Svella Connect Limited v Virgin Media Limited

On an application for summary judgment, the implication of contractual duties of good faith must be addressed by orthodox principles of contractual implication. The court must first construe the express bargain and ask whether the proposed term is necessary to give the contract business efficacy or is so obvious that it goes without saying. A contract may be described as relational, and the Bates v Post Office (No. 3) indicia may provide a useful sense-check, but that label is not a substitute for the conventional inquiry. Detailed express provisions leave no scope for implication. The court granted summary judgment where the agreements regulated work allocation, performance and termination in detail, and refused permission to plead allegations that merely duplicated express contractual rights or did not disclose a complete cause of action.

Svella Connect Limited brought claims against Virgin Media Limited arising from three framework agreements for network construction work and a later Exit & Settlement Agreement. It alleged that terms or duties of good faith were implied into the agreements and that Virgin Media breached them by reducing work, withholding sums, pursuing performance measures and failing to provide agreed volumes.

Virgin Media applied for summary judgment under rule 24.2 of the Civil Procedure Rules 1998, alternatively strike-out under rule 3.4(2)(a), and opposed Svella’s proposed amendments. Svella abandoned its other challenged claims and sought permission to amend its good faith case. The central issues were whether the pleaded good faith terms had a real prospect of success and whether the proposed breach particulars disclosed a viable claim.

1. Disposition. Summary judgment was granted to Virgin Media on Svella’s claims based on implied duties of good faith in the Framework Agreements and the Exit & Settlement Agreement. Permission to amend was granted in accordance with Svella’s second draft, except for the proposed new particulars of breach at paragraph 1 of Appendix 2.

2. Procedural approach. Under rule 24.2 of the Civil Procedure Rules 1998, the question was whether the claim had a realistic, rather than fanciful, prospect of success and whether there was any compelling reason for trial. The evidence and contractual documents were sufficient to determine the implication issue at the interim stage. The court should avoid a mini-trial, but should decide a short point of law or construction where the necessary evidence is available.

3. Implication of terms. The express contract must first be construed. A term implied in fact must satisfy the orthodox requirements of necessity or obviousness, be capable of clear expression and not contradict an express term. The inquiry is directed to filling gaps, not improving or rewriting the bargain. Necessity remains central when implication in law is considered.

4. Relational contracts. The term relational may describe a long-term collaborative relationship, but it is not determinative. The Bates criteria are useful indicia or a sense-check, not statutory requirements or an alternative test. The decisive inquiry was whether the parties had fully set out their agreement and, if not, whether the pleaded term was necessary or obvious.

5. Framework Agreements. The agreements expressly addressed collaboration, work allocation, competitive bids, the absence of any guarantee of work and termination. They did not oblige Virgin Media to award work to Svella. Those provisions left no gap requiring the pleaded good faith terms, whether in fact or in law.

6. Exit & Settlement Agreement. This was a carefully negotiated settlement governing the parties’ exit from the Morpheus agreements. Its express reasonable-endeavours obligation concerning replacement volume left no need for a further implied term. The agreement was not a long-term collaborative contract and the proposed terms would rewrite the bargain.

7. Proposed breach case. Allegations concerning sums or work volumes were coextensive with alleged breaches of express terms and added nothing. Allegations that Virgin Media merely intended to take possible courses of action did not plead completed causes of action or seek relief for them. The detailed contractual scheme governing audits, Service Levels, performance improvement plans, suspension and step-in rights left no place for an additional good faith term.