The importance of contractual clarity in Energy-from-Waste contracts

A recent court ruling has concluded that a local council will be entitled to a “substantial sum” following a long-running dispute over a waste management project agreement.

This case highlights how failing to accurately document the agreed detail on key commercial terms in your contracts can result in time consuming and costly litigation proceedings and the risk of unexpected financial penalties that could potentially render the contract uneconomic. This is especially true for longer-duration agreements.

Background

The case arose out of a long-term project agreement entered into between Buckinghamshire Council (the ‘Council’) and FCC Buckinghamshire (‘FCC’) in 2011, which provided for the construction and operation of a 300,000 tonne capacity energy-from-waste (EfW) plant in Buckinghamshire as well as two other residual waste transfer stations. The agreement made provision for the treatment of the Council’s waste and third-party waste and for the sharing of third-party income derived from that third-party waste.

Various disputes arose and the Council brought proceedings against FCC with respect to the sharing of income from third-party waste.

In the first case decision, the Council argued that “third parties” included income received by affiliates of FCC, whereas FCC construed the terms narrowly so as to exclude income from affiliates. On this issue the court held that income received by affiliates of FCC was still income ‘associated with the project’ and therefore caught by the income sharing provisions.

As a result of this decision, FCC made substantial additional payments to the Council in respect of third party income, however, the Council contended that these payments still did not properly reflect its contractual entitlement and it brought further proceedings as to the correct calculation of third-party income. In this latest ruling, the court concluded that the Council was indeed entitled to an increased share of third-party income. Although the judge could not specify ‘the precise sum’ to be paid by FCC to the Council in this case, he confirmed that it would be ‘substantial’.

Comment

This case highlights the importance of parties: (i) carefully considering and negotiating key commercial terms; and (ii) ensuring that clear and precise language is included in the contract, which accurately reflects what the parties have agreed. Had this contract clearly reflected what the parties had agreed, then neither case would have been necessary.

We are not in a position to know whether the parties simply failed to discuss these key details, or did, but failed to document their agreement on them. The latter case can be even more frustrating, where the counterparty starts to argue a different intended meaning once it transpires that meaning is much more beneficial for them.

Ultimately, there is no substitute for specificity and clarity in commercial contracts and while it can be tempting to leave matters vague (the ‘we know what it means’ approach), that is of limited value when matters turn contentious.

How can we help?

At Brachers, our Commercial team have built a market-leading reputation as advisers within the waste-to-energy sector. If you require assistance drafting commercial contracts or are concerned that your commercial contract terms have not been tailored appropriately, we would encourage you to get in touch for a no-obligation discussion on how we might be able to help.

This content is correct at time of publication