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

The Judge’s reasoning

The Judge explained in paragraph 243 of the Judgment that he had found the construction of proviso “a difficult exercise”, but that he was in the end satisfied as to its proper construction.

The Judge’s core reasoning can be seen in the following paragraphs of the Judgment:

As I have said, it appears that until the O’Farrell judgment FCC assumed that only gate fee income was included within TPI [i.e. Third Party Income]. It also appears from the chronology that it was not until 2018 at the earliest that [the Council] came to have a different view. However, for the purposes of interpretation I must assume that both parties are, objectively, assumed to know that the wider categories of TPI as found by O’Farrell J were included within TPI. Thus, the question arises whether, in the light of that assumed common understanding, the parties could also, objectively, have intended that all handling and processing costs, regardless of where such costs were incurred, were not allowable deductible costs. In my judgment they could not. Apart from the points already made, one must consider the impact of [the Council]’s construction if - in the context of income from TPW [i.e. Third Party Waste] - one adopts the cumulative construction of: (a) only allowing direct, as opposed to indirect, costs to be deducted; (b) only allowing costs to be deducted if they are limited to the generation of non-gate fee income; and (c) only allowing costs to be deducted if they are not already envisaged in the Base Case as being incurred at – or in transport between – the Facilities. If there was then a further limitation that any handling or processing costs incurred in generating the relevant income, regardless of where it was incurred, were also not deductible, that would appear to have the effect of disallowing virtually all costs in the event of FCC entering into one of the very contracts with local authorities which was so plainly envisaged as at least possible, if not indeed as likely, by the parties from the very outset.

In my judgment, anyone reading the definition of TPI, knowing all of this, could not possibly conclude that it was the common objective intention of the parties that this additional TPI would be brought into the equation but that the directly incurred costs of generating the very same additional TPI would not be deducted from the income. They would, therefore, be entitled to conclude that the common objective intention of the parties was that the definition of TPW in proviso (c) was the contractual definition of TPW (i.e. waste received at the Facilities), because there was no compelling basis, as O’Farrell J found there was in relation to the meaning of ‘income derived from TPW’ in the main body of the definition of TPI, for disregarding that part of the definition.

Whilst that produces an anomaly, in the sense that it may be argued that TPW has a different meaning in different parts of the same clause, it is not in my judgment such a significant anomaly as to justify the objection that the court is re-writing the contract so as to correct what now, in the light of subsequent events, appears unfair.”

The Judge had commented in paragraph 224 of the Judgment that there was “no evidence that any, or any significant, costs would be saved at the [waste transfer stations], given that they would have to be kept open for [Contract Waste], even if [Third Party Waste] was diverted elsewhere”.