Pevensey Coastal Defence Limited v Environment Agency

Contractual construction is a unitary and iterative exercise. The court must ascertain the objective meaning of the language in the agreement, read in its documentary and factual context, and assess the commercial consequences of rival constructions without allowing business common sense to override the wording.

A regime directed principally to managing future obligations may nevertheless permit recovery of costs already incurred where the language, structure and other provisions of the agreement support that result. Clear words are required before compensation for an innocent party’s loss is confined to future effects only.

The claimant provided flood defence services under a 25-year PFI agreement with the defendant. The agreement, as amended in 2020, included a change procedure for a material increase or decrease in the frequency of storm events.

The claimant sought determination under Part 8 of whether, after the end of the second decade, it could claim an additional payment for services and service requirements performed during that decade if storm events had materially increased compared with the first decade. The defendant contended that the procedure concerned future changes and did not permit retrospective recovery. The central issue was the proper construction of Schedule 12.

1. Issue answered in the affirmative. Schedule 12 permitted the claimant, after the end of the second decade, to claim Relevant Cost for flood defence services and service requirements performed during that decade, if a material increase in storm-event frequency was established.
2. The definition of Relevant Cost included costs suffered or incurred at the relevant time or in the future. Although the reference to costs resulting from a Proposal suggested that the Proposal ordinarily preceded the costs, that wording had to be reconciled with the express reference to costs already incurred.
3. The mandatory notice and proposal provisions were principally forward-looking. They enabled the defendant to assess, reject, monitor or modify a proposal, reduce service levels, and plan and budget for future expenditure. That supported the defendant’s construction, but did not determine the issue.
4. Schedule 12 paragraph 4.6 was significant. It expressly contemplated a Relevant Cost or Relevant Saving arising from a change in storm-event frequency during the first ten-year period, subject to the £100,000 threshold. Read with the definition of Relevant Cost, it showed that costs already incurred during the relevant ten-year period could be recoverable. The same reasoning applied to the second ten-year period.
5. The court rejected a construction which would confine an innocent party’s compensation for breach, or comparable contractual circumstances, to future costs only. Such a restriction would require clear words. The agreement did not contain them.
6. The court accepted that the agreement was not a model of clarity and that some procedural provisions might have limited application to retrospective costs. That did not justify rewriting the agreement or excluding retrospective recovery under paragraph 1.2(g). Costs and consequential matters were reserved for a further hearing if not agreed.