HT-2020-000448 - [2024] EWHC 1185 (TCC)

Partial Termination

Clause 55.11 states:

Clause 56.2 states:

The case pleaded by DBS contends that the de-scoping of R1-D was a lawful Partial Termination justifying the Notice of Partial Termination on a number of grounds, as set out in paragraph 43 of the Amended Defence. These were, in summary, (a) missed Milestones / planning; (b) alleged R1-B&B defects; (c) R1-B&B security incidents; (d) delay to or wrongful refusal/rejection of RFCs; and (e) R1-B&B data migration issues.

TCS contends, correctly, that a material Default for the purposes of Clause 55.11 must be ‘in relation to that part’ of the Services that DBS seeks to remove, i.e. R1-D, and that only Ground (a) does so because it includes the R1-D Milestone. This does not appear to be in dispute by DBS who, in its Closing Submissions focussed solely on that part of its notice of Partial Termination on 19 September 2018 which stated that TCS had not delivered R1-D on time and could not do so within the remaining term of the Agreement. This is the relevant material Default that, it says, was not capable of remedy. As a result, almost all of DBS’s pleaded justification for the lawfulness of its Partial Termination falls away. This includes the security incidents, whose only pleaded relevance is in the context of the justification for Partial Termination.

As to whether a ‘Default’ is ‘capable of remedy’ Lord Reid said, in Schuler AG v Wickman Machine Tool Sales [1974] AC 235 at §249:

In the context of delays, HHJ Seymour QC held in Peregrine Systems Limited v Steria Limited [2004] EWHC 275 (TCC) at §172 that:

DBS did not, in its Closing Submissions, dispute that the fact of failure to have met the R1-D Milestone (whether that is taken to by 28 November 2016 or 2017) would not necessarily of itself be a material breach incapable of remedy. DBS does not suggest that it sought to engage in the Remedial Plan Process required of it in relation to R1-D if it was capable of remedy, by which it means capable of delivery prior to the end of the (unextended) Agreement period. It plainly did not: the letter of 18 September 2018 simply asserted that ‘there is not sufficient time within the remaining Term of the Agreement for R1 Disclosure to be delivered, even if TCS had a credible plan for delivery’. Instead, it contends that as at the date of its notice, 19 September 2018, there was a ‘material Default’, that the contractual expiry date was 31 March 2019, and that TCS could not deliver R1-D by this date.

DBS is correct that, as a matter of principle, it does not follow that because something could physically be done late it can never amount to an irremediable breach of an obligation to do something by a certain time; it will depend upon the circumstances of the case. However, in the present circumstances, it is right to focus on the question of whether R1-D could have been delivered within the relevant contractual timeframe. If it could, DBS would (together with any compensation payable for delays to which a party may be entitled) be put in the position it would have been but for the breach.

TCS contends that the effect of the contractual regime is that DBS could not conclude that R1-D Milestone delays were incapable of remedy prior to engaging the Remedial Plan Process, and that the failure to engage the Remedial Plan Process of itself therefore meant that the Notice of Partial Termination was unlawful. There will, of course, be situations where it is possible for the Authority to determine that, objectively, a breach is incapable of remedy. However, in circumstances where, objectively, a breach may be capable of remedy, I consider that the contract, properly construed, requires the Authority to engage Clause 56, to which its right under Clause 55 is expressly subject. If the Authority chooses, as it did here, not to engage Clause 56 in respect of the relevant alleged material Default, but, objectively, it may have been capable of remedy, it will not have exercised its right to Partial Termination lawfully.

As a matter of fact, I accept that, as at 18 September 2018 (when DBS asserted that the material breach relating to delivery of R1-D could not be remedied), it would definitely not have been possible for TCS to achieve Go-Live by 31 March 2019. However, in my judgment, the analysis does not end there.

First, it is obviously correct that TCS had not delivered R1-D by the Milestone Date, and that breach took place on 28 November 2016 (or 28 November 2017, to the extent that the date for delivery had consensually moved back – which is not relevant for this analysis). If a Notice had been served at or shortly after either of those points, it would not have been possible to assert that the breach was incapable of remedy and engagement Clause 56 would have been required.

I have found above that, on the basis of the programmes, it would have taken up to 12 months from commencing Final SIT to achieve Go-Live. The breach would therefore have been capable of remedy, had a notice been served at any time up to 31 March 2018. Indeed, because of the possibility of accelerative measures, it would not, at any stage up to around 9 months prior to the expiry date (i.e. the end of June 2017), have been possible to assert justifiably that the breach was inevitably incapable of remedy without invoking the necessary Clause 56 Remedial Plan Process in order to provide the defaulting party with, as required by the Contract, a reasonable opportunity to demonstrate that the breach was capable of remedy. This is consistent with Dr Hunt’s evidence that, as at June 2018, it was still ‘possible’ to suppose Go-Live could have been achieved by the end of March 2019 ‘but you have to sit down and look at every single plan in the context it is in at that point in time’.

I have also found that from 6 February 2018 onwards, TCS was not contractually responsible for the ongoing critical delays, and that from 13 June 2018, the cause of continuing critical delay was an ‘AUTHORITY Cause’.

TCS contends, and DBS disputes, that on proper construction or by necessary or obvious implication, DBS could only exercise a right of Partial Termination within a reasonable time of the operation of the Remedial Plan Process or the alleged material Default. Neither party developed their submissions in this regard. DBS merely contended that ‘there is no basis for this argument.’ This is not right. The construction/implication sought relates to how this Agreement, if at all, regulates the principles of election, affirmation, and waiver, which apply equally in the case of a contractual right to (partially) terminate a contract as they do in the case of a common law right to terminate upon acceptance of a repudiatory breach. However, in the context of contractual rights the operation of the principles depends upon the construction of the particular contractual right (see DD Classics Limited v Kent Chen [2022] EWHC 1404 (Comm)).

In the present case, I accept that the proper construction of the contract is that the Authority could only exercise a right of Partial Termination within a reasonable time of the operation of the Remedial Plan Process or the alleged material Default. This construction is both obvious and necessary. The whole purpose of the Remedial Plan Process is to give the Contractor, within defined timescales, the opportunity to remedy a material Default which otherwise gives the Authority the right to remove that part of the work. The purpose of the regime would be defeated if, in relation to a material Default of which it is aware, the Authority could simply wait until, by reason of the effluxion of time, it is no longer capable of remedy, and then invoke Clause 55.11 and, by so doing, sidestep the obligations in Clause 56 to which Clause 55.11 is expressly subject.

In the present circumstances, the reason why the R1-D default was not capable of remedy as at the date of the Notice was the preceding critical delays which were, from 6 February 2018 onwards, not the responsibility of TCS and, from 13 June 2018, an ‘AUTHORITY Cause’ arising out of DBS’s failures to comply with Clauses 5.1 and 5.2 of Schedule 5-6 of the Agreement. It was not open to DBS, on a proper construction of the contract, to wait until the default was irremediable to exercise its right under Clause 55.11 without operating Clause 56. An alternative way of analysing these facts is that, by delaying the operation of Clause 55.11 from the end of June to September 2018 (in circumstances where, had it done so in June, it would have been required to invoke Clause 56) DBS benefited from its own breach and a limit on the time by which DBS was required to invoke Clause 55.11 in relation to the material default relating to R1-D will be implied so as to prevent DBS from benefiting from its own breach.

Even if I am wrong about this, I accept TCS’s submission that it is necessary to consider that, as at the date of the Notice of Partial Termination, it was inevitable that the Agreement was to be extended by at least 6 months. This had already been communicated by DBS to TCS prior to the Notice of Partial Termination. At the Commercial Forum on 13 September 2018, the following was minuted:

The ‘preference’ was not a preference between an extension of 6 months and no extension; it was a preference between an extension of 6 months and a longer period. This much is clear from the strategy paper seeking approval from PIC referred to in the chronology above. It was reiterated in the presentation by Ms Downey to PIC on 30 August 2018, two weeks before the Commercial Forum. In this Ms Downey made clear that:

DBS argues that it is legally irrelevant that it ‘may have been anticipated’ that the Agreement would be extended, and that the parties’ legal rights and obligations must be assessed based upon the contractual position as it existed at the time the contractual right was due to expire.

I remind myself that the relevant question is whether DBS was entitled to assert as at 18 September 2018 that R1-D was incapable of being delivered in the contractual timeframe. It is right that the then contractual expiry was 31 March 2019, but a minimum extension was not just ‘anticipated’; it was, I find, inevitable. Not only was it part of DBS’s own strategy, it was essential because there was simply no way DBS could continue to meet its statutory obligations until it had secured an alternative supplier (lawfully), and it would not have been able to do this without an extension. It would not be appropriate for the Court to shut its eyes to the factual reality when considering, objectively, whether the (future looking) conclusion that TCS was incapable of delivering R1-D prior to the termination of the Agreement was justified as a matter of fact. The fact that the inevitable extension had not been formalised – an obviously necessary step as Mr Kuncheria of TCS unsurprisingly agreed – does not change the reality that the Agreement was not in fact going to expire until the end of September 2019 at the earliest.

Indeed, the formalisation of the extension took place 8 days after the Notice of Partial Termination. If, on 18 September 2018, DBS had sought to invoke the Remedial Plan Process (as, on this analysis, it should have done), by the time the plan was required to be submitted (20 days later), the date by which the Remedial Plan would have had to demonstrate delivery of R1-D would (even ‘formally’) have been 30 September 2019.

Taking into account the (minimum) inevitable extension to the Agreement of 6 months, even on Dr Hunt’s evidence, a reasonable Remedial Plan would have demonstrated that R1-D could have been delivered in time (absent unagreed RFCs). In light of the imminence and inevitability of extending the Agreement expiry date to at least 30 September 2019, DBS were wrong not to comply with Clause 56, and invoke the Remedial Plan Process.

For all these reasons, the Notice of Partial Termination was invalid, and DBS was not entitled to remove R1-D from TCS’s scope at the time and in the manner it did. The non-delivery of R1-D following the wrongful Partial Termination was caused by the effective de-scoping and the admitted non-engagement by DBS thereafter in the delivery of R1-D.

DBS contends that if, as TCS contend, TCS did not accept its repudiatory conduct in wrongly removing part of the scope, the correct analysis is that TCS remained contractually obliged to deliver R1-D. It contends that in these circumstances, absent ‘AUTHORITY Cause’, TCS is liable for the continuing non-delivery of R1-D. This is not correct. TCS did not accept the repudiatory conduct (which would have entitled them to bring the whole contract to an end) because it continued to comply with its other obligations (e.g. providing the R1 B&B services). By electing not to bring the (whole) contract to an end on account of the repudiation means only that the repudiatory element of the breach is writ in water. The breach in de-scoping the R1-D when it was not entitled to is not. TCS was entitled to accept that (in breach of contract) DBS had unilaterally decided to remove part of the scope of works, treating it, in effect, as an instruction with which it would comply, without prejudice to any damages it may have on account of the breach. Another valid analysis is that, in light of the breach by DBS, TCS acted reasonably in not continuing to expend its money delivering a product DBS had indicated in the clearest of terms and by subsequent conduct (albeit not in a contractually compliant way) that it no longer wished to take delivery of in order to mitigate its own losses. Finally, and to the extent necessary, the removal and subsequent admitted refusal to engage with the delivery of R1-D would, in any event, be ‘AUTHORITY Cause’ arising from DBS’s breach of contract, but this alternative analysis is, in my judgment, artificial because it does not meet the factual reality that scope was simply, and wrongly, removed (and was not, in any real sense from then on, in ‘Delay’).

Delay/Partial termination Related Quantum