Essex County Council v UBB Waste (Essex) Ltd

[2020] EWHC 1581 (TCC)

ECC  entered into a 25-year contract with UBB for the design, construction, financing, commissioning, operation and maintenance of a mechanical biological waste treatment plant. The facility was built and on 25 November 2014 it was certified as having passed the Readiness Tests, which led to the Commissioning Period. The plant was required to pass the Acceptance Tests before 12 July 2015. It did not do so. ECC said that UBB had failed to design and construct the facility so that it was capable of passing the Acceptance Tests. One of the many issues in the case related to the existence (or not) of any implied terms as to good faith and co-operation.

Mr Justice Pepperall considered that there were a number of factors which told in favour of this contract being a relational contract. These were:

• The contract was long term and the parties plainly intended that they should have a long-term relationship.
• The long-term PFI contract required a close collaborative working relationship in which, the Parties “must have intended that their respective roles be performed with integrity and with fidelity to their bargain and their shared environmental objectives”.
• Whilst the relationship was essentially commercial, the parties intended that they should each repose trust and confidence in the other.
• The contract required a high degree of communication and co-operation.
• The contract required a significant investment by both parties.
• The contract involved exclusivity between the parties.

As a result Mr Justice Pepperall held that:

“this 25-year PFI contract is a paradigm example of a relational contract in which the law implies a duty of good faith”.

What did that mean? The Judge referred to the decision of Leggatt LJ in the case of Sheikh Al Nehayan Case v Kent [2018] EWHC 333 (Comm), where he said:

“In Paciocco v. Australia and New Zealand Banking Group Ltd [2015] FCAFC 50, at [288], in the Federal Court of Australia, Allsop CJ summarised the usual content of the obligation of good faith as an obligation to act honestly and with fidelity to the bargain; an obligation not to act dishonestly and not to act to undermine the bargain entered or the substance of the contractual benefit bargained for; and an obligation to act reasonably and with fair dealing having regard to the interests of the parties (which will, inevitably, at times conflict) and to the provisions, aims and purposes of the contract, objectively ascertained. In my view, this summary is also consistent with the English case law as it has so far developed, with the caveat that the obligation of fair dealing is not a demanding one and does no more than require a party to refrain from conduct which in the relevant context would be regarded as commercially unacceptable by reasonable and honest people…”

Accordingly,  the Judge concluded that:

• “Whether a party has not acted in good faith is an objective test.”

• “Dishonest conduct will be a breach of the duty of good faith, but dishonesty is not of itself a necessary ingredient of an allegation of breach. Rather the question is whether the conduct would be regarded as ‘commercially unacceptable’ by reasonable and honest people.”

• “What will be required in any individual case will depend upon the contractual and factual context.”

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