Svella Connect v Virgin Media: TCC reins in implied duties of good faith

The Technology and Construction Court has granted summary judgement to Virgin Media on claims that it breached implied duties of good faith owed to a fibre network contractor, in a judgement that revisits how the courts should approach the vexed question of "relational contracts".

Svella Connect Ltd, which took over framework agreements for expanding Virgin Media's fibre optic network after the administration of NMCN plc, had originally brought a wide-ranging claim including fraudulent misrepresentation, intimidation and unlawful means, alongside allegations that Virgin Media breached implied terms of good faith in three framework agreements and a later Exit and Settlement Agreement. By the time the matter reached Mr Justice Pepperall, Svella had conceded almost all of its original case and withdrawn a 187 page Reply, leaving only the good faith claims and a heavily rewritten set of particulars of alleged breach for determination.

Svella argued that the agreements were relational contracts, requiring a high degree of communication and mutual trust that gave rise to implied duties not to act dishonestly or in a commercially unacceptable manner. It alleged that, following a change in management, Virgin Media reduced its allocation of work, pressed it to accept unfavourable rate changes and ultimately sought to force it out of the relationship. Virgin Media denied any such duties arose and characterised Svella's case as an attempt to recast ordinary commercial conduct as improper.

Reviewing the authorities from Yam Seng through to Candey v Bosheh, the judgement observed that recent case law has tended to treat the question of whether a contract is "relational", often assessed against the indicators identified in Bates v Post Office, as if it were determinative of whether good faith duties should be implied. Mr Justice Pepperall preferred the approach taken in UTB v Sheffield United, holding that the label "relational" should describe the quality of a relationship rather than function as a shortcut past the ordinary requirements for implying a term, whether in fact or in law. The central question, he held, remains whether the parties' express agreement leaves a genuine gap that necessity requires the court to fill, with the Bates criteria serving only as a sense check on that analysis.

Applying that approach, the judgement found no such gap in either agreement. The framework agreements were detailed, professionally drafted contracts running to over 200 pages, which expressly provided that no guarantee of work was given, that Virgin Media could terminate at will or on notice, and that the parties were not in partnership. The Exit and Settlement Agreement, negotiated to bring a troubled relationship to an end, was said to be even less fertile ground for implication, particularly given its own express "reasonable endeavours" obligation covering the very issue Svella complained of.

The judgement went on to dismiss Svella's proposed new particulars of breach, finding that several allegations added nothing to existing claims under express terms, others disclosed no complete cause of action because no relief was sought, and remaining complaints about performance management and service failures fell within a detailed contractual scheme governing audits, improvement plans and suspension rights that left no room for a supplementary duty of good faith.

Summary judgement was accordingly entered for Virgin Media on the good faith claims, and permission to amend was refused in respect of the new particulars of breach, while Svella's other proposed amendments were otherwise allowed to proceed.