PFI disputes in the courts

As Gemma Essex discusses, PFI disputes in the Technology and Construction Court are an increasingly rare beast. The time, cost, not to mention risk of an unfavourable outcome associated with complex multiparty litigation, is enough to dissuade even the most litigious of parties to consider an alternative method of dispute resolution. To date, a single judgment in respect of a PFI procured contract has been handed down by the TCC in 2021.

Surrey County Council and Suez Recycling and Recovery Surrey Ltd [2021] EWHC 2015 (TCC)

Surrey County Council issued a claim against Suez in relation to delays that  had arisen in completion of their Ecopark project. Surrey sought declarations to identify the contractual completion date, longstop date and a declaration that Suez had failed to meet the requirements for  an acceptance certificate. In each case to determine whether, in consequence, Surrey is entitled to terminate their agreement based on Suez’s default.

As a practitioner with a keen interest  in PFI, waste projects and pedant1, the hearing of this claim in the TCC was much anticipated, as with last year’s decision in Essex County Council v UBB Waste (Essex) Ltd (Rev 1) [2020] EWHC 1581 (TCC). However, parties and practitioners alike are unlikely to learn the outcome of the determination of the Surrey dispute following Suez’s successful application to stay court proceedings for private and often confidential arbitration.

Surrey sought to argue that the arbitration clause in its contract was inconsistent with or superseded by subsequent Deeds of Variation, such that some disputed aspects of the contract were to be determined by arbitration and other by court proceedings. Surrey’s argument was given short shrift by Alexander Nissen QC, sitting as Judge of the High Court, highlighting the commercial sense of resolving in one forum all substantive disputes about matters arising from the obligations under the one contract as obvious; clearly concluding that the parties in this case must be taken to have agreed to arbitration under the contract for reasons of neutrality, expertise, and privacy.

Internationally, arbitration remains the preferred method of resolving cross- border disputes for 90% of respondents to the London School of International Arbitration twelfth major International Arbitration Survey, published in May 2021. Domestically, as the courts have become increasingly congested with a backlog of matters delayed by Coronavirus restrictions, parties have increasingly turned to arbitration.

Arbitration can offer contracting parties’ certain benefits over court proceedings including privacy, neutrality, greater procedural autonomy, selection of a technically appropriate arbitrator and sometimes – but by no means always – cost. Privacy is a key consideration for many parties and, whilst not always the case internationally, under English law confidentiality is implied making arbitration well suited to parties who do not want their commercial arrangements to become wildly known.

At the far reaches of the privacy scale, the International Arbitration Centre now offer “a confidential VIP entrance with a private driver drop off, underground car park and private lift” to parties wishing to keep their disputes private. VIP private entrances are not the hallmarks of dispute between public sector parties and thinly capitalised private sector SPVs; however, PFI projects have been the subject of both public scrutiny and political unpopularity, warranting consideration of the potential reputational damage and precedent created by a public hearing.

The public nature of court proceedings may represent a strategic choice for litigating parties. For example, a public sector party accountable to local government and taxpayers wanting to create a precedent for future decisions may consider court proceedings a preferable forum. A prudent defendant will consider if the claimant’s choice is correct or preferable and, where appropriate challenging and denying the claimant the venue of their choice.

At the outset of a project, the dispute clause is unlikely to be as hotly negotiated as the parties’ obligations of performance and payment. The majority of PFI disputes do not reach the stage of final determination. The standard form PFI contract recognises a party’s need to consider arbitration, and both SoPC4 and PF2 state that parties “may refer the matter either to arbitration (itself a form of ADR) or to the courts for a final and binding decision”. Long term relational contracts such as PFI contracts now require the parties to deal with disputes impliedly in good faith2 nevertheless disputes often arise. Pragmatic relationship management and meaningful engagement with the cascade of dispute resolution procedures PFI contracts typically contain, facilitate the resolution of disputes before reaching final proceedings.

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  • 1. The word “Recycling” in the defendant’s name in the approved judgment is missing a “c”.
  • 2. Alan Bates & ors v Post Office Ltd [2019] EWHC 606 (QB)