The Court of Appeal found in favour of Birmingham City Council (“BCC”) rejecting Amey Birmingham Highways Ltd’s (“Amey”) interpretation of the contract, confirming that the PFI contractor's road maintenance duty covered the entire current Birmingham road network.

Amey was engaged by BCC in 2010 to carry out a 25 year PFI contract relating to the rehabilitation, maintenance, management and operation of the roads and street lighting network in Birmingham pursuant to the government's private finance initiative (“the Contract”). However, by 2014 the relationship between the parties’ had soured significantly whereby BCC claimed Amey were in breach of contract in failing to carry out work it was obliged to undertake under the PFI Contract.

Amey argued that certain sections of the “contractual inventory data”, which established the nature and condition of the network under its care, did not have to be updated and therefore had stopped updates to a computer system known as the Project Network Model (“PNM”).

BCC claimed that the contractor was obliged to update the databases to reflect the actual road network. The dispute was referred to adjudication in which BCC was successful. Amey then began court proceedings (Amey Birmingham Highways Ltd v Birmingham City Council [2016] EWHC 2191 (TCC)) in which the first instance court granted declaratory relief finding that the adjudicator’s decision was wrong, as a matter of law, and was not binding on the parties.

BCC appealed the decision to clarify Amey’s performance obligations under the Contract.

Lord Justice Jackson found: ‘Clause 5 of the contract required Amey to satisfy themselves about the extent of the project network. That requirement only makes sense if Amey were required to maintain the roads, footways, verges, kerbs and cycle tracks which actually existed.

‘If Amey were going to work for the next 25 years on the original unamended inventory in the PNM, there would be no point in satisfying themselves about the extent of the project network which actually existed.’

The Court of Appeal in effect reinstated the decision of the adjudicator and made declarations ‘to the same effect as the declarations made by the adjudicator’ as follows:

  1. That Amey’s obligations to perform the Core Investment Works and meet the requirements of Performance Standard 1 extend to the Project Network as a whole and are not limited to the RSLs as recorded in the PNM contained in DRD0626 [ the initial version of PNM]
  2. That Amey must update the PNM and maintain a Project Network Inventory which accurately reflects the actual extent of the Project Network and the Project Road.
  3. That the Certificates of Completion for Milestones 6 to 9 inclusive be set aside, alternatively opened up, reviewed and revised and the relevant calculations performed again by reference to the actual Project Network Inventory.”

In an interesting and succinct summary of the case law on ‘manifest error’ in certification, the CA held that the circumstances were on all fours with that case law in that the parties were aware at the time that the calculations used for the milestone certificates were based on erroneous information and the milestone certificates should be set aside for manifest error.

The judgment is also interesting for the way it acknowledges the importance of the spirit as well as the letter of such long-term local government ‘relational contracts’. Lord Justice Jackson noted:

“Any relational contract of this character is likely to be of massive length, containing many infelicities and oddities. Both parties should adopt a reasonable approach in accordance with what is obviously the long-term purpose of the contract. They should not be latching onto the infelicities and oddities, in order to disrupt the project and maximise their own gain.” (emphasis added)

This decision provides a gloss on the position set out in Arnold v Britton which emphasised the primacy of the actual words used in a contract over the objectively ascertained intentions of the parties (or the universal get-out clause for bad drafting represented by an appeal to “commercial commonsense”).

The decision in Amey suggests that the Court of Appeal, while applying the usual principles of contract construction, adopted a flexible (or pragmatic) approach to interpretation (at the very least in relation to long term PFI “relational” contracts”).

This decision should encourage parties with such long term contracts, especially PFI arrangements, to adopt a more pragmatic approach in their mutual dealings. It also suggests that local authorities (or other public body PFI stakeholders) may be confident in adopting a tougher stance when faced with ingenious (re) interpretations of PFI agreements which may otherwise result in unintended windfall payments to the service provider.

It will be interesting to see the impact of this decision going forward not only in relation to PFI contracts but also the wider construction industry.