“the Contractor’s [i.e. FCCB’s] (including for the purposes of this definition the Operating Contractor [i.e. FCCR] and/or any Affiliates’) income from third parties (other than the Authority [i.e. the Council] under the Contract and other than Substitute Waste) associated with the Project including without limitation that derived from Third Party Waste, Electricity Output and Recyclates Output. The Contractor and/or Affiliate shall be entitled to deduct from such income the costs directly incurred in generating the income provided that the Contractor is able to demonstrate that: (a) the costs to be taken into account are specifically and solely related to the generation of Third Party Income additional to that modelled in the Base Case; and (b) such costs are incremental costs incurred over and above those costs which were either envisaged in the Base Case or have been or will be otherwise recovered through the Payment Mechanism; and (c) the costs are not the costs of handling or processing the Third Party Waste or Recyclate by the Contractor or Affiliate, and for the avoidance of doubt, reference to ‘Affiliates’ in sub-paragraph (a) shall be deemed to include FCC Environment (UK) Limited, [FCCR] or any Affiliate of FCC Environment (UK) Limited.”
“The Third Party Waste Excess TPI Share in the relevant Contract Year shall be calculated in accordance with the following formula: WTPI = TPWR x 0.75 where: TPWR = The Excess Third Party Waste Third Party Income derived from gate fee revenue over and above the Guaranteed Third Party Waste Third Party Income assumed in the Base Case for the relevant Contract Year, calculated in accordance with the following formula: TPWR = (ATPWTPI – GTPWTPI) + AB3R + (AB2R – FB2R) – ATPWSW provided that such sum shall be subject to a minimum of zero (0) where: ATPWTPI = the actual Third Party Income received by the Contractor for the treatment of Third Party Waste at the Facilities for the relevant Contract Year. … GTPWTPI = the Guaranteed Third Party Waste Third Party Income. …”
“84. The type of income within scope is ‘income from third parties … associated with the Project’. As [counsel for the Council] submits, that is a broad description. The Project comprises the provision of waste management services to the [Council], including the construction of the Facilities and satisfaction of the requirements in the Specification, but the income referred to as Third Party Income is deliberately stated to extend beyond that derived from FCCB’s performance of its contractual obligations under the Project Agreement. The natural and ordinary meaning of the words ‘associated with the Project’ indicates that the definition is concerned with income from a wide range of activities related to the availability of the Facilities. It is not confined to income payable only from the activities of waste treatment or disposal after waste arrives at the Facilities; no doubt such income is included; but it is capable of extending to income from ancillary activities of collecting waste at a site remote from the Facilities and transporting it to the Facilities for the purpose of treatment and disposal. 85. The definition of Third Party Income expressly includes income ‘derived from Third Party Waste…’ Third Party Waste is defined as: ‘all waste received at the Facility(ies) other than Contract Waste and Substitute Waste’. The definition could have stated that it was limited to income generated from the time at which waste arrived at the Facilities, or income generated directly by the treatment and disposal processes at the Facilities provided by FCCB to the [Council]; it does not do so. The natural and ordinary meaning of income ‘derived from Third Party Waste’ is that it extends to all income arising from waste that is ultimately received at the Facilities, regardless of the point in time at which the sums from which the income is derived become payable. The Waste that is the subject of the [Hertfordshire] CC and London Waste contracts falls within the definition of Third Party Waste if it is received at the Facilities. 86. It follows that the income received by FCC Waste Services from [Hertfordshire] CC and London Waste, in respect of waste that is delivered to the Facilities for treatment and disposal, falls within the definition of Third Party Income.”
“Income received by [FCCB], or by any Affiliate (including [FCCWS]), in respect of: a) the treatment of waste from third parties at [Greatmoor]; b) the movement of such waste to the Facilities for that purpose (and/or any other handling of waste for that purpose); c) metals or any other residue or by-product of the process at [Greatmoor]; is (i) income ‘associated with the Project’ and (ii) ‘Third Party Income’ as defined in the Project Agreement.”
“there is an important and obvious difference between direct and indirect costs. The former are costs incurred directly in order to generate the income in question, whereas the latter are costs incurred by the business as a whole and are, by definition, incurred whether or not any particular or specific income is generated. Thus, the extent to which FCC would suffer a true loss in such circumstances, as opposed to the loss of an opportunity to make a contribution to indirect costs, would depend on a number of factors which might vary considerably at any particular time. Also, unless FCC had actually scaled up its costs of operating a particular facility or service in order to deal with the [Third Party Waste] in question, it would not have incurred any actual excess expenditure on these fixed costs. If it was unable to recover a proportion of these fixed costs from [the Council] then it would, of course, have to recover them from existing income. However, that is not the same as saying that it would make a loss. In a case such as the present, that would also depend on whether, and if so to what extent, FCC had already recovered some or all of its fixed costs through the guaranteed income.”
“The question of the burden of proof arises in relation to this overall requirement [viz. that costs must be ‘directly incurred’] as well as to the three provisos. In my judgment this is a sterile argument. At the most basic level it is trite law that [the Council] as claimant bears the burden of proving that it is entitled to the monetary and other relief which it seeks. Under the terms of the [Project Agreement], it is apparent that as between [the Council] and FCCB it is the latter which has sole knowledge as to: (i) what [Third Party Income] has been generated; (ii) what costs have been incurred; (c) whether those costs have been directly incurred and fall within each of the three provisos. It would be a rare outcome, after a trial where the parties have been able to adduce documentary evidence, call and cross-examine witnesses and make full submissions, to make a decision on the basis of a failure by one party to satisfy a burden of proof. That does not arise in this case. It is only necessary to say that it is obvious from the clear wording that the burden is on FCCB to demonstrate (prove) that each of the three provisos is met in relation to any individual cost item.”
“Any income sharing proposals should recognise the Council’s risk position, and have regard to state aid implications. Note that it is recognised that whilst the Council would expect to benefit from income generated by the facility on a basis consistent with the risks borne by the Council as funder, clearly the operator also needs to be incentivised and reap the benefits of its efforts.”
“In my view, the phrase ‘modelled in the Base Case’ does not compel the conclusion that the only place in which the parties can look to see what is modelled in the Base Case is the Base Case itself. As long as it is clear from the [Project Agreement] as a whole that the [Third Party Income] modelled in the Base Case relates to a specific source, then that would be sufficient in my view.”
“The learned judge … erred in his construction of proviso (c), and in particular in determining that proviso (c) related only to handling Third Party Waste at the Facilities (and therefore did not apply to the cost of hauling Third Party Waste to the Main Facility from other waste transfer stations, performing the same function, involving the same costs and situated a similar distance from the Main Facility).”
“the costs are not the costs of handling or processing the Third Party Waste or Recyclate by the Contractor or Affiliate”
“239. 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. 240. 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. 241. 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 definition [of ‘Third Party Income’] could have stated that it was limited to income generated from the time at which waste arrived at the Facilities, or income generated directly by the treatment and disposal processes at the Facilities provided by FCCB to the [Council]; it does not do so. The natural and ordinary meaning of income ‘derived from Third Party Waste’ is that it extends to all income arising from waste that is ultimately received at the Facilities, regardless of the point in time at which the sums from which the income is derived become payable.”