Sometime in 2014 Birmingham City Council (BCC) noticed that certain parts of their road network had not been maintained. In certain cases, lengths of roads had been maintained up to a certain line, and then neglected beyond it.

Back in 2010, Birmingham City Council engaged Amey Birmingham Highways Limited (Amey) under a PFI Contract to rehabilitate, maintain, manage and operate BCC’s road network for a 25 year period.

When asked why it had not maintained certain parts of BCC’s road network, Amey replied that the PFI Contract only required it to carry out its services in respect of roads that had appeared on a database that BCC had supplied to it. Unfortunately, that database was incomplete, because it relied on ‘default’ information. Amey argued that it only had an obligation to update this database when BCC informed it that new roads were to be added, or old roads to be removed. In other words, Amey did not have to update the database of its own accord.

Read literally, the PFI Contract, and in particular clause 19.2.1, appeared to support Amey’s argument. The problem was that this interpretation would leave gaping holes (literally) in BCC’s road network, costing BCC huge amounts of money and saving Amey equally substantial amounts.

Not surprisingly, the case was litigated, first through adjudication, then at the High Court, and then at the Court of Appeal[1].

Generally, the Courts will not save a party from a bad bargain, however bad it might be. Amey was particularly encouraged by a 2015 Supreme Court decision[2]., where the Supreme Court upheld service charge provisions within leases of holiday homes, even though they would eventually reach preposterous levels, out of all proportion to the value of the homes themselves.  In doing, it seemed to be confirming the “literal approach” to interpreting contracts, i.e. that contracts should be interpreted strictly in accordance with the words used, even if they produced results that made no commercial sense.

Luckily for BCC, however, the Court of Appeal did not take such a strict approach, deciding that Amey did have an obligation to update the database, and that its services extended to the whole road network. Crucial in its decision was the fact that other provisions within the contract assumed that Amey would keep the inventory of roads updated, as well as the condition of the roads within the inventory. For example, another clause (clause 6.1.1) required Amey to make available to BCC accurate inventory data about the highways rather than just the ‘default’ data.

Conclusion

Following the Supreme Court decision in Arnold v Britton, many thought that the Courts would pursue a far more strict approach to the interpretation of contracts, at the expense of commercial common sense. Whilst this decision seems to restore the equilibrium towards commercial common sense, it is important to remember that the Court only came to its decision because other clauses in the PFI Contract supported the interpretation. In the absence of those other provisions, it probably would not have done. So it is as important as ever to ensure that your contracts do what you want them to do, and not rely on the Courts to fill in any ‘pot-holes’.

This blog post was written by Senior Associate William Cursham

[1] Amey Birmingham Highways Limited v Birmingham City Council.

[2] Arnold v Britton [2015] UKSC 36


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.