Good Faith Obligations In PFI/PPP Contracts

Disputes involving the interpretation of PFI/PPP contracts rarely come before the courts. Nevertheless, in July this year, the English Technology and Construction Court was called upon to interpret a PFI contract.

Ensign, a PFI contractor, had entered into a 25 year contract to bring Portsmouth City Council's highways network up to standard and to maintain it. Clause 24 of the contract enabled the Council to penalise the Contractor with "service points" for certain defaults. According to the Court's summary of events, from December 2013, nine years after entering the Contract, the Council (having been advised that the PFI contract was not in its best financial interests) began awarding the maximum number of "service points" possible for every default, at irregular intervals, in an attempt to force the Contractor to renegotiate the Contract.

The Contractor pointed to Clause 44 of the Contract, which stated that the parties would "deal fairly, in good faith and in mutual co-operation with one another", arguing that Clause 44 applied to the whole contract.

However, the English Technology and Construction Court held that the Clause 44 duty to act "in good faith" did not apply to the Clause 24 regime of allocating service points because:

(a) The Contract did not specifically provide that Clause 44 applied to Clause 24; and

(b) As in an earlier case (Medirest [2013] EWHC Civ 200), any decision to award service points was a unilateral decision taken by the Council and was...