[2024] EWHC 1435 (TCC)

Analysis

The Agreement is not a model of clarity. The parties, understandably, focussed on those clauses which supported the constructions for which they contended. As is apparent from the summary of the parties’ submissions there is clearly tension between different provisions in the Agreement, some of which tend to suggest recovery of retrospective cost whilst othersappear more relevant to addressing matters in the future,

Adopting the iterative process described by Lord Mance JSC in Sigma Finance Corporation set out above in the extract from Wood v. Capita Insurance Services I have attempted to ascertain the objective of the Agreement.

In the course of argument, I highlighted the provisions of paragraph 1.1.2 to Schedule 4. As recited above, these set out the principal objectives to achieve the Agency’s aim which is to develop a sustainable policy for the management of the Pevensey Bay Sea Defences that is economically justified and environmentally appropriate and which takes due regard of the natural processes within the sediment sub-cell and the effects of and to adjacent coastal defences as set out above.

Mr Nissen observed that these provisions simply reflected the objectives of the Agency. Ms Hannaford did not place particular reliance on the same. I agree that the provisions do not provide an answer to the question of construction before me: however they do illustrate the Agency’s recognition that the situation may change over a 25 year period and that provision needs to be made to address that change. I do not understand either party to contend otherwise. What divides them is whether, in addressing this dynamic situation, recovery can also be made on what PCDL describe as a retrospective basis.

Central to the difference between the parties is the definition of Relevant Cost. As set out above, in the context of paragraphs 4.2 and 4.3 to Schedule 12, Mr Nissen submits that Relevant Cost can be claimed for costs already incurred (the retrospective basis to which PCDL’s formulation of the issue refers). Ms Hannaford submits that the Change Procedures in Schedule 12, to which any claim for a Change in Circumstances under paragraph 1.2(g) is subject, are not appropriate to such retrospective claims and that the Agreement cannot properly be construed to permit such retrospective claims. As I have noted, examples are given by the parties which are said to support each construction.

The definition of Relevant Cost refers to cost suffered or incurred but makes clear this can be at the relevant time or in the future. The context to Relevant Cost is that it must be suffered or incurred as a result of a Proposal. This suggests, as a matter of chronology, that the Proposal precedes the Relevant Cost because the Agreement views the Proposal as causative of the Relevant Cost. This is difficult to reconcile with a definition which also appears to embrace costs being suffered or incurred at a time other than in the future. The reconciliation is to be found by reading the Proposal as a document in which it is contended there has been a circumstance within the meaning of paragraph 1.2 of Schedule 12 and also contains further information as to how matters may be addressed in the future. Paragraph 1.5(b) of Schedule 12 illustrates there is a distinction between Notice and Proposal, however the reference to costs incurred as a result of the Proposal makes more sense than costs incurred as a result of the Notice. Further, reference to the Proposal also supports a view that the costs under consideration can be those in the future if the matters in the Proposal are accepted.

There was some argument before me as to the natural meaning of proposal. Mr Nissen drew my attention to the definition in the Shorter Oxford English Dictionary “the action or an act of stating or propounding something”. I was not greatly assisted by this. It is clear that a proposal can relate to costs already incurred: “I propose to pay your costs”, just as much as to costs still to be incurred.

Looking at paragraph 1.5(a) to Schedule 12, it is clear that the Notice is required promptly. It must be given as soon as reasonably practicable and in any event within 7 days of the occurrence of the event which is sought to be treated as a circumstance. This is consistent with the ability to manage future expenditure as a central element of the Agreement.

As Mr Nissen readily accepts, the construction contended for by PCDL requires a number of provisions in Schedule 12 to be of no effect, in particular many of those mandatory provisions setting out the Procedure at paragraph 1.5 to Schedule 12. These are mandatory provisions agreed by the parties to apply to a Proposal, the Proposal in turn being defined as the cause of the cost being sought to be claimed.

Similarly and as Ms Hannaford submits, the parties addressed their mind to the applicability or otherwise of provisions of the Procedure. There are specific exceptions carved out, such as at paragraph 1.5(b)(iii) where the requirement to provide an assessment is stated not to apply to events under paragraphs 1.2(n) to (s), with paragraph 1.4 limiting relief to time not money. Having noted that some mandatory provisions would not apply to certain circumstances and addressed this, it is noteworthy that the parties have not said that the provisions of 1.5(b)(i), 1.5(b)(iii), 1.5(b)(iv), all of which I consider are forward looking, do not apply to paragraph 1.2(g). Likewise, it must be recognised that the option to accept or reject the implementation of the Proposal(paragraphs 1.6(a) and (e) refer) is difficult to reconcile with a contended entitlement to costs already incurred or to reduce the Service Levels if it would obviate the necessity for the Proposal (paragraph 1.6(f)).

I can also see no clear commercial justification in allowing retrospective costs to be claimed for the first 20 years in which the Agreement is operative but not for the final 5 years. As I observed in argument, the last five years being most distant from the Effective Date will therefore be the least predictable. As such it is noteworthy that no provision was made for similar recovery under paragraph 1.1(g) for that period. Of course, it may be said that the amount of investigation required and in particular the 10-year period for assessment was significant and, as a matter of chronology, could not be undertaken given the last period was only 5 years. However, I have heard no evidence on this or whether it would have been possible to divide the 25-year period up into, perhaps two 8-year periods and one 9-year period. In argument I asked the parties whether there was any admissible factual matrix as to how the initial Service Requirements were ascertained.

I understand there is no relevant factual matrix and that the Agreement does not assist on this. I therefore leave such considerations out of account save to note that if PCDL’s submission is correct, the parties must be taken to have agreed to provide compensation for the circumstance in paragraph 1.1(g) but to have limited that compensation to only part of the period covered by the Agreement and did not, despite the dynamic situation to which I have referred, provide recovery for last 5 years.

Having noted the absence of clear commercial justification, I recognise that is not the purpose of interpretation to remake what may be seen as a bad bargain and I also recognise that a provision may be a negotiated compromise or that negotiations were not able to agree more precise terms. In relation to the failure to exclude provisions that might not apply to the circumstances in paragraph 1.2(g), there is a saving that this is limited to reasonable details. As Mr Nissen observed, it would not be reasonable to provide details which are not applicable because they do not arise. Whilst that is a strained interpretation, if the proper construction of the Agreement is that it permits recovery of retrospective costs then it follows that certain of provisions must be taken to be inapplicable to the circumstances in paragraph 1.2(g).

It is accepted that elements of PCDL’s claim on its construction of paragraph 1.2(g) are recoverable under separate parts of the Agreement. By its email of 12^th September 2022 PCDL in making a proposed settlement offer in respect of its claim for increased frequency of Storm Events and increased shingle losses set out a calculation of which the following is an extract: