Buckinghamshire Council v FCC Buckinghamshire Limited

The court was asked to determine, on the proper construction of the Project Agreement (the PA) and its Schedule 15 payment mechanism, what constituted Third Party Income (TPI) and which costs may be deducted in arriving at Excess TPI for the contract years 2016-17 to 2022-23. The judge applied established principles of contractual interpretation and the factual matrix, including the Base Case financial model. He upheld the earlier decision of O'Farrell J that income "associated with the Project" includes income beyond gate fees (for example haulage, metals and other third-party receipts) but concluded that deductible costs are confined to costs "directly incurred" in generating TPI and must satisfy the three provisos in the TPI definition in Appendix A (specifically provisos (a), (b) and (c) of that definition in Schedule 15).

Applying those principles the court held that haulage and contractor costs directly incurred outside the Facilities were deductible; by contrast most categories claimed by FCC (notably broad manpower, site overheads, depreciation, divisional and corporate overheads and many other indirect items) were not shown to be directly incurred and therefore were disallowed. The court held that the Luton unitary charge (or the apportionable part of it) is TPI and should be treated on a proportionate tonnage basis, but that the quantum of costs deductible from that specific income requires further accounting determination and was remitted for separate handling. Other findings included acceptance of FCC’s figures on IBA tonnage and Bletchley material recycling records, confirmation that metals income falls within TPI, a limited declaration that the Fortis contract is an Off Take Contract for the purposes of clause 47.5 (but not more widely), and refusal of BC’s broad declaratory relief under clauses 99 and 111.

Background and nature of the claim: The claim concerned interpretation of a long-term waste management Project Agreement entered into on 17 April 2013 between Buckinghamshire Council (BC) and FCC Buckinghamshire Limited (FCCB). Following the decision of O'Farrell J ([2021] EWHC 2867 (TCC)) that a wide range of income is "Third Party Income" (TPI) "associated with the Project", FCCB provided information and made payments. BC contended those payments under-represented its contractual share (75%) of Excess TPI for 2016-17 to 2022-23. Relief sought included money, accounting adjustments and declaratory relief about the parties' information rights under clauses 99 and 111.

Procedural posture: First instance trial before HHJ Stephen Davies (Technology & Construction Court) after a five-day hearing and detailed written submissions. Some matters had been previously litigated and determined by O'Farrell J; this trial addressed construction and valuation questions left outstanding.

Issues the court framed and decided:

• Primary overarching question: correct calculation of Excess TPI and BC's 75% share for the years in issue.
• Key interpretive issues: meaning of "Third Party Income" in Appendix A to Schedule 15; the meaning of costs "directly incurred" and the three provisos to the deductibility rule (a: specifically and solely related to TPI additional to that modelled in the Base Case; b: incremental over those envisaged in the Base Case or otherwise recovered through the payment mechanism; c: not costs of handling or processing Third Party Waste or Recyclate by the Contractor or Affiliate).
• Substantive accounting and factual disputes: (i) which cost categories FCC could deduct (haulage, manpower, site costs, hire, fuel, plant repairs, overheads, depreciation, divisional and corporate overheads, operational support charges); (ii) whether the Luton unitary charge forms part of TPI and if so how to apportion it; (iii) blended waste allocation at transfer stations ("bays and piles"); (iv) allocation of management fees for Herts stations; (v) IBA tonnage and metals income (including the Fortis/Off Take arrangements); and (vi) scope of disclosure obligations under clauses 99 and 111.

Court's reasoning (concise):

• Interpretation: The court followed established authorities on construction. The Base Case and paymech must be read together as part of the factual matrix. The definition of TPI is wide; it covers income received by FCCB and Affiliates "associated with the Project".
• Directly incurred costs: "directly incurred" was given its ordinary meaning. The judge adopted an approach analogous to distinguishing direct costs from overheads: direct costs are those specifically and immediately attributable to generating the particular income stream. The burden is on FCCB to demonstrate that any cost meets each proviso.
• Proviso (a): "modelled in the Base Case" should be assessed by reference to the PA and paymech together; the Base Case modelled nominal gate-fee income for TPW, so costs specifically and solely related to income beyond gate-fee revenue can in principle be deductible.
• Proviso (b): costs "envisaged in the Base Case" refer to costs of operating the Facilities (and variable haulage from WTSs to Greatmoor); costs incurred remote from the Facilities are not within what was envisaged.
• Proviso (c): costs of handling or processing by the Contractor or Affiliate at the Facilities are not deductible; but the court rejected a construction that would exclude all handling/processing costs incurred off-site from deduction — the proviso must be given a commercially sensible reading consistent with the parties' shared understanding.

Conclusions on principal matters:

• Haulage and contractor costs incurred outside the Facilities were deductible as direct costs.
• FCC failed to prove that broad manpower, many site and overhead categories, depreciation, divisional and corporate overheads, operational support charges and similar items were "directly incurred"; these categories were therefore disallowed on the evidence provided (FCC had advanced an all-or-nothing presentation and did not segregate direct elements sufficiently).
• The Luton unitary charge (or its appropriately apportioned element) is income "associated with the Project" and therefore TPI; the court ordered Luton income to be calculated on a proportionate tonnage basis but remitted detailed determination of deductible costs relating to Luton to a further hearing (unless agreed).
• The blended waste/"bays and piles" issue was resolved in FCC's favour on the factual evidence: no adjustment required.
• Management fees for Herts were accepted in principle as TPI but final netting of directly deductible costs was left to be resolved together with the Luton-costs accounting if not agreed.
• On factual accounting points the court accepted FCC's position on IBA tonnage and Bletchley records; metals income is TPI. The Fortis contract was declared to be an Off Take Contract for the purposes of clause 47.5 but that did not import a wider obligation under clause 47 to BC beyond the limited contractual architecture set out in the PA.
• BC's application for broad declaratory relief under clauses 99 and 111 was refused: the clauses are sufficiently clear, and the court would not convert the litigation sampling protocol into a standing contractual obligation in the abstract.

Ancillary observations: Several issues of detailed accounting and quantification remain and were remitted for further determination or directions; overall the judgment leaves substantial sums to be worked out but resolves the principal questions of law and most key facts.

Claim allowed in part. The court adopted the wide definition of Third Party Income as established in the earlier O'Farrell J judgment but interpreted the deductible-costs provisos restrictively: only costs "directly incurred" and meeting each of the three provisos in the TPI definition are deductible. On that basis haulage and contractor costs were deductible; the majority of broadly pleaded manpower, overhead and similar costs were disallowed for want of proof. The Luton unitary charge (or its apportioned part) was held to be TPI to be calculated by tonnage proportion, but detailed deduction of costs as to Luton income was remitted for further accounting. Other issues (blended waste, IBA tonnage, metals income, limited declaration on Fortis as an Off Take Contract) were decided as described. BC’s broad declaratory claim under clauses 99 and 111 was refused.