Understandably and rightly, parties faced with the prospect of potentially costly and lengthy litigation, usually seek to settle that litigation when they can. However, the eagerness to “make the litigation go away” (which can be attractive, even for a party convinced that it has a strong case) should not detract from the need to ensure that the settlement or compromise reached reflects the intended bargain and results in a situation that both parties are reasonably comfortable with, going forward.

 

What is clear is that the courts will look at the words used by the parties in their agreements and interpret them accordingly, should arguments arise later. In the recent case of Jacobs U.K. Limited -v- Skidmore Owings & Merrill LLP1, Jacobs had brought a claim for alleged unpaid fees amounting to some £4m from Skidmore. A compromise agreement between them provided, among other things, that within two years from the date of the agreement Skidmore would “award Jacobs or any other subsidiary or affiliate of Jacobs Engineering Group Inc one or more contracts for the provision of not less that 33500 hours of construction, design and engineering services”. The agreement went on to provide that if the contract(s) were not awarded, a lump sum would be payable.

 

Mr Justice Coulson held that “award” meant what it said: the award of a concluded contract by Skidmore to Jacobs and not merely the making of an offer of a contract (and certainly not merely giving Jacobs the opportunity to bid for work).

 

The judge, perhaps rather unexpectedly, also went on the say that he considered that both parties had “general obligations of good faith” to make the agreement work. This sounds suspiciously like an implied duty to act in good faith, something which, to date, has not been part of English law (unlike some continental laws). For that reason, we need to keep an eye on whether or not the decision is followed.

 

Last year, the court in Compass Group UK and Ireland Ltd -v- Mid Essex Hospital Services NHS Trust2 held that an express obligation to act in good faith was enforceable. In domestic development projects between two private parties based on fulsome (and, hopefully, reasonably balanced) contracts such as those produced by the JCT, there is probably little need for an express obligation as to good faith. But where such obligations may have a useful role to play is when private parties enter into long-term services agreements with public authorities. Particularly so where the service-provider is subject to some type of regime which measures its performance (and has payment consequences for lack of performance). A good faith obligation should give it a certain, minimal level of protection against abuse of that regime.

 

In the purely commercial world, another type of provision that might have its uses from time to time – where some limitation on an unfettered discretion is agreed – is the proviso that the parties act in a “commercially reasonable” manner. In the recent case of Barclays Bank PLC -v- UniCredit Bank AG Anor3 Barclays was obliged to exercise its discretion to refuse consent to the early termination of deeds of guarantee in a “commercially reasonable” manner. The court held that it had done so. In determining what was commercially reasonable, Barclays was entitled to take into account its own commercial interests (which took precedence over the other party’s commercial interests) as the question was not whether the decision was justified, but whether a reasonable commercial man in Barclays’ position might have reached such a decision.

 

Notes:

1              [2012] EWHC 3293 (TCC).

2              [2012] EWHC 781 (QB).

3              [2012] EWHC 3655 (Comm).

 

This article was originally written and published on the internet by Ashurst in January 2013.

 

This article is intended to provide general information about legal topics. Nothing in this article or in the documents available through it, is intended to provide legal advice. You should not rely on any information contained in this article, or in the documents available through it, as if it were legal advice.

 

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