Buckinghamshire Council v FCC Buckinghamshire Limited

In a commercial income-sharing clause, costs are “directly incurred” in generating income only where there is an immediate relationship between the outlay and the particular income-generating activity. The cost must be traceable in its entirety to that activity. Shared costs cannot be apportioned merely because they contributed to producing the income.

Costs must also be specifically and solely related to additional income beyond that modelled in the contractual base case. Income earned by an affiliate from remote collection or transport may qualify where the waste ultimately reaches the relevant facility. Income under a multi-service contract is not wholly excluded because only part relates to the project. Costs of handling or processing third-party waste, including relevant haulage costs, are excluded wherever the handling occurs.

These cross-appeals concerned a long-term waste-management project agreement under which FCC Buckinghamshire Limited was required to share specified income from third-party waste with Buckinghamshire Council.

The trial judge held that only haulage and other subcontractor costs were deductible, and that income received under a Luton Borough Council unitary-charge contract was Third Party Income. The judge’s decision is reported at [2024] EWHC 1552 (TCC).

FCCB appealed on the construction of the cost-deduction provisions, the treatment of the Luton unitary charge and the burden of proof. The Council challenged the allowance of haulage costs. The central issues were the meaning of “directly incurred”, the scope of the provisos to the Third Party Income definition, and the proper treatment of income from a multi-service contract.

Disposition. Lord Justice Newey delivered the judgment, with Lord Justice Jeremy Baker and Sir Launcelot Henderson agreeing. FCCB’s appeal was dismissed. The Council’s ground 3 succeeded, so deductions for the relevant haulage costs were disallowed.

1. Contractual interpretation. The court applied the objective approach to construction described in Wood v Capita Insurance Services Ltd [2017] UKSC 24 and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896. The meaning of the Project Agreement was the meaning conveyed by its language to a reasonable person with the relevant background knowledge.
2. Directly incurred costs. The phrase required an immediate relationship between the income and the outlay. Costs had to be specifically incurred for the particular income-generating activity and traceable in their entirety to it. A cost was not automatically excluded because it could be described as an overhead, but costs incurred for other purposes could not be apportioned. The challenged manpower, site, corporate and similar overhead costs therefore did not qualify.
3. Proviso (a) and burden of proof. Deductible costs also had to be specifically and solely related to Third Party Income additional to that modelled in the Base Case. Costs also incurred in generating guaranteed income failed this requirement. Although the Council bore the general burden of proving its entitlement to relief, FCCB had the contractual burden of demonstrating that particular costs were deductible, given its knowledge of the relevant expenditure.
4. Luton income. Third Party Income was broad enough to include income received by an affiliate from remote collection and transport where the waste was ultimately delivered to Greatmoor. The fact that the Luton unitary charge covered several services did not exclude it entirely. The proportion attributable to waste sent to Greatmoor could be calculated by reference to tonnage.
5. Haulage costs. Proviso (c) was expressed generally and was not limited to handling or processing at the Facilities. It therefore barred deductions for the haulage of Third Party Waste to Greatmoor from other transfer stations. The Base Case’s allowance for relevant haulage costs meant that this construction did not produce the unfairness identified by the trial judge.

1. Court of Appeal (Civil Division). In [2025] EWCA Civ 921, FCCB’s appeal was dismissed and the Council succeeded on its challenge to the deduction of haulage costs.
2. High Court of Justice, Business and Property Courts, Technology and Construction Court. In [2024] EWHC 1552 (TCC), the trial judge held that certain haulage and subcontractor costs were deductible and that the relevant proportion of the Luton unitary charge was Third Party Income.