The Council of the Borough of Milton Keynes v Viridor (Community Recycling MK) Ltd
| Jurisdiction | England & Wales |
| Judge | The Hon Mr Justice Coulson,The Hon. Mr Justice Coulson |
| Judgment Date | 22 February 2017 |
| Neutral Citation | [2017] EWHC 239 (TCC) |
| Docket Number | Case No: HT-2015-000195 |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Date | 22 February 2017 |
[2017] EWHC 239 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Rolls Building,
Fetter Lane, London, EC4A 1NL
The Hon Mr Justice Coulson
Case No: HT-2015-000195
Mr Robert Clay (instructed by Anthony Collins Solicitors) for the Claimant
Mr Michael Davie QC (instructed by Ashfords LLP) for the Defendant
Hearing dates: 31 January, 1 and 2 February 2017
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
The Hon Mr Justice Coulson (No 2)
INTRODUCTION
Pursuant to a contract dated 1 October 2009 the claimant Council engaged the defendant to carry out waste recycling in Milton Keynes for a period of 15 years. The contract recognised that waste recycling was a profitable business so it stipulated that the defendant was obliged to make both fixed and variable payments to the claimant. The fixed payment was sometimes referred to as rent, because it related to an existing recycling facility owned by the claimant and used by the defendant, referred to in the papers as "the MRF". The variable payment was the product of a profit-sharing arrangement between the parties.
The defendant's final tender bid of May 2009 included an Income Generating Payment Mechanism ("IGPM") which identified a fixed payment of £500,000 per annum "indexed for inflation". When the final contract documents were put together by the claimant's consultants, an earlier and incomplete version of the IGPM, which contained gaps and made no reference to indexation, was included in the contract documents. The claimant submits that this was either a common or a unilateral mistake, and therefore seeks rectification of the contract by the replacement of the earlier, erroneous version of the IGPM with the later, correct version, including its reference to indexation.
The defendant took a range of points in resisting the claim for rectification, some raised for the first time at trial. In particular, the defendant concentrated on (i) the period before the tender was accepted (a surprising element of the case, addressed in Section 3 below); (ii) the period after the claimant had accepted the defendant's tender but before the contract was concluded (to argue that, because there were further negotiations after the tender was accepted, the contract should not now be rectified back to the state it was in before those negotiations); and (iii) various post-contract events and delays in support of the submission that it would be inequitable now for the court to rectify the contract.
The structure of this Judgment is as follows. In Section 2 I set out the background to the contract. I deal in Section 3 with the defendant's over-arching points concerned with events during and after the tender stage. In Section 4 I deal briefly with the relevant principles of law applicable to claims for rectification. In Section 5 I analyse the detail of the claimant's claim for rectification. In Section 6 I set out the post-contract events and, in Section 7, I deal with the defences of laches and acquiescence. There is a brief summary of my conclusions in Section 8 below.
THE BACKGROUND TO THE CONTRACT
The tender process was governed by the Public Contract Regulations in their 2006 edition. Thus, there was an advertisement in the Official Journal of the EU, dated 21 June 2008, describing the proposed recycling contract, and noting that it would be for a period of between 5 and 15 years. In the event the contract that was let was for an initial term of 15 years.
There was a meeting on 24 March 2009 when a timetable was identified. The review of contract documents was anticipated to be complete by 1 May 2009 "with exception of minor changes post dialogue". The minutes indicated a "meeting with Geoff Beck and Councillor Chris Williams on 7 May for authorisation of the final MKF contract documents". The closing of competitive dialogue was scheduled for 8 May, the return of bids on 26 May, and the decision of the claimant's Cabinet on 21 July 2009. Although the defendant's suggestion was that this timetable was not followed, in fact the summary below shows that, subject to the competitive dialogue stage being extended to 14 May, all the other dates were met.
There was another meeting on 5 May 2009 where there was a reference to the Payment Mechanism becoming a schedule as part of the contract. It was said that "we [the claimant] are looking for methodology not figures in the contract schedule." At a meeting the following day, 6 May, it was noted that the claimant wanted to see "the shape of the Payment Mechanism" before the closure of the competitive dialogue stage.
On 8 May, it was announced that the competitive dialogue stage was being extended to 14 May. In the days leading up to that date, there were discussions about the possibility of indexation (namely, allowing for inflation increases when calculating the fixed and variable payments). The defendant's original proposal was that indexation would not apply to the fixed payment to the claimant, but would apply to their profit margin (and therefore reduce the claimant's share of the profits). A clutch of internal emails dated 13 May, disclosed by the claimant, indicated that the defendant was being expressly invited (as part of its final tender package) to reconsider whether or not the fixed payment to the claimant should be indexed, and to reflect on the 20% profit share that they were then proposing to pay to the claimant. On behalf of the claimant, a figure of 30% had been suggested. These emails also indicated that, as far as the claimant's Mr Hudson was concerned, final agreement of these two matters (namely indexation on the fixed payment and the profit share percentage) "could come at the final tender stage."
It is clear that these matters remained outstanding at the end of the competitive dialogue process: see the email from Mr Garcia (another of the claimant's advisors) on 13 May 2009 timed at 16:04 and Mr Hudson's email of the same day timed at 18:16. That email concluded:
"CWL [the defendant's previous name] also suggested a couple of minor tweaks to the wording such as to clarify indexation. But I am suggesting that I leave this to Gwen – it could be that we make these tweaks now (if we think they are okay), or leave it to CWL to 'mark up' (and either not score as they are minor or if we think they are significant score accordingly. If you could let me have your view on this please, Gwen, I can include this with the clarification note, whichever way we go."
On 14 May 2009, the claimant issued an Invitation to Final Tender ("ITFT"). This incorporated a large number of documents, including the IGPM. The version of the IGPM that was sent out with the ITFT required completion by the tenderers. The most important part read as follows:
" Calculation of Fixed Payment Element
11. The fixed payment element shall be calculated as:
FP=X
Where:
X = £ [to be inserted in final tender] being the fixed rate per annum payable to Milton Keynes Council
Calculation of Variable Payment Element
12. The variable payment element shall be calculated as:
VP = Ts x OP x PS
Where:
Ts = being the total volume of tonnage sold by the Provider
OP = the operating profit per tonne payable to the Authority (calculated in accordance with Part B of this Schedule to Variable Payment Workings)
PS = [to be inserted in final tender] percentage profit share attributable to the Authority."
On 22 May 2009, before the deadline of 26 May 2009, the defendant submitted its final tender. This included their completed version of the IGPM. The relevant parts are set out below (where the original has highlighting in red or yellow, I have used bold italics):
" Indexation
5. The elements of IGPM that are indexed are: the Fixed Payment to MK, the Profit Margin to CW and the Performance Deductions payable to MKC.
6. The Base Index Date shall be 1 April 2009. These elements should be adjusted by the relevant Indexation Factor on the anniversary of the Base Index Date with effect from the relevant anniversary of the Base Index Date until the following anniversary…
Calculation of Fixed Payment Element
11. The fixed payment element shall be calculated as:
FP = X where:
X = £500,000 being the fixed rate per annum payable to Milton Keynes Council.
The fixed payment will be subject to annual inflationary increases and will be paid in 12 equal monthly instalments in arrears .
Calculation of Variable Payment Element
12. The variable payment element shall be calculated as: 30% of the actual Operating Profit to be established on an Open Book basis at the end of each period.
13. The variable payment will be paid on account on a monthly basis in arrears based on actual volumes input for that month on the basis of the formula in Part B…
Part 2 Section B Variable Payment Workings
FPT is fixed at £500,000 per annum for the duration of the contract and will be subject to annual inflationary increases of RPix….
Part 2 Section D Commercial Arrangements
D1c
Rationale. Fair Fixed Rent Plus Variable Payment Based on Profit Share
The Fixed Payment is based on our estimate of a fair rent for the MRF, in the current market. It is set at £500,000pa, indexed for inflation. This gives MK certainty for budgetary purposes.
The Variable Payment relates to profits from all MDR and non-MDR processed at the MRF once gate fee revenue and Agreed Costs have been included. We include a Profit Margin of £5 per t processed, indexed for inflation for CW in the Agreed Costs. CW's Profit Margin...
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