Andrew Butler KC succeeds in latest Court of Appeal decision on contractual good faith

Andrew Butler KC has enjoyed a notable success in the Court of Appeal in Quantum Actuarial Ltd. -v- Quantum Advisory LLP [2023] EWCA Civ 12.

This case was the latest in a series of disputes between two connected actuarial firms, arising from a 99-year Services Agreement between them. The case primarily turned on a point of contractual interpretation – the issue being whether the obligations undertaken by the Defendant (Andrew’s client) included periodical tenders and re-tenders for new and existing clients. The Judge at first instance upheld Andrew’s client’s case on this point, but the Court of Appeal gave the Claimant permission to appeal.

In a decision dated 19 January 2023, the Court of Appeal (Snowden, Falk and Whipple LJJ) dismissed the appeal, essentially upholding the Judge’s construction for the reasons he gave.

The decision is of interest for two reasons.

First, the Court of Appeal observed that, while it was not in the event necessary to have regard to them, certain post-contractual e-mails between the parties which cast light on the interpretation of the agreement would have been admissible if and to the extent that they evidenced matters of factual background which were known to both parties prior to the time the contract was made (para.43). It is well known that post-contractual statements about the meaning of a contract are not, generally, admissible as evidence of what the contract means. However, if and to the extent that those communications cast light on matters of shared pre-contractual background knowledge, the Court would have been prepared to have regard to them.

Second, the Appellant advanced a fall-back argument that, even if the obligation to tender and re-tender could not be elicited from the express words of the agreement, the relational nature of the contract imported obligations of good faith and required a purposive approach to interpretation (and in particular the definition of “Services”). The Court of Appeal was quick to reject that argument, reaffirming that (as stated by Beatson LJ in Globe Motors v TRW Lucas Varity Electric Steering [2017] 1 All ER (Comm) 601) “there is no special rule that allows a different approach to interpretation to be applied to relational contracts”. Following dicta of Snowden LJ in Faulkner v Vollin Holdings (Re Compound Photonics) [2022] EWCA Civ 1371 at [205], they observed that “any invocation of a concept of the “spirit of the contract”… does not amount to an open invitation to read in additional substantive obligations, particularly in a professionally drafted contract with an entire agreement clause.” In other words, while the concept of good faith could be invoked to inform the way in which the Services were carried out, it could not be invoked to materially enlarge their scope (para.46-49).

The Court also upheld arguments advanced by Andrew in a Respondent’s Notice to the effect that the Judge at first instance, although finding in his favour, had failed properly to take into account matters of factual background which bore on the proper interpretation of the agreement (para.44).

The appeal was dismissed with costs. A copy of the decision can be found here.