27th October 2022
This case  serves as a useful reminder of established principles of contract interpretation but looks at those principles through the lens of a PFI project. It therefore offers valuable insights given the complexity of the contractual arrangements in a PFI project and the fact that very few PFI disputes have historically reached the courts.
Typically, PFI disputes have been resolved by way of adjudication and although adjudicator decisions can be challenged in the courts, it has historically been rare. However, recent public sector focus on contract management is potentially responsible for an increase in PFI disputes and in turn this could lead to more cases reaching the courts. This case provides an example of how contract interpretation in those cases will be approached.
This PFI dispute was between Solutions 4 North Tyneside Ltd, a special purpose vehicle (Project Co) as claimant, and Galliford Try Building 2014 Ltd, a construction company (the Construction Contractor) as defendant. It related to allegations of failings in the roofs of certain dwellings in a PFI project for housing for elderly residents of North Tyneside (the Project). As with all PFI projects, there were a series of related contracts:
At the outset of the Project, the Construction Contractor was responsible for demolishing and reconstructing some dwellings, and the refurbishment of others. Once those works were complete, its involvement came to an end (subject to liability for defects in its work) and the FM Co became responsible for maintaining the dwellings. The judge noted that this structure was “highly relevant to the consideration of the obligations which each party had“.
Project Co’s case was that there were defects in the roofs of refurbished dwellings which the Construction Contractor was liable to rectify. It said the roofs did not have a design life of 60 years as at the relevant Certificate of Availability or a residual life of 30 years on handover in 2042, which it claimed was a requirement of the Construction Sub-Contract. The Construction Contractor disagreed, saying that those requirements related only to new build works. Its case was that the requirement for refurbished dwellings was to put them into a condition which met the Availability Certification Requirements as at the date of the relevant Certificate of Availability.
There was also a dispute as to whether the Output Specification formed part of the definition of the scope of the works to be performed by the Construction Contractor or related solely to the required standard of the works (the scope for which was defined elsewhere). This arose primarily as a result of the circular nature of the relevant definitions and obligations. As is common in PFI projects, the Construction Contractor was required to undertake the Works in accordance with the Output Specification, which would suggest the Output Specification was the standard required. However, the Works were defined as the works to be undertaken to meet the Output Specification, suggesting that it defined the scope of the Works. Each party sought declarations on the interpretation of the Construction Sub-Contract.
The court agreed with the Construction Contractor’s interpretation of the design life requirements. The first paragraph relied on by Project Co (2.9) expressly referred to new build works only. The second paragraph relied on (2.10) did not do so but the court found that they should be read together, and therefore that the design life requirements were expressly linked to the new build elements.
The court also considered it relevant that the consequence of Project Co’s interpretation would be that the Construction Contractor would have been required to undertake significant refurbishment works, potentially total replacement, well in advance of the date when they would otherwise be due. That would be unusual and wasteful and should have been set out clearly if intended.
The terms of the Output Specification were found to be relevant to defining the scope of the Works and not only to the standard of the Works.
Walker Morris’ Commercial Dispute Resolution team can advise as to the meaning of contractual obligations and rights under PFI and other complex commercial contracts. We can also advise, from a risk management or a liability assessment perspective, on the consequences flowing from breach of disputed contractual provisions and on the options for mitigating those risks or resolving any dispute, including negotiation, mediation, adjudication or court proceedings. We have substantive experience of advising public and private clients on public project disputes and understand the sensitivities and limits on the scope for settlement by public bodies.
Please contact Lynsey Oakdene or Kathryn Vickers for further information, training or tailored advice on any issue associated with PFI projects, complex contractual arrangements, contract interpretation or commercial disputes in general.
  EWHC 2372 (TCC)
 Arnold v Britton  UKSC 36
 para 103