Portsmouth City Council 'PCC' v Ensign Highways Ltd 'Ensign'

In a judgment that I handed down on 14 July 2015 I determined three issues that had arisen between the parties in relation to the true construction of a long term PFI contract (“the Contract”) made between the Claimant (“PCC”) and the Defendant (“Ensign”).

The claim form was issued by PCC as a Part 8 claim in which it sought a declaration that clause 24 of the Contract:

“is to be operated in accordance with the terms of Clause 24 itself, and PCC is not subject to any duty to “to deal fairly, in good faith and in mutual co-operation” with Ensign under Clause 44.4.1 or at all in awarding Service Points.”

As this proposed declaration indicated, clause 24 of the Contract was concerned with the award of service points. These were points that PCC was entitled to award against Ensign in respect of breaches of its obligations under the Contract. If the points awarded during a given period exceeded certain limits, various sanctions followed. There was an issue in relation to the amount of service points that could be awarded, which was whether the values set out in a schedule (Schedule 17) against various types of breach were fixed values or merely represented the upper limit of a range. Since the values appeared in a column headed “Maximum Event Value”, Ensign unsurprisingly submitted that the latter was the correct answer.

The issue in relation to the construction of clause 24 was, as the proposed declaration suggests, whether it was subject to an overarching obligation on PCC to deal fairly, in good faith and in mutual co-operation with Ensign in relation to the award of service points.

The claim form was issued on 9 February 2015 and the case came before me on 18 March 2015 for directions.

Following the hearing on 18 March 2015, the trial of the Part 8 claim, the issues for which were to be (and subsequently were) agreed, was set down for 19 and 20 May 2015. At the time of the hearing on 18 March 2015 the only issue raised by the claim was the declaration sought by PCC which I have set out above. It was agreed that two further issues, namely the Schedule 17 issue and the question of whether or not a term was to be implied into clause 24, would be determined at the same time.

PCC largely succeeded on the clause 24 issue, in that I held that the duty of good faith in clause 44 did not apply to clause 24. However, I held also that a term was to be implied into clause 24 to the effect that when assessing the number of service points PCC’s Representative was to act honestly and on proper grounds and not in a manner that was arbitrary, irrational or capricious.

PCC’s primary position had been that no term was to be implied into clause 24 but, if it was wrong about that, it suggested the form of a term that should be implied. Ensign, for its part, also had a reserve position and put forward a slightly different variant of a proposed implied term. In the event, I adopted neither side’s formulation and produced a third solution - one which was, if anything, slightly closer to the formulation proposed by PCC than that proposed by Ensign.

It is clear from the judgment, and probably also from the little that I have said so far, that the issue of the true construction of clause 24 issue and the issue as to whether or not of the clause should be subject to an implied term were fairly closely bound together. The Schedule 17 issue was reasonably discrete.

Ensign won unequivocally on the Schedule 17 issue. As I have said, PCC’s success on the clause 24 issue was slightly less clear-cut. I must therefore consider what proportion of the time taken at the hearing, and during the preparation for it, was attributable to the Schedule 17 issue. To judge by the relative length of the parties’ submissions and the proportion of the judgment that was devoted to the various issues, and having regard to my overall impression of the position, I consider that about 40% of the time, and therefore of the costs, was attributable to the Schedule 17 issue.

So, on the face of it, Ensign is in principle entitled to have 40% of its costs of the action incurred after 18 March 2015 paid by PCC.

In relation to the clause 24 issue, I consider that PCC’s success, although less than total, was substantial. Since that was the only issue in the case until the hearing on 18 March 2015, I consider that PCC’s success should be reflected by awarding it two thirds of its costs up to (but not including) that date. Of the costs incurred after the hearing on 18 March 2015, I have already concluded that about 60% are attributable to the clause 24 and the implied term issues. Adopting the same approach for this period, I consider that PCC is entitled to two thirds of those costs, or 40% of the whole (being two thirds of 60%). The balance of the costs, 20%, reflects the extent to which PCC did not succeed on the clause 24 issue because it was subject to the implication of a term. Equally, Ensign did not succeed on that issue either.

The result, in my judgment, is that Ensign is in principle entitled to 40% of its costs of the action after 18 March 2015 to reflect its success on the Schedule 17 issue and that PCC is entitled to 40% of its costs of the action for the same period to reflect its success on the clause 24 issue. However, to require each side to have a detailed assessment of its costs is neither proportionate nor pragmatic, and so I consider that the more appropriate order is that there should be no order for costs for the period after 18 March 2015.

This leaves the question of the costs of the hearing on 18 March 2015. The application of the order for “costs in the case” to the outcome of these Part 8 proceedings is not really possible, since the result has been, in effect, a draw. In the circumstances, it seems to me that the spirit of the order made on 18 March 2015 will be best reflected by an order that each side should pay its own costs of that hearing.

Accordingly, the only orders that I will make are that Ensign is to pay two thirds of PCC’s costs of the action up to but excluding the costs of the hearing on 18 March 2015, such costs to be the subject of detailed assessment on the standard basis if not agreed. So far as the hearing on 18 March 2015 is concerned, each party is to pay its own costs. There will be no order in relation to the costs thereafter.

The declarations that are to be included in the order are to be as set out in paragraph 2.2 of PCC’s submissions dated 13 July 2015 with the following amendments: