A High Court judge recently ruled that Essex County Council was entitled in 2019 to terminate a 25-year contract for the processing of household waste. Stephen Tromans QC explains why.
It is quite rare for a judge in the Technology and Construction Court to grapple with environmental and planning law, so the recent decision of Pepperall J in Essex County Council v UBB Waste (Essex) Ltd (No. 2)  EWHC 1581 (TCC) is of interest. This was a contract dispute between Essex County Council and its contractor, UBB over a 25 year contract for the design, construction, financing, commissioning, operation and maintenance of a mechanical biological waste treatment (“MBT”) plant in Basildon to process the county’s household waste. After commissioning, the facility had failed to pass the readiness tests required by the contract. The council argued that UBB failed to design and construct the facility so that it was capable of passing the tests and that UBB’s failure either to pass the tests or to attempt to do so was an event of contractor default and sought, among other relief, damages and a declaration that it was entitled to terminate the contract. UBB contended, inter alia, that the performance of the facility was critically dependent on the composition of the waste and would have passed the acceptance tests but for the council’s failures: first, to provide waste with the assumed composition provided to UBB when bidding for the contract; secondly, to approve the use of modifications made to the plant referred to by the parties as the Quick SRF or (“QSRF”) Line; and thirdly, to engage properly with UBB in the contractual options review process to deal with the waste composition issues by agreeing necessary modifications to the acceptance tests. The council won the case resoundingly and was awarded declaratory relief and damages of about £9,000,000 to the end of February 2019 and continuing losses thereafter at around £99,000 per month.
Most of the lengthy judgment relates to commercial and contractual issues, though there are passages of significant interest where the judge criticises UBB’s expert witness on the basis of conflict of interest and lack of impartiality. His evidence was not excluded but was treated with great caution, and indeed the judge had serious concerns that he had “failed properly to distinguish between advocacy for a client and the rigour required when acting as an independent expert”.
The waste hierarchy under articles 1 and 4 of the Waste Directive 2008/98/EC came into play because of arguments by UBB that it was unlawful for the council to require the facility to be tested in “Bio-Stabilisation Mode”, which involved using bio-stabilisation treatment processes, producing a residue which was sent to landfill. UBB said this should not have been required, as it was lower down the hierarchy than UBB’s favoured method of testing, “SRF mode” which resulted in a material (“SOM”) sent for energy recovery. The hierarchy was implemented domestically by regulation 12 of The Waste (England & Wales) Regulations 2011. Reg. 12(1) incorporates the waste hierarchy into domestic law and requires that waste disposal authorities “must, on the transfer of waste, take all such measures available to it as are reasonable in the circumstances to apply the ... waste hierarchy as a priority order...”. However, this duty is subject to regulations 12(2) and (3), which provide that an establishment or undertaking may depart from the priority order so as to achieve the best overall environmental outcome where this is justified by life-cycle thinking on the overall impacts of the generation and management of the waste.
Pepperall J accepted that, since recovery of energy through incinerating SRF is higher up the waste hierarchy than disposal of SOM to landfill, that the council was therefore required to prioritise such recovery over disposal. Accordingly, the council should favour SRF Mode, which allows energy recovery, over Bio-Stabilisation Mode, which involves disposal to landfill. The obligation under reg. 12 was not, however, absolute: first, as reg. 12(1) makes plain, the obligation is only to take “all such measures available to it as are reasonable in the circumstances” and secondly, reg. 12(2) allows the for departure from the waste hierarchy in order to achieve “the best overall environmental outcome where this is justified by life-cycle thinking on the overall impacts of the generation and management of waste.” The judge considered and approved the discussion of the hierarchy by Sir Wyn Williams in R (Protreat Ltd) v The Environment Agency  EWHC 1983 (Admin),  P.T.S.R. 2090 where it was said that the terms of the Directive contained a clear recognition that a strict application of the hierarchy in all circumstances is not always justified. He also noted Skrytek v Secretary of State for Communities and Local Government  EWCA Civ 231,  Env. L.R. 15, where Beatson LJ observed, at , that: “The Directive [and] the 2011 Regulations ... make it clear that the hierarchy does not have to be followed slavishly.”
Accordingly, in Pepperall J’s judgment, reg. 12 did not require him to construe the contract such that it was not necessary for UBB to be able to pass the acceptance tests in Bio-Stabilisation Mode, and it is not unlawful for the council to require UBB to test the facility in both modes. First, it was a central requirement of the contract that UBB would design, construct, commission and operate a facility capable of operating in both modes. Secondly the facility was not required merely to produce SRF for incineration but also to be capable of operating in Bio-Stabilisation Mode when required and, operating in such mode, to achieve exacting standards for mass recovery and BMW reduction. Thirdly, while energy recovery through the incineration of SRF was plainly to be prioritised over sending waste to landfill, over the 25-year life of this contract there might well be times when the outputs fail to meet the SRF specification and have to be disposed of to landfill; or where it was not possible to find a reprocessor able to take the waste as SRF. Equally, the regulatory and political climate might change over a quarter of a century. Further, it was not actually necessary to breach the waste hierarchy in order to test the facility in Bio-Stabilisation Mode. Since it was to be tested simultaneously in both modes and UBB was required to design, construct and operate the facility so as to demonstrate that it can produce SOM that also meets the SRF Specification, it would be open to the parties to run the acceptance tests without diverting any waste to landfill. Further, regardless of that conclusion, the waste hierarchy did not have to be followed so slavishly that the parties cannot even test whether this facility met the acceptance tests and the performances guarantees that lay at the heart of the contract. The parties would be entitled to depart from the priority order in the waste hierarchy by operating the facility in both the Bio-Stabilisation and SRF Modes for the duration of the acceptance tests. Such derogation would be justified pursuant to reg. 12(2), so as to achieve the best overall environmental outcome by testing whether the facility met the high environmental standards required by the acceptance tests and can therefore enter service; and by considering the overall impacts upon the management of waste in Essex over the 25-year cycle of this contract.
A large part of the county council’s case turned on it being a key feature of the original design that all waste, save the recyclates recovered within the pre-processing plant, was to be stabilised in the biohalls before being refined to extract aggregates and then disposed of as either SOM or SRF the outputs. However, after the facility had been constructed and was operational, it was found that UBB had made a serious error regarding assumed waste density, resulting in the biohalls being too small to deal with the council’s waste inputs: the biohalls had only about half the required capacity. To try and work around this fundamental problem, UBB instituted a system for “Quick SRF” (QSRF) whereby a significant part of the waste stream was diverted away from the biohalls, by simply being shredded and passed through an electromagnet to extract ferrous metals and then into 40-yard containers. It was not further processed in order to remove other recyclates or aggregates. Nor was any biodegradable waste in this stream stabilised through the bio-halls. QSRF was not, therefore, a stabilised output.
Among a series of issues on this point was whether this amounted to a breach of planning permission which would in turn be a breach of contract. It was a matter of agreement that the introduction of the QSRF line was not operational development and Pepperall J accepted UBB’s case that it was not a material change of use either. The facility remained a facility for the mechanical and biological Treatment of residual municipal solid waste and commercial and industrial waste, as permitted. The council’s principal argument was that the installation of the QSRF Line was a breach of condition 2 of the planning permission, which provided that the development should be carried out in accordance with the details of the application and, among other documents, the Planning Statement and the Environmental Statement. Pepperall J reviewed the authorities on construction of planning permission, including Trump International Golf Club Scotland Ltd v Scottish Ministers  UKSC 74,  1 W.L.R. 85 and Lambeth London Borough Council v Secretary of State for Housing, Communities & Local Government  UKSC 33;  1 W.L.R. 4317. Condition 2 of the planning permission has already been the subject of judicial review proceedings heard by Lieven J in July 2019: UBB Waste (Essex) Ltd v Essex County Council  EWHC 1924 (Admin).  Lieven J held that in construing condition 2, the terms of the Planning and Environmental Statements, among other documents, fell to be considered. This was in Pepperall J’s view plainly right since these statements were expressly incorporated by reference. The judge agreed with Lieven J’s observation that in cases where substantial documents are incorporated, it is necessary to take an overview of the documents. It was plain from these statements in the judge’s view that the waste would be processed and, after the extraction of recyclates, composted in the bio-stabilisation halls before passing through the refining unit. Therefore, the judge held that operating the facility such that a very substantial quantity of waste is diverted away from the biohalls altogether was not in accordance with condition 2. Further, the mass diversion of waste was plainly not de minimis. Therefore Pepperall J held that the introduction of the QSRF Line was in breach of planning condition. Under the contract the planning risk was plainly allocated to UBB. Accordingly UBB was not entitled to divert waste away from the biohalls without first obtaining revised planning permission for the facility. Further, UBB cannot avoid this conclusion by resorting to implied terms of good faith, since the contract expressly places the planning risk upon the contractor.
Stephen Tromans QC is a barrister at 39 Essex Chambers. He advised Essex County Council on environmental and planning matters, instructed by Slaughter and May. Celina Colquhoun of 39 Essex Chambers acted for UBB on this case and in UBB Waste (Essex) Ltd v Essex County Council  EWHC 1924 (Admin) led by James Strachan QC.
 The case before Lieven J had involved UBB’s challenge to the grant of a certificate of lawfulness pursuant to s.192 of the 1990 Act by which Essex, as the Waste Planning Authority, on an application by the Waste Disposal Authority certified that the introduction to the facility of 30,000 tonnes per annum of source-segregated green garden waste was lawful. Construing the Planning and Environmental Statements among other documents incorporated into the permission, the judge concluded that the permission was for the processing of residual waste and that accordingly the permission did not allow the introduction of source-segregated waste.