Sport England template contract interpretation

3rd March 2021

Commercial expert Penny Rinta-Suksi examine Sport England template contracts.

Westminster at your leisure

If you work in the local authority leisure industry, and we have experts here that do, then you would need to have been hibernating (and let’s face that’s possible with Lockdown 3…) to have missed the recent High Court of Justice decision Westminster City Council v Sports and Leisure Management Limited 2021 EWHC 98 (TCC). If you have not had a chance to read this decision, and it is available here, then we thought you might like a quick heads up to see how the particular contract considered differs from a typical Sport England template contract.

In essence, the Westminster contract was not based upon the Sport England Standard Form Contract (SEC), the latter of which is the template more commonly used for local authority leisure outsourcing contracts and adopted by most local authorities in the leisure market. The difference was made all the more stark as counsel for the Contractor (SLM) made reference to it and seemed to want to imply terms across from it, which Mr Justice Kerr was not prepared to do.

The SEC assumes that the operational management fee can go up or down in the lifetime of the contract, depending upon whether the income is anticipated to exceed costs for provision. However, the management fee in the Westminster case was crystal clear that it could only be paid by the Contractor to the Authority, despite the Contractor’s contention that the fee could drop below zero.

It was common ground between the parties in the Westminster case that certain of the legal measures introduced to combat the pandemic constituted a “Specific Change in Law” which in turn triggered a “Qualifying Change in Law” for which the Contractor was to be compensated; the issue was how and to what extent. Certainly, the definitions cited here were very similar for both the SEC and the Westminster contracts.

The Contractor succeeded in arguing that the financial outcome of a Specific Change in Law may include payment of a lump sum by the authority to the contractor.

It is worthwhile noting that the relevant contractual provision (clause 39 of the Westminster contract is the equivalent of clause 47 of the SEC) is similar to, but by no means the same as, that set out in the SEC. In particular, clause 39.5.2 of the Westminster contract provides that:

any Specific Changes in Law or Discriminatory Changes in Law shall be put into effect as provided in Clause 37 and 38 as if the Authority had issued a Authority Notice of Change and any changes to the Management Fee (or, if applicable and agreed by the Authority, a capital payment) shall be reasonably agreed between the Parties.

Important takeaway from the decision

This drafting, which specifically refers to clauses 37 (Authority Changes) and 38 (Contractor Changes), is significant given:

  1. no such specific reference to the contractual process to be followed in the event of a Qualifying Change in Law is made in the SEC (such that the Court’s decision on this point can be distinguished from the SEC); and
  2. clause 37.10 of the Westminster contract specifically provides for the possibility of a lump sum payment/clause 39.5.2 of the Westminster contract specifically provides for the possibility of a capital payment, and the Court held that these terms (lump sum payment/capital payment) were effectively interchangeable.

Although the drafting considered by the Court was different to that set out in the SEC, a relevant takeaway from this part of the Court’s decision is that, although the Court concluded the financial outcome of the Specific Change in Law may include payment of a lump sum by Westminster, the drafting of the contract with regard to both the process for addressing the impact of the Specific Change in Law and the financial outcome of the same is arguably clearer than that set out in the SEC.

The Court did not accept the Contractor’s submission that the correct contractual interpretation was that “the Contractor should not be worse off as  a result of the implementation of the Authority Change”.

The above quoted wording appears in clause 37.5 of the Westminster contract (Authority Change, Value for Money). The clause specifically relates to the subsidiary issue of the Contractor subcontracting and obtaining value for money (in the context of an Authority Change) and so it is not difficult to see why the Court held that the correct interpretation was not that the Contractor should not be worse off as a result of an Authority Change generally (i.e. the ‘no worse off’ principle was applicable in the specific context in which it was included in the drafting of clause 37.5 only).

This provision/the Court’s analysis and conclusion is therefore to be contrasted with the ‘no better and no worse’ principle as included in the drafting of clause 61 of the SEC and which is relevant when an adjustment is made to the management fee in accordance with clause 61 (see clause 47.6 of the SEC).

The principles of contractual interpretation

This was a case very much focused on principles of contractual interpretation. It therefore follows that, while it is certainly worthwhile reviewing the case, due to the differences in the drafting of the Westminster contract, the narrow points considered by the Court and the conclusions reached do not have a substantial impact on the interpretation of the SEC.

So whilst interesting reading, the Westminster contract can be significantly distinguished from the SEC and might not offer a huge amount of assistance to councils that originally used the SEC as the template for their leisure contract. However, as we need to wait until 12 April to get a haircut, and 21 June to do anything exciting again, you might fancy pulling out the judgment anyway, and whiling away a few hours over a glass of something wet…

How can we help?

If you need advice on Sport England template contracts, or any commercial contracts, speak to a member of our commercial team.

If you need advice on anything in this article

Speak to one of our Government and local authority law experts

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