Case Nos: CA-2024-002136 - [2025] EWCA Civ 921

Lord Justice Newey:

These appeals are from a judgment given by His Honour Judge Stephen Davies (“the Judge”), sitting as a Judge of the High Court, on 21 June 2024 ([2024] EWHC 1552 (TCC)) (“the Judgment”). The appeals concern a waste management project agreement (“the Project Agreement”) which the parties entered into on 17 April 2013.

The claimant, Buckinghamshire Council (“the Council”), is a waste disposal authority for the purposes of section 30 of the Environmental Protection Act 1990 and, as such, has responsibility for the disposal of household waste from Buckinghamshire. The defendant, FCC Buckinghamshire Limited (“FCCB”), is part of the FCC group of companies, which undertakes waste disposal and whose ultimate parent company is Fomento de Construcciones y Contratos, SA, a Spanish company. FCCB is a special purpose vehicle established for the purposes of the project to which the Project Agreement relates (“the Project”).

In its original form, the Project Agreement provided for the construction and operation by FCCB of an energy from waste plant at Lower Greatmoor Farm, Buckinghamshire (“Greatmoor”) and two satellite waste transfer stations elsewhere in Buckinghamshire, at High Heavens and Amersham (respectively, “High Heavens WTS” and “Amersham WTS”), as delivery points for waste. FCCB undertook in the Project Agreement to receive and process waste for which the Council was responsible (termed “Contract Waste”). While, however, Greatmoor was to have the capacity to process some 300,000 tonnes of waste each year, it was expected that “Contract Waste” would amount to only about 100,000 tonnes a year. The Project Agreement allowed FCCB to use Greatmoor and the waste transfer stations to handle waste from other sources (“Third Party Waste”).

High Heavens WTS and Greatmoor (“the Facilities”) were both constructed, and Greatmoor became operational in June 2016. The parties agreed, however, that Amersham WTS was not needed. The Project Agreement was amended to take account of this by a deed of variation dated 7 August 2017.

The waste received at Greatmoor comprises Contract Waste, Third Party Waste and “Substitute Waste”, which is waste sourced by FCCB in substitution for Contract Waste where that falls below a certain minimum tonnage. The waste is burned, generating hot gas which is used to produce steam and, when passed through a turbine generator, electricity. The electricity is either used on-site or exported to the National Grid.

The process leaves bottom ash residue. This contains metals which, after processing, can be extracted and sold. The balance of the ash goes to landfill as quarry backfill.

The Council paid 85% of the costs of constructing the Facilities. The FCC group provided the remaining 15%, but the cost of its doing so was factored into the calculation of the “Unitary Charge” which the Council has to pay FCCB. Schedule 15 to the Project Agreement, which deals with payment, provides for a “Monthly Unitary Charge” based in large part on multiplying amounts of Contract Waste by prices per tonne. It also makes provision, in paragraph 11, for adjustments to be made for “Third Party Income Share”. In broad terms, paragraph 11 provides for certain income derived from Third Party Waste, “Recyclates Output” (i.e. products of the treatment process at Greatmoor which are sent for reprocessing into new products), “Electricity Output” (i.e. electricity generated at Greatmoor which is delivered to the National Grid) and other sources to be shared between the Council and FCCB on a 3:1 basis (so that the Council is to be credited with 75% of the relevant income). However, these arrangements are to apply to income from Third Party Waste only if and in so far as it exceeds the “Guaranteed Third Party Waste Third Party Income” assumed in a “Base Case” which detailed anticipated costs of operating the Facilities and revenue to be derived from doing so. “Guaranteed Third Party Waste Third Party Income” is defined in the Project Agreement to refer to “the nominal Third Party Income in relation to gate fee revenue in respect of Third Party Waste, as set out [in] row 41 of the ‘Financials’ sheet in the Base Case in the relevant Contract Year”. The row in question gives monthly figures for the life of the Project Agreement which total £609,525,000.

The Unitary Charge was calculated by reference to the modelling in the Base Case. As the Judge noted in paragraph 88 of the Judgment, Mr Gregory Dickson, who formerly worked for the FCC group and was involved in creating the Base Case, explained that the Unitary Charge was designed to enable FCCB to cover its costs and achieve an internal rate of return of 10.62% after taking into account both costs and guaranteed income from third parties. If, however, FCCB managed to achieve the “Guaranteed Third Party Waste Third Party Income” more cheaply than was projected in the Base Case, it was under no obligation to share the saving with the Council.

As the parties had envisaged, companies in the FCC group entered into further contracts between themselves. FCCB itself entered into three sub-contracts: one for the construction of the Facilities, another to operate and maintain the Facilities and a third to source Third Party Waste. The last of these was concluded between FCCB and FCC Recycling (UK) Limited (“FCCR”) on 17 April 2013. By it, it was agreed that FCCR would supply Third Party Waste to FCCB and pay it the “Guaranteed Third Party Waste Income” (i.e. the “nominal Third Party Income in relation to gate fee revenue in respect of Third Party Waste, as set out in the Base Case in the relevant Contract Year”) and FCCB’s “share of Third Party Income as provided under the Project Agreement of any Third Party Income in excess of the Guaranteed Third Party Waste Income”.

The Project Agreement was the product of a lengthy public procurement exercise for which the Council used the competitive dialogue procedure for which regulation 18 of the Public Contracts Regulations 2006 provided. The Project Agreement is a long term contract, expected to run until 2046.