Amey Birmingham Highways Ltd v Birmingham City Council

This judgment is in eight parts, namely:

This is an appeal by Birmingham City Council against a decision concerning the correct interpretation of a PFI contract. The principal issues are: (1) whether the PFI service provider was required to update inventory details on a database provided at the outset and (2) whether four completion certificates can be set aside for “manifest error”.

The present disputes have been the subject of both adjudication and litigation. Birmingham City Council were the referring party in the adjudication. They are defendant in the litigation and appellant in this court. I shall refer to them as “BCC”.

Amey Birmingham Highways Limited were respondent in the adjudication. They are claimant in the litigation and respondent in this court. I shall refer to them as “ABHL”.

Scott Wilson are a firm of consultants based in Nottingham. Scott Wilson were engaged by ABHL to run a software system known as the Pavement Management Model (“PMM”).

In this judgment I shall use the abbreviation “PFI” for Private Finance Initiative. I shall use the abbreviation “TCC” for Technology and Construction Court.

The PFI contract in this case legislates for a 25 year period. It is around 5,190 pages long, excluding discs, plans and documents incorporated by reference. The parties have provided to the court only those parts which are relevant to the present appeal.

Before tackling the issues in this appeal, I must first set out some of the more important terms of the contract.

By a contract dated 6 May 2010, entitled “Project Agreement”, BCC engaged ABHL pursuant to the Government’s PFI policy to undertake the rehabilitation, maintenance, management and operation of the road network in Birmingham for a 25 year period.

The contract is a formidable document. The definitions alone span over 200 pages. In that contract BCC is referred to as “the Authority”. ABHL is referred to as “the Service Provider”.

The main body of the contract includes the following provision:

“1.

DEFINITIONS, INTERPRETATION AND CONSTRUCTION

1.1

This Contract comprises:

1.1.1

the Main Body;

1.1.2

the schedules; and

1.1.3

the annexures;

together, the “Contract”.

1.2

Priority

This Contract shall be construed and interpreted as a whole provided that in the event of any conflict or inconsistency between the provisions of the Main Body, the schedules and annexures, or between any of the schedules, or between any of the annexures, then, save as expressly provided for by clause 1.3, the conflict or inconsistency shall be resolved according to the following descending order of priority:

1.2.1

the Main Body and schedule 1 (Definitions, Interpretation and Construction);

1.2.2

schedule 2 (Output Specification);

1.2.3

schedule 4 (Payment Mechanism); and

1.2.4

all other schedules and annexures.

…

4.

APPOINTMENT OF AN INDEPENDENT CERTIFIER

On or prior to the date of this Contract the Authority and the Service Provider shall appoint jointly the Independent Certifier using the Independent Certifier’s Appointment. The Independent Certifier’s

Appointment shall set out the duties owed by the Independent Certifier to the Authority and to the Service Provider.

…

5.

CONDITION OF THE PROJECT NETWORK

5.1

The Service Provider confirms that, subject to clause 5.2, it has satisfied itself as to:

5.1.1

the condition and extent of the Project Network at the PreCommencement Survey Date (including the volume and type of Apparatus and Highway Trees); and

5.1.2

the work that it needs to carry out on the Project Network in order to comply with the requirements of schedule 2 (Output Specification).

…

6.

SURVEYS AND INSPECTIONS

6.1

General

6.1.1

The Service Provider shall undertake all inspections, surveys, tests and assessments and provide strategy documents and reports in accordance with this clause 6.1 (General) and (subject to the provisions of this clause 6 (Surveys and Inspections)), and clause 41.6 (Change in highways standards) the Highways Maintenance Code, the Highway Structures Code and the Highways Lighting Code so that all the unprocessed data provided as a result of undertaking the inspections, surveys, tests and assessments is available to:

6.1.1.1 the Authority to enable it to support a defence under section 58 of the [Highways Act 1980] and any other Legislation that requires the Authority to know or reasonably be expected to know whether or not the condition of the Project Network (or part thereof) was likely to cause danger to users of the Project Network;

6.1.1.2 the Authority to monitor that the Services are being provided in accordance with the requirements of schedule 2 (Output Specification);

…

6.1.1.4 the Service Provider to run the NCI Calculation Methodology, the FWCI Calculation Methodology, the VGCI Calculation Methodology, the KBCI Calculation Methodology, and the CTCI Calculation

MILESTONES

SERVICE PROVIDER PROGRAMMES and SERVICE PROVIDER REPORTS

Following notification pursuant to clause 13.2.1 above, the

MANAGEMENT INFORMATION SYSTEM AND PROJECT NETWORK MODEL

OBLIGATION TO PROVIDE THE SERVICES AND PERFORMANCE STANDARDS

INDEMNITY

HANDBACK PROCEDURE

DISPUTE RESOLUTION

The Appendix to this judgment is a glossary extracted from Schedule 1 to the contract. It sets out those definitions which are relevant to the present appeal.

Schedule 2 to the contract is the “Output Specification”. Part 1 of the Output Specification provides:

“1.

REQUIRED OUTCOMES

1.1

The Service Provider shall comply with the provisions of this Performance Standard 1 and ensure that at the end of the Core

Investment Period and thereafter until the expiry of the Contract Term in relation to the Project Network:

1.1.1

no Road Section Lengths in each of PFI Districts 1 to 12

(inclusive) are Failed;

1.1.2

no Road Section Lengths on each of the Network Route Hierarchies except the Local Access Route Network in each of PFI Districts 1 to 12 (inclusive) have an SRI of less than 1.2;

1.1.3

no Footway Section Lengths, Verge Section Lengths, Kerb Section Lengths or Cycling Track Section Lengths are Poor or below;

…”

Part 1A of the Output Specification (“PS1A”) sets out what work must be done in order to achieve each of the ten milestones in the core investment period. Part 1B of the Output Specification (“PS1B”) sets out the condition in which ABHL must maintain the roads, footways, verges, cycle tracks and kerbs during the subsequent 20 years of the contract.

Part 8 of the Output Specification (“PS8”) sets out what ABHL must achieve. Paragraph 2.2.2.1 of PS8 requires ABHL to maintain and update a project network inventory. PS8 includes the following provision:

“2.3

Project Network Model

2.3.1

Where the Authority notifies the Service Provider of a change to the

Project Network in accordance with this Contract, the Service

Provider shall ensure that all information provided to the Service

Provider by the Authority relating to such change is input into the Project Network Model within five (5) Business Days of the date of such notification unless otherwise agreed between the parties.

2.3.2

On each occasion where the Project Network Model is updated in accordance with paragraph 2.3.1 the Service Provider shall provide the Authority with an electronic copy of the updated Project Network Model within one (1) Business Day of the date on which the Project

Part 11 of the Output Specification sets out how the network condition indices are to be calculated. Paragraph 1.1.1 of Part 11 states:

“1.1.1

NCImain in respect of a Road Section Length (“RSL”) on the Strategic Route and Main Distributor Network is calculated in accordance with the following formula:

NCImain = PCImain + SRImain + SRImain

where:

PCI_main is calculated in accordance with paragraph 3;

SRI_main is calculated in accordance with paragraph 4; and

SCImain is calculated in accordance with paragraph 5”

In relation to the pavement condition index, Section 3 of Part 11 provides:

“3.2.4

Where the survey undertaken in accordance with paragraph 3.1.1 reveals that the length of the relevant RSL is more than 5%, but less than 10% over or under the length for that RSL recorded in the Project Network Model, then, provided that the Service Provider can demonstrate the accuracy of its measurement to the satisfaction of the Authority then the Service Provider shall amend the Project Network Model accordingly and the existing survey data shall be used in the PCI calculation.

3.2.5

Where the survey undertaken in accordance with paragraph 4.1.1 reveals that the length of the relevant RSL is 10% or more over or under the length for that RSL recorded in the Project Network Model, then the RSL shall be resurveyed. Where the Service Provider can demonstrate the accuracy of its original RSL length measurement via the re-survey to the satisfaction of the Authority then the Service Provider shall amend the Project Network Model and align any associated condition data accordingly and the data from the resurvey shall be used in the PCI calculation.”

There are similar provisions in respect of skid resistance index and surface condition index. These are at paragraphs 4.2.4 to 4.2.5 and 5.2.4 to 5.2.5.

Schedule 3 to the contract contains method statements. I shall not weary the reader with lengthy quotations from these formidable documents, but will refer to them insofar as necessary when dealing with the issues in dispute.

Schedule 4 to the contract sets out the payment mechanism. Paragraph 2.1 of Schedule 4 sets out a formula for calculating the monthly payment due from BCC to ABHL. One element of that formula is:

“PS8T = the sum of any Adjustments due in relation to Performance Standard 8 calculated in accordance with paragraph 3.10 of this Part 1 of schedule 4

(Payment Mechanism) in respect of the month that is three (3) months prior to the Month to which the MUC relates.”

Schedule 11 to the contract deals with monitoring. It includes the following provisions:

“1.

The Service Provider shall carry out those inspections, surveys, tests and assessments that it is required to carry out during the Contract Term, pursuant to clause 6 (Surveys and Inspections) of this Contract and in accordance with Method Statement 13 (Inspections, Assessments and Monitoring).

2.

This schedule 11 sets out the specific Monitoring Methods required to monitor performance of the Services described in schedule 2 (Output Specification). In respect of each Monitoring Method set out within this schedule 11, the Service Provider shall carry out monitoring against the Performance Targets as set out in schedule 2 (Output Specification). In addition, in respect of certain Performance Targets as set out below, the Service Provider shall carry out monitoring as specifically described in this schedule 11.

3.

Monitoring Method A

The Service Provider shall carry out those inspections, surveys, tests and assessments to enable the Service Provider and the Authority to run the NCI Calculation Methodology, the FWCI Calculation Methodology, the KBCI

Calculation Methodology, the VGCI Calculation Methodology and the CTCI

Schedule 15 to the contract sets out the milestone completion criteria. The test procedure for NCI set out in column 4 of the table in Schedule 15 includes the following passages:

“The data entered into the approved Pavement Management Model is delivered from two streams and may consist of:

•

updated PCI, SCI and SRI survey data and/or

•

re-setting of PCI, SCI and SRI following completion of interventions to individual RSLs.

For updated survey data the Independent Certifier shall validate through a 5% sample check of data that any updated survey results were obtained as follows:

...

•

SCI – DVI data collected in accordance with the latest version of the UKPMS Survey Manual using accredited DVI Inspectors

…

•

The Independent Certifier shall run a report from the PMM to confirm that the most up to date data has been input to the PMM.”

Annexure 3 to the contract sets out the form of the independent certifier’s appointment. Paragraph 2.1.2 of Appendix 1 to Annexure 3 provides:

“2.1.2

The Independent Certifier shall carry out the Initial Services set out in paragraph 2.2 (Certification of Milestones) in accordance with schedule 15 (Milestone Completion Criteria) of the Project Agreement, and in particular in respect of each criteria (as listed in column 1 of the table in schedule 15

(Milestone Completion Criteria) of the Project Agreement), the Independent Certifier shall carry out the relevant test (as detailed in column 3 of the table in schedule 15 (Milestone Completion Criteria) of the Project Agreement) in accordance with the relevant test procedure set out in column 4 of the table in schedule 15 (Milestone Completion Criteria) of the Project Agreement in connection with the certification of Milestones pursuant to clause 13.2

(Certification of Milestones) of the Project Agreement.”

Annexure 14 to the contract is the Sole Remedy List. This is the document referred to in clause 95.1(b) of the contract.

Having set out some of the contractual provisions, I must now turn to the history of events.

On 22 October 2008 BCC supplied to ABHL a database document known as

“DRD0626”, detailing the Birmingham road network. DRD0626 contained six tables of data. These were:

Both parties intended that DRD0626 should be the initial version of the Project Network Model (“PNM”). Some of the details in DRD0626 accurately recorded the assets which then existed. Approximately 60% of the inventory details, however, were based upon national averages rather than detailed observation and measurement. Both parties were well aware of this fact.

On 6 May 2010 the parties entered into the project agreement, as noted in Part 2 above. On 7 June 2010 ABHL started to perform their services under the contract. The core investment period therefore commenced on that date and was intended to run for five years.

All went well for the first three and a half years. The independent certifier duly issued milestone certificates 1, 2, 3, 4 and 5. No one makes any complaint about those certificates. The independent certifier under the contract was Atkin Limited. In practice it was employees of Atkin who carried out the independent certification, one of whom was Mr William Moss.

In February 2014 Mr Clive Betts, BCC’s PFI Contract and Performance Manager, noticed a most remarkable thing. Some parts of the roads and footpaths were being left unrepaired. ABHL were deliberately leaving the defects in selected areas untreated. Mr Betts has produced photographs showing areas of defective paving and roads. One particularly striking photograph shows a cul-de-sac road, which has been resurfaced up to a line and the old surface, for no apparent reason, lies beyond that line.

As from the beginning of 2014 ABHL took the view that their contractual obligations in PS1 extended only to those roads, footways, kerbs, verges and cycle tracks which were detailed in MSEC and MINV. They were under no duty under PS1 (absent a change notice from BCC) to repair and maintain any sections of roads, footways, kerbs, verges and cycle tracks which were not detailed in MINV or MSEC. Since a large part of DRD0626 was based on default data (as explained above) there were many areas which fell into this category.

Mr Betts asked ABHL what was the reason for their changed approach. ABHL’s response in summary was this. As was always intended, they were using DRD0626 as the PNM. They were regularly updating four of the tables in that database as they gained new information about the road network. Those four tables were MSURV, MECSURV, MCON and MSCRIM. ABHL were not, however, updating MSEC and MINV. Those two tables contained inventory data.

ABHL continued to work on that basis from 2014 onwards. BCC maintained that this was a clear breach of contract: ABHL were under a duty to rehabilitate and maintain the road network which actually existed, not a hypothetical road network which both parties knew to be based upon default data. BCC maintained that ABHL were obliged to

The parties remained in dispute about whether ABHL were complying with the contract. Accordingly BCC referred the dispute to adjudication pursuant to clause 70.1.3 of the contract. Mr Andrew Goddard QC was appointed adjudicator. The three issues referred to the adjudicator were: (1) what was the scope of ABHL’s obligation in relation to the core investment works; (2) whether ABHL were under an obligation to keep the PNM updated; and (3) whether milestone certificates 6 to 9 could be and should be set aside.

In essence the adjudicator found in favour of BCC on all issues. He made the following declarations:

“(i)

That ABHL’s obligations to perform the Core Investment Works and meet the requirements of Performance Standard 1 extend to the Project Network as a whole and are not limited to the RSLs as recorded in the Project Network Model contained in DRD0626.

(ii)

That ABHL must update the Project Network Model and maintain a Project Network Inventory which accurately reflects the actual extent of the Project Network and the Project Road.

(iii)

That the Certificates of Completion for Milestones 6 to 9 inclusive be set aside, alternatively opened up, reviewed and revised and the relevant calculations performed again by reference to the actual Project Network Inventory.”

ABHL were aggrieved by the adjudicator’s decision. Accordingly they referred the dispute to the TCC pursuant to clause 70.3.1.5 of the contract.

ABHL commenced proceedings in the TCC on 18 August 2015. The action came on for trial before HH Judge Mark Raeside QC, sitting as a Deputy High Court judge, on 23 to 25 February 2016. The judge received written evidence, but he did not hear any oral evidence. That was a sensible approach. The issues before both the judge and the adjudicator principally concerned the correct construction of the contract.

The judge handed down his reserved judgment on 31 August 2016. He came to the opposite conclusion from the adjudicator on issues 1 and 2. Accordingly, he did not need to decide issue 3. He issued a declaration that the adjudicator’s decision was wrong.

As the battle has raged between BCC and ABHL, at different times both the adjudicator and the judge have come in for some trenchant criticisms. I do not accept those criticisms. Both the adjudicator and the judge were wrestling with a massive and convoluted contract, containing many oddities and infelicities, in addition to some fairly muddled evidence about the relevant computer programmes. It is perhaps unsurprising that the adjudicator and the judge came to opposite conclusions.

BCC were aggrieved by the judge’s decision. Accordingly they appealed to the Court of Appeal.

By an Appellant’s Notice filed on 31 October 2016 BCC appealed against the judge’s decision. In effect, BCC are seeking to reinstate the decision of the adjudicator. The parties are therefore asking this court to decide the same three issues which were originally before the adjudicator.

In April 2017 this case was referred to me for consideration on the papers. I took the view that the appeal had a real prospect of success. I therefore granted permission to appeal.

The appeal came on for hearing on Tuesday, 30 January 2018 and continued for two and a half days. Ms Anneliese Day QC and Mr George McDonald appeared for BCC, as they had done below. Mr Christopher Lewis QC and Mr Peter Land appeared for ABHL, as they had done below. I am grateful to all counsel for their assistance.

In my view the critical issue in this case is issue (2). That raises the question whether ABHL were under a duty to update the MSEC and MINV tables in the PNM. I shall therefore address that question first.

Two computer models play a vital role in the operation of this contract. They are the PNM and the PMM. The PNM holds information about the various roads, footways, verges, kerbs and cycle tracks. MINV and MSEC hold details of where the assets are and their precise sizes. MCON is a data table which records the condition of each asset. For example, MCON might say that a footway detailed in MINV is in a poor condition.

ABHL had been carrying out surveys and regularly updating the MCON table in the PNM. The PMM is a piece of software which uses the information in MCON in order to generate condition indices and inform the service provider programmes. In order to do this effectively, the PMM needs to receive accurate inventory information about the dimensions and locations of all roads, footways, verges, kerbs and cycle tracks. During 2010, 2011, 2012 and 2013 the works carried out by ABHL appeared to be consistent with the use of accurate inventory information in conjunction with the PMM. Since the beginning of 2014, however, ABHL have been carrying out works based on inaccurate inventory information in the PMM (by acting upon the condition indices which the PMM generated and which informed the service provider programmes). That inaccurate information was the data in MINV and MSEC without any updating.

At first sight that seems to me a most bizarre approach. But, says Mr Lewis, that is what the contract mandates. He points out, quite correctly, that it is not the function of the court to rescue parties from bad or even disastrous bargains which they make. In advancing that submission, Mr Lewis gained support from the judgment of the Supreme Court in Arnold v Britton [2015] UKSC 36; [2015] AC 1619. See, in particular, the judgment of Lord Neuberger at [19] to [20].

Let me now turn to the provisions of the contact and see whether they really do mandate such a bizarre state of affairs.

The crucial provision for this purpose is clause 19.2.1 of the contract. Ms Day submits that this is a complete answer to ABHL’s case. It requires ABHL to keep all six tables in the PNM updated, not just four of those tables.

Mr Lewis has advanced some formidable arguments to the opposite effect. He relies upon the same arguments as he adopted at trial. Both counsel have referred to these as “the eleven arguments” and I will follow suit. The judge has helpfully summarised the eleven arguments at paragraph 244 of his judgment. Both counsel were content to work from the judge’s summary. It reads as follows:

“i)

That if the Adjudicator’s argument was correct then the first part of the clause was entirely otiose;

ii)

If there was a freestanding obligation to update the PNM then it would not be added to the end of the clause;

iii)

The Project Agreement was highly regimented and therefore it is possible to track the obligation to update into Schedule 2, PS8, paragraph 2.3.1 and 2.3.2 but not so for those additional words.

iv)

It was not in accordance with the thrust of the clause or indeed PS8.

v)

The need to update the MIS, was carefully prescribed in PS8 but the same was not true for the PNM.

vi)

No remedial consequences are provided for breach of clause 19.2.1 which is in the sole remedies list in Annexure 14 to the Project Agreement.

vii)

Reference can be made to clause 43.1.1.2 which requires ABHL to maintain and update the MIS. No similar provision is made in respect of the PNM.

viii)

As a basic inconsistency between the first part of those and those latter words.

ix)

Such a clause would also be inconsistent with Schedule 2, Part 11, which refers to the need to amend the PNM in certain limited circumstances.

x)

Those words at the end of the clause are not otiose and, thus, the meaning to be given to those additional words is read correctly to indicate that the obligation is to ensure the information is correct.

xi)

The obligation at the end of the Contract Term to return the PNM is referable to Schedule 8 and not clause 19.”

In relation to the eleven arguments, I have carefully considered both the current skeleton arguments and also counsel’s oral submissions during the appeal. Mr Lewis’ oral submissions are to be found on pages 49 to 63 of the transcript of day 2 of the appeal. Ms Day’s response is to be found in the transcript of day 3 at pages 39 to 44. I see some force in argument 11. I see much less force in arguments 1 to 10. Let me deal with the eleven arguments individually.

As to argument 1, the first part of clause 19.2.1 is not otiose. It is a helpful crossreference to PS8. Paragraph 2.3 of PS8 requires ABHL to update the PNM if BCC makes a change to the road network, for example by adding or removing a road. That is a substantial change which will affect the amount of the monthly payments. The last 16 words of clause 19.2.1 then add a general obligation upon ABHL to keep all the information in the PNM updated. In other words ABHL must replace the default inventory data with actual inventory data when available.

As to argument 2, I see nothing odd about placing the general obligation at the end of clause 19.2.1. As Ms Day points out, this clause does not stand on its own. It links in with clauses 6, 20 and 55. I will discuss the other linking provisions later.

As to argument 3, Mr Lewis is correct to say that the first part of clause 19.2.1 links into a regimented procedure, namely paragraph 2.3 of PS8. That is to be expected when new roads are being added to the network or when existing roads are being removed. But the updating of default inventory data in the PNM with actual inventory data derived from surveys is a more modest and routine operation. Indeed ABHL accepts that it has updated databases with actual inventory data without any fuss between 2010 and 2013. That operation does not require any regimented procedure.

Argument 4 seems to be another way of expressing the previous arguments. It adds nothing to ABHL’s case.

As to argument 5, clause 19.1 deals with the Management Information System (“MIS”). Mr Lewis submits that PS8 contains detailed provisions about updating the MIS, but no similarly detailed provisions about updating the PNM. That is correct. On the other hand, the MIS contains a number of elements, each of which require separate consideration. They are the Project Network Inventory, the Powered Apparatus Inventory, the Underground Apparatus Inventory, the Routine Maintenance

On the other hand, the updating of the PNM as new survey information came in, was not a task which required elaborate guidance or prescription. It is common ground that ABHL have been updating the MCON table in the PNM quite satisfactorily. Indeed up until December 2013 ABHL were using updated inventory data for effecting repairs without difficulty.

I turn now to argument 6. Clause 19.2 is one of the provisions listed in the Sole Remedy List at Annexure 14 to the contract. The effect of clause 95.1 of the contract is that

If a road is added to or subtracted from the network, but ABHL fail to update the PNM in that regard, then they are in breach of paragraph 2.3 of PS8. That leads to a deduction from BCC’s monthly payments to ABHL. Mr Lewis has taken the court through the sequence of contractual provisions which lead to that result.

It is also correct, as Mr Lewis states, that if ABHL fail to update the PNM in any other respect that does not lead to any deduction from the monthly payments. But in my view that is not problematical. As Ms Day says, if ABHL fail to update the inventory data, they will not achieve the milestone certificates. There is, therefore, no need to write into the contract any provision for financial deductions in respect of failure to update the

Argument 7 is correct so far as it goes. Clause 43.1.1.2 requires ABHL to maintain and update the MIS. There is no similar provision in respect of the PNM, other than clause 19.2.1. I do not see that this argument leads anywhere. In fairness, Mr Lewis only touched upon argument 7 briefly.

Argument 8 is no longer live. Mr Lewis states that he does not pursue it.

Argument 9 takes us into new terrain, namely Part 11 of the Output Specification. As noted earlier in this judgment, six provisions of Part 11 expressly require amendment of the PNM in specified circumstances. Those six provisions are paragraphs 3.2.4, 3.2.5, 4.2.4, 4.2.5, 5.2.4. and 5.2.5. Mr Lewis submits that the very fact that those clauses are there militates against there being any broader duty on ABHL to update the PNM.

Argument 9 has given rise to a lively exchange of notes. This continued for some 30 hours after the hearing, before the gunfire died down.

I have carefully studied these notes. Without going into the detail, my overall conclusion is this. Paragraphs 3.2.4, 3.2.5, 4.2.4, 4.2.5, 5.2.4 and 5.2.5 are dealing with special situations for which it was sensible to make specific provision. I do not think that those clauses are inconsistent with there being any general duty to keep the PNM updated.

Argument 10 is that the last 16 words of clause 19.2.1 simply require that the updating of the PNM in accordance with PS8 be done accurately. I do not accept this argument. The word “it” which appears in the last 16 words refers to the PNM as a whole.

I come finally to argument 11. Aficionados of this litigation sometimes call argument 11 the “book end” argument. Mr Lewis submits that clause 68 of the contract combined with the definition of “Expiry Condition C requirements” in Schedule 1 requires ABHL to hand over at the end of the 25 year period the PNM in a state of compliance with PS8. There is no requirement at the end of the project for the PNM to be updated in all respects.

Ms Day draws attention to the other provisions of clause 68 and to Expiry conditions A requirements. These require survey data to be taken into account. They also require all roads, footpaths, verges, kerbs and cycle tracks to be compliant with PS1A. I do not think that any of Ms Day’s submissions are an effective answer to argument 11. If ABHL are under a duty to update the PNM generally, it seems strange that at the end of the project, Expiry conditions C only require the PNM to be compliant with PS8.

Let me now summarise the position. I do not see force in arguments 1 to 10. I do see some force in argument 11.

On the other hand, there are seven strong indications in the contract that ABHL were required to update the whole of the PNM, not just MSURV, MECSURV, MCON and MSCRIM. These are as follows:

There are a number of references in the method statements to ABHL’s obligations to update both the PNM and the PMM. But I do not find it necessary to embark upon an odyssey through the tortuous byways of the method statements. Those documents come at the bottom of the contractual hierarchy. Furthermore, as Mr Lewis observed, they are not free from inconsistencies.

It is clear from the main body of the contract and the other provisions to which I have referred that ABHL were under a duty to keep the PNM updated.

There is a further matter which supports the above conclusion. ABHL accept that they were under an obligation to update four of the six database tables in the PNM, namely MSURV, MECSURV, MCON and MSCRIM. None of the contractual provisions on which Mr Lewis relies provides any justification for treating MSEC and MINV differently from the other four database tables. Either ABHL are under a duty to update the PNM or they are not. It is clear from ABHL’s conduct that they accept an obligation to keep most of the PNM updated.

Let me now draw the threads together. Mr Lewis put his submissions most skilfully and attractively. I acknowledge that his “book end” argument has some force. But reading the contract as a whole, as clause 1.2 requires, I am quite satisfied that the answer to the question posed in this part of the judgment is ‘Yes’.

The appellant therefore succeeds on issue (2). I must now turn to issue (1), which concerns the extent of ABHL’s obligations.

ABHL contend that their obligations to rehabilitate and maintain Birmingham’s road network only applied to the assets originally defined in DRD0626. Those obligations do not extend to the actual road network as it exists on the ground.

DRD0626 was the PNM in its initial form. Mr Lewis contends that the parties chose this document to act as a reference base for calculating the condition indices. Mr Lewis took us through Schedule 2, the Output Specification, in some detail in order to demonstrate how this was done. He submits that the PNM is used definitionally to identify what are the section lengths of roads, footways, verges, kerbs and cycle tracks for which ABHL are responsible.

Ms Day does not dispute anything which Mr Lewis says about the role of the PNM in the output specification or the calculation of the condition indices. But, says Ms Day, the PNM is not a static document. The contract requires that the PNM be regularly updated, so as to record the actual road network not a hypothetical network based on default data.

I have held in Part 5 above that the PNM is not a static document, but requires regular updating, in order to replace the default inventory data with actual inventory data. In the light of that finding, Mr Lewis’ careful submissions on issue (1) fall to the ground.

Having determined issues (1) and (2) in the same way as the adjudicator, I must now consider whether milestone certificates 6 to 9 should be set aside.

There appears to be a tension between clause 70.2.6 of the contract and clause 13.5.1. Ms Day suggested that this tension could be resolved by reference to the words “as between the parties” in clause 13.5.1. In other words, she submitted that if an adjudicator or arbitrator or court come onto the scene, the restrictions imposed by clause 13.5.1 fall away.

I do not accept that submission. In my view the dispute resolution procedures in clause 70 of the contract are subject to the restrictions imposed by clause 13.5.1. In other words, neither the adjudicator nor the court could set aside milestone certificates 6 to 9 unless there has been fraud or manifest error.

No one suggests that there has been any fraud. So that drops out of the picture.

Is this a case of manifest error? There are two helpful recent authorities on this issue, namely IIG Capital LLC v Van Der Merwe [2008] EWCA Civ 542; [2008] 2 All ER (Comm) 1173 and North Shore Ventures Ltd v Anstead Holdings Inc [2011] EWCA Civ 230; [2012] Ch 31.

IIG was a claim for payment against guarantors. The defendants had bound themselves to pay on demand, absent manifest error. Lewison J, the trial judge, rejected the suggestion that there was manifest error. He said that a manifest error was “one that is obvious or easily demonstrable without extensive investigation”. The Court of Appeal approved the judge’s approach to that issue and upheld his decision: see the judgment of Waller LJ at [33] to [35]. Lawrence Collins and Rimer LJJ agreed.

North Shore was an action by a lender against the two guarantors of the loan. Clause 3.4 of the guarantee stated that a certificate signed by the claimant for the amount of the indebtedness was conclusive evidence against the guarantors, unless manifestly incorrect. The Court of Appeal approved the test for manifest error formulated by Lewison J in IIG. The court held that the certificate was invalidated by manifest error, because it did not take into account an agreed variation in the rate of interest.

At [61] Smith LJ said:

“On reflection I have come to the conclusion that for a party to rely on a manifest error in a certificate does not depend upon his ability to demonstrate the error immediately and conclusively. In the present case, the guarantors were able to recognise immediately that the certificate was based upon the interest rates as set out in the original loan agreement and not as varied in November 2004. They could see that it was manifestly incorrect. They could not immediately demonstrate that conclusively; they could not do so until the court had determined the issue of variation. But they were right, as this court has now held. I would hold that the certificate was manifestly incorrect and was of no effect.”

Finally, in relation to the law, I should refer to IG Index v Colley [2013] EWHC 748 (QB). In a very thorough judgment Stadlen J reviewed the authorities on manifest error. At [813] to [814] he held that the court could have regard to extrinsic evidence.

Let me now return to the facts of the present case. Schedule 15 to the contract sets out the test procedure which the independent certifier was to follow. I have set out the relevant passages in Part 2 above. Mr Moss has given unchallenged evidence as to the agreed procedure which he followed for issuing each milestone certificate. He visited the offices of Scott Wilson in Nottingham in order to review the data.

During 2014 and 2015 everyone involved in the certification process was aware of the contractual dispute between the parties. On 1 December 2014 Mr Moss circulated the following draft of a note which he proposed to add to milestone certificate 9:

“Note: the actual indices achieved shown in Table 1.9b are calculated using the original Pavement Management Model. The Independent Certifier recognises that the Authority and the Service Provider are in dispute regarding the validity of the Project Network Model and Project Network Inventory and any change to the

Project Network Model or Project Network Inventory could change the numbers in Table 1.9b.”

In the event Mr Moss did not attach any such note to the certificate. This was because both BCC and ABHL were hoping to resolve their dispute without any need for adjudication or litigation.

The position therefore is this. On the dates when the independent certifier issued milestone certificates 6, 7, 8 and 9 everyone knew those certificates would be based upon erroneous calculations, if BCC’s case on the interpretation of the contract prevailed. In the event BCC’s interpretation of the contract has prevailed. The present case is similar to North Shore. Smith LJ’s dictum at [61] is directly in point. In my view milestone certificates 6, 7, 8 and 9 should be set aside for manifest error.

The contract before the court is a PFI contract intended to run for 25 years. It may therefore be classified as a relational contract. In recent years there has been much academic literature on relational contracts and on the question whether they are subject to special rules. See, for example, Professor Hugh Collins’ paper “Is a relational contract a legal concept?” in Contracts in Commercial Law (Degeling and others, Thomson Reuters 2016). For good reason, none of that literature has been cited to us and I do not venture into those contentious issues.

I do, however, make this comment. Any relational contract of this character is likely to be of massive length, containing many infelicities and oddities. Both parties should adopt a reasonable approach in accordance with what is obviously the long-term purpose of the contract. They should not be latching onto the infelicities and oddities, in order to disrupt the project and maximise their own gain.

In the present case the PFI contract worked perfectly satisfactorily for the first three and a half years. 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 if BCC issued change notices.

For the reasons set out in Parts 5 and 6 above, I would reject ABHL’s ingenious new interpretation of the contract. For the reasons set out in Part 7 above I would set aside milestone certificates 6, 7, 8 and 9.

If my Lords agree, BCC’s appeal will be allowed. This court will make declarations to the same effect as the declarations made by the adjudicator. I request counsel to agree the precise wording.

I agree.

I also agree.