Clare Mendelle and James Hughes highlight the wide definition of Third-Party Income and the measures the courts are prepared to take to enforce the terms of longstanding contracts, by analysing the Buckinghamshire Council v FCC Buckinghamshire Limited case.
In Buckinghamshire Council v FCC Buckinghamshire Limited, the Council (the waste disposal authority) successfully obtained the remedy of specific performance, compelling FCCB to disclose information relating to its waste contracts with third parties and the income derived from those contracts.
This case highlights the wide definition of Third-Party Income, and the measures the courts are prepared to take to enforce the terms of longstanding contracts which confer a right to such information.
The case concerned an energy from waste plant operated for the Council by FCCB. As well as processing the Council’s waste, the plant also handles waste from other authorities, with the income from processing such third-party waste being split between the parties. The Council was concerned that FCCB was using its affiliates in a way which was not in keeping with the Third-Party Income-sharing provisions contained in the Project Agreement (PA) and sought a declaration that such affiliates were in fact caught by the relevant provisions. The Council also sought information to assist with identifying the true value of the Third-Party Income obtained by FCCB through its affiliates (including FCC Recycling and FCC Waste Services) who entered into contracts with end-users such as Hertfordshire County Council.
Whilst not a PFI Agreement, the PA has many similarities to such contracts.
Third Party Income
The Council argued that the income sharing provisions in the PA were wide enough to capture sums received by affiliates of FCCB, whereas FCCB construed the terms narrowly so as to exclude income from affiliates.
In conclusion, the court agreed with the Council’s view that Third-Party Income includes affiliates and, therefore, the Council was entitled to a share of such income. From the wording of the judgment, it appears that the courts have moved away from restrictive interpretation of such long-term contracts and are now taking account of the commercial context in which they operate. Nevertheless, it is worth adding that the court reiterated the words of Lord Neuberger in Arnold v Britton, that commercial common sense is permissible but the courts “should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed”.
The PA placed an obligation on FCCB to keep full and accurate records of the costs of performing the works and services. The Council sought the remedy of specific performance, to compel FCCB to disclose those which would help the Council in establishing the total value of Third-Party Income generated.
Specific performance is an equitable, discretionary remedy and notoriously difficult to obtain. The court made an order for disclosure on the basis that FCCB was under a contractual duty to disclose the relevant information. The disclosure was limited to information relating to Third-Party Income, including concerning the affiliates who were caught by the income-sharing provisions.
This case shows that the courts will construe terms of long-term contracts literally and, where necessary, taking account of the commercial context in which they operate. It also illustrates that courts are willing to use the equitable remedy of specific performance to compel an uncooperative party to disclose information which they are contractually obliged to provide.
A further takeaway for local authorities and waste disposal authorities is the importance of ensuring that third-party income sharing provisions are drafted sufficiently widely to capture affiliates of the contracting party; as this case highlights, the terms should take into consideration how the contract will be performed in practice.
Clare Mendelle is a Professional Support Lawyer and James Hughes is a Trainee Solicitor at Sharpe Pritchard LLP.
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