A helpful reminder of the need to be careful when amending the dispute resolution provisions of a long-term contract (Surrey County Council v Suez Recycling and Recovery Surrey Ltd  EWHC 2015 (TCC)).
PFI contracts, given their long-term nature, are often the subject of multiple deeds of variation over the course of the project. In such a situation, it is important to carefully consider the amendments introduced by these deeds of variation - especially their effect on dispute resolution clauses and other substantive clauses - to avoid ending up in Court arguing over the application of inconsistent or contradictory provisions.
A recent case offers some useful insights.
The parties entered into a project agreement for Suez to provide waste disposal services to Surrey County Council. The original project agreement was subsequently amended by a number of deeds of variation.
The original project agreement, provided for most disputes to be resolved by arbitration (and, in some limited circumstances, for disputes to be resolved by expert determination).
Several subsequent deeds of variation added some further complexity to the dispute resolution provisions, but did not expressly vary the arbitration provisions found in the original project agreement.
Two of those deeds of variation did, however, include an exclusive jurisdiction clause, providing that all contractual and non-contractual obligations arising from or connected to that deed of variation should be dealt with by the Courts of England and Wales.
The waste management facility in question
A dispute arose regarding the construction of one of the waste management facilities (which was added to the scope of the project by these two deeds of variation). Surrey County Council argued that the proper forum to hear this dispute was the Courts of England and Wales, given the exclusive jurisdiction clauses contained in the two deeds of variation. Suez argued that this was not correct, and that the arbitration clause in the original project agreement remained applicable.
What did the Court say about this?
The Court concluded that the dispute between the parties was subject to the arbitration clause. Whilst the construction of the waste management site was to some degree a discrete project introduced by the two deeds of variation, that project still fell to be “implemented and operated within the over-arching machinery” of the original project agreement.
What can we learn from this case?
- The exact wording used in any deed of variation is, of course, crucial. In this case, the two deeds of variation expressly provided that the project agreement was to remain in full force and effect, unless expressly modified by those deeds. An express modification would, therefore, be needed to overrule a provision in the original project agreement.
- This situation is unlike a termination or settlement agreement – the original contract does not come to an end and the parties instead elected to retain and indeed, affirm, their continuing relationship. A project agreement remains the principal contractual instrument (as varied or updated by the deed of variation).
- In this case, the fact that one of the deeds of variation made some minor stylistic amendments to the arbitration clause in the original project agreement showed that the parties intended the arbitration clause to remain in force.
Giving effect to arbitration clauses
- The decision in this case underlines the fact that a Court will look to give effect to valid arbitration clauses, and to recognise the broad extent to which they are capable of dealing with parties’ disputes.
- Properly construed, the two deeds of variation permitted the parties to go to Court to deal with disputes about whether or not a particular term of those deeds was invalid, unlawful or unenforceable. However, any other disputes, including about the parties’ obligations arising under the two deeds of variation, were still subject to the arbitration clause in the original project agreement.
- In deciding that the dispute should be determined by arbitration, the Court highlighted the preference for all disputes between parties to be heard and determined in the same forum. Any other conclusion, said the Court, would be uncommercial, and even strange.
- Indeed, even Surrey County Council accepted that, once constructed, any disputes relating to the provision of services at the waste management facility would fall to be determined in accordance with the project agreement’s arbitration clause.
- In this respect, the Court concluded that:
“The dividing line which I have identified, whereby all substantive disputes about the construction and operation of the EcoPark [the waste management facility] are subject to arbitration, is far more satisfactory and in accordance with the expectation of commercial businessmen than one which divides the fora for dispute resolution between the construction of the EcoPark on the one hand and its operation on the other”.
Avoiding disputes about dispute resolution
In order to amend the dispute resolution provisions of an existing contract, it is important for the drafting of any deed of variation to clearly and expressly vary the original provisions.
In the context of long-term relationships such as PFI project agreements, the case underlines the risk that a Court is otherwise likely to conclude that the parties’ intention is to remain bound by the original dispute resolution provisions.