Sutton Housing Partnership Ltd v Rydon Maintenance Ltd

Contractual provisions described as examples may be binding where the contract, read as a whole, requires them to supply essential performance thresholds. Construction asks what a reasonable person with the relevant background would understand the language to mean, giving proper weight to natural wording, context, purpose and commercial common sense. Where bonus and termination machinery cannot operate without minimum acceptable performance levels, that contractual necessity is a powerful interpretative consideration. Consistently recurring arithmetic in the examples may identify the parties’ agreed formula for later periods. Here, the examples stated binding minimum levels for 2013/2014, and their recurring 3% relationship to targets supplied the minimum levels for 2014/2015.

Sutton Housing Partnership, the employer, appealed from a declaration by the Queen’s Bench Division, Technology and Construction Court, that its maintenance contract with Rydon Maintenance did not provide minimum acceptable performance levels. The dispute followed an adjudication concerning Sutton’s attempted termination of the contract for poor performance.

The central issue was whether three KPI tables headed “example” were contractually binding, and whether the 3% difference between their minimum levels and target figures also determined the levels for 2014/2015.

Appeal allowed unanimously; declaration granted.

1. The judge was right that the contra proferentem rule did not assist, and that care was required before construing a relatively long-term contract as permitting termination. His second reason was less persuasive: the parties plainly intended to specify minimum acceptable performance levels because both the bonus machinery and the termination machinery depended on them. His third reason had some force, but Rydon could terminate on six months’ notice after the first two years. His fourth reason identified the practical consequence of the contrary construction: without minimum levels, clauses 12.1.9 and 13.1.1 would be ineffective.
2. The Court applied the principles of commercial contractual construction stated in Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900 and Arnold v Britton and others [2015] UKSC 36; [2015] AC 1619. The court’s task was to identify the parties’ objective meaning from the language, contractual context, purpose and commercial consequences. The approach in Re Sigma Finance Corp (in admin. rec) [2008] EWCA Civ 1303; [2009] BCC 393 was also treated as apposite.
3. Properly construed, the only contractual location of the minimum levels was the three examples. The framework stated that the KPI matrix calculated performance between the minimum acceptable standard and the target. The examples therefore stated actual minimum levels for 2013/2014, rather than hypothetical figures.
4. For 2014/2015, each example showed the minimum level as 3% below the target. Applying that agreed ratio produced the minimum levels recorded by the Court, including 96%, 94%, 93%, 93%, 94%, 93% and 93% for the listed KPIs. That was the only rational construction and avoided an absurd result whereby the bonus and termination machinery operated in the first year but not the second.

• Court of Appeal (Civil Division): In [2017] EWCA Civ 359, Sutton’s appeal was allowed and a declaration was granted.
• Queen’s Bench Division, Technology and Construction Court: Mr Roger ter Haar QC held on 12 May 2016 that the contract did not provide for the minimum acceptable performance levels.