Interpretation of a long term ‘relational’ contract
Amey v Birmingham City Council
Another case which touches upon whether ‘relational contracts’ (whatever they may be) are truly in a category of their own when it comes to contractual interpretation.
Facts:
The parties had entered into a 25-year Private Finance Initiative contract to maintain Birmingham's road network. Three and half years into the arrangement, Amey decided that it was obliged to only maintain the roads identified in two contractual databases and that neither database required updating during the course of the agreement. The local authority alleged that Amey was obliged to update the databases to reflect the actual road network. It successfully referred the matter to adjudication. The contractor then began court proceedings in which the first instance court decided in its favour. The local authority appealed.
Decision:
- It was held that Amey were obliged to update the databases and its maintenance obligations extended to the entire road network as it existed in reality.
- The leading judge commented “Any relational contract of this character is likely to be of massive length, containing many infelicities and oddities. Both parties should adopt a reasonable approach in accordance with what is obviously the long-term purpose of the contract. They should not be latching onto the infelicities and oddities, in order to disrupt the project and maximise their own gain".
Points to Note:
- In this case the main body of the contract in question was an incredible 5,190 pages long and the definitions themselves spanned over 200 pages!
- In recent years certain contracts have been described by the courts as so called ‘relational contracts’ particularly when assessing whether an obligation of good faith should be implied between the parties. It would seem that this categorisation is alive and well albeit here applied to issues of contract interpretation. What is particularly noteworthy is that whereas other examples of relational contracts have tended to involve much smaller businesses and contracts which have been comparatively brief or even non-existent, this was the exact opposite. The judge also made a somewhat strange statement. He said “The contract before the court is a PFI contract intended to run for 25 years. It may therefore be classified as a relational contract”. What was not clarified is whether it was the fact of being a PFI contract that made this a relational contract or simply its duration (or a combination of the two). This does not seem to follow he description of a ‘relational contract’ given in the Al Nehayan case [link] also featured in this Update.
- In this particular case the Court made placed emphasis on the purpose of the contract and the need for the parties to be ‘reasonable’ in their approach to the interpretation of the contract. This seems to contrast with other cases involving very long and detailed contracts between very sizeable organisations which had been prepared with the assistance of extensive professional advice where the courts emphasised the primacy of the actual words used by the parties. We would suggest that this apparent divergence of approach makes it more difficult for advisors and their clients to know how in any individual instance a court will interpret a contract.