This website uses essential cookies without which it will not work, along with other harmless cookies aimed at improving your use of our website.

Please see our Web Policy and our Privacy Policy to find out more about the cookies we use and how they can be deleted.

knowledge header image

legal alert: Clear Contract Clauses – Minimum Acceptable Performance

09 Aug 2017

In the case of Sutton Housing Partnership Limited (“Sutton”) v Rydon Maintenance Limited (“Rydon”) [2017] EWCA Civ 359 it was held that the parties intended the contract to specify minimum acceptable levels of performance because they were a prerequisite to Sutton being able to terminate the contract if those levels were not met and to Rydon receiving bonuses.

Background and Contract

The contract was based on the National Housing Federation’s Standard Form Contract 2011. Rydon was to carry out repairs and maintenance to Sutton’s housing stock.

Clause 1 of the contract referred to Minimum Acceptable Performance (MAP) (minimum acceptable levels for Rydon’s performance). But the specific requirements were not contained within the contract. The contract contained a number of Key Performance Indicators (KPIs) against which Rydon was to be measured and these were specified e.g.:

Description  2014/2015 Target
Repairs to be completed right first time  97%
Resident satisfaction for communal repairs  96%


What was included in the contract in relation to MAPs was a number of calculations showing Rydon’s bonus for achieving the KPIs and the penalties if they did not meet the MAP. In all of the examples, the MAP was 3% lower than the target KPI.

The Dispute

Sutton sought to terminate the contract because Rydon failed to meet multiple MAPs.  At adjudication and on appeal it was held that as the contract did not specify the MAPs for each KPI and therefore Sutton could not terminate because it could not show that Rydon had failed to achieve the MAPs.

The Court of Appeal Decision

Sutton took the dispute to the Court of Appeal.  The question to the Court was whether the percentage figures set out for the MAP in the examples were binding or illustrative.

The Court of Appeal concluded that commercial common sense must be applied and that the examples were binding. This was on the basis that both parties must have intended them to be binding; Sutton, so that it could terminate the contract if Rydon did not meet the MAP and Rydon, so that it would receive its bonus for meeting the MAP. Effectively it was a mutually beneficial clause.

As the only place MAP appeared in the contract was in the KPI examples, it was therefore clear that the MAP used in the examples was the MAP for that year; not a hypothetical MAP for illustration.

Point to Note

In this case it was “the only rational interpretation of the curious contractual provisions into which the parties could have entered”.  It shows that the Court will do its utmost to make a contract work.

 
 
 

Contacts


Sarah Wilson | Partner

Email:
sarah.wilson@watsonburton.com
Tel:
0345 9010930