3C Waste Ltd v Mersey Waste Holdings Ltd & Anor

Directive 1999/31/EC, art 10, and its implementing regulations applied to existing landfill contracts, not merely contracts made after the Directive. Charges for waste disposal had to cover the relevant costs of setting up, operating, closing and providing after-care for the landfill. A permit condition requiring full-cost charging therefore made continued performance of an existing contract at a lower price unlawful. The contractual force majeure clause was engaged because performance had become incapable of lawful performance, suspending the contract until a new price mechanism was agreed or determined by arbitration. No implied term supplied a replacement price, and there was no transitional period based on legitimate expectation. Revenue from landfill-gas electricity generation was deductible, relevant overheads were included, and profit was not a cost.

3C operated a landfill site under a 1986 waste-disposal contract requiring waste to be accepted at an indexed contractual price. The contractual rights and obligations were later transferred to the parties. Following the introduction of the Landfill (England and Wales) Regulations 2002 and the grant of a pollution-prevention and control permit, 3C contended that it had to charge full cost for every delivery, including deliveries under the existing contract.

The proceedings concerned the effect of the Directive, the Regulations and the permit on the contract; whether the contract was capable of continued performance; and the proper scope of full cost, including the treatment of electricity revenue, profit and overheads.

1. Application to existing contracts. Article 10 of the Landfill Directive applied to operating landfill sites and required the price charged for disposal of any type of waste to cover the specified costs. Excluding pre-existing contracts would produce unequal treatment between customers and could leave sites unable to recover their costs. The Landfill Regulations were consistent with that purpose and applied in the same way.
2. Permit obligation. The permit required 3C to charge full cost to all customers at the site. Failure to comply with that condition was an offence under regulation 32 of the Pollution Prevention and Control (England and Wales) Regulations 2000. The obligation took effect when the permit came into force on 6 December 2004. No period for negotiation or disclosure of cost information postponed its operation.
3. Contractual consequences. The proposed implied term that the parties would operate the contract at a lawful price was unsupported by the recognised criteria for implication, particularly given the express price-adjustment, force majeure and arbitration provisions. If the full-cost charge exceeded the contractual price, continued performance at that price was unlawful. The force majeure clause therefore applied because the contract had become incapable of performance through the requirement of a regulation or similar cause beyond the parties’ control. The contract was suspended pending agreement of a new pricing mechanism or an arbitral award. During the interim, 3C could charge on a quantum meruit basis for properly included full costs.
4. Full cost. Revenue from electricity generated by burning methane from biodegradable waste had to be set off against the relevant costs. Profit was not a cost. Relevant overheads were deductible. The issues concerning Mersey Waste’s status as an emanation of the state and the direct effect of the Directive therefore did not require determination.