| Date | 9 August 2000 |
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| Judgment | Rice -v- Great Yarmouth Borough Council CA 30 June 2000. |
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| The Issue | The application of contract termination clauses. |
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| Implication |
In complex multi-service contracts, termination clauses will generally require to be construed against business common sense such that a repudiatory breach will require to be demonstrated before invoking the terms of the clause. |
printIt is a considerable achievement for a town to regularly come second in the large town category of the Anglia in Bloom Competition, an award which is no doubt greatly coveted by town councillors. It was against this background that in 1995 Great Yarmouth Borough Council advertised for tenders for its leisure management and grounds maintenance contracts. Two contracts were intended. The first covered grounds maintenance and management of its sports facilities, including cricket and football pitches, bowling greens and a pitch and putt course. The second covered the maintenance of the council's parks, gardens and children's playgrounds, including planting the summer flower beds to produce the sort of prize winning displays to which the town had become accustomed. Two bids were received. Mr Rice, trading as 'The Garden Guardian' submitted bids for each four year contract in the amounts of £440,000 and £300,000 approximately per annum. The alternative bid came from the Council's Direct Services Organisation and this was considerably higher. The Council had a preference for using the DSO and its officers had grave reservations about whether Rice was equal to the challenge. Nevertheless the Council resolved to award both contracts to Rice.: Disputes arose and matters ended up in Court. It was part of Rice's case at trial that the attitudes of the Council concerning the loss of the contract from its own Direct Services Organisation, coupled with the reluctance of Council's workforce to transfer to Rice's employment, coloured much of what later took place. Having been awarded the contracts Rice had to borrow substantial sums to make the necessary investment in equipment and material and to increase his workforce very considerably. He could not however keep the Council happy. Within a few weeks of starting work, the Council served the first of many default notices under the contracts. Included within these were a series of default notices issued in late June 1996 requiring Rice to complete the summer bedding within 5 days. Other complaints concerned the state of the cricket pitches and bowling greens and the failure to renovate certain football pitches in time for the start of the new season. In the event the Council terminated Rice's employment within seven months of the two contracts having been made. This was done by two letters hand-delivered to Rice. Responsibility for the contracts and the employment of the transferred workforce was taken over by the Council's Direct Service Organisation, which had conveniently decided to keep the necessary plant in case this might happen. Clause 23 of the contract between the parties dealt with termination and stated that "if the contractor commits a breach of any of its obligations under the contract...... the council may without prejudice to any accrued rights or remedies under the contract terminate the contractor's employment under the contract by notice in writing having immediate effect". The Council argued that this clause should be applied literally so as to give them the right to terminate the contract for the breach of any of the obligations contained in it, other than the trivial. Rice argued that too literal an interpretation of this clause would flout business common sense. It was this latter approach that the judge preferred. "In the context of a contract intended to last for four years, involving substantial investment or at least substantial undertaking of financial obligations by one party and involving a myriad of obligations of differing importance and varying frequency, I have no hesitation in holding that the common sense interpretation should be imposed upon the strict words of the contract and that a repudiatory breach or an accumulation of breaches that as a whole can properly be described as repudiatory are a pre-condition to termination pursuant to clause 23". These matters ended up in front of the Court of Appeal. Lady Justice Hale recognised that the problem with Council's argument was that the clause in question did not characterise any particular term as a condition (the breach of which would allow the innocent party to terminate the contract) or indicate which terms were to be considered so important that any breach would justify termination. The clause appeared to visit the same draconian consequences upon any breach, however small, of any obligation, however small. The Court of Appeal agreed with the trial judge that the question for the Court (and indeed the contracting parties) in any case like this is whether the cumulative effect of the breaches of contract complained of is so serious as to justify the innocent party in bringing the contract to a premature end. The technical term for this is "repudiatory" but that was characterised as simply a label to describe the consequences which may flow from the breach. The Court of Appeal clarified that there are in effect three categories of case. 1. Those cases in which the parties have agreed that either the term or the breach is so important that any breach will justify termination 2. Those contractors who simply walk away from their obligations thus clearly indicating an intention no longer to be bound by the contract 3. Those cases in which the cumulative effect of the breaches which have taken place is sufficiently serious to justify the innocent party in bringing the contract to a premature end. In respect of the latter it was agreed that in the case of a four year contract such as this, the Court is entitled to look at the contractor's performance over a year and must ask itself whether the Council has been deprived of substantially the full benefit of what it had contracted for during that period. In conclusion the Court of Appeal held that the trial judge was entitled to reach the decision that the Council had wrongfully terminated the contract.
CJ-0031
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