Council entitled to terminate £160m outsourcing deal, says High Court judge

Cornwall Council was entitled to terminate its £160m outsourcing contract with BT Cornwall, a High Court judge has ruled.

The 10-year agreement at the centre of the case of BT Cornwall Ltd v Cornwall Council & Ors [2015] EWHC 3755 (Comm) covered services including health, transport, communications and public safety.

In June this year the local authority wrote to BT Cornwall asserting that, by reason of breaches of the agreement by BT Cornwall, it and its public sector partners – Cornwall Partnership NHS Foundation Trust and Peninsula Community Health CIC – had a right to terminate the agreement forthwith.

BT Cornwall subsequently sought an injunction to prevent termination of the agreement.

The alleged material breaches of the Key Performance Indicators (KPIs) concerned response times in fixing faults. It was also argued that BT Cornwall had failed to meet an obligation to create new jobs in Cornwall.

BT Cornwall sought to argue – amongst other things – that:

• The parties had reached a ‘KPI Backlog Agreement’ which meant the public sector partners were not entitled to terminate the agreement;
• If the facts fell short of enabling the court to conclude that a binding agreement in the form of the KPI Backlog Agreement was reached, then the facts gave rise to an estoppel or affirmation for BT Cornwall, so as to bar the council from relying on breaches of KPIs in February, March and April 2015 in terminating for material breach.

Mr Justice Knowles heard the case on an expedited basis over seven days this month, ruling in the council’s favour yesterday (21 December).

The Commercial Court judge said: “BTC faced problems of its own making and did not provide to the defendants the service it had promised to the standard it had promised. The council worked with BTC to try to resolve things but ultimately decided the position was not good enough.

“There is no absence of good faith or presence of capriciousness in expecting BTC to clear the backlog at once and also to take the contractual consequences if that meant KPIs would be breached again. There was.... no KPI Backlog Agreement, waiver, estoppel or affirmation. And unless and until different KPIs were agreed there is no absence of good faith or presence of capriciousness in expecting BTC to honour the existing agreed KPIs, ‘fit for purpose’ or not.”

The judge criticised the agreement, which was “very hard to work with, including by reason of its impractical length” and suffered from imprecision in some of its drafting.

“It runs to several lever arch files without that length providing clarity in return. Its oversight and governance arrangements proved inadequate for all parties when things started to go wrong,” Mr Justice Knowles said.

Cornwall Council welcomed the High Court ruling and said it intended to give notice of the contract before Christmas. There will be no immediate change in the arrangements as the notice will not take effect until January, the local authority added.

“The process of transferring staff and services from BT Cornwall to the council and our public sector partners will begin in January and will be completed as quickly and smoothly as possible,” Cornwall said.

James Ramsden and Cleon Catsambis of 39 Essex Chambers appeared for Cornwall Council, instructed by Browne Jacobson.

Duncan McCall QC, George Woods (both of 4 Pump Court) and Ben Woolgar (of Brick Court) appeared for BT Cornwall, instructed by BT Cornwall.

Nichola Evans, Commercial Dispute Partner at Browne Jacobson, said: “We are delighted for our client and hope this sends out a strong message to all parties engaged in complex agreements that in the end it is the contractual terms of the contract that will ultimately prevail.

“In his judgment the judge not only criticised the poor drafting of the agreement but was scathing of BTC’s performance under the contract.

“He also gave a solemn reminder that the dispute had affected the public and stressed the importance of taking steps to avoid another similar situation in the future, both in Cornwall and elsewhere.”