HT-2020-000448 - [2024] EWHC 1185 (TCC)

TCS contends that the meaning and effect of Clause 2.8.8 was to ensure a minimum Volume Based Service Charge for TCS in Service Year 5, to be calculated by multiplying the applicable transaction charge by 85% of Predicted Volumes. It contends that Clause 2.8.8 was not engaged unless actual volumes in Service Year 5 fell below 85% of Predicted Volumes (just as, TCS says, Clauses 2.8.4 and 2.8.5 were not engaged unless actual volumes in Services Years 1 to 4 fell outside the range 85% to 110% of Predicted Volumes). Thus if (as was in fact the case for Basics, Standard Disclosure and Enhanced Disclosure transactions) actual volumes exceeded 85% of Predicted Volumes, TCS was entitled to Volume Based Service Charges calculated by multiplying actual volumes by the applicable transaction charge. It is argued by TCS that:

DBS argues that in Service Year (‘SY’) 5, TCS was to be paid the applicable transaction charge (whether adjusted or not) multiplied by 85% of the Predicted Transaction Volume. It is argued by DBS that:

Clause 2.1 of Schedule 2-3 requires that ‘the Authority shall pay the Service Charges to the Contractor for all operations services in each Month from the Service Commencement Date to the end of Term’. The Term (subject to any extension) was 5 years. The Service Charges shall be made up of various Charges, include ‘Volume Based Service Charges in accordance with paragraph 2.3 below’. Clause 2.3.1 sets out the table quoted above, and as also set out above, Clause 2.3.3 then requires that the Volume Based Service Charges shall be calculated each Month. For each type of transaction, the actual volume of transactions in the Month shall be multiplied by the Transaction Charges in Table 1 (during the initial 5 year Term), subject to any variation to the Transaction Charges arising from the provisions in paragraph 2.8.

Whilst cross reference to Clause 2.8 of Schedule 2-3 is made within Clause 2.3.3 of Schedule 2-3, this cross reference is made with respect to any variation to the Transaction Charges. It does not identify that Clause 2.3.3 is more widely subject to variation as a result of Clause 2.8.

Applying Clause 2.3.3 to Year 5, it would suggest that the Volume Based Service Charges shall be calculated each Month by multiplying the actual volume of transactions by the Transaction Charges (as varied by the provisions in paragraph 2.8). This would suggest that the amount of the Volume Based Service Charges will vary with actual various in volume of transactions in Year 5, as with previous years.

Notwithstanding any broader cross-reference between Clauses 2.3.3 and 2.8.8 of Schedule 2-3, it is clear that both sides contended for constructions in fact impose a further change in the manner in which the Volume Based Service Charge is calculated.

On TCS’s case, a minimum Volume Based Service Charge is calculated (by reference to 85% of the predicted volume of transactions for Year 5 multiplied by the applicable Transaction Charge). If the actual volume falls below 85% of the predicted volume, TCS is to be paid the minimum Volume Based Service Charge rather than the actual. Clause 2.8.8 is silent as to how this mechanism works on a monthly basis, or how the adjustment process works at the end of Year 5. As DBS points out, the clause does not suggest that there is some adjustment/accounting process at the end of Year 5. This is a factor which weighs against TCS’s construction.

On DBS’s case, there is, in effect, a fixed Volume Based Service Charge (again, calculated by reference to 85% of the predicted volume of transactions for Year 5 multiplied by the applicable Transaction Charge). However, this construction suffers a similar problem in that there are no express words which explain precisely how, in practice, the mechanics of the change to the ‘vanilla’ Clause 2.3.3 process actually works. Does TCS get paid accordingly to actual volumes, in accordance with Clause 2.3.3, on a monthly basis until the minimum volume is met, at which point no further payments are due? Or are the payments made in accordance with Clause 2.3.3 with an adjustment process at the end of the year to repay any sums required to be paid by 2.3.3 but which overtop the minimum Volume Based Service Charge calculated pursuant to Clause 2.8.8?

It can be seen that the interrelationship between Clause 2.3.3 and Clause 2.8.8. is poorly drafted and neither sides’ construction properly reflects a fully described and satisfactory mechanism.

However, in my judgment giving proper meaning to the word ‘minimum’ is likely to be the key to construing the intention of the parties. On DBS’s case, it is a word which is, at best, otiose and, more problematically for DBS, positively misleading in some circumstances. In circumstances where actual volumes exceed 85% of the predicted volume, the clause does not operate to provide a ‘minimum’ Volume Based Service Charge at all: indeed, it operates as a cap. It was suggested by Mr Croall in argument that the word refers to the fact that 85% is the acceptable ‘minimum’ Actual Percentage Transaction in Clause 2.8.3, but that is not what Clause 2.8.3 either expresses or implies. 85% is the bottom of the range within which there is no adjustment of the Transaction Charge. I do not regard Clause 2.8.3 as giving the word ‘minimum’ a sensible meaning within Clause 2.8.8. TCS’s submission that if the parties had intended the clause to mean what DBS contends it means, it would have most accurately used the word ‘fixed’, or no further descriptor at all, is right. In circumstances where I consider there is, in the language used, a plain indicator that TCS’s construction is preferable – in that it imbues the word ‘minimum’ with proper meaning – the fact that DBS’ construction is ‘balanced’ and might operate in either parties’ favour is not persuasive. That the adjustment is upwards only is, in fact, precisely what one would expect the implication of use of the word ‘minimum’ to be. It does not create a commercially odd outcome, insofar as relevant. Where TCS earns more, it is because it has carried out more work (and DBS has received more income).

In the circumstances, in relation to Issue 4, TCS’s construction is preferable.