Deborah Down considers how a contractor’s rigid approach to what a highways maintenance contract said, led to unintended consequences for the authority.
The Court of Appeal case of Amey Birmingham Highways Ltd v Birmingham City Council in February related to a highways maintenance contract that became operational in 2010. Birmingham City Council (BCC) had appealed a decision of the Technology & Construction Court, now well established as the specialist division of the High Court for disputes involving construction and IT contracts. Amey Birmingham Highways Limited (ABHL) was BCC’s highways maintenance contractor, appointed under a 25-year PFI contract.
The PFI contract was over 5,000 pages long, but fortunately the case concerned itself with the meaning of a few key clauses. BCC had two main aims for the contract, both investment into its network by ABHL drawing in private finance, but also improved data about the network, to be held on a database which ABHL would develop. The former aim saw an initial investment period of five years of substantial upgrade to the highways network, coupled with surveying of the network to improve the quality of information.
Well before the contract started, ABHL had been supplied with the data that the Council itself held about its highway network. This data was set out in six separate tables. It was known by both parties that around 60 per cent of this data was based not on the detailed measurement and observation of the actual highway assets but on national averages, however two of the tables consisted of accurate information.
All went well for a few years, and the appointed independent certifier signed off that ABHL had met the first five milestones for network investment. However then BCC realised that the contractor was not maintaining parts of certain roads – the Court of Appeal judgment noted one photograph of a cul-de-sac, where the a clear line could be seen up to which ABHL had resurfaced, and beyond that a section without resurfacing.
The case turned on whether all six of the tables in the original BCC data needed to be updated as the network was surveyed, or, as ABHL claimed, they did not need to update the two tables that were based on surveys as received from BCC, because these fell into a different category of data. The consequence of this lack of updating was that inaccurate data was sometimes used to define the scope and measurements for many of the maintenance tasks. Even though at the start of the contract they had originally updated all the tables, ABHL took a conscious decision to stop updating these two tables.
Read one way, the contractual obligations did support what BDHL were saying, and they also took support from the 2015 Supreme Court case of Arnold v Brittan, which re-emphasised the primacy of strict contractual interpretation in disputes, over a more purposive approach. BCC of course argued that the purpose of the contract took priority – how could it be intended that they would contract for maintenance of a hypothetical road network based on default data or data known to be inaccurate, as opposed to the actual network, which was being increasingly accurately recorded by ABHL’s own surveys?
The Court of Appeal found for BCC, by looking at (a) the contract as a whole, where there were other clauses which suggested that the tables of data should be updated on a universal basis, and (b) the contract’s purpose. On the latter point, the judgment says: “Both parties should adopt a reasonable approach in accordance with what is obviously the long-term purpose of the contract.”
What can we learn from this?
Firstly, that the 2015 Supreme Court case of Arnold v Brittan may represent the high point of strict contractual interpretation, without also looking at an agreement’s purpose. On the other hand, as this Birmingham case was in the Court of Appeal, it could not over-rule a Supreme Court decision, and there is a suggestion in the judgment that looking at the purpose of the contract was only possible because of the long-term nature of a PFI contract.
However it is also a lesson about going too far in seeking to use the strict terms of a contract to commercial advantage. It is easy to be critical of ABHL (and by implication their lawyers), with the conclusion of the judgment saying: “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….” However this criticism goes both ways, and other examples exist of public sector bodies, especially in the age of austerity, using contract terms as a way of making savings, but thereby risking the collapse of their contract due to the contractor’s inability to make money.