Borough of Milton Keynes v Viridor (Community Recycling MK) Ltd (No 2) [2017] EWHC 239 (TCC)

The Borough of Milton Keynes (“MK”) engaged Viridor to carry out waste recycling in Milton Keynes for a period of 15 years. The contract required Viridor to make both fixed and variable payments to MK. The fixed payment was sometimes referred to as rent; the variable payment was the product of a profitsharing arrangement between the parties. Two final tenders were received by MK. The tenders were the subject of a detailed Evaluation Report prepared by management consultants. That report noted that the proposed fixed payment was to be indexed for inflation. Viridor’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 MK’’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 putting together of the contract documents themselves was the responsibility of lawyers employed by MK. They emailed the consultants asking them for the final version of the IGPM. The version sent to the lawyers was in fact an earlier incomplete version, which did not contain details of the indexation. The final contract was dated 1 October 2009. It was common ground that the version of the IGPM included in the contract was not the version that was sent out by Viridor as part of its final tender but the earlier version that had been sent out with the invitation to tender. It was said that in its final (incomplete) version, the IGPM incorporated into the contract was “inoperable”, because “there are so many vital parts that are missing”.

MK brought a claim submitting that it was either a common or a unilateral mistake, and sought rectification of the contract by the replacement of the earlier, incorrect version of the IGPM with the later, correct version, including its reference to indexation. Viridor resisted. The necessary requirements for rectification of a written contract on the grounds of common mistake were set out in the case of Swainland Builders Ltd v Freehold Properties Ltd [2002] EWCA Civ 560. The party seeking rectification must show that:

 “(1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified;

(2) there was an outward expression of accord;

(3) the intention continued at the time of the execution of the instrument sought to be rectified;

(4) by mistake the instrument did not reflect that common intention.”

Mr Justice Coulson had no hesitation in saying that there was a common intention between the parties, at the time the tender was accepted, that the fixed payment would be “indexed for inflation”. There was also clearly an outward expression of accord. The fixed payment indexed for inflation was part of Viridor’s tender which was expressly accepted by MK.

Viridor tried to claim, that there was no continuing intention in respect of indexation because, by the time that the contract was concluded, it had changed. The Judge thought this was “hopeless”. There was no attempt to renegotiate the indexation question. The mistake was an obvious and major one, made by and common to both parties, neither of whom spotted it prior to execution of the contract. In other words, the relevant ingredients for rectification had been made out.

However, the Judge still had to consider what happened between 2009 and the current claim. The parties used the figures in the correct version of the IGPM, but from April 2010, MK invoiced Viridor for the fixed payment but did not include any claim for indexation. One invoice did, but it was reissued most likely because those administering the contract checked the contract and did not see any reference to indexation. The Judge considered whether there were any discussions or subsequent agreement that indexation would not be charged on the fixed payment. He found none.

In early 2012, MK was the subject of a detailed audit and it became apparent that MK had not previously sought indexation on the fixed payment. The issue was raised with Viridor. As the Judge noted, matters then proceeded slowly and delays occurred on both sides. However these delays were a shared responsibility and so delay could not be raised as a defence. The Judge noted that merit was on MK’s side. Viridor had offered that the fixed payment would be index-linked. He also considered the commercial reality of the position. The fixed payment was the equivalent of rent on the facility owned by MK. If indexation did not apply to the fixed payment then it meant that MK was allowing a lease of that facility for 15 years, with no break clause, and no opportunity to increase the rent. Finally, it is worth noting Mr Justice Coulson’s comments on the original error:

“There is no doubt that it was sloppy work by … the management consultants and, to a lesser extent, by … the solicitor … [the] error is perhaps a sad reflection of the fact that modern day contracts of this kind are so complicated that nobody (not even the consultants) bothers to check the actual documentation being signed.”