Portsmouth City Council v Ensign Highways Ltd, High Court
This case involved a 25-year contract in which Ensign was responsible for maintaining highways for Portsmouth City Council. The contract had a scheme for awarding service points when there was a breach of contract by Ensign. When points were accumulated, this could lead to other consequences such as termination of the contract. The contract stipulated the maximum number of points that could be awarded in any circumstance. A totally separate provision required the parties to deal fairly and in good faith. The Council sought to use the service point regime to renegotiate the contract by awarding the maximum number of points for each breach. The matter ended up in court.
Following other recent cases on whether to imply a duty of good faith, the High Court decided that there was no need to do so in respect of the decision as to awarding service points. A good faith clause was specifically mentioned in other clauses and there was no need to include it in respect of that issue. The decision as to whether to award a service point at all was up to the Council, as long as the option fell within what the contract permitted. However, once the Council had decided to award points, the Court implied a duty on the Council, when deciding on the number of service points to award, to act honestly and on proper grounds and not in a way that was arbitrary, irrational or capricious.
