Opinion

It's not you, it's me: relational contract to be interpreted like all others

Published Date
Jan 30, 2023
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  • Lydia Bunt
The Court of Appeal has (thankfully) confirmed there are no special rules of interpretation when it comes to relational contracts. 

This was a dispute about whether Quantum Actuarial had to do what was necessary to enable tenders to be submitted on behalf of Quantum Advisory under a 99-year services agreement between the two that stemmed from a business reorganisation. Quantum Actuarial said it didn’t; Quantum Advisory said it did.

Quantum Advisory’s case did not rely on implied terms or on any “infelicities of language or oddities”. Rather, it relied on interpretation of the agreement as a whole and the fact that it was known to both parties at the time it was entered into that tendering had been and could in future be required.

The judge at first instance held that, on its natural and ordinary meaning, the agreement (with, for example, its references to “administrative services”) did not extend to the “specific, occasional and important” task of tendering. 

On appeal, Quantum Advisory emphasised that the contract was “relational” in nature, meaning, it said, the court should adopt a purposive approach that paid less attention to the “black letter” and focused on ensuring that the long-term arrangement between the parties was workable. 

As readers of this blog will know, a relational contract is usually said to involve a long-term relationship, a considerable degree of commitment from both parties and a high degree of communication and cooperation between them. 

The Court of Appeal (thankfully) dismissed the appeal, concluding that the services agreement did not require Quantum Actuarial to undertake tenders. It held that:

  • even if this were a relational contract and resulted in an implied duty of good faith, there was no special rule allowing a different interpretation of relational contracts;

  • at the most, an obligation to act in good faith would apply only to how the parties acted within the confines of the services agreement;

  • just because a contract was relational, this did not result in an “open invitation” to read in additional substantive obligations, particularly in a professionally drafted contract with an entire agreement clause; 

  • the confines of the services to be provided in the contract were clear and did not extend to tenders.

Judgment: Quantum Advisory v Quantum Actuarial  

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This content was originally published by Allen & Overy before the A&O Shearman merger

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Lydia Bunt

Associate

London