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Clifford Chance

Clifford Chance

Briefings

Addressing Abuse of Contractual Powers

24 November 2015

The courts are willing to prevent misuse of contract powers by implying terms to act honestly and on proper grounds and not in a manner that is arbitrary, irrational or capricious.

Where a service management regime in a PFI contract gave a customer a discretion as to the service penalty points that could be awarded against the service provider for service failures, the courts would not allow it to simply impose the maximum number of service points per month for every service failure, with a view to terminating the contract under a clause allowing termination once a total of 250 points in 12 months was reached.  The courts will imply terms limiting the exercise of that discretion.  This reflects a broader line of authority which the Supreme Court has also endorsed.

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