Loss Prevention Alerts

ALERT 37:  Proforce Recruit Ltd ("Proforce") v. The Rugby Group Ltd ("the Rugby Group")  

A recent Court of Appeal case highlights how informal and undefined language - including the “management speak” that is commonly used in a business environment - might not be appropriate to define the legal obligations of the parties to a contract.

 Proforce Recruit Ltd (“Proforce”) v. The Rugby Group Ltd (“the Rugby Group”)

 Proforce runs an employment and recruitment agency in Rugby. The Rugby Group manufactures and supplies cement. Since 1997 Proforce has supplied temporary workers to the Rugby Group for work at a site located in the Rugby area.

 The parties entered into a written agreement on 31 July 2001. The introduction to the agreement stated that Proforce had “pleasure in submitting the following proposals for a service cleaning contract”. The following provision was included in the agreement:

“This contract will be for a minimum two year period and will be renegotiable at the end of that period. During that period Proforce will hold preferred supplier status.”

Proforce complained that the Rugby Group was not observing the agreement and that it failed, after November 2001, to look to Proforce to satisfy its personnel requirements before looking elsewhere. Proforce contended that the term “preferred supplier status” means that they have the opportunity to supply all labour to be used by the Rugby Group. The Rugby Group contended that the words “Proforce will hold preferred supplier status” means that if the Rugby Group choose to operate a system of contracting only with preferred suppliers in respect of the Rugby sites Proforce are to be treated as a preferred supplier. However (so the Rugby Group argued) the term does not mean that the Rugby Group is obliged during the term of the agreement to contract only with preferred suppliers or that throughout the term of the agreement the Rugby Group must operate a preferred supplier system.  

The Court of Appeal was concerned with a decision at first instance giving summary judgment to the Rugby Group whose arguments, the first instance judge believed, were so compelling that their defence should succeed without any need for a full hearing. The Court of Appeal decided that the case would have to be heard in full as it concerned the very unusual combination of words “preferred supplier”. The courts would have to enquire into the surrounding circumstances and negotiations in the hope that the parties made clear there what they had intended by the term “preferred supplier status”.

Lessons to be learned  

As a result of this lack of clarity over the key phrase used, neither party could be certain about the nature of the contractual obligation that had been assumed and, when it came to a dispute, rather than that dispute being susceptible to fast low-cost resolution, a full hearing will be needed to determine what the parties intended. This will involve considerable time and expense.  

Similar casual phrases appear in contracts for geotechnical or contaminated land services. For example, the following (which are all real examples) would cause problems to judges charged with interpreting these provisions:  

• that one party is required to obtain “sign off” from a regulatory authority;
• that a “desktop study” will be undertaken;
• that a consultant will conduct a “walkover” of the site;
• that a consultant will consider “all historical evidence”;
• that warranties must be provided to anyone with a “legitimate commercial interest” in the site; or
• that clean-up will be to a standard that will enable the project to be “financially viable.

Almost certainly, should there be a dispute, both parties will have different views as to what the obligations mean which can lead to costs and expense. In all cases where phrases of this nature are used the parties should at the very least define in the contract what they intend the terms to mean. Bear in mind that this precision needs to be adopted not only when dealing with terms and conditions but also all other documents which, by virtue of there being incorporated into the contract, also contain obligations with which the parties are required to comply.

 This loss prevention alert has been produced by the Loss Prevention Working Group (LPWG) of the AGS.  It highlights issues that the LPWG considers may be of relevance to members.  It is not intended to provide a definitive response to any issues and before taking action members should consider carefully whether they need to seek independent legal advice.  

Prepared for the Members of the AGS by Steven Francis, Eversheds

 Date of Issue:  16th May 2006