REUTERS | Dominic Ebenbichler

Contractual issue under PFI contract adjudicated then “appealed” to TCC

It’s funny how things go. It was only a few weeks ago that I wrote about the dispute resolution procedure that CEDR publishes designed for “PFI and long-term contracts”. Now, we have a court judgment looking at an adjudicator’s decision arising out of a PFI contract for the roads and streets lighting network in Birmingham. Given HHJ Mark Raeside QC’s judgment in Amey Birmingham Highways Ltd v Birmingham City Council prints to over 100 pages, I wonder how many of you are familiar with it?

Amey Birmingham Highways Ltd v Birmingham City Council

In May 2010, Amey entered into a 25 year contract with the council, the “project agreement”. The contract is said to have a value of £2.7 billion and to be the largest highways PFI in the UK.

The dispute that was referred to adjudication related to the first five years, called the “core investment period”. It arose over the proper meaning of the project agreement and its scope. This dispute was referred to Andrew Goddard QC as the adjudicator and his decision was given in July 2015. The council had sought a number of declarations and the adjudicator’s decision summarised them in three separate parts (issues one to three). The council subsequently disputed a monthly payment of £1.18 million and claimed it had overpaid Amey some £18.8 million between June 2013 and July 2015.

The matter ended up before the TCC because Amey was unhappy with the adjudicator’s decision and exercised its right under the contract to refer a question of law to the courts. Ultimately, the court decided that the adjudicator was wrong in law on the first two issues he decided, which meant the third issue did not arise. Therefore, the court declared that those aspects of the adjudicator’s decision were wrong and neither party was bound by it.

Pausing there, there are three things in the judgment that I’d like to highlight:

  • The contract’s dispute resolution clause.
  • The use of Part 7 instead of Part 8.
  • Amey’s claim for its costs of the adjudication.

The dispute resolution clause

From the details of the parties’ dispute resolution clause that are set out in the judgment, it is clear that clause 70 sounds a lot like CEDR’s PFI clause.

It starts with a consultation “in good faith”. If that fails within 15 business days, either party may refer the dispute to adjudication. Dispute is widely defined to include “any difference or dispute… arising out of or in connection with the Contract”. This includes questions of contract interpretation (and it is wider than section 108(1) of the Construction Act 1996). Thereafter, either party may serve a notice of dissatisfaction within 30 business days. Without that notice, the adjudicator’s decision is binding on the parties unless and until it is “revised, cancelled or varied by the Arbitrator”.

Interestingly, despite the arbitration agreement, the parties agreed that questions of law could be referred to the courts. The court noted that this meant its jurisdiction was contractual and extended to questions of law that formed the subject matter of the adjudicator’s decision. It did not extend to deciding:

  • Questions of fact that formed the subject matter of the adjudicator’s decision.
  • Other disputes that were not before the adjudicator.

The judge described it as a “very circumspect involvement by the court”. It meant the court could grant declaratory relief, which is discretionary, but that it should exercise caution while doing so.

Further, the parties agreed that this was not an appeal of the adjudicator’s decision, but was a process that would lead to a decision de novo. Regardless of that “common ground”, to all intents and purposes it was an appeal, since what the court did was decide that the adjudicator’s decision was wrong, which allowed Amey to “to return to a level playing field”. I guess it didn’t go any further though and decide what the actual meaning of the project agreement was. It has left that for another day as it did not have a “proper and full understanding of the complete workings” of the “complicated and detailed” project agreement.

The use of Part 7 instead of Part 8

I don’t usually get involved in enforcement proceedings, not even when it’s one of my decisions under scrutiny, but I still thought the judge made some interesting observations about the approach the parties took to the nature of the proceedings. I rather liked the quotes from Stuart-Smith J from an earlier hearing:

“There can be no doubt at all that the conduct of this action has been bedevilled by the fact that the claimant issued proceedings under Part 7 instead of Part 8. A strong technical argument can be advanced to say that this is a claim which could have been issued under Part 8 and that life may have been much simpler if it had been…

Having now seen the claimant’s Particulars of Claim, it seems plain… that if that document had been served in the context of proceedings which had been issued as Part 8 proceedings there could be no complaint.  That points to what I think has gone wrong in this case so far.”

Continuing the thoughts of Stuart-Smith J:

“It is that the distinction between Part 7 proceedings and Part 8 proceedings has had a wholly disproportionate effect on the defendant”s thinking and approach. The reason why I describe the effect as being disproportionate is that it has failed to take into account the extensive powers of case management which are open to the court whether a claim is brought under Part 7 or Part 8.”

Food for thought if you are ever pondering the question of which Part to issue under, 7 or 8? I know declaratory relief is all about short points of law that don’t require much evidence and that when evidence is required, Part 7 is more appropriate.

It seems the parties thought that they may be able to work together, to:

“… agree basic facts and limit their evidence to those four categories which may assist the court in construing the Project Agreement having regard to the specific issues that are before this court.”

That is common in “many construction summonses in the TCC”. Perhaps it depends on the complexity of the dispute but here both TCC judges thought that Part 8 would have been a better route. Sometimes (as HHJ Raeside QC acknowledged), hindsight is a wonderful thing.

Amey’s claim for its costs of complying with the adjudicator’s decision

This is an interesting area, not least because we have seen the court allow a party to recover its adjudication costs in subsequent court proceedings (I’m thinking Akenhead J in National Museums and Galleries on Merseyside (Trustees of) v AEW Architects and Designers Ltd and another). I’m not sure a party has successfully recovered the costs it incurred post-decision.

Here the court simply acknowledged that Amey was claiming some £90,000 for these adjudication costs, suggesting that the case was “framed under an implied term or in restitution” and that it will “give rise to some further interesting argument”. I should think quite a few people will be interested in the outcome of those arguments, although whether they ever see the light of day is a separate issue entirely.

I also noted that the court did not upset the adjudicator’s decision on the payment of his fees and expenses (the parties were to share liability for those costs equally). For the adjudicator’s sake, I hope both parties complied with that part of his decision and that his terms and conditions include a “PC Harrington v Systec clause“.

MCMS Ltd Matt Molloy

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