-point power was required. The implied term was: when assessing the number of Service Points under clause 24.2.1(c), PCC’s Representative must act honestly and on proper grounds and not arbitrarily, irrationally or capriciously. PCC could consider its commercial interests when deciding whether to award points, but, once points were awarded, the assessment of their number was subject to that implied term.
5. The court therefore declared that Schedule 17 contained maximum values, rejected application of the clause 44.4.1 duty to clause 24, and declared the implied term governing assessment of the number of points. Matters of relief and costs were left for further submissions.