In a recent article we commented on the case of Bristol Ground School Limited v Intelligent Data Capture Limited and Others [2014] EWHC 2145 in which the judge applied principles set out in the case of Yam Seng Pte Limited v International Trade Corporation [2013] EWHC 111 (“the YSP Case”) in which Mr Justice Leggatt had determined that it is possible to imply a term of honesty and integrity into what were referred to as “relational contracts”.
This area of law has been revisited in the recent judgement of Mr Justice Dove in D & G Cars Limited v Essex Police Authority [2015] EWHC 226 (QB). This case involved the termination of a long term contract in which the defendant’s responsibilities for recovering and impounding cars in their police area had been outsourced to the claimant.
Background
In this case, the judge once again followed the principles set out by Mr Justice Leggatt in the YSP case and it appears that the existence of an implied term to act with honesty and integrity as set out in that case was accepted by both parties. By way of an explanation of the YSP case, the judge suggested that the intention of this new development is to capture the requirements of fair dealing and transparency which are no doubt required (and would, to the parties, go without saying) in a contract which creates a longstanding relationship between the parties lasting some years such as this one which had the following qualities and features.
“Firstly, as already noted the contract can create a relatively lengthy period of contractual relationship between the parties, during which, there were going to be a very large number of individual transactions undertaken under the auspices of the contract. It was, in my view a “relational” contract par excellence.
Secondly the substance of the contract involved dealing with the recovered property of members of the public acting on behalf of a law enforcement agency. This required that the recovered property was itself treated with both honesty and integrity whilst it was being dealt with by the claimant and they were exercising the requirements of the contract.
Thirdly, and related to the second point, the property which was recovered and being handled by the claimant might, in some instances, require return to the public, and therefore its treatment whilst in the hands of the claimant was at the utmost importance.
Fourthly some of the vehicles which were recovered under the specification of the contract would themselves form part of the evidence for criminal investigations and potential prosecutions in which they might become exhibits…
all of these features of this particular contract make it clear in my view that there was an implied term that, as set out above, the parties would act with honesty and integrity in operating the contract.”
The case concerned the recovery of vehicles in the defendant’s police area. The dispute arose following the discovery, at the claimant’s premises of a Land Rover Discovery vehicle (“The S-LR”) which had been recovered by the claimant and reported to the defendant as having been sent to be crushed, bearing the number plates and one of the Vehicle Identification Number (“VIN”) plates belonging to an older Land Rover Discovery which had been part of the defendant’s fleet of recovery vehicles (“The L-LR”). The contract was awarded for five years from 1st April 2006 with an option to extend for one year. Following extensive investigations of the circumstances leading to this incident, a formal notice terminating the contract was sent in December 2008 bringing the contract to an end in March 2009. The defendants were also concerned to ensure that the claimant was barred from a further tendering exercise.
By implying a duty of honesty and integrity, the court found that the contract had not been terminated unlawfully and that it was permissible for the defendant to prevent the claimant from taking part in the new tendering process.
Summary
Whilst this is only a first instance decision, it is interesting to note that the parties had concluded that this was a case which might be described as a relational contract and was therefore one in which it was possible to imply a duty of honesty and integrity. The ability of the courts to imply such a term in contracts of this nature is still relatively new and largely untested and appears to undermine one of the key principles of English law which is that, save in certain exceptional situations (e.g. fiduciary relationships and consumer contracts), certainty is best achieved by looking at the precise wording of the contract rather than leaving it open to a judge to exercise discretion as to whether or not other terms should be implied.