Pitfalls of partnering: Baird Textile Holdings -v- Marks & Spencer

Summing up

• The case: Baird Textile Holdings Ltd -v- Marks & Spencer PLC [2001] EWCA Civ 274.
• The issue: The legally binding nature of unregulated partnering relationships.
• The implication: Partnering relationships should be governed by a formal contractual agreement. Without such agreement, the parties will not be able to avail themselves of any remedies to protect their business and the courts will treat businessmen as being aware that, without specific contractual protection, their business may suffer in consequence.

Traditional forms of procurement and construction contracts have been criticised for creating barriers rather than building relationships. Alternative procurement routes and forms of contract (such as the PPC 2000 partnering contract) have been developed to overcome such criticisms.

Partnering is probably the one of most commonly encountered concepts in connection with this change in attitude for delivering construction projects. Sir John Egan in the Rethinking Construction Report stated that effective partnering does not rest on contracts, suggesting that contracts are not appropriate for proper partnering relationships.

It is unwise for parties to enter into a partnering relationship without some form of contractual agreement to govern it. Such a situation arose in the case of Baird Textiles Holdings Limited -v- Marks & Spencer PLC, which provides a clear warning of the risk of not regulating a partnering relationship.

Long-time supplier

Baird had been a major supplier of garments to M&S for more than 30 years.

Over half of its total production was sold to M&S, which customarily placed a twice-yearly order with Baird. There was no guarantee about the quantity of stock that M&S would order at any one time from Baird, although over the years it had received a steady but varying amount of business.

The value to Baird of the business with M&S represented between 30% and 40% of its annual turnover. The parties worked together to ensure that lines that were not selling well could be readily returned and new designs jointly developed, with sufficient factory capacity to enable successful or new lines to be produced rapidly. The relationship between Baird and M&S, although not formally a partnership, was described as being akin to it.

The chairman and chief executive of M&S stated that for over 70 years, the relationship between M&S with all of its suppliers of goods and services was governed by the principle of partnership, as it was a cornerstone principle of the company.

However, without warning M&S notified Baird that as from the end of the then current production run, it would place no further business with Baird.

Baird claimed that the termination of this relationship had caused it to lose in the region of £50m. Baird issued proceedings claiming that: (i) the termination notice was in breach of a contract implied from the relationship between the parties and the basis upon which they did business together, to the effect that M&S was contractually obliged to continue to place orders with Baird in quantities and at prices which in all the circumstances were reasonable unless and until proper notice of three years had expired (ii) M&S was stopped from giving less than three years' notice of termination of its business with Baird.

No contract

As part of its case Baird stated that M&S deliberately refrained from entering any express contract because it could achieve greater flexibility without one. The courts rejected Baird's claims. In doing so, the courts noted that it: (i) will only imply a contract by reason of the conduct of the parties if it is necessary to do so (ii) would be fatal to the implication of a contract that the parties would or might have acted as they did without any such contract. To do otherwise would be to make a bargain for the parties rather than seeking to enforce a bargain which they themselves had made.

This decision effectively denied the existence of a partnering obligation. This was despite the fact the relationship between Baird and M&S had existed for more than 30 years, and that such a relationship was a cornerstone principle of M&S in dealing with its suppliers.

This decision upholds the need for some form of formal contractual agreement to govern partnering relationships if the parties to such a relationship wish to avoid the severe consequences suffered by Baird.

Without such agreement, the parties will not be able to avail themselves of any remedies to protect their business and the courts will treat businessmen as being aware that, without specific contractual protection, their business may suffer in consequence.