Legal Developments In Construction Law: February 2020

1. Relational contract means implied duty of good faith? It's not as simple as that

   A defendant claimed that termination of its contracts was invalid because the termination clause was qualified by implied terms. In rejecting the claim, the court said that the starting point in determining the meaning and effect of the contracts was the language used by the parties because they had control over it and must have been focussing on the issue covered by the disputed clauses when agreeing the wording. That was of particular importance with the joint operating agreements in question because they were sophisticated and complex agreements drafted by skilled and specialist professionals and were to be interpreted principally by textual analysis unless a provision lacked clarity or was apparently illogical or incoherent. In the court's view it was clear that the clauses were intended to confer an unqualified right of termination.

   The defendant argued that the termination clause involved the exercise of a discretion that was subject, in accordance with the case law discussed in Braganza v. BP Shipping Limited, to an implied term making its exercise subject to concepts of good faith and genuineness, and the absence of arbitrariness, capriciousness, perversity and irrationality. The court considered that, while this is an incrementally developing area of law, current case law makes clear that the Braganza doctrine has no application to unqualified termination provisions within expertly drawn complex commercial agreements between sophisticated commercial parties such as those in the case. The doctrine does not apply to a case where the discretion involves a simple decision whether or not to exercise an absolute contractual right. The discretion that will usually entail the implied term will involve making an assessment or choosing from a range of options, taking into account the interests of both parties.

   The defendant also claimed that its contracts were 'relational contracts', identified in Yam Seng PTE Ltd v International Trade Corporation Ltd as those which govern long term relationships to which the parties make a substantial commitment, and which might include, for instance, some joint venture agreements, franchise agreements and long-term distributorship agreements. It said that resulted in the implication of a duty of good faith, which qualified the otherwise unqualified right of termination. In also rejecting this claim, the court noted that implying a duty of good faith will only be possible where the language of the contract, viewed against its context, permits it. It is not a reflection of a special rule of interpretation for this category of contract. The power to terminate was absolute and unqualified and, consequently, a term that qualified what the parties had agreed could not be implied and it was unnecessary to make the contract work.

   Taqa Bratani Ltd & Ors v Rockrose UKCS8 LLC [2020] EWHC 58

2. Court says contractor cannot escape arbitration clause in subcontractor's quotation

   Construction contracts may be set out in a number of different documents and contain...