England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		21/12/2015

Mr Justice Knowles :

Introduction

1. The Defendants are Cornwall Council ("the Council"), Cornwall Partnership NHS Foundation Trust and Peninsula Community Health CIC. Together, the Defendants entered into a written Service Delivery Agreement ("the Agreement") with BT Cornwall Limited ("BTC") dated 27 March 2013. The Defendants were described as the "Public Sector Partners" and BTC as the "Strategic Partner".
2. The Agreement has an extensive compass. Its operation affects the transaction of services throughout Cornwall in areas including health, transport, communications, and public safety. It is potentially of long term duration. One valuation of the Agreement was at £160 million.
3. On 24 June 2015 the Council wrote to BTC asserting that, by reason of breaches of the Agreement by BTC, the Defendants had a right to terminate the Agreement forthwith.
4. Given the compass of the Agreement, it was important that everyone should know where they stand. The parties did not resolve matters by agreement. BTC sought an injunction to prevent termination of the Agreement. On 13 August 2015 Teare J ordered the trial of the following issue:

"… whether, assessed as at 20^th July 2015, [BTC] was in breach of [the Agreement] such that the Defendants were entitled in all the circumstances to terminate the Agreement forthwith, and whether [BTC] should be granted an injunction to restrain such termination."

5. The parties made holding arrangements pending the trial of the issue, and directions were given for disclosure, witness statements and other preparation for trial. The trial commenced at the beginning of this month, and has been conducted with considerable ability by the legal teams on all sides. This is the judgment on the trial.

The Agreement

6. The more material provisions of the Agreement form an Appendix to this judgment.
7. The Commencement Date under the Agreement was 1 July 2013. BTC does not deny that there were substantial problems with its performance in 2014. A backlog of work accrued in 2014 and had still not been cleared by well into 2015.
8. The situation cannot have been assisted by the fact that the Agreement is, as a document, very hard to work with, including by reason of its impractical length, and the imprecision in some of its drafting. It runs to several lever arch files without that length providing clarity in return. Its oversight and governance arrangements proved inadequate for all parties when things started to go wrong. The imprecision in its drafting was well illustrated at one point in the trial when completely different ways in which "Incident Impact" levels could be interpreted by BTC on the one hand and the Defendants on the other was shown; an uncertainty that extended to critical business functions for the Defendants, where public safety and health might well be involved.
9. The problems with performance may not have all been one way. Mr Finlayson of BTC gave evidence that a large number of faults were caused by the Council, including as many as 1000 "no shows" by the Council's staff for equipment upgrades. The trial did not equip me with the background material, documentation and argument to evaluate that evidence closely.
10. In any event, concerns on all sides were such that in February 2015 BTC and the Council had established a senior level Executive Forum, in addition to the oversight arrangements provided by the Agreement itself. On 17 March 2015 Mr Healy (the Director of Technical Assurance and Rapid Response for BT Global) was describing the contract as "disastrous" and BTC's position as "precarious".
11. On 1 April 2015 the President of BT - Global Government and Health, Mr Dalton CBE, was prompted to write a letter to Mr Masters (Corporate Director at the Council) confirming that "BT take all of its contracts and their obligations and commitments very seriously and that this is indeed the case with the agreement with Cornwall Council and its Public Sector Partners".
12. Among other things, it was envisaged that a renegotiation of KPIs and what was termed "baselining" would have to take place in about June 2015. As will appear below, these matters have contributed to argument that, ahead of any formal renegotiation, the Agreement was not the only or last word on the parties' obligations to each other in the meantime, and on the question of the Defendants' entitlement to terminate.
13. I do not doubt that by April 2015 BTC was making considerable efforts to rectify things. As will appear further below, in a Council Report to its Resources Policy Advisory Committee the view was recorded that "BT could hardly have done more".

Witness evidence at trial

14. I have mentioned that the Agreement affects the transaction of services throughout Cornwall in areas of real importance to the public. It can be taken that a dispute of that nature, and one of this economic value, is of real importance to BTC and the Council.
15. They found they could not resolve their dispute and needed to ask the Court to decide what had happened and what the consequences were. It is therefore surprising that both BTC and Council each chose not to call as witnesses senior people who had obviously material evidence to give.
16. This would include Mr Richard Williams (Head of Governance and Information and Head of Legal at the Council), Mr Paul Masters (Corporate Director for Communities and Organisational Development at the Council) and Mr Andrew Kerr (who has recently left the Council as its Chief Executive to take up a post as Chief Executive of another Council). It would also include Mr Chris Leggett (BTC Chief Executive January 2014 to February 2015), Mr Ian O'Brien (BTC Transformation Programme Manager), Mr Peter Wroe (BTC Business Operations and Projects Director; Head of Commercial to July 2015) and Mr Russell Cosway (BTC ICT Service Manager to April 2015) from BTC.
17. I intend no criticism of any of those individuals because I do not know whether they were asked to give evidence. I cannot readily accept that if they were asked, they had higher priorities than to give evidence in a case of this nature.

Material Breach: KPIs

18. Schedule 13 to the Agreement was entitled "Price Performance Mechanism" and used a scheme of key performance indicators ("KPIs"). BTC's Monthly Review Reports show that between November 2014 and April 2015 service in relation to KPI 1 was below Target Service Level six times, and below the Breach Trigger five times. As for KPI 5 (Incident Impact 1), between October and December 2014 service in relation to KPI 5 (Incident Impact 1) was below Target Service Level for three consecutive months, of which one was below Breach Trigger.
19. What were termed "Service Credits" accrued accordingly in the manner set out in Schedule 13. In addition, subject to all the other points considered below, the level of failure just described, whether in relation to KPI 1 or KPI 5, would amount to a Material Breach under Clause 48.2.1.1 of the Agreement, allowing termination without (see Clause 48.3.2) a remedy period.
20. However, as regards KPI 5 (Incident Impact 1), for which the Appendix to Schedule 13 contained an entry in the column "Baselining Required", the effect of paragraph 8.3 was that before paragraph 9 (which dealt with Material Breach) would apply, the "current Actual Performance Level" for that KPI would need to be known and the Target Service Level would need to have been agreed.
21. It is not easy to understand why the Agreement should, by paragraph 8.3 of Schedule 13, make this type of provision, while by paragraph 8.1 leaving it to BTC to decide to exercise a right to amend its Target Service Level. The combination of provision carries a real risk of delay, and that is what happened.
22. The Council prepared Contract Change Notices under clause 21 of the Agreement in order to amend Target Service Levels. It did not get BTC to sign them. There was a suggestion in evidence that at the end of a meeting on 23 April 2015 Mr Finlayson of BTC had agreed to take them away and sign them, but having heard a number of witnesses on this aspect I do not consider that more was indicated than a willingness to look at them and sign them if happy with them. In the event they remain unsigned.
23. As regards KPI 1, the Appendix to Schedule 13 did not contain an entry in the column "Baselining Required". BTC contended that because KPI 5 was "a component" of KPI 1, KPI 1 should be treated as though there was an entry in the column "Baselining Required" in the Appendix, and thus paragraph 8.3 would also apply to postpone the application of paragraph 9.
24. I do not accept this contention. KPI 1 is capable of operating independently of KPI 5. The Agreement deals with them separately. The Appendix is clear on its face. There is no claim by BTC for rectification of the Appendix to insert the word "Yes" in the column "Baselining Required".
25. Mr McCall QC, who appeared with Mr Woods and Mr Woolgar as Counsel for BTC, argued that the figures for February, March and April 2015 in the Monthly Service Reports could not be used because KPI 1 was intended to be a measure of failure within a month by reference to a benchmark of what was achievable within that month. For these three months the figures were the subject of an express caveat to the effect that their level was due to a large backlog of failed incidents being cleared, so that (it was argued) they could not be said to represent the level of failure within a month.
26. I do not accept the argument. Indeed it is met by a separate overarching point that Mr McCall QC made, that the Agreement would "log a matter for breach purposes" when the matter was resolved, rather than before. Failures due to backlog were logged within these months because that is what the Agreement contemplated. That BTC fully appreciated that consequence is apparent from the actions it took to try to avoid that consequence. BTC was to argue at trial that these actions led to a "KPI Backlog Agreement", and this is considered below.
27. It was also argued on behalf of BTC that the KPIs would not be operative until the entire "set" of KPIs was agreed. A Review of BTC's performance dated 20 November 2014, version 0.4, prepared by Mr Gaslonde (who gave evidence for the Council) and another, contained the following paragraph, which included the word "set":

"2.1 (Key) Performance Indicators

It is accepted on both sides of the partnership that the contractual indicators were not fit for purpose particularly in regard to ICT. This is because the contract went live with a KPI set that largely represented a Health Service partner that had long since pulled out of the Joint Venture. Although there has been a lot of work done to re-specify and re-baseline these KPIs, the reporting to date, based on these KPIs is clearly flawed."

28. The reference to a "set" of KPIs does not alter the contractual position. In my judgment nothing in Schedule 13 of the Agreement supports the argument by BTC that the KPIs would not be operative until the entire "set" of KPIs was agreed. Paragraph 8.3 of Schedule 13 suggests quite the opposite. Even the description of the KPIs as "not fit for purpose" would still leave them operative until changed.
29. What was termed a Strategic Partnership Meeting of 3 February 2015 was attended by senior representatives of BTC and the Council. Those present agreed an "Action Plan". Items 2.7 and 2.8 of the Action Plan were as follows:

"2.7 Complete the baseline process for the current contract KPI performance measures.

2.8 On completion of action 2.7, commence a joint review of the contract KPI/PI performance measures and propose any amendments."

30. Mr McCall QC argues that these items show the KPI "set" was never baselined. In my view, confirmed by my hearing what the witnesses had to say at trial, the items show (a) that baselining work remained to be done for some of the KPI performance measures that were in the Agreement (b) that after that work had been done there would a joint review of the contract KPI/PI performance measures and (c) that amendments to the Agreement would be proposed in light of the joint review.
31. In the events that happened the parties did not get to stages (b) or (c) before the Council wrote to BTC on 24 June 2015 asserting that the Defendants had a right to terminate the Agreement forthwith.
32. There was also argument whether BTC was entitled to re-open the figures in its Monthly Service Reports, in an attempt to show that KPIs were not in fact breached. As to this argument, by paragraph 3.1 of Schedule 13 BTC was to monitor and measure its performance in respect of the Services on a monthly basis from the Commencement Date against the KPI Table in Appendix A. By Clause 17.10.1 of the Agreement BTC undertook that the process of the monthly Services Review and the content of its Monthly Review Report "shall be objective, fair and reasonable and that the assessment shall be conducted and the report shall be written in good faith". In these circumstances, assessing the matter as at 20^th July 2015 as required by the formulation of the issue being tried, the starting point is that BTC's Monthly Review Reports were a sound foundation for any conclusion of Material Breach.
33. That is not to say that figures and calculations could not thereafter be corrected, if they were wrong, at the instigation of BTC or the Defendants. However if BTC was the one to instigate a correction it would first need to show (and in my judgment it did not do so) why the existing figures and calculations, which were its own work, were not objective, fair and reasonable or how it was that the assessment had not been conducted, and the report written, in good faith.
34. The Council argued, in a rejoinder, that BTC would be estopped from denying the correctness of the figures and calculations. In the result I do not need to determine that point, but I admit to material reservations about it.
35. Mr Pate gave evidence for BTC of work he had done on the figures in recent weeks. I was left unclear about Mr Pate's methodology and unconvinced by his approach to "sampling". As between his work and the figures derived contemporaneously from the Monthly Service Reports I preferred the latter.

Material Breach: Jobs

36. Under the Agreement, BTC promised the creation of numbers of new jobs for Cornwall. Although its position developed in the course of the proceedings, ultimately the Council did not contend that a failure by BTC to meet what was described as the annual jobs guarantee was itself capable of amounting to a Material Breach. Instead it contended that such a failure gave rise to an obligation to provide a remediation plan and that BTC failed to provide a compliant remediation plan and to implement it or comply with its terms.
37. As at the date that is material for the issue that was tried, 20 July 2015, a remediation plan would not have been due in respect of a failure by BTC to meet the annual jobs guarantee for the year to 30 June 2015 (Clause 4.1 of Part 2 of Schedule 2 (Jobs) allowing 20 business days for such a plan). Thus the focus must be on a remediation plan being required because of a failure by BTC to meet the annual jobs guarantee for the year to 30 June 2014.
38. For the year to 30 June 2014 a total of 83 new jobs was guaranteed, as a starting point. But paragraph 5.2 of Part 2 of Schedule 2 to the Agreement provided that that was "dependent upon [the Third Defendant] securing a new Telehealth contract" and "where a new Telehealth Contract is not secured by [the Third Defendant] with NHS Kernow … the Guaranteed New Jobs relating to Telehealth Services shall be deleted from" the table that specified 83 guaranteed new jobs.
39. The Council accepted, as confirmed in oral closing submissions by its Counsel Mr Ramsden (who appeared with Mr Catsambis), that the Third Defendant did not secure a "new" Telehealth Contract with NHS Kernow, whatever may have been agreed by way of extension of an existing contract. So the "Guaranteed New Jobs relating to Telehealth Services" were to be deleted from the total of 83. However the Agreement does not make clear how that deletion is to be done, and what the figure is for the year to 30 June 2014. Appendix 2 breaks down guaranteed new jobs by source, but supplies no more information than that 139 new jobs were to be in "Telehealth and TeleCare" by 30 June 2017.
40. Based on the evidence of Mr Finlayson and Mr Drage, BTC contend that had the Third Defendant secured a new Telehealth Contract with NHS Kernow, it would have accounted for 70 new jobs in the year to 30 June 2014. I find that a reasonable approach, based on evidence I am prepared to accept. The result is that BTC was not in breach. As BTC point out, a pro rata approach also leaves BTC not in breach.
41. Notwithstanding the above, in July 2014 BTC did produce a document that it described as a remediation plan. (I say "described" because the document is a poor one, and most is devoted to a description of the existing situation rather than a plan for the future.) In the document BTC deducted 27 new jobs in relation to Telehealth. The fact of the document, and the amount of the deduction made in it, do not persuade me that BTC was in breach. The plan was not contractually required. The parties in due course put it to one side as they discussed other approaches and priorities as regards jobs. And nothing binds BTC contractually to the figure of 27.
42. However the Council advanced an argument that BTC "knowingly removed the dependency between the Guaranteed New Jobs and [the Third Defendant] securing a new TeleHealth contract with NHS Kernow before signing the Agreement". Its argument rests on a reference in the "Jobs Plan" at Appendix D to Schedule 2 to the Agreement, and Schedule 27 of the Agreement where there is a "clarification".
43. In the "Jobs Plan" there is a statement that "Telehealth and Telecare jobs are modelled independently, and are based on acquiring 54,000 persons [patients] from outside the County". The clarification in Schedule 27 is in relation to a section of a Business Plan dealing with "Core Services", rather than in relation to the "Jobs Plan". In the course of giving the clarification BTC stated that it anticipated that Telehealth patient numbers would come "from Kernow CCG or a similarly sized contract".
44. The clarification sought, and given, was in terms in relation to provision for patients rather than jobs, and the allegation of breach levelled against BTC is not in relation to patient numbers. Attention was drawn to Clause 6A of the Agreement, but in my judgment that does not bridge the gap. I also understand the point that Mr Hughes (for the Council) made in evidence to the effect that patient referral numbers drive jobs, but that point does not result in an amendment to the wording of 5.2 of Part 2 of Schedule 2 to the Agreement, which is what would be required.

Waiver

45. BTC refers to paragraph 7 of Schedule 13. This gives the Defendants the right "at their sole discretion" to waive Key Performance Indicator Scores achieved due to Service Failures "if they are satisfied (acting reasonably) that a remedial plan to prevent the Service Failure being repeated is in place and being adhered to".
46. In some circumstances this paragraph might be difficult to analyse and operate, with its combination of provisions just referred to. In the present circumstances that difficulty does not arise.
47. BTC points out that the paragraph requires no particular formality. I can understand that point, but the paragraph does require the exercise of the right it confers (or a successful contention that there was an obligation to exercise the right and that that obligation was not complied with). I heard no evidence at the trial that would cause me to conclude that the right had been exercised or should have been exercised.
48. Mr Finlayson gave evidence that a waiver from Material Breach "was implied and everyone understood". I do not accept that as an accurate statement of or conclusion on the facts. Nor is it enough in law.

"The KPI Backlog Agreement"

49. BTC contends that at the Executive Forum the Council expressly agreed that BTC should clear the backlog, quickly, with the accepted consequence that the KPI results would be below breach level. Mr McCall QC develops the contention as follows: "Given that specific authorisation was given, with knowledge of the consequences, it was implied that the expected 'breach level' KPI results would not be taken into account in assessing whether BTC was in Material Breach and would not be used to justify termination. It is inconceivable that BTC would have agreed to it otherwise."
50. Nothing was written to record the suggested "KPI Backlog Agreement". In my view that is because there was no agreement and not because, as BTC argues, there was a general atmosphere of co-operation, and the parties were working fast to resolve problems. BTC described those problems in its closing submissions as being problems "with the Agreement". As I have touched on above, the Agreement is not an impressive document in many, many respects. But in my view the problems were more with BTC's performance than with the Agreement.
51. BTC urges that closing historic incidents would tend to cause two things cumulatively: a dip in KPI performance and an impact on the Service Desk's ability to respond to new incidents. But these were for BTC to deal with, applying whatever resources it took. And I also accept the evidence of Mr Gaslonde that even without the backlog, BTC's KPI 1 performance would still breach for March and April 2015.
52. BTC's evidence was that simply throwing more resources at the problem would not work. I accept Mr Healy's and Mr Kritikos's evidence that it typically takes one to two months for a new operative to be trained and to understand how the ICT systems in Cornwall work. But that means that, to meet its obligations, BTC should have started to prepare earlier. The cumulative dimensions of the situation were of BTC's own making.
53. Mr McCall QC puts matters in this way : "The point that BTC makes is that, given that a backlog had arisen, it had a choice as to how to clear it: (a) as quickly as possible consistent with avoiding hitting Breach Triggers, or (b) in "one fell swoop", in a way that would place it in Material Breach".
54. The answer to the point put in that way is that contractually BTC was required both to avoid hitting Breach Triggers and to avoid placing itself in Material Breach. BTC might have hoped that the Defendants would take a sympathetic line, but I was not satisfied that BTC thought the Defendants would relieve it from either.
55. Having heard them give evidence, I do not accept Mr Kritikos' or Mr Finlayson's evidence where it suggests that agreement was reached in the form of the asserted KPI Backlog Agreement.
56. There is no mention of such an agreement in contemporaneous documents where one would expect to find mention had it existed. An example is in internal email exchanges at BTC on 10 March 2015. Mr Kritikos made no mention in an email to his line manager Mr Hood of there being an agreement that would provide a shield to the consequences of breach triggers; his suggestions in evidence that his reference in an email to "on face value" was intended to refer to an agreement, and that he had later had a discussion with his line manager, were not credible suggestions and I reject them.
57. In oral closing submissions Mr McCall QC drew attention to the fact that the Agreement would "log a matter for breach purposes" when the matter was resolved, rather than before. Given that, he argued, it was unsurprising that BTC would seek "buy in" from the Council before committing to resolve the backlog "at one fell swoop" and it was inconceivable that BTC would have addressed the backlog in that way unless it had clarity that it would be safe from breach triggers.
58. The answer in my view is again that, in contract, it was already obliged to resolve the backlog. It was not entitled to protection from the consequences. On the evidence, BTC sought reassurance that clearing the backlog was "the right thing to do". It was the right thing to do, in the sense that doing it would honour BTC's obligations, albeit late. BTC was not entitled to expect or assume that it would be exempted from other consequences under the Agreement simply because it was honouring its existing obligations. BTC made clear to the Council what it proposed to do next, and the Council acknowledged that.
59. Mr McCall QC sought to meet the point that BTC had an existing obligation to clear the backlog by reference to a provision in the Service Specification for ICT Services, version 5.4 of which formed a further part of the Agreement. Paragraph 7.1.15.1 of that Service Specification provided that it was a responsibility of BTC's to "prepar[e] and present[] remediation plans in response to an underperforming area of [BTC]" and "ensure remediation plans are implemented and that underperformance does not re-occur". From this Mr McCall QC argued that remediation measures to address the backlog could not be required when they would put BTC in breach.
60. I do not, with respect, accept that argument as sound. The reference to ensuring that underperformance does not re-occur was, in this context, a reference to not incurring backlog again or increasing it. I further accept as sound in law the proposition put by Mr Ramsden for the Council to the effect that the obligation to ensure remediation plans are implemented (and thus to remedy underperformance) was an obligation to be carried out as soon as possible.
61. Mr Kritikos of BTC suggested in his evidence that as he and Ms Hazell of the Council were leaving the Executive Forum meeting on 9 March 2015 Ms Hazell acknowledged an observation from him that BTC had a "let", by which he meant a waiver, from the KPI requirements for March and April. His evidence continued that Ms Hazell had said Mr Hughes would have a "fit", or words to that effect. I found Mr Kritikos' evidence on these points wholly unconvincing, and a late, untrue, and therefore very regrettable elaboration. Ms Hazell denies such a conversation and I have no hesitation in accepting her evidence.
62. The proposition that there was a KPI Backlog Agreement as contended for by BTC is further negatived by the evidence of Mr Gaslonde of the Council, that when in or around March 2015 he was asked by Mr O'Brien of BTC if BTC could exclude back log calls from the performance report, he (Mr Gaslonde) agreed that any call logged prior to the start of the Agreement could be excluded but all others were the responsibility of BTC. I accept Mr Gaslonde's evidence, originally given in a witness statement on 11 August 2015 and confirmed in the witness box. As mentioned above, BTC did not call Mr O'Brien as a witness.
63. More generally, there was considerable argument over the authority of the Executive Forum (the body that came into existence after the Agreement was made) to agree a legally binding amendment to the Agreement including in the form of the KPI Backlog Agreement. The argument is ultimately not material because I am satisfied that, as a matter of fact, no such agreement material to this trial was reached at the Executive Forum. Had the facts been otherwise I would not have ruled out the possibility that there would have been authority to bind BTC or the Council respectively through their Chief Executives at a meeting of the Executive Forum attended by those Chief Executives.
64. Clause 21 of the Agreement contains detailed provision for how the Agreement may be changed or varied, including as regards Defendants other than the Council. That Clause may make it harder to establish on the facts that an amendment achieved by other means was intended to have legal effect, but I do not think it makes it impossible, at least as between the Council and BTC. In her evidence Ms Hazell indicated she had been anxious at the time about the potential impact arrangements for the Executive Forum could have on the clarity of governance and contractual arrangements. Her anxiety was well placed.
65. In submissions to which I pay particular tribute because of their measured tone and analytical rigour, Mr Chennells for the Third Defendant drew attention to the respects in which BTC and the Council did not involve the Third Defendant in the Executive Forum. That further militates against a conclusion that the Agreement was amended.

Estoppel and Affirmation

66. Having heard Mr Hughes and Mr Gaslonde of the Council, and considered the available documents, I find that the Council was aware by shortly after 8 April 2015 that BTC was in breach of KPI 1 for March 2015, and by shortly after 13 May 2015 that BTC was in breach of KPI 1 for April 2015.
67. In a report of 8 April 2015 Mr Williams of the Council recommended the option of working with BTC "to recover the performance position" rather than the option of terminating. He noted that the first option carried the risk "that the partnership is unable to recover its performance and fails to bring the necessary transformation to Cornwall" and the second option "… would need considerable planning … could have a large monetary penalty and also come with a risk of further delay in moving the organisation forward in key areas such as ICT …".
68. In a second report of the same day Mr Williams recommended that he provide another report to set out progress by 31 October 2015; it was here he recorded the view (mentioned above) that "BT could hardly have done more" since February "to demonstrate their commitment both to turning around contractual performance and to the Strategic Partnership as a whole". His conclusion on the "proposed way forward" (accepted as a fair summary by Mr Finlayson) was in these terms:

"… that the Council, Health Partners and BTC continue to work urgently to address all issues set out in the Executive Action Plan.

In parallel, BTC performance will be robustly monitored and enforced through the Contract."

69. In an internal BT and BTC email of 19 May 2015 Mr Healy wrote:

"We are in grave danger of breach on ticket performance. … Ian & Mark will be working with Stuart & Nicola to make sure that we keep as many tickets out of the system as we can. Tickets that do enter the system will be simply & quickly classified (get people off phones & fixing). For those that are in the system we need to re-categorise wherever possible; to get them out of SLA breach."

70. On 1 June 2015 Mr Healy wrote to Mr Pate after Mr Pate had provided current figures, indicating breach:

"Where did the new ones come from since Thursday? Need to use poetic license & [g]et the buggers out".

Mr Healy accepted in the witness box that he meant "get them out of fail". He recognised the implication from his words that he was proposing manipulation. He pointed out that the email was sent late at night, and claimed it was "a joke" "to a friend". However in the circumstances, including the email of 19 May, and having heard Mr Healy make his claim from the witness box, I conclude it was not a joke and that it reflected both a recognition that things were serious and a preparedness to take inappropriate steps to avoid that.

71. It was by letter dated 24 June 2015 that the Council communicated to BTC its position that it was left "with no realistic option but to invoke the termination procedure under the contract", subject to authorisation by its members and appropriate officers and discussion with the other Defendants.
72. BTC contends that if the facts fall short of enabling the Court to conclude that a binding agreement in the form of the KPI Backlog Agreement was reached, then the facts gave rise to an estoppel, or support BTC's case on affirmation, so as now to bar the Council from relying on breaches of KPIs in February, March and April in terminating for Material Breach.
73. With respect, the facts do not begin to make out a case on estoppel or affirmation for BTC. The Council was entitled to express its wish that BTC clear the backlog even if it knew that the effect of doing so would be to have an adverse impact on the monthly results. It was entitled to have the backlog cleared and to retain all its rights to insist that the monthly results meet the standards required by the Agreement.
74. Mr McCall QC submitted that the Council's actions were only consistent with there being a future for the Agreement. I disagree. There was consideration of the future (item 2.8 of the Action Plan is an example, and what was termed the jobs growth plan is another), but that did not mean that the consequences of current problems were put aside (item 2.7 of the Action Plan is an example, and so too was Mr Finlayson's acceptance in cross examination that as at April 2015 he believed the Council would enforce its contractual rights). The fact that the Council was prepared to engage through the Executive Forum, and to work collaboratively with BTC is not to be held against it and did not signal that it would not take action in accordance with the provisions of the Agreement.
75. There was no material delay on the Council's part, and certainly neither its actions nor the passage of time are to be taken as an election not to terminate for Material Breach. The word "forthwith" in Clause 48.1 addresses the point at which the Council may act, and not the period within which it must act if it is going to.
76. BTC argues that "the Executive Forum represented a major commitment for BTC, not only in terms of the executive input at the highest level, but also in terms of the huge resources and costs involved", which it put at £4.3 million. This is no more than a reflection of how serious it had allowed things to become; it does not advance its argument that the Council was not entitled to enforce the Agreement in accordance with its terms.

Good Faith

77. BTC advanced the argument that any termination for Material Breach in relation to KPIs must be made in good faith. It did so both by reference to what the Agreement stated and by an argument about what requirements should be implied into the contract.
78. The provision with which BTC began this argument was Clause 5.2.2. That Clause in my judgment requires good faith (and reasonable endeavours) in relation to "a continuing Partnership dialogue". It has no bearing on the exercise by one party of contractual rights, provided for elsewhere in the Agreement, where another is in breach of its obligations.
79. BTC's arguments that, under the common law, those rights could not be exercised unless there was good faith, and an absence of capriciousness, are most shortly answered by the fact that I am satisfied that there was good faith and an absence of capriciousness.
80. BTC faced problems of its own making and did not provide to the Defendants the service it had promised to the standard it had promised. The Council worked with BTC to try to resolve things but ultimately decided the position was not good enough. There is no absence of good faith or presence of capriciousness in expecting BTC to clear the backlog at once and also to take the contractual consequences if that meant KPIs would be breached again. There was (as discussed above) no KPI Backlog Agreement, waiver, estoppel or affirmation. And unless and until different KPIs were agreed there is no absence of good faith or presence of capriciousness in expecting BTC to honour the existing agreed KPIs, "fit for purpose" or not.

Conclusion

81. In my judgment the first part of the issue tried should be answered "yes". Assessed as at 20^th July 2015, BTC was in breach of the Agreement such that the Defendants were entitled in all the circumstances to terminate the Agreement forthwith.
82. It follows, on the second part of the issue tried that the answer is "no". BTC should not be granted an injunction to restrain termination. I would add for completeness that even had the first part of the issue tried attracted the answer "no" it is not inevitable that an injunction would be granted, rather than BTC left to a remedy in damages.
83. Ultimately it is the public that is affected by this dispute, and by the shortcomings in the drafting of the Agreement and the failings in performance under the Agreement. It is very much to be hoped that all parties to the dispute will consider the position carefully, in the interests of the public, and take steps now to avoid a similar situation in the future, in Cornwall and elsewhere.
APPENDIX

By Clause 1 of the Agreement "Services" includes what are defined as the "Phase 1 Services". The "Phase 1 Services" are in turn defined as "the initial services in respect of ICT, Telehealth Services, Telecare, transactional shared services (non-customer facing) and document management (for the Council) as at [1 July 2013] and as further described in Schedule 21 (Service Specification)".

Clause 1 of the Agreement defined "Service Credit" as follows:

the credit which is attributable to failure to achieve the Service Levels or Key Performance Indicators being deductions from the Monthly Charge or credits for additional services (as applicable) calculated, in each case, in accordance with clause 29 (Price Performance Mechanism)

Clause 5 of the Agreement provides in part:

5.2 Partnership Objectives

5.2.1 [BTC] shall deliver the Services in a manner which is supportive of and in alignment with the following the [Defendants] key objectives:

5.2.1.1 to create a joint infrastructure for the [Defendants];

5.2.1.2 to create a vehicle for trading in perpetuity;

5.2.1.3 to deliver cost efficiencies; and

5.2.1.4 to create jobs in Cornwall.

5.2.2 [BTC] and the [Defendants] shall act in good faith and use reasonable endeavours to enable a continuing Partnership dialogue throughout the Term.

5.2.3 [BTC] and the [Defendants] shall use reasonable endeavours to establish the processes, relationships and culture which will promote the growth of the Partnership which will enable innovation and structured, programmed and well managed continuous improvement.

Clause 6A of the Agreement provides:

84. A CLARIFICATIONS

Notwithstanding any other provision of this Agreement, the relevant provisions of this Agreement shall be deemed to be amended in line with the clarifications to this Agreement set out in Schedule 27 (Clarifications). For the avoidance of doubt, this Agreement shall be read and interpreted as if such clarifications had been made to the Agreement as at the Effect Date."

Clause 17 of the Agreement provides in part:

17 [BTC'S] PLANS AND SERVICES

…

17.9 Monthly Reviews

17.9.1 [BTC] will conduct a monthly Services Review at the end of each month on the basis set out in the following provisions of this clause 17 (BTC's Plans and Services Reviews) and Schedule 17 (Reporting and Review Schedule). The objective of the Services Reviews shall be to:

17.9.1.1 assess the Services in terms of [BTC's] performance, the quality and the availability of the services provided under the Services and Service Levels;

17.9.1.2 identify any areas of poor performance and unavailability of the Services which require improvement, and to determine the remedial action to be taken by [BTC] as a result;

17.9.1.3 assist [the Defendants] with their future planning in relation to budgets; and

17.9.1.4 collect the information required for the operation of the Price Performance Mechanism and to present that information to [the Defendants] to enable [the Defendants] to verify the accuracy of the service credits calculated by [BTC] for each Month, and which are to be applied in accordance with clause 29 (Price Performance Mechanism).

17.10 Monthly Review Reports

17.10.1 [BTC] shall conduct the monthly Services Review in accordance with Schedule 17 (Reporting and review Schedule).

17.10.2 [BTC] undertakes that the process of the review and the content of its report shall be objective, fair and reasonable and that the assessment shall be conducted and the report shall be written in good faith.

17.10.3 [BTC] shall implement any action plan or recommendations set out in the report for improving the Services."

Clause 29 of the Agreement provides in part:

29. PRICE PERFORMANCE MECHANISM

29.1 Deductions

29.1.1 Subject to clauses 29.1.2 and 29.1.3, Service Credits shall be deducted from the Monthly Payment in respect of each [Defendants]' element of the Services in accordance with the provisions of the Price Performance Mechanism. On the expiry of each Month [BTC] shall collect all necessary information as to the performance of [BTC] (and any Strategic Partner Party) against the Key Performance Indicators during that Month. [BTC] shall ensure that it has collected all such information in sufficient time for it to be presented to the Public Sector Partners as part of the Services Reviews carried out pursuant to clause 17 ([BTC]'s Plans and Service Reviews), and to enable [BTC] to use the information to calculate Service Credits and make deductions from the Monthly Payment in accordance with clause 29.2 (Measurement and Calculation).

29.1.2 Subject to clause 29.1.3, Service Credits shall only be deducted from any Monthly Payment in respect of a failure by [BTC] to achieve Key Performance Indicators from the date upon which each Key Performance Indicator becomes effective, as set out in the column headed "KPI Effective Date" for each such Key Performance Indicator in Schedule 21 (Service Specifications).

29.1.3 Notwithstanding the provisions of clause 29.1.2, the [Defendants] shall be entitled to deduct Service Credits from any Monthly Payment where [BTC] fails to perform against and Key Performance Indicator(s) to at the least level achieved by the relevant Public Sector Partner(s) prior to the Commencement Date.

29.2 Measurement and Calculation

29.2.1 [BTC] shall use the information collected pursuant to clause 29.1 (Deductions) to calculate the Service Credits applicable in respect of each Month in accordance with the provisions of the Price Performance Mechanism on the following basis:

29.2.2 Service Credits shall be deducted each Month by [BTC] from the next Monthly Payment invoice submitted to the relevant Public Sector Partner in accordance with clause 28.3 (Payment Terms/Procedure).

29.2.3 …

29.2.4 The operation of the Price Performance Mechanism shall be without prejudice to any other rights and remedies that the [Defendants] may have.

…

Clause 48 of the Agreement provides in part:

48 TERMINATION AND EXPIRY

48.1 Right of Termination

48.1.1 The [Defendants] shall be entitled to terminate [this Agreement] forthwith by notice in writing to [BTC] if [BTC] is in:

48.1.1.1 Material breach of this Agreement (defined in clause 48.2 (Material Breach); or

48.1.1.2 Persistent Breach of this Agreement (defined in clause 48.4 (Persistent Breach))

and shall have failed (where a remedy period is granted pursuant to Clause 48.3) to remedy the same within the remedy period so granted.

48.1.2 The [Defendants] shall be entitled to terminate this Agreement in part (whether for Material Breach or Persistent Breach) in respect of the part of the Services or in respect of the [Defendant] which is affected by the breach of this Agreement by [BTC].

48.2 Material Breach

48.2.1 'Material Breach' shall mean any material or fundamental breach by [BTC] of this Agreement or part of this Agreement (which shall include that part of the Agreement that relates to a [Defendant]) or the occurrence of any of the following matters (without limitation):

48.2.1.1 an accrual and/or accumulation of Service Credits in the manner set out in Schedule 13 (Price Performance Mechanism Schedule) and stated in that Schedule as constituting a material breach of the Agreement (or part thereof);

48.2.1.2 …

48.2.1.3 a right to terminate has arisen in accordance with paragraph 4.[3] of Part 2 (Jobs) of Schedule 2 (Business Plan);

…

48.3 Remedy Period

48.3.1 Where a Material Breach is capable of remedy [BTC] shall be granted a remedy period of twenty (20) Business Days (or any such other period as [the Defendants] may in their absolute discretion agree) of receipt by [BTC] of a notice in writing from [the Defendants] of [sic] [a Defendant] (as applicable) specifying the breach and requiring [BTC] to remedy the breach.

48.3.2 In the circumstances referred to in clauses 48.2.1.1 to 48.2.1.6 (Material Breach) and clause 48.1 (Right of Termination), [BTC] shall not be granted any remedy period and [the Defendants] or an individual [Defendant] shall be entitled to terminate this Agreement forthwith on notice.

…

Part 2 of Schedule 2 to the Agreement (Jobs) provides in part:

3.1 [BTC] guarantees that:

3.1.1 at the end of the applicable Calculation Period the number of Retained Jobs shall be no less than 181 jobs as specified in Table 1 of Appendix 2

3.1.2 at the end of the applicable Calculation Period the number of New Jobs shall be no less than 197 at the grades specified in Table 2 of Appendix 1, unless such figure is modified as a consequence of paragraphs 5.2; and

3.1.3 at the end of each Year for the first three(3) Years the cumulative New Jobs Target (at the specified grades) shall be as set out in Table 2 of Appendix 1,

(the "Guaranteed New Jobs")

…

4.1 If [BTC] fails to achieve the cumulative New Jobs Target contained in paragraph 3.1.3 in any Year by more than 5% of the required Guaranteed New Jobs [BTC] shall within 20 (twenty) Business Days of the end of the relevant Job Guarantee Measurement Period submit to the [Defendants] a remediation plan for the [Defendants]' approval demonstrating how [BTC] will, within a reasonable timeframe as agreed between the parties, rectify the shortfall of Guaranteed New Jobs in order to achieve the relevant Job Guarantee.

…

4.3 Failure by [BTC] to:

4.3.1 provide a remediation plan pursuant to paragraph 4.1; or

4.3.2 implement and/or comply with the terms of a remediation plan provided pursuant to paragraph 4.1; and/or

4.3.3 achieve the Job Guarantee contained in paragraphs 3.1.1 and 3.1.2 by more than 5% of Guaranteed New Jobs shall give rise to a Material Breach of the Agreement;

…

5.2 The Guaranteed New Jobs set out in Table 2 of Appendix 1 stated to be relating to Telehealth Services shall be dependent upon [the Third Defendant] securing a new Telehealth contract (with the support of [BTC], where required by this Agreement) with NHS Kernow. In circumstances where a new Telehealth contract is not secured by [the Third Defendant] with NHS Kernow, to the extent [BTC] has complied with its obligations to assist [the Third Defendant] in accordance with this Agreement, the Guaranteed New Jobs relating to Telehealth Services shall be deleted from Table 2 of Appendix 1 and inserted into Table 3 of Appendix 1, whereupon they shall be treated as Committed New Jobs in accordance with the provisions of this Part 2 of Schedule 2.

Appendix 1 – Job Numbers

Table 2 (guaranteed New Jobs)

Group	Year 1	Year 2	Year 3	Year 4
A	2	3	3	3
B	7	8	9	9
C	12	19	28	31
D	62	81	107	154
Total	83	111	147	197

Appendix 2

Job Descriptions

1. Guaranteed New Jobs

Job Source	Job Numbers
Retained Jobs	181
Management Team	4
Programme Management Office	2
TeleHealth & TeleCare	139
Work Programme	2
Contact Centre Expansion	50
Total	378

Schedule 13 to the Agreement (Price Performance Mechanism) provides in part

1. Introduction

1.1 This Schedule [13] (Price Performance Mechanism) defines how [BTC's] delivery of the Services will be measured and reported upon.

1.2 The Price Performance Mechanism (PPM) will report on a number of KPI's and PI's that cover the range of the Services.

2. Definitions

2.1 …

2.2 Unless the context otherwise requires, the following expressions shall have the meanings set out below:

"Actual Performance Level" means the level of performance achieved for a Key Performance Indicator as measured in an Assessment Period;

"Assessment" means the process of establishing the Actual Performance Level for an Assessment Period and Assessed will be construed accordingly;

"Assessment Period" means the Assessment Period labelled as such in Appendix A to this Schedule, over which performance of a Key Performance Indicator is assessed to determine its Key Performance Indicator Score;

…

"Critical Key Performance Indicator" or "Critical KPI" means the Key Performance Indicator labelled as a Critical KPI in Appendix A to this Schedule

…

"Service Failure" means failure to meet the Target Service Level of any Key Performance Indicator within its Assessment Period as detailed in Appendix A to this Schedule"

…

"Target Service Level" means the Target Service Levels for each Key Performance Indicator as are detailed in the 'On Target' column in the Performance section of Appendix A to this Schedule.

…

3. Monitoring and Measurement

3.1 [BTC] shall monitor and measure its performance in respect of the Services on a monthly basis from the Commencement Date against the KPI Table in Appendix A. Where the Assessment Period of a KPI is "quarterly" or "annually" then that KPI shall be measured on a quarterly or annual basis in line with its Assessment Period.

3.2 A failure by [BTC] to achieve the KPIs set out in Appendix A shall constitute a Service Failure and paragraph 4 below shall apply in this regard.

4 Application of Service Credits

4.1 The total of Service Credits to be deducted from the Monthly Payment in each payment period will be the sum of the Service Credits for that payment period.

4.2 The Service Credits will be calculated by reference to [BTC]'s Actual performance Level compared to the Target Service Levels for Key Performance Indicators.

4.3 The actual monetary amount of Service Credits to be deducted is derived in the following manner:

4.3.1 Each Service Failure is allocated a number of Performance Points as detailed in Appendix A with a total of 5,000 Performance Points being available per annum.

4.3.2 Performance Points are allocated to each Workstream on the basis of a Workstream Weighting, being that Workstream's gross expenditure baseline budget as a percentage of the total Gross Expenditure baseline budget for all Workstreams.

4.3.3 Each KPI within each Workstream is weighted on a percentage basis (its KPI Weighting) to reflect the importance attached to that KPI (where the total of the KPI Weightings for each Workstream equals 100%). The weighting for each KPI is identified in the KPI Weighting column in Appendix A.

4.3.4 The number of points allocated to each KPI for each Service Failure is calculated using the following formula:

For KPI's with a monthly Assessment Period:

(Total Performance Points Available pa / 12) x Workstream Weighting % x KPI Weighting %

For KPI's with a quarterly Assessment Period:

(Total Performance Points Available pa / 4) x Workstream Weighting % x KPI weighting %

For KPI's with an annual Assessment Period:

(Total Performance Points Available pa) x Workstream Weighting % x KPI weighting %

4.3.5 The monetary value of each Performance Point is £433.

4.3.6 The total Service Credits to be deducted for each month are calculated as the sum of the Performance Points allocated to each KPI where there has been an Assessment in the month which has determined that a Service Failure has occurred, multiplied by the monetary value of each Performance Point.

4.3.7 Where a single KPI related to both Council and Health Partners, then for a Service Failure which related to one of the parties but not both, the Service Credit shall be calculated using a Workstream Weighting based on that party's share of the Workstream's gross expenditure baseline budget as a percentage of the total gross expenditure baseline budget for all Workstreams.

…

6 Assessment Period

6.1 KPIs will be measured and an Assessment carried out on a Monthly, Quarterly or Annual basis as defined for each KPI in Appendix A.

…

7 Right to Waive Key Performance Indicator Scores

Without prejudice to any other rights and remedies available to the [Defendants], [the Defendants] at their sole discretion, may waive Key Performance Indicator Scores achieved due to Service Failures if they are satisfied (acting reasonably) that a remedial plan to prevent the Service Failure being repeated is in place and being adhered to

8 Baselining of KPIs

8.1 Where the current Actual Performance Level of a KPI or PI is unknown and [BTC] has based its Target Service Level for that KPI or PI on an estimate of the current Actual Performance Level then if, when the current Actual Performance Level becomes known, its value is found to be lower than the estimate, then [BTC] shall have the right to amend its Target Service Level accordingly.

8.2 The KPI's and PI's to which this is applicable are identified in the KPI Table and PI Table in Appendix A by an entry in the column headed "Baseline Required".

8.3 Until such time that the current Actual Performance Level for a KPI becomes known and the Target Service Level is agreed then the provisions of paragraph 4 (Application of Service Credits) and paragraph 9 (Service Failures and Material Breach) shall not apply to that KPI.

9 Service Failures and Material Breach

9.1 Failing to meet the Target Service Level of any KPI within its Assessment Period constitutes a Service Failure.

9.2 The following shall also be deemed Material Breach for the purposes of clause 48.2 of the Agreement:

9.2.1 For the Critical KPI, which has a monthly Assessment Period, three (3) consecutive Service Failures of which at least one (1) is in the Performance Band 'Breach Trigger' as defined for that KPI in the KPI Table in Schedule A. The Critical KPI is:

IS KPI 005: Incident Resolution (Incident Impact 1)

Definition: Major failure affecting a critical business function impacting multiple users (20+) or affecting a configuration item that is deemed Category A. This [sic] is only liable for the target resolution for the elements of service provision under its control. Where there are existing 3^rd party contracts in place the currently agreed service targets will apply. Response time: 15 minutes. Resolution time: 4 hours

9.3 For KPI's with a monthly Assessment Period, six (6) Service Failures of the same KPI in a rolling twelve-month period of which at least three (3) are within Performance Band 'Breach Trigger'"

…

In Appendix A to Schedule 13, KPIs 1 and 5 concerned "Incident Resolution". KPI 5 was subdivided into different levels of "Incident Impact". "Target Performance" for "Year 2" (2014-5) was 96% for KPI 1 and 91% for KPI 5 (Incident Impact 1). "Breach Trigger" for KPI 1 was <90% and >-10% (below target) for KPI 5 (Incident Impact 1). The Appendix contained an entry in the column "Baselining Required" for KPI 5 (Incident Impact 1) but not for KPI 1. Both KPIs had monthly "Assessment Periods".