Disputes involving the interpretation of PFI/PPP contracts rarely come before the courts. Nevertheless, in July this year, the English Technology and Construction Court was called upon to interpret a PFI contract.
Ensign, a PFI contractor, had entered into a 25 year contract to bring Portsmouth City Council's highways network up to standard and to maintain it. Clause 24 of the contract enabled the Council to penalise the Contractor with "service points" for certain defaults. According to the Court's summary of events, from December 2013, nine years after entering the Contract, the Council (having been advised that the PFI contract was not in its best financial interests) began awarding the maximum number of "service points" possible for every default, at irregular intervals, in an attempt to force the Contractor to renegotiate the Contract.
The Contractor pointed to Clause 44 of the Contract, which stated that the parties would "deal fairly, in good faith and in mutual co-operation with one another", arguing that Clause 44 applied to the whole contract.
However, the English Technology and Construction Court held that the Clause 44 duty to act "in good faith" did not apply to the Clause 24 regime of allocating service points because:
(a) The Contract did not specifically provide that Clause 44 applied to Clause 24; and
(b) As in an earlier case (Medirest [2013] EWHC Civ 200), any decision to award service points was a unilateral decision taken by the Council and was operational without the need for the co-operation of the other party.
Separately, the Court noted that the parties were agreed that if Clause 44 did not apply to Clause 24, the Court would have to set out how the Council would exercise its rights under Clause 24. Ensign argued for a duty of fairness and impartiality. However, the Court disagreed – holding that the Council would merely have to act honestly and on proper grounds, and not in a manner which was "arbitrary, irrational or capricious".
Although Portsmouth City Council v Ensign Highways Ltd [2015] EWHC 1969 is an English case, and therefore not binding on the Scottish Courts, it may provide useful guidance on how the Scottish Courts might interpret a similar contractual provision in the future.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
