The sudden death clause

I have just heard someone across the room from me blurt out, “Oh, for Pete’s sake”. The blurter was reading about another of these five, six or seven-year contracts that have ended in a mucky divorce. In any case, who is Pete? So I started reading and mused: “Why, oh why, is it so ordinary to have to ask a High Court judge what contract wording means?” We even have to ask a High Court judge whether one or two disputes have come to an adjudication and, come to that, whether it matters if one or more disputes have come to an adjudication.

It gets worse. This row between TSG Building Services and South Anglia Housing includes in the ACA standard form contract a clause known as “Termination for Convenience”. And I bet that real construction people, who engage blokes and plant, buy materials and fire-fight every day, haven’t even heard of a Termination for Convenience. That’s because the inventors of such fancy mantrap clauses live in a different world to those who build and maintain and do things.

There is always a partnering clause - it is that clause that actually causes the rift. It shouts, ‘You will work together and individually’, and the people just don’t

Here, TSG married the housing association South Anglia so as to tinker with, fix and mend 5,500 houses, flats and cupboards. Time and again, folk in these maintenance contracts fall out. There is always a partnering clause - it is that that actually causes the rift. It shouts, “You will work together and individually”, and the people just don’t. It shouts, “There is to be a spirit of trust and mutual co-operation”, and people ignore it. The mission statement thingy is then followed by contractual clauses, which are excruciatingly yawn-making to anyone but lawyers. Is Pete a lawyer?

South Anglia triggered the Termination for Convenience clause just 13 months into the five-year deal. Amusingly and worryingly, the judge said, “Notwithstanding a number of requests and even a gentle hint from the court, South Anglia has never explained openly why it terminated.” TSG believed the termination
was financially motivated. All that came onto its desk was the bombshell: “South Anglia hereby gives TSG three months’ notice of its intention to terminate TSG’s appointment under the agreement.” And that’s that, a summary bobbitt!

Seemingly, the bespoke contract clause allowed South Anglia just to sever the deal. TSG argued that this termination tool was subject to the overriding applicability of good faith and reasonableness, and that South Anglia had shown none of that in brutally breaching the five-year contract. TSG calculated its losses at more than £1m. It produced a 30-page position statement, which got no real response from South Anglia, so TSG called for an adjudicator.

It had three complaints and put them to the lawyer adjudicator. Gotcha, shouted South Anglia, that’s three disputes, and the adjudication rules say, “One dispute at a time”. No it’s not, said TSG. No it’s not, said the adjudicator. No it’s not, said the High Court.

This more-than-one-dispute argument is being done to death by reluctant respondents. In this case, the judge said, “I have no doubt that there was only one dispute referred to adjudication.” It matters not if it has three or 30 issues. I vividly recall an adjudication about a scaffolding contract with 800 invoices. It was argued to be 800 separate disputes! My reaction was to, forgive me, laugh out loud.

Return then to this ousting of TSG from its five-year contract by way of the Termination for Convenience clause. It’s a lawyer’s playground. It has always struck me that, for a clause like this to work, there had to be at least some reason, a reasonable reason, for ending the contract part way through and paying no compensation. It has to be something more than a whim or a tantrum. But in this South Anglia case they just did it; no reason given.

The adjudicator-solicitor fellow thought that this behaviour was not what the contract intended at all and awarded TSG damages.

The arguments were re-canvassed in the High Court. The judge reached the view that all the good faith and reasonableness in the contract did not apply to this particular Termination for Convenience clause. No damages were payable. The judgment is a masterpiece of detailed analysis into the nooks and crannies of the contractual intricacies. It is just what the building industry needs - like a hole in the head.

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple