Duty to co-operate in good faith in outsourcing contract

The Court of Appeal has recently overturned the High Court judgment in a case we reported on in Commercial Update last year.

In a long term outsourcing contract for the provision of catering services between an NHS Trust and a caterer, the parties were required to “co-operate with each other in good faith”.  When the NHS Trust exercised its right to impose service failure points and payment deductions on the service provider, the Court had to decide:

  • whether there was an implied term that the NHS Trust would not act in an arbitrary, irrational or capricious manner in assessing performance and deciding whether to impose service failure points and make payment deductions; and
  • whether its actions were in breach of the duty to co-operate in good faith.

The Court of Appeal has held that the NHS Trust’s conduct in making payment deductions and awarding service failure points was not subject to an implied term that the discretion would not be exercised arbitrarily, capriciously or irrationally.  The obligation to co-operate in good faith was limited to two specific purposes: (1) the efficient transmission of information and instructions, and (2) enabling the Trust to derive the full benefit of the contract.  It should not be read as governing the parties’ conduct more generally.  Care should be taken not to construe such a general obligation to cover more specific provisions. 

Mid Essex Hospital Services NHS Trust v Compass Group UK Ltd [2013] EWCA Civ 200

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