Obligation-Contract Law

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Obligation-Contract Law
 
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Obligation-Contract Law
Introduction
The recent case of NHS Trust v. Compass Group [2013] has highlighted how any
failure by the dealing parties towards an outsourcing arrangement could result in the
complete breakdown of a positive commercial relationship. In this case, the contract made a
compulsion upon the dealing parties to allow flourishing of cooperation in between, and this
has to be in good faith. Here, the parties were observed to have a confrontational approach
towards strict contractual performance as well as an overly complex regime of service levels
amongst them. Bialy1
 argues that the courts most often fail to understand the complexities
between the parties which are involved in a mutual contract, though Campbell2
 disagrees.
However, the aim of this essay is to critically evaluate and understand the judgement
in the case of Mid Essex Hospital Services NHS Trust v. Compass Group UK [2013]
EWCA Civ 200.
Discussion
Compass – which was trading as Medirest – entered into a contract with the NHS
Trust, this contract was stated to be liable for 7 years. According to the contract, Compass
was to provide its catering services for 2 of the hospitals mentioned in the contract, this
process was to commence on the start of April 2008. The contract between the parties was
seen to be as a complex one, here Poole3
 argues that complexity in contracts is often critical

1
 Harvey Bialy, 'Good Faith Gone Bad—Gone Good Again'. Nat Biotechnol; (2008), p.18
2
 UNSW Australia Business School, 'UNSW Business School - Where Great Minds Do Business' (2014)
 accessed 16 December 2014.
3
 Jill Poole, Textbook On Contract Law (Oxford University Press 2012). p.1-10
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for the courts to understand, though Quagliato 4 disagrees. The contract was assembled in a
total of four documents, it consisted of a standard NHS contract which was joined with a PFIbased mechanism according to which Compass was obliged on its behalf to record any sort of
service failures and therefore must allocate ‘points’ for each failure. This would allow
deductions to be made from the monthly payments of the NHS Trust.
During the initial stages, the Trust was facing below-average performances by
Compass, specifically in relation to staff shortages, below-average levels of cleanliness of
kitchens at the ward, and due to the presence of expired or unhealthy food. In addition to this,
Compass failed to monitor performance or report service failures during the initial few
months. SCHWARTZ and Wen 5
 believe that performance monitoring must be done by all
the parties involved in a contract, though Umetsu6
 disagrees. Afterwards, the Trust started its
own monitoring mechanism and therefore allocated service failure points as well as
calculated deductions. This was done in a manner which made the High Court describing it as
being ‘patently absurd’.
According to the contract, both of the parties were obliged to "... perform cooperation with each other which is in good faith and therefore should take all the reasonable
actions that are necessary for the overall efficient transmission of instructions and
information".
In referring the principles of English law that pointed out that a notion of good faith is
embedded in major legal principles, as Leggatt J held that in ‘relational’ contracts, a duty of
good faith should be readily implied by a court should m as part of the ordinary process of

4
 Pedro Barasnevicius Quagliato, 'The Duty To Negotiate In Good Faith'. International Journal of Law and
Management; (2008). p.213-225
5
 JESSE A. SCHWARTZ and QUAN WEN, 'WAGE NEGOTIATION UNDER GOOD FAITH
BARGAINING'. International Game Theory Review; (2007). P.555
6
 Akihiko Umetsu, 'Good Faith And Fair Dealing: The Ulmost Good Faith'. Hokengakuzasshi (JOURNAL of
INSURANCE SCIENCE); (2009), p.33 
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contractual construction on the basis of parties’ presumed intention7
. The content of that duty
of good faith may include honesty, impartial dealing and a duty to collaborate with a
contractual counterparty, but would be fact-specific as to the exact extent of the duty.
The Court of Appeal in this case referred to the decision held by Leggatt J in Yam
Seng when taking both the effect of an express obligation to cooperate in good faith and
whether there was an implied term that the employer would not act in an ‘arbitrary, illogical
or capricious way in evaluating the performance of contractor8
.
At first instance, the court held upon the notion that it is an obligation upon the
involved parties to co-operate with each other in good faith, and this should not just be in
relation to the regular provision of associated information. According to Varges and Connor9
the provision of information from one party to another in relation to the matters of
professional duties must be made as a part of the contract, though Williamson and