Council wins Court of Appeal battle over interpretation of £2.7bn PFI contract

Birmingham City Council has won an appeal over the correct interpretation of its £2.7bn highways PFI contract with Amey.

In August 2016 His Honour Judge Mark Raeside QC had found in favour of the contractor in the Technology and Construction Court, overturning an adjudicator’s decision in favour of the council.

Birmingham appealed and the Court of Appeal, which heard the case last month, has today ruled in its favour in Amey Birmingham Highways Ltd v Birmingham City Council [2018] EWCA Civ 264.

The 25-year long PFI contract, which was entered into in May 2010, was some 5,190 pages long. The definitions alone spanned over 200 pages.

Lord Justice Jackson said all had gone well for three and a half years. In February 2014, however, the council’s PFI contract and performance manager, noticed that some parts of the roads and footpaths were being left unrepaired. Amey Birmingham Highways Ltd (ABHL) were leaving defects in selected areas untreated.

A dispute about ABHL’s contractual obligations then arose.

The principal issues before the Court of Appeal were:

(1) whether the PFI service provider was required to update inventory details on a database provided at the outset (ABHL denied that it was); and

(2) whether four completion certificates could be set aside for "manifest error".

Lord Justice Jackson said: “Any relational contract of this character is likely to be of massive length, containing many infelicities and oddities. Both parties should adopt a reasonable approach in accordance with what is obviously the long-term purpose of the contract. They should not be latching onto the infelicities and oddities, in order to disrupt the project and maximise their own gain.

“In the present case the PFI contract worked perfectly satisfactorily for the first three and a half years. Things only went wrong in 2014 when ABHL thought up an ingenious new interpretation of the contract, which would have the effect of reducing their workload, alternatively increasing their profit if BCC issued change notices.”

The judge, with whom Lord Justice Moylan and Sir Stephen Tomlinson agreed, rejected ABHL's interpretation of the contract. He also set aside four milestone certificates.

Cllr Stewart Stacey, Birmingham’s Cabinet Member for Transport and Roads, said: "This is a significant step for the council in our aim of getting the level of investment into our roads that we believe should have been provided by Amey during the first five years of the contract.

“It fully justifies our decision to appeal the High Court judgment from 2016 and we now need to move forward in light of the Appeal Court ruling in getting the condition of our roads and footways to the standard that the people of Birmingham expect and deserve.”