Mid Essex Hospital Services Nhs Trust v Compass Group Uk and Ireland Ltd (trading as Medirest)

Hearing dates: 19th & 20th February 2013

This judgment is in nine parts, namely:

Part 1. Introduction,

Part 2. The contract,

Part 3. The facts,

Part 4. The present proceedings,

Part 5. The appeal to the Court of Appeal,

Part 6. Did the contract contain the alleged implied term?

Part 7.Clause 3.5 of the conditions,

Part 8. Did Medirest effectively terminate the contract under clause 28.4 of the conditions?

Part 9. Conclusion

This is an appeal against a judgment of Mr Justice Cranston ("the judge"), who held that both parties to a substantial commercial contract were entitled to terminate by reason of the conduct of the other party. The contract was for the provision of services to two hospitals. The main issues are (a) the effect of an express obligation to "co-operate … in good faith" and (b) whether there was an implied term that the employer would not act in an arbitrary, irrational or capricious manner in assessing the contractor's performance.

The contractor was Compass Group UK and Ireland Ltd. The division of that company which was involved in this project traded under the name "Medirest". I shall therefore refer to the contractor as "Medirest". Medirest is claimant in the action and respondent in the Court of Appeal.

The Mid Essex Hospital Services NHS Trust is the body which engaged Medirest. I shall refer to it as "the Trust". The Trust is defendant in the action and appellant in the Court of Appeal.

I shall mention three individuals in the course of this judgment. Mr Taylor was at the material time the operations director of Medirest. Mr Aitchison was the commercial director of the Trust. Mr Wright was responsible for hotel services at the Trust and he reported to Mr Aitchison.

When I come to set out the terms of the contract, I shall refer to the Centre of Effective Dispute Resolution as "CEDR". I shall also correct two obvious typographical errors. The first error is in clause 5.9 of the conditions, where the text says "warning notices", whereas clearly the phrase "service failure points" was intended. The second error comes in paragraph 1.3 of Part F of the Payment Mechanism. In the second line there is a reference to paragraph 5 of part C, whereas clearly the reference should be to paragraph 6 of part C.

The solicitors for both parties will feature in the narrative of the events. The solicitors for the Trust are Capsticks Solicitors LLP, to whom I shall refer as "Capsticks". The solicitors for Medirest are DLA Piper UK LLP, to whom I shall refer as "DLA".

After these introductory remarks, I must now turn to the contract which is the subject of this litigation.

On 1 ^st April 2008 the Trust and Medirest entered into a somewhat complicated contract, under which Medirest would provide catering and cleaning services for St John's Hospital and Broomfield Hospital in Essex over a period of seven years. It was envisaged that during the seven year period both hospitals would be replaced by new facilities, which were being constructed on the Broomfield site.

The contract is contained in four separate documents. Document one contains the overarching agreement. This states that Medirest will provide the services set out in document four and that the Trust will make payment for those services. It also provides that the Trust has an option to extend the contract for a further three years.

Document two sets out background information concerning the plans and requirements of the Trust.Paragraph 5.1 of document two provides that while the two separate hospitals are in operation "the Contractor will be expected to provide and operate a helpdesk system to process requests and queries from the Trust regarding the Catering service."

Document three sets out the conditions of contract. I shall refer to this document as "the conditions".Clause 1 of the conditions sets out a number of definitions. These include the following:

"1.1.2 'Beneficiary' means any or all of:

(a) the Department of Health and all agencies thereof (including NHS PASA);

(b) GPs;

(c) health service bodies referred to in Section 9 of the National Health Service Act 2006;

(d) the Medical Research Council;

(e) the Secretary of State for Health;

(f) any care trust as defined in section 77 of the National Health Service Act 2006;

(g) any NHS foundation trust listed in the register of NHS foundation trusts maintained pursuant to section 39 of the National Health Service Act 2006;

(h) any body replacing or providing similar or equivalent services to the above;

(i) any statutory successor to any of the above;

and 'Beneficiaries' shall be construed accordingly.

….

1.1.5 'Contract' means the agreement between the Trust and the Contractor comprising the Order, these terms and conditions and the schedules hereto, and the Specification, and for the avoidance of doubt all other terms, conditions or warranties other than any terms, conditions or warranties implied by law in favour of the Trust or the Beneficiaries are excluded from the agreement between the Trust and the Contractor unless expressly accepted in writing by the Trust's Representative."

Clause 2 of the conditions provides:

"Appointment

2.1 The Trust appoints the Contractor to provide the Services:

2.1.1 promptly (and in any event within any time targets as may be set out in the Service Level Specification) and in a professional and courteous manner so as to reflect and promote the image of the Trust and any Beneficiary;

2.1.2 strictly in accordance with the Service Level Specification and all provisions of the Contract;

2.1.3 in accordance with all applicable UK and European laws and regulations and Good Industry Practice; and

2.1.4 in accordance with the policies (including, when on any premises of the Trust or any Beneficiary or on any other premises where it works alongside the Trust's or any Beneficiary's staff, any racial discrimination and equal opportunities policies), rules, procedures and quality standards of the Trust and any Beneficiary as amended from time to time.

2.2 The Contractor accepts the terms of appointment as provided in Clause 2.1 in consideration of the Contract Price."

Clause 3 of the conditions provides:

"Performance of the Services

3.1 Subject to Clause 17.1, the Contractor shall provide at its own expense all staff, equipment, tools, appliances, materials or items required for the provision of the Services to the Contract Standard.

3.2 To the extent that the Service Level Specification includes the date, format and method of delivery of the Services and Deliverables and/or the applicable performance measures, performance due-by dates, minimum performance levels and methods of performance measurement in respect of the Services, the Contractor will abide by the same.

3.3 Time shall be of the essence with regard to the obligations of the Contractor under the Contract.

3.4 If the Specification provides for performance of the Services in stages, the Contractor undertakes to perform the Services in strict compliance with the timetable for stages as provided in the Service Level Specification.

3.5 The Trust and the Contractor will co-operate with each other in good faith and will take all reasonable action as is necessary for the efficient transmission of information and instructions and to enable the Trust or, as the case may be, any Beneficiary to derive the full benefit of the Contract. At all times in the performance of the Services, the Contractor will co-operate fully with any other contractors appointed by the Trust or any Beneficiary in connection with other services at the Location.

3.6 In addition to any more specific obligations imposed by the terms of the Contract, it shall be the duty of the Contractor to notify the Trust's Representative of all significant changes to staffing, rates of pay or conditions of employment, or hours of work or other technological changes at least one month prior to the implementation of any such revised arrangements.

3.7 The Contractor shall provide information in a format, medium and at times specified by the Trust, related to the performance of the Services as may be reasonably required."

Clause 5 of the conditions provides:

"Performance Measurement

5.1 In addition to any more specific obligations imposed by the terms of the Contract, it shall be the duty of the Contractor to provide the Services to the Contract Standard which in all respects shall be to the satisfaction of the Trust's Representative.

5.2 The Contractor shall institute and maintain a properly documented system of quality control as set out in the Service Level Specification and which is to the satisfaction of the Trust's Representative to ensure that the Contract Standard is met.

5.3 In addition to any other rights of the Trust and any Beneficiary under the Contract, the Trust's Representative shall be entitled to inspect the Contractor's quality control system referred to in Clause 5.2 above.

5.4 During the Term, the Trust's Representative may inspect and examine the provision of the Services being...