Milton Keynes council had taken Viridor to court in order to factor inflation into its 15-year contract with the company.
The £150 million contract was originally awarded by the council to Community Waste Recycling in 2009, but was inherited by Viridor upon its acquisition of the company in 2011 (see letsrecycle.com story).
The arrangement sees the company sort and process mixed dry recyclables from Milton Keynes households at the 100,000 tonnes-per-year capacity materials recycling facility in Old Wolverton.
The final contract terms had included an Income Generating Payment Mechanism (IGPM) which obliges the contractor to pay £500,000 per year to Milton Keynes council which would be ‘indexed for inflation’.
The shared-risk deal between the council and Viridor includes a 70/30 split on profits made from the sale of recyclables in favour of the operator.
The profit margin is based on tonnes processed rather than a fixed sum in order to give Viridor a clear incentive to keep the MRF full.
PwC
However, after the contract was signed in August 2009, it was discovered that the council’s consultant, PwC, had issued an earlier and incomplete version of the contract to Community Waste with references to the inflation omitted.
In its defence against rectifying the contract, Viridor argued that the company had since reached an agreement with the council in respect of calculation of the profit-share in October 2010.
This calculation sees Viridor include an indexation on their £5 per tonne profit margin, which mirrors the mechanism sent with Community Waste’s final tender.
It also cited a delay between the documents being signed and the authority seeking an amendment.
Ruling
But, giving his ruling on the case, The Hon Mr Justice Coulson said that the council was entitled to the rectification of the contract on the grounds of common and unilateral mistake claims.
He added that he was confident the ruling would “not cut across” the agreement reached by Viridor and the council, which Milton Keynes council has confirmed it would uphold.
He said: “I am confident that the contract will then properly record the parties’ rights and liabilities, including the defendant’s entitlement to calculate the profit share by deducting the £5 per tonne before the 30%/70% split.”
Milton Keynes
A council spokesperson said: “Milton Keynes council is pleased that the recent judgement from the Honourable Mr Justice Coulson in the High Court of Justice acknowledges the rights of the Council under its Contract with Viridor Community Recycling Limited.
“The council looks forward to its continuing partnership with Viridor in the maintenance and operation of its successful Materials Recycling Facility.”
Viridor has been approached for comment.
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