Court of Appeal identifies key principles for contractual interpretation of conditions precedent

Disclosure and Barring Service v Tata Consultancy Services Ltd [2025] EWCA Civ 380

The question

Did the language of a clause dealing with "delays due to contractor default" have the effect of making it a condition precedent to recovering delay payments that the customer promptly issue a non-conformance report?

The key takeaway

The case shows how important it is to ensure that a condition precedent contains clear and precise wording designed to show it is meant to have a conditional effect.

The background

The Disclosure and Barring Service (DBS), and tech company Tata Consultancy Services Ltd (TCS) entered into an agreement for TCS to take over the manually intensive business-as-usual Disclosure and Barring processes, while building a new system to modernise and replace the previous regime with a digital one.  The project did not go to plan and each party blamed the other for significant delays. In addition, DBS alleged that, upon going live, the project suffered from serious defects.

TCS brought a claim against DBS for just under £125m for their losses said to be caused by DBS’s breaches of the agreement. DBS brought a counterclaim of over £100m. The High Court concluded that a net sum of just under £5m was payable by DBS to TCS (see our 2024 Summer Snapshots edition for the High Court judgment). 

DBS sought permission to appeal on two grounds. The first concerned clause 6.1 of the agreement and whether this created a condition precedent, breach of which prevented DBS from being able to recover £1.592m in delay payments (pursuant to clause 6.2.3). The High Court found that DBS's right to claim delay payments pursuant to clause 6.2.3 was conditional on DBS's compliance with clause 6.1. DBS's claim was rejected by the High Court because DBS had not complied with clause 6.1 by failing to serve any non-conformance reports (NCRs).

The second ground was concerned with the calculation of the Volume Based Service Charges (“VBSC”), however the judge concluded that DBS had no real prospect of success on this issue.

The appeal was concerned solely with the proper construction of clause 6.1 of the agreement, which states:

“If a Deliverable does not satisfy the Acceptance Test Success Criteria and/or a Milestone is not Achieved due to the CONTRACTOR’s Default, the AUTHORITY shall promptly issue a Non-conformance Report to the CONTRACTOR categorising the Test Issues as described in the Testing Procedures or setting out in detail the non-conformities of the Deliverable where no Testing has taken place, including any other reasons for the relevant Milestone not being Achieved and the consequential impact on any other Milestones. The AUTHORITY will then have the options set out in clause 6.2."

The decision

The Court of Appeal first identified the following key general principles from the main authorities on conditions precedent:

• whether or not a party must comply with one or more stated requirements before being entitled to relief will turn on the precise words used, set within their contractual context;
• to be framed as a condition precedent, a clause needs something that makes the relief conditional upon the requirement;
• a condition precedent must be expressed clearly, but it is not necessary for the clause to state “this is a condition precedent”;
• in addition to conditionality, the link between the two steps should be expressed as an obligation (ie shall) but that will not on its own be sufficient to amount to a condition precedent;
• it is not necessary for the step one condition to be expressed as a number of days or weeks. More flexible periods such as “timely” and “within a reasonable time” are sufficient.

The Court of Appeal then applied the words of clause 6.1 in their context, finding that the words of clause 6.1:

• when seen in their context, were clear: on the occurrence of one or both of two different events ("if"), DBS "shall promptly issue" an NCR;
• made plain that the NCR was not just a procedural box-ticking exercise. It required categorisation of test issues, or the setting out of the non-conformities of the deliverable including reasons for the relevant milestone not being achieved and the consequential impact on any other milestone. It went on to state that DBS would then have the options set out in clause 6.2, one of which (clause 6.2.3) was to require delay payments;

The words in clause 6.1 therefore meant that, on the happening of one or both of events specified, a detailed NCR must be provided promptly by DBS and only then could the clause 6.2 options, including the imposition of delay payments, be exercised.

The clause was therefore a condition precedent, and DBS's failure to comply, by failing to provide any NCRs at all, meant that they were not entitled to exercise the option at clause 6.2.3.

Why is this important?

This case confirms that clear language in the clause itself (use of the words "if" and "then" in the clause in question created conditionality) and the need to consider the relevant clause in relation to the contract as a whole are key to court's interpretation of whether a clause is a condition precedent.

Any practical tips?

Consider utilising the Court of Appeal's key principles as a mini checklist when drafting a condition precedent clause: use clear words to indicate this is a condition precedent (though no need to use the actual words "this is a condition precedent"), clarify through precise words what requirements a party must comply with before being entitled to relief, make sure the clause contains something that makes the relief conditional upon the requirement, use the word "shall" or similar (avoiding the word "may") to express the link between the two steps as an "obligation", and consider providing a deadline for completion of the step one condition (though "within a reasonable time", or in this clause "promptly" is also likely to be sufficient).