Case No: HQ04X00714

Neutral Citation Number: [2006] EWHC 2459 (Comm) IN THE HIGH COURT OF JUSTICE QUEEN'S BENCH DIVISION COMMERCIAL COURT

Royal Courts of Justice Strand, London, WC2A 2LL

Monday 09th October 2006

Before :

MR JUSTICE DAVID STEEL

- - - - - - - - - - - - - - - - - - - - - Between :

SOUTH OXFORDSHIRE DISTRICT COUNCIL Claimant - and - SITA UK LIMITED Defendant

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Mr J Randall QC and Mr A Charman (instructed by Wragge & Co) for the Claimant Mr J Marks QC, Mr M Hutchings and Mr J Purchas (instructed by Seymours) for the

Defendant

- - - - - - - - - - - - - - - - - - - - - Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

.............................

MR JUSTICE DAVID STEEL

Mr Justice David Steel :

Introduction

1. In this action South Oxfordshire District Council (“SODC”) seek damages from their former waste management contractors, SITA UK Limited (“SITA”). The claim arises out of a waste management contract dated 1 October 1999 (“the Contract”) under which SITA undertook to provide waste management and collection services for SODC for a period of 6 years from 3 October 1999 to 2 October 2005. SODC claim that they were entitled to terminate the Contract because SITA were in repudiatory breach, which repudiation SODC say they accepted by letter dated 22 October 2001. They claim damages in respect of the extra cost to SODC of employing another contractor, S Grundon (Services) Limited (“Grundon”) for the balance of the contract term.

2. SITA deny liability principally on the basis that they contend they were not in repudiatory breach of the Contract. SITA also have a counter claim, based on its counter-allegation that SODC were in repudiatory breach in dismissing SITA, firstly for a sum which is now agreed in respect of unpaid invoices and secondly for sums that, it is contended, were wrongly deducted from SITA’s invoices, purportedly under a liquidated damages clause.

3. There is no dispute that the parties parted company in November 2001 and that thereafter Grundon took over the running of the waste and re-cycling services for SODC’s residents under a new contract. It is common ground that this date had been mutually agreed, as early as February 2001, as the date when the parties would seek to part company by means of a “managed disengagement” subject to agreement on the terms.

Background in brief

4. Before 1998 waste services had been supplied to SODC by BFI Ltd. SITA took over the earlier waste contract when it merged with BFI Ltd on 1 April 1998. The earlier contract was a 5 year contract, expiring in 1999. SITA’s tender of May 1999 for a new 6 year contract was successful.

5. On 1 October 1999 the Contract was signed and it commenced on 3 October 1999. It made provision for a weekly refuse and recycling collection service to the residents of South Oxfordshire. This involved approximately [106,000] domestic refuse and recycling collections per week. In addition there were obligations to make assisted property collections (approximately 770 per week) to houses where for one reason or another the residents concerned were unable to place their rubbish out on the curb, clinical waste collections (approximately 400 per week), garden refuse and bulky items collections where residents booked a special collection of waste items too large for normal collections. SITA were also to provide and service recycling bring banks and to empty rural litter bins.

6. The conditions of the Contract included a provision for the parties to hold regular meetings (referred to by the parties as “Contract Monitoring Meetings”). These were generally held on a monthly basis throughout the course of the contract and were minuted by representatives of SODC.

7. The Contract also included detailed provisions for the remedy of householders’ complaints. These set out procedures for the issue by SODC to SITA of Default Notices, Recurring Complaint Notices and Inspection Notices and for the making of deductions in respect of these notices from SITA’s monthly contract payments. There was also a provision for contractual termination in the case of persistent default.

8. In addition, there were provisions relating to the age of the vehicles to be used on the Contract, the delivery of a performance bond by SITA at the commencement of the Contract and the provision by SITA of a representative to provide continual supervision of the performance of the Contract.

9. At a relatively early stage, it became clear that the Contract was a loss making one from SITA’s perspective. This was explained to SODC at a meeting seeking an increase in the payments due under the Contract. The primary reason was that the strong economic climate meant that recruitment of directly employed labour had been difficult in the local area and SITA had been obliged to rely on more expensive agency labour instead.

10. As a result the parties began to discuss the terms of a “managed disengagement”, shorthand for a termination on mutually agreed terms. These negotiations were hopefully to be concluded by November to allow for an orderly handover to the new contractor (which might in the event be SITA who were expected to re-tender). These negotiations were never successfully concluded. In the meantime, while other potential contractors were contacted to offer terms, SITA remained contractually obliged to furnish the service in accordance with the terms of the Contract.

11. The sticking point in their negotiations was the amount that SITA would pay to be released from their obligations. In the result SODC purported to terminate the Contract for a repudiatory breach in October but as from a date in November. This was on the basis that SITA were either in repudiatory breach by reason of their performance or, in the alternative, by reason of SITA’s evinced intention not to be bound by the Contract after the November deadline.

The Contract

12. The Contract was executed on 1 October 1999. The basic form of agreement was supplemented by a number of other documents which were by virtue of Clause 2 to be “deemed to form and be read and construed as part of this Agreement”. These documents were as follows: -

a) The Tender

b) The Conditions

c) The General Specification

d) The Specification of Services

e) The Bill of Quantities

f) The Schedule of Daywork Rates

g) The Analysis of Resources

h) The Organisation

i) The Methods of Working

j) The Collusive Tendering Certificate

k) The Appendices

13. The only other clause of any note in the basic form of agreement was by way of definition of the term “manager” for the purposes of the Contract. Such was Mrs G.P. Coupar, then Manager of SODC’s Public Amenities Team. She was one of the oral witnesses called by SODC in this action.

Conditions of Contract

14. The Conditions of Contract contain the following relevant provisions: -

“3. Variations of Contract

(1) Without prejudice to any other of the Conditions hereof no omission from, addition to or variation of the Contract shall be valid or of any effect unless it is agreed in writing and signed by the Manager (Council) and by a duly authorised representative of the Contractor.

(2) Save for an omission, addition or variation agreed pursuant to Condition 3 (a) any provision inconsistent with the Conditions contained in any other document or in any oral agreement is agreed to be void and of no effect.

7. Performance of Service

(5) Both parties shall act in good faith towards each other in relation to all matters arising under this Contract and in particular: -

a) The Contractor will inform the Manager fully and as soon as possible of any circumstances which might prejudice the Contractor’s ability to provide the Services whether temporarily or permanently;

b) Each party shall inform the other fully and as soon as possible of any circumstances which might lead to any substantial change in the nature, composition or amount of the Waste or any other circumstance which might alter the burden of the obligations of each party under the Contract;

c) The Manager shall be given all relevant information and other facilities he may require to ensure that the Contractor is fulfilling its obligations under the Contract;

d) Representatives of the parties shall hold regular meetings at no less frequent intervals than monthly in order to:

i) review the working of the Contract,

ii) identify any way in which either party might be, or become, in breach of its obligations,

iii) take any necessary remedial actions, and

iv) resolve informally any problem arising as perceived by either party or its Representative.

8. Review of Performance

(1) The performance of the Contractor in providing the Services shall be reviewed for each twelve month period from the Commencement Date as follows:

a) such review shall commence not more than thirty working days before the end of that twelve month period;

b) such review shall include, without limitation, consideration of the quality of the Services and Service Levels provided by the Contractor…..

(3) Without prejudice to the Council’s other rights if the performance review reveals that the quality or quantity (or both) of the Services provided by the Contractor to the Council is materially or substantially less than what might be reasonably required by the Council, the Council shall be entitled subject to a remedy period of thirty days from the date of the notice to terminate the Contract by six month’s notice in writing to the Contractor with effect from the end of the twelve month period to which the review refers, or such later date as the Council may specify in such notice.

12. Contract Performance Bond

The Contractor shall at its own expense provide a Bond from a Bank or Insurance Company approved by the Council for a sum of equal to 10% of the Annual Sum defined in the standard Conditions of Contract for the first year of the Contract to guarantee the due performance of his obligations under the Contract and for the payment by the Contractor to the Council of all sums due hereunder. The Contractor shall ensure that such Bond remains in force throughout the Contract Period.

18. Contractor’s Manager

The Contractor’s Manager or representative shall be approved in writing by the Manager and shall be continually available at a local office and give his whole time to the supervision of the Services. The Manager reserves the right to withdraw his approval of the Contractor’s Manager or representative at any time.

29. Vehicles, Plant and Machinery

(12) Except with the specific approval in each case of the Manager no vehicle used by the Contractor in the execution of this Contract shall be more than 6 years old and shall not be used on any work except that specified in this Contract.

(14) Vehicles used on the Contract shall comply with the relevant Construction and Use Regulations and be of a design which is entirely suitable for the performance of the Contract. The Contractor shall ensure that it has an adequate level of reserve vehicles available to it at all times. A lack of suitable vehicles will not be considered as a reason for non-performance of the requirements of the Contract.

32. Monthly Statement

The Contractor shall submit to the Manager or his Representative after the end of each calendar month a statement showing:

(a) the valuation of the work undertaken in respect of each aspect of the Contract up to the end of that month;

(b) The amounts to which the Contractor considers itself entitled in connection with any variations or instructions for additional services duly authorised by the Manager or his Representative.

37. Default in Performance

At any time after eight weeks from the Commencement Date:

(1) The Manager may investigate each case where the Contractor has allegedly failed to perform the Services completely in accordance with the Conditions of the Contract.

(2) Where the Manager is reasonably satisfied in any particular case that the Contractor has failed to perform the Services completely in accordance with the Contract he shall be entitled to instruct the Contractor to remedy the failure in order to comply fully within such reasonable period as the Manager may determine, but no later than the following day.

(3) If the Contractor fails to comply with an instruction of the Manager issued under Condition (2) above the Manager may record in writing a Notice of Default which shall be sent to the Contractor. Notwithstanding the above the Contractor shall give a detailed report to the Manager of the reasons why the Service/s was not performed.

(4) If the Contractor repeatedly fails to provide Services to the same address then the Manager may issue a Notice of Recurring Complaint and deductions may be made in accordance with the provisions in Condition (7) below.

(5) If any complaint necessitates investigation by the Council’s Representative then an Inspection Notice may be issued and deductions made in accordance with the provisions of Condition (7) below.

(6) If there were in the opinion of the Manager extenuating circumstances beyond the control of the Contractor the Notice or Recurring Complaints Notice or Inspection Notice may at the discretion of the Manager be withdrawn.

(7) A deduction shall be made by way of Liquidated Damages by the Manager from any payment due to the Contractor, in respect of Default Notices, Recurring Complaint Notices and Inspection Notices as follows:

(a) £7.50 in respect of each Default Notice being the estimated administrative cost of issuing such notice.

(b) (i) £7.50 in respect of each Recurring Complaint Notice for each 1st recurring complaint from the same address in any 12 months.

(ii) £12.50 in respect of each Recurring Complaint Notice for each 2nd recurring complaint from the same address in any 12 months.

(iii) £38.00 in respect of each Recurring Complaint Notice issued thereafter for complaints from the same address in any 12 months.

(8) Any deductions made under this Condition 37 will in no way relieve the Contractor from its obligation to perform the Services in respect of which the deductions were made. If the Contractor shall fail to perform any Services which were subject to a Default Notice, Recurring Complaint Notice or Inspection Notice within 24 hrs of the issue of such Notice, the Manager shall be entitled to issue a further Default Notice.

(9) In addition to any deductions which may be made under this Condition, where together more than 100 Default Notices, Recurring Complaint Notices or Inspection Notices are recorded in any four-week period the Council may terminate the Contract forthwith in accordance with this Condition.

(10) Notwithstanding the provisions for deductions in respect of Default Notices, Recurring Complaint Notices and Inspection Notices if in the opinion of the Manager any of the Services not performed by the Contractor are of sufficient urgency the Manager shall be entitled to arrange for the Services to be performed by others. In this event a deduction from any monies owing to the Contractor may be made or may be recoverable from him as a debt as follows:-

(a) £4,800 being the Council’s pre-estimate of the damages likely to be suffered in the event of the whole of the Services not being performed on the specified day of collection or otherwise in accordance with the Contract (by way of administrative expenses and otherwise).

(b) £370 being the Council’s pre-estimate of the damages likely to be suffered in the event of failure by the Contractor to perform any whole round on the specified day of collection or otherwise in accordance with the Contract (by way of administrative expenses and otherwise).

(11) The Liquidated Damages will be subject to review in accordance with Condition 38 below.

(12) Damages Not a Penalty

All sums payable by the Contractor to the Council and all deductions pursuant to this Condition shall be paid as liquidated damages for delay or non-performance and not as a penalty. The Manager may waive payment of such liquidated damages”.

41. Remedies and Powers

(2) Forfeiture

If the Contractor shall become bankrupt or have a receiving order made against him or shall present his petition in bankruptcy or shall make an arrangement or assignment in favour of his creditors or shall agree to carry out the Contract under a committee of inspection of his creditors or (being a corporation) shall go into liquidation (other than a voluntary liquidation for the purposes of amalgamation or reconstruction) or if the Contractor shall assign or sub-let the whole of the Contract or sub-let any part thereof without the consent in writing of the Council being first obtained or shall have an execution levied on his goods or if the Manager shall certify in writing to the Council that in his opinion the Contractor:-

a) has abandoned the Contract: or

b) without reasonable excuse has failed to commence the Services in accordance with the Contract or has suspended the performance of the Services or a substantial part of it for seven days after receiving from the Manager written notice to proceed; or

c) despite previous warning by the Manager in writing is failing to proceed with the Services with due diligence or is otherwise persistently or fundamentally in breach of his obligations under the Contract or;

d) has to the detriment of good workmanship or in defiance of the Manager’s instruction to the contrary sub-let any part of the Contract; then the Council may after giving seven days notice in writing to the Contractor enter upon any premises or depot and expel the Contractor there from without thereby avoiding the Contract or releasing the Contractor from any of his obligations or liabilities under the Contract or affecting the rights and powers conferred on the Council or the Manager by the Contract and may himself perform the Services or may employ any other contractor to perform the Services and the Council or such other contractor may use for such Services so much of the plant, vehicles, goods and materials which are or which have been deemed to become the property of the Council as he or they may think proper and the Council may at any time sell any of the said plant vehicles and unused goods and materials and apply the proceeds of sale in or towards the

satisfaction of any sums due or which may become due to him from the Contractor under the Contract.

(3) Assignment to Council

By the notice given under (2) above or by further notice in writing within 14 days of the date thereof the Manager may require the Contractor to assign to the Council the benefit of any agreement for the supply of any goods or materials and/or for the performance of the Services for the purposes of this Contract which the Contractor may have entered into and the Contractor hereby appoints the Manager as its attorney on its behalf and in its name to execute an assignment in favour of the Council of such benefits at any time after the service of the said notice.

(5) Payment After Forfeiture

If the Council shall enter and expel the Contractor under this Condition he shall not be liable to pay to the Contractor any money on account of the Contract until the expiration of the Contract Period and thereafter until the cost of completion and maintenance damages for delay in completion (if any) and all other expenses incurred by the Council have been ascertained and the amount thereof certified by the Manager. The Contractor shall be entitled to receive only such sum or sums (if any) as the Manager may certify would have been due to him upon completion by him after deducting the said amount. But if such amount shall exceed the sum which would have been payable to the Contractor on due completion by him then the Contractor shall upon demand pay to the Council the amount of such excess and it shall be deemed a debt due by the Contractor to the Council and shall be recoverable accordingly.

15. It is to be noted in passing that there was also an Arbitration Clause (Clause 44) but neither of the parties sought a reference under it.

The Tender

16. The Tender contained the financial basis of SITA’s successful tender. For instance, in respect of collection of domestic waste, assuming 52,000 domestic properties per week, the contractual charge was £16,990 per week (on the basis of 8 individual rounds per day this amounted to £424 per round).

The General Specification

17. This contained various provisions of some relevance to the dispute: -

“4. The Council publishes its Corporate Pledges in Waste Management Pledges: a copy is shown in Appendix ‘C’. Tenders should be mindful of the standards required in the execution of the works included in Contract to meet the Council’s Pledges.”

18. Appendix ‘C’ itself contained a potentially material provision:

“5. To collect any missed rubbish by the end of the next working day. If you telephone before 3 pm, it will be collected the same day.”

The customers were also invited by the terms of Appendix ‘C’:

“To put out rubbish for recycling at the kerb-side by 7 am on the day of collection.”

19. The specification went on: -

“5. Communication

(1) In the interest of good communications, the Contractor shall make a daily visit to the Council Offices at noon, to collect complaints and to report on previous actions taken.

(2) The Council will normally receive all complaints but those directed to the Contractor must be dealt with as follows:

i) The Contractor will deal with any complaints he received in a prompt, courteous and efficient manner.

ii) Unresolved complaints received by or referred to the Council will be investigated by the Manager, who in appropriate cases can invoke the default provision.

iii) The Contractor shall keep a written record of all complaints received by him direct from any sources and of the action taken by him in relation to the complaints. Such records shall be kept available for inspection by the Manager at all reasonable times.

6. Working Hours

i) Normal daily collections should take place from Monday to Friday inclusive and should not commence prior to 0700 hrs, nor continue after 1700 hrs. Working hours should at all times have regard for current employment law. Saturday is to be regarded as a normal working day in weeks containing Bank and Public Holidays, expect where such a day falls on a Saturday, or where a catch-up or remedial action is required by other circumstances or default. Work outside these hours will be permitted by consultation, and with the written approval of the Manager, to enable specified service provision to be maintained and following recognised public holidays or agreed exceptional circumstances.

7. Site Conditions

The collection of all the waste from the collection points shall be carried out and the Service maintained (normally at the regular collection times) irrespective of: the distance from the collection point to the point where the refuse can be loaded on to the vehicle; site conditions; handling problems; mode of storage; access problems; weather conditions or other constraints.”

The Specification of Service

20. The relevant provisions were as follows: -

“2. Regular collection duties

(1) Household waste shall be collected weekly at a regular time on a regular day of the week (except where a Bank or Public Holiday falls in the week) from each property, except in the case of some commercial refuse and bulk bin collections when a more frequent service may be necessary.

3. Household waste collection

(1) One kerbside collection per week of household refuse from all domestic premises is to be made, including any new properties, throughout the district. This will include the emptying of bulk bins which serve multi-storey flats or other combinations of flats and houses.

(2) Subject to the clause on bulky household items, all household waste including recyclable waste which is placed at the collection point in an “appropriate container” shall be removed by the contractor. The contractor may leave such items as:

i) any item which would normally be considered as a large bulky collection or chargeable household collection item.

ii) garden waste put out for collection but not in a Council green garden waste sack.

iii) clinical, special or hazardous household waste e.g. asbestos.

(3) In the above circumstances the contractor shall inform the householder immediately, by information card, of the reason for non-collection and give the householder the name and contact address/telephone number of the Council’s waste helpline.

(5) The receptacles used to remove waste shall be unrestricted in number. The waste may be in a number of ‘appropriate containers’ including metal or plastic dustbins, plastic or paper sacks, cardboard or wooden boxes, bundles or in any other receptacle which the householder clearly intends to be used for disposal. Spillage and loose waste around the collection point must be removed but if occurring regularly will normally denote a bin deficiency, storage problem or waste being put out too long before collection. In these circumstances the Contractor is to liaise with the resident to rectify the situation.

(8) The point where household refuse and recycling will normally be collected from is the kerbside, but where this will cause obstruction of the highway, then a suitable point within the curtilage should be agreed. For those properties situated

on private roads any change in collection point must be agreed between the householder and contractor in consultation with the Manager.

(9) For the weekly household waste collections, the approved collection position is at the kerbside. However, there are a number of instances where for operational reasons this is not the case. These include:

(i) Where a collection vehicle is unable to safely access the road either due to its width, construction or lack of turning area. In such cases, the contractor will either use a smaller vehicle or carry the refuse to the collection vehicle, at no additional cost to the Council.

(ii) Where access to isolated properties is over a long drive either private or public where damage to either the road surface, verges, trees etc, is likely to occur then if the Manager is satisfied that it is unreasonable to collect from that property he will instruct the occupier to leave the refuse at the nearest point where it is safe to collect from. Otherwise the Contractor will collect from the property at no extra cost to the Council.

(iii) Where communal facilities are provided e.g. blocks of flats with bin compounds the Contractor will collect from the compounds at no extra cost to the Council.

(iv) Where no kerb exists, refuse will be left just outside the front gate or just inside the front gate if no verge exists. If the owner of a private drive does not allow access, refuse will be collected from the public highway. The contractor will be expected to resolve difficulties relating to collection points with the householder and only where agreement cannot be reached will the Manager become involved.

(v) Where householders are infirm or disabled or where operational requirements so dictate, in these cases, together with any others notified by the Manager, the contractor will bring out the refuse from the rear of the dwelling or wherever the collection point is, and return the empty containers to that point. Currently this Assisted Service is provided to those premises listed as Appendix N.

Community Waste Collection Service

Town Skips

(2) The town skips service as part of the Community Waste Collection Service will be accessible to the public only during the hours stated (Saturday between 8 am and 12 pm) and the Contractor is to be in full attendance at the skips during this time. A minimum of two skips (40 cu yrd each) per town per week shall be provided in each town (Didcot, Thame, Henley and Wallingford), one is for green waste only, and this waste is to be composted when a site within Oxfordshire becomes available.”

Appendix O

21. This was a diagrammatic version that purported to identify the method in which defaults in performance would be administered.

The Method Statement

22. This was in fact part of the bid documentation presented by SITA. It contained the following material proposals.

2. Organisation Administration

2.1 Management Structure…

“The Contract Manager will be assisted by a well qualified and highly motivated team comprising 2 Supervisor/Quality Control Managers and 1 Administrative Assistant. … The Contract Managers and Supervisors will be responsible for ensuring the quality standard for the contract is maintained at all times. …”

5.2 Vehicles

[This provision, having identified the number of dust carts in the fleet, went on]: -

“In order to present the most cost effective combination of vehicles SITA have based their price on a mixed fleet of new and existing vehicles off the current fleet. A technical evaluation has been made of the current fleet and a “fit for purpose” inspection. SITA are of the opinion that the majority of the fleet will continue to provide an effective service for the duration of the new contract. An additional eight new vehicles will be needed to be added to make up the full complement required. It will be our intention to ensure, wherever practicable, that the new vehicles will be used on the front line service. SITA believe that this fleet offers the ‘Best Value’ option to the Council in that the savings made on the reduction in capital expenditure will not be passed on through the contract. This will require the formal consent of the Council and SITA would seek to gain this as soon as possible. Notwithstanding this, SITA can still confirm that no vehicle will be over six years old at the commencement of the contract.”

23. Clause 5.3 went on to provide that: -

“The domestic refuse service will be comprised of eight frontline refuse vehicles. …”

24. It is worth noting in passing that a meeting with representatives of all potential bidders was held on 29 April 1999. One of the questions dealt with at the meeting was how SODC were going to enforce the age restriction of vehicles older than six years operating on the contract. The Council’s answer to this question was: -

“The Council will be looking for an annual report on vehicles used on the contract and will be looking for this contract clause to be honoured. If older vehicles are used without the express permission of the Manager, then this action will be considered as a breach of contract.”

The witnesses

25. Before turning to the issues, it is convenient to set out a more detailed chronology of the events leading up to the termination of the Contract some two years after inception. In this regard I have had the benefit of evidence from a number of witnesses:

a) Mrs Gina Coupar, Head of Public Amenities at SODC.

b) Mr Richard Davies, Contract Monitoring Officer at SODC.

c) Mrs Heather Leyland, Finance and Resources Officer at SODC.

d) Mr Michael Jacques, Strategic Director at SODC.

e) Mr Steven Holgate, General Manager, South Central Region of SITA.

f) Mr John Murray, Area Manager of SITA.

g) Mr Christopher Witts, SITA Supervisor.

h) Mr David Hughes, Contract Manager for SITA.

i) Mr Paul Taylor, Regional Director for SITA.

j) Mr David Foster, Regional Director for SITA.

26. There is no question that any of these witnesses were doing other than seeking to help the court to the best of their ability and recollection. But it is inevitable that, to the extent there was any conflict, I should have particular regard to the contemporary documentation, supplemented if necessary by the overall probabilities.

The chronology

27. At a Contract Monitoring Meeting on 25 October 1999, SITA promised to supply a list of all vehicles to be used on the Contract against the background of “confirmation” that all the new vehicles needed to meet the 6 year time limit under the Conditions would be made available in November. The bulk of the dustcarts in the list were M registered i.e. registered in 1994/1995 and would become over 6 years old by 2001. There was one N registered dustcart but also there were a number of other dustcarts which were registered variously E to K.

28. Mrs Coupar, in a letter dated 2 December 1999 pressed for provision of the 8 new vehicles referred to in the Method Statement. On 24 December she wrote again seeking action early in the New Year, failing which “the Council may consider seeking compensation in relation to the matter”.

29. In response, SITA recorded that 5 new refuse vehicles had been ordered for delivery between January and late March. In fact, only three were in operation by mid-February but no date was given for the other 2 let alone the balance for the full 8 vehicles.

30. When it was suggested by SITA at the March Contract Monitoring Meeting that full delivery was not expected until April, the response of SODC was to threaten to seek recompense “as they should have been provided at the start of the Contract”.

31. In the meantime at a Contract Monitoring Meeting on 22 December, the topic of Defaults under Clause 37 was discussed: -

“Defaults - This needs to be worked out and agreed. SITA would like to keep a file of proven defaults. YP [Yvonne Peck] would like to see a more detailed response written on complaint sheet. HL [Heather Leyland] issues the defaults when the complaints are first received – sheets can take some time to be returned by SITA. HL [who was not actually at the meeting] to continue issuing the defaults in this way, however they can be cancelled later if the response from SITA merits it. Any disputed defaults will be decided by GC [Mrs Coupar].”

Whether these matters were at any stage worked out and agreed remains one of the liveliest issues in the action.

32. By March, SITA was seeking a greater exercise of restraint and discretion on the part of SODC in issuing default notices under Clause 37. However, whilst there had been an increase in complaints, the minute of the meeting read:

“SODC accept that SITA are doing their best to fulfil requirements and if they come back with reasons the Defaults might be cancelled”.

33. The Default Notice system was thereafter given further consideration by the parties and in its letter of 17 April SODC summarised the results of the discussions: -

“Clearer communication between the Council and SITA to prevent Defaults from being issued. SITA to fax at the end of the day if they are unable to complete or have found that they have not completed rounds or sections of rounds. (Suggest using attached format).”

34. The form attached was a fax sheet for SITA to report on incomplete work by reference to the relevant route and the relevant village or town, with a date for remedy identified together with “a reason for non-collection”.

35. The new vehicle issue was still alive by the time of the May meeting when SITA suggested that SODC should put in a claim for recompense which might encourage the manufacturers. SODC duly complied with this request by letter dated 10 May to the effect that SODC had been paying for the service on the basis that new vehicles would be furnished. This, in fact, did not advance matters and SODC turned to its

legal department who sought an undertaking from SITA for delivery of all remaining vehicles by 3 October, failing which “SITA would be in breach of contract.”

36. In June one of SITA’s supervisors resigned and was replaced shortly thereafter by Miss Val Hiley. At the end of August she prepared an email to Yvonne Peck at SODC setting out steps taken that it was hoped would limit or avoid recurring complaints within the meaning of Clause 37: -

“Crews have been told to radio our office when they discover a problem with collections from an address; this is to be done at the time when they discover the problem.

The supervisors have been told that at the end of the day to fax your office a list of the properties and the reasons for non-collection as in 1 above, this will obviate the need for this entry to be placed on the recurring complaint database.

When notifications are received from SODC regarding missed collections, before they are collected, as a result of this notification by you, the supervisor responsible for the missed collection will telephone the complainant and ascertain if the collection has now been made.

When I receive a recurring complaint notice I will ascertain the crew responsible for this round, and interview the chargehand responsible for the day of the complaint, I will consider the reasons given by the chargehand and take the necessary action.”

37. By now it had become clear to SITA that their contract with SODC was loss making and accordingly the level of default payments became an object of greater focus. Val Hiley took up the issue in an email date 26 September and spelt out SITA’s sense of grievance in the face of what were regarded as “unjustified” defaults which were costing “mega-bucks”.

38. It is notable that Yvonne Peck’s response on SODC’s behalf was by reference to the earlier contract between the parties: -

“As for the defaults as I mentioned what Simon [Fry] and I used to do was that he would give a full written explanation for the default, I would then read this and if I needed to ask questions would do so, then following that I would then either agree to cancel or uphold the default.”

39. By October the balance of the new vehicles had still not been delivered (or in fact even ordered). The explanation from SITA in a letter dated 2 October was that SITA was awaiting an anticipated variation of the Contract to enhance the level of recycling.

40. Mrs Coupar prepared a report to members of SODC in the run up to the November Contract Board Meeting. The report was in due course circulated in the name of the

Chief Executive. The contract had now been running for a year. As regards to the standards of performance in making weekly refuse collections, there had been a total of over 6,000 complaints (i.e. about 118 per week). Of these 956 had been treated as “proven complaints” by SODC which had resulted in default deductions of £12,470 of which nearly £10,000 was made up from “repeat” complaints.

41. It is worthy of note that the previous contract had had default provisions based on a charge for any “proven” complaint and an increased charge for any proven complaint not resolved the following day.

42. The report to the members proceeded on the basis that the terms of the new contract had merely increased the default monetary rates (to reflect the amount of office time taken to resolve complaints). The report summarised the position: -

“The number of defaults as issued has exceeded in a 4 week period on 5 occasions in the last year and extra meetings have been held with the local Contracts Manager in an effort to resolve the problems. However as they have largely been due to staff recruitment problems, as explained later in this report, no long term solution has been found.”

43. As regards the matter of the new vehicles, the report went on to say: -

“11. In their tendering documents and method statements SITA stated they would not be purchasing an entire new fleet, as many of the vehicles in use on the contract, at that time, were still in good presentable working order. Instead they proposed that only 8 vehicles would be purchased for frontline services, which would provide savings for the Council.

12. This proposal was accepted by the Council, following resubmissions on comparative vehicle provision by the other tenderers. A letter of intent to enter into a contract was sent to SITA on 9 July 1999 to enable the order for the vehicles to be placed.

13. To date 5 of the vehicles have been delivered, the issue of delivery of the remaining 3 vehicles is being pursued by the officers.”

44. The report then turned to the question of staffing. As foreshadowed in the section dealing with defaults, the problem that SITA faced related to competition for permanent staff: -

Staffing

14. SITA has experienced a significant number of problems in the recruitment and retainment of staff to perform the refuse and recycling services. This is not unique to SITA, all companies involved in this type of work are struggling to find staff in the

current economic climate, as low levels of unemployment mean that this type of work is not favoured amongst those seeking work.

15. In order to ensure that the service continues to be provided, SITA have been utilising a large number of temporary staff on a regular basis. This does cause difficulties as temporary staff do not have as much knowledge of the district as permanent crews, this has been the most common explanation for the missed collection of refuse and recycling. Whilst SITA have tried to improve on the basis training and instructions given to temporary staff, over sights still occur. Unfortunately, this situation is not simply resolved as every measure to recruit staff has been tried and SITA are continually pursuing the appointment of permanent staff members.”

45. Despite all this, the performance indicated as set out in the Table in the Report showed a 99% rectification of errors at the end of the following day at least in the period up to March 2000. (This figure was not available for the period to March 2001 as the performance indicators required by the audit commission had altered).

46. The report concluded as follows: -

“Summary

18. A large number of defaults have been issued since the end of November 1999, the date from which such notices could be given, and on 5 occasions more than 100 notices have been given in any one month. SITA have introduced some new monitoring systems since September and to date this appears to have reduced the number of recurring complaints and inspection notices given during October.”

47. Shortly before the production of the report, John Anderson (then Area Manager) annotated an email from Mrs Coupar which drew attention to the meeting with SITA arranged for November to discuss the report. His annotation which was addressed to Paul Taylor read as follows: -

“This would probably be an opportunity to sow the seeds of potential divorce.”

He went on to ask whether the legal department had responded to a request “with regard to contract termination”. In turn Paul Taylor noted an instruction to his secretary to “copy QC advice” to John Anderson.

48. SITA held an in house meeting on 31 October which recorded the anticipated loss on the contract for the year end as in the order of £260,000. The need to review performance with SODC was taken up on 1 November in an email from John Anderson to Mrs Coupar expressing the view that SITA were providing “a reasonable service but failing on consistency as regards recycling rounds”. In anticipation of the forthcoming meeting, he added “depending on the question, I will no doubt mention that we cannot pour unlimited resources into the contract as we are already losing money.”

49. Attached to the email was a note discussing various issues seen as contributing to the poor financial performance: -

“1. AGENCY LABOUR

Recruitment and retention of labour is difficult due to the remoteness and lack of public transport to the Pennyroyal Depot and due to low unemployment in the area generally. This results in a high dependence on Agency labour which is much more expensive and less productive. Additional costs: £50,000 pa.

2 FUEL COSTS

Since the time of tendering the price of fuel has increased to the extent that our fuel costs have increased by some £60,000 pa….

4. RECYCLING

From our point of view the recycling operation is not efficient in that we have many large vehicles collecting relatively low tonnages. We are collecting co mingled recyclables and paying a gate fee for disposal.

The Government have set new recycling targets for Local Authorities. Given the above it would seem appropriate to jointly review the whole recycling operation with a view to improving operational efficiency/cost effectiveness and increasing recycling tonnages.”

50. Mrs Coupar met with members of SODC on 6 November. Amongst the topics that she was asked by the members was whether the performance of the contract was being affected by the missing 3 vehicles to which her response was “No”. This view was supported by Mr Anderson at the Performance and Contract Board Meeting on 8 November when he is recorded as confirming that the current vehicles were “proving reliable”.

51. The Minutes of that meeting concluded as follows: -

“The view was expressed that as the Council were given an expectation, which was written into the contract, that 8 vehicles would be provided as part of the SITA contract, this should be honoured. Although it was acknowledged that the service was not suffering as a result of the shortfall it was felt that the issue should be addressed.

Concern was also expressed about the staffing difficulties being encountered by SITA which had had a detrimental effect on service provision.”

52. The next contract monitoring meeting was held on 21 November. The minutes were later signed by Mrs Coupar (who had not been in fact present) and David Hughes. The minutes contained the following entry on which considerable focus was place during the trial: -

“DEFAULTS:

It was agreed that the proposed form and procedure was workable. The form will be given a 3 month trial period as of the beginning of December.”

53. So far as the proposed form is concerned, this made provision for maintenance of a table of default notices and the reason (if applicable) for their cancellation. Yvonne Peck who had been at the meeting forwarded a copy of the form to SITA under cover of a letter dated 23 November. Also attached was a document entitled “Procedure for Cancelling Default Notices. …” Mrs Peck stated in her letter that “the method is to be used as from 1 December 2000 for a period of 3 months” after which it could be “reviewed and adapted as necessary by either party”.

54. The procedure set out in the document purported to identify the proper method for issuing the default notices by reference to specific provisions in the contractual documentation:

“Default notices will be issued on the following basis:

Missed bins/recycling not collected on the same day if contractor notified before 3pm. Missed bins/recycling not collected within 24 hours if contractor notified after 3pm

• Assisted property collection missed.

• Clinical waste collection missed.

• Litter bin not emptied.

• Non-completion of parts of or whole rounds.

The value of defaults are £7.50 for each instance with the exception of failure to complete parts of or entire rounds at £370 per instance and failure to provide the service at all on any given day as £4,800.

Recurring Complaint Notices and Inspection Notices will be issued on the following basis:

A Recurring Complaint Notice will be issued where the same property has been missed on more than one occasion and for the same service or the same type of complaint e.g. damage to property. A Recurring Complaint Notice will not be issued if one week the complaint is for recycling and the next complaint is for refuse.

The cost of Recurring Complaint Notices will rise as given in the contract for each notice issued e.g. 1st complaint = £7.50, 2nd complaint = £12.50 and 3rd complaint = £38.00. Once a third complaint has been received an Inspection Notice (£35.50) is automatically issued and will be issued for each complaint received there after.

Cancelling of Notices

The Contractor has the right to appeal against all notices issued and if agreed to be cancelled by the Council will be deducted from the monthly totals.

The Contractor must provide an adequate and provable reason for the notices to be cancelled. This must be given to the Council within 21 days of the notice being issued.

The Contractor must complete the attached form when asking for a notice to be cancelled passing the original to the Council and retaining a copy for its own records.”

55. This document is a convenient introduction to some of the primary issues between the parties regarding the appropriate methodology for the service of default notices under Clause 37: -

a) Is a default notice appropriate where a missed collection is notified before 3pm but not collected the same day?

b) Is a default notice appropriate in certain specific cases whether or not the missed items are collected within 24 hours (termed for convenience as “automatic" notices)?

c) Is a default notice appropriate where part of a round is not completed as being equivalent to a missed round?

d) Is the issuance of the default notice subject to a right of appeal and if so, is the burden on the contractor to establish the entitlement to cancellation?

e) Are the sums otherwise recoverable under the default notices genuine assessments of loss?

56. I deal with all of these issues together with many others later. Suffice it to say at the moment that SODC would answer those questions in the affirmative either because they are consistent with the terms of the agreement or because the agreement was amended to that effect at this stage or, in the further alternative, because SITA was estopped from asserting any contrary construction in that it accepted the manner of operation that was proposed.

57. At the end of November, a new bone of contention emerged between the parties relating to supervision of the Contract. This was prompted by the departure of the then Contract Manager, Val Hiley, to another locality. Mrs Coupar wrote to SITA asking for action to be taken to provide a permanent full time manager.

58. On 29 November SITA wrote to SODC in preparation for the next meeting commenting on its concerns about the financial viability of the Contract. It was made clear that SITA would seek to obtain an increase in the payment levels under the Contract. The accompanying paper identified various areas of concern including invoice preparation, enhanced labour costs attributable to the employment of agency staff and fuel costs.

59. As regards default payments the paper said this: -

8. “DEFAULT PAYMENTS

It has been brought to my attention that over the course of the year some £16,000 has been deducted from our income in respect of defaults.

In many cases the default has arisen due to a missed collection. In such cases not only have we suffered the default payment but have also had the expense of sending a man or crew out to pick up the missed bin.

I am advised that in many of the cases the reason that the collection was missed was because the resident had not placed their refuse at the kerbside at the appropriate time. Hence when our crew arrived early, the refuse was not available.

In my experience a single missed collection in a street is a very unusual occurrence. If all householders have put their refuse out at the kerbside as required how could or why should the crew miss out one property.

I would be grateful of the opportunity to discuss this with you, with a view to

• getting some of the defaults already charged rescinded,

• receiving payment for collection these “non missed” bins

• and agreeing the future procedure for defaults.”

60. SITA’s preparatory note for the meeting made reference to this and to two further matters of some significance:

“Action plan…

1. c. Soxon have deducted some £20k of defaults over a year. I am arguing that these have not been done in accordance with the contract and we want our money back. It is probably our fault for not challenging when they were received….

2. d. We undertook to buy 8 new vehicles but to date have only supplied 5. Need to buy 3 new and get rid of 5 old dogs….

2. g. We are on our third contract manager (Simon Fry, Val Hiley, David Hughes) in the last 8 months. Need good new manager and stability.

61. The meeting with SITA took place on 7 December at which all these topics were aired in a frank manner. It appears from a contemporary note that John Anderson apparently stated to the meeting by way of summary of SITA’s position: -

“Committed to contract but financially difficult”.

62. SODC sent a detailed response to all the various topics in a letter dated 20 December. The comments on two topics are worth quoting: -

“5. Labour Costs and 6. Fuel Costs

The Council is very aware of the problems that SITA faces with regards to recruitment of permanent staff and the costs of fuel and is not unsympathetic and is willing to discuss these issues in more depth. Another point, which you raised, that could be further explored, is that of the indexation link in respect of the annual price review. Perhaps you would come back to me with proposals that can be discussed….

8. Default Payments

There appears to be some misunderstanding with the current management at SITA, but I repeat the default notices can be disputed, and SITA is welcome to respond to these notices, giving reasons why they should be cancelled. This will occur where the Council’s manager is satisfied that the default it beyond SITA’s control.

If you wish to discuss this matter further, then please do not hesitate to raise it with me.”

63. In their reply dated 10 January 2001 SITA suggested a formula for increasing payments under the contract to reflect the enhanced fuel and labour costs. As regard default notices it was stated that the author John Anderson would come back after further consideration (although in the event it appears he did not do so).

64. Rather surprisingly the next stage was a request by Mrs Coupar in a letter dated 23

January for SITA to furnish a copy of the performance bond provided for under the terms of the Contract. This was prompted by an internal meeting in which the notes identify what SODC regarded as the options open to them: -

“Assign contract… SODC terminate for breach

SITA walk away – go to the bondsman –

damage up to value of bond.”

65. Likewise the meeting with SITA on 26 January identified the alternatives to the status quo from SODC’s point of view given the potential need to hike the wages in the region of 25% in order to attract permanent staff. The notes of the meeting recorded the option as:

i) “Negotiation

ii) Friendly disengagement

iii) Unfriendly disengagement”

66. In fact negotiations got underway immediately. Mrs Coupar wrote to Paul Taylor that very same day: -

“I thought it would be useful to confirm the information that I will need in order to brief Members at the meeting scheduled for Thursday 1 February 2001. In particular, details will be needed of the additional sum that SITA is seeking, how this sum has been calculated, and documentary evidence to substantiate the claim. If the Council is to consider a request for additional payment then it may wish to have the evidence independently checked, and I would be grateful for your agreement to this. The information would also need to contain SITA’s proposals to overcome the current management, supervision, staffing and service delivery problems. Members have also been concerned that the commitment within the tender to provide 8 new vehicles has not been met, and your proposals should also address this matter.

It was useful to have your assurance that, for the time being, all the relatively minor issues being raised by John Anderson and the local management team will be deferred until the bigger issues have been fully considered.”

67. Paul Taylor replied on 30 January. As regard the question of labour rates he said this: -

“Labour Rates This is the main factor that effects all elements of the contract. The current rates (see attached breakdown) have led to a situation where the permanent workforce is slowly declining and we are unable to recruit replacements. Currently from a labour requirement of 46 employees we have a stable workforce of only 34, this figure does not include for any pool labour to cover holidays and sickness. To employ a full compliment of staff and carry four people to cover absence we require a further 16 employees. These are currently being supplied when possible by agencies.

There are two main factors effecting the inability to recruit. The low rate of pay is the first and the second is the location of the depot. It is our suggestion that the pay rates are approximately 25-33% below market rates (despite the last two pay awards being more than RPI). The proposed pay rates would add an extra £173,000 per annum over and above current contractual difficulties. This would however be offset as the replacement staff would still be at a lower rate than currently being paid for agency staff. This would produce a saving of £91,500 leaving a deficit to claim of £81,500.”

68. Having dealt with increased costs said to be attributable to various other factors such as supervision, town waste sites, glass banks and fuel he went on:

“With regard to the other comments in you letter, I can confirm that if these suggestions were agreed then the remaining replacement vehicles would be supplied to the contract. The

issue regarding the extra £25,000 towards depot relocation costs was only offered on the basis of SITA being successful in securing the Street cleansing contract.

These extra claims totalling £367,868 should enable the operating costs with the financing of capital assets and central overheads to be covered. Obviously any profit over and above this level would be returned to the authority at the end of each year following an open book audit of the accounts.”

69. The request for additional payment was rejected in Mrs Coupar’s letter of 5 February. SODC insisted that SITA should “provide the services in accordance with the contract on terms agreed.” However, also SODC expressed itself willing to consider a “managed disengagement”. The point was taken that SITA was, as the previous contractor, well placed to assess the appropriate levels at which to bid and thus it was somewhat surprising that it found itself in a position of being engaged in a loss making contract.

70. At the meeting on 7 February, Paul Taylor accepted that SODC would not pay extra through the term of the contract and thus SITA was looking for a disengagement by the end of November when the contract would be retendered. As regards compensation, the initial indication from SODC at that meeting is that they were looking for a sum in the region of ½ to £1 million. This figure was based to some extent on the level of losses that SITA had asserted they would incur during the balance of the contract of about £370,000 per annum.

71. By letter dated 20 February, SITA confirmed that our “preferred way forward” was “a managed friendly disengagement” resulting in retendering. The agreed timetable was to achieve the contract termination at the end of November. The letter went on to make this comment about the performance bond: -

“In relation to the bond, initial discussions with our legal department indicate that it would be inappropriate to access the bond under the current circumstances, as this is an agreed disengagement and not a termination caused by a breach by either party. No doubt you will wish to discuss this further and a meeting between our respective legal departments may be appropriate.”

72. That “a managed disengagement” was the appropriate way forward from SODC’s point of view was confirmed at a meeting of SODC’s Performance and Contract’s Board on 21 February. This decision was taken in the context of advice that “the council would face the prospect of court action to seek damages for breach” if it sought to enforce the contract on its existing terms and that “a further contract was likely to cost in excess of £2 million”.

73. In anticipation of early termination, SODC duly advertised on 28 February for companies to express interest in the new Contract for a term of 5 years with effect from 12 November.

74. By the beginning of March, SITA had been unable to find a copy of the performance bond as requested by SODC. The explanation was simple enough: no bond had ever been issued.

75. On 2 March Mrs Coupar wrote to Paul Taylor at SITA. This letter covered various topics: -

“Further to our recent correspondence and meetings, The Performance and Contracts Board met on 21 February 2001, when approval was given to a managed disengagement and the re-tendering of the service for a start date for new contract of 12 November 2001, subject to a negotiated settlement with the Council.

The Board were of the view that the likely costs to the Council of releasing SITA from the contract, and re-tendering the service, should be borne by SITA, and our estimate is as follows: -

Estimated additional costs of the service over the remaining period of the contract using the claim advanced by SITA, i.e. £30,000 per month from 1 December 2001 discounted back to to-days value: £1,302,000

Estimated cost of the re-tendering exercise including officer time (including solicitors), advertisements, tender document production, postage, tender evaluation by consultants:

£10,400

Total £1,312,400

In the fourth paragraph of your letter of 20 February 2001 you state “There are a number of issues putting a strain on relationships between us”. I understood that you agreed that the small niggling issues that were taking up so much of both our times, would be held in abeyance. Do I now take it from John Anderson’s request for a meeting on 8 March, that these are all to be rehearsed once again? If this is the case, I should then like to know, at the latest by next Tuesday, exactly what John will be looking to discuss, as if this will involve the Council in extra costs, then the matter will need to be raised with Members, and it may not be worth John and me meeting.

There is one final matter that I feel I must draw to your attention and that is local management. When we last met, you gave your assurance that Rob Guy would be spending a minimum of 80% of this time at South Oxfordshire. Since the beginning of February, on average, he has been spending less that 25% of the week locally. The reason given by him is that he is extremely busy with the

Aylesbury contract. If the contract is to run as effectively as is possible during the re-tendering process then it is essential that more management time is provided, and your assurance is honoured”

76. The response was to the effect that a meeting to discuss all matters was desirable, but as regards the issue of compensation “the gap between us is very wide”. In a further letter dated 14 March, SITA agreed to put on hold various items that had earlier been raised with regard to the financial viability of the Contract. Notably no mention was made in regard to the default payments issue, a topic which was accordingly left in limbo.

77. The parties met on 23 March. SITA now suggested that their claim in respect of potential losses (previously put at about £370,000 p.a.) was considerably lower. It was put now at £100,000 per annum for “the bare minimum service not a quality service”.

78. On 2 April, SITA made their first formal offer. The potential losses were now put at £85,000 per annum. The offer based on that was accordingly £350,400. Given the gap between the offers, SODC sought advice from a firm of accountants Messrs Kidson’s. Thereafter the firm was appointed to advise both parties on a non-binding basis the cost being shared between them. In the meantime, various firms including Grundon had showed interest in the new tender. SITA, however, did not.

79. On 4 June Mrs Coupar prepared a report for SODC’s cabinet bringing it up to date on performance of the Contract by SITA. This was against the background of many problems arising with regard to vehicles as reported in the Contract Monitoring Meeting on 22 May. Indeed, Keith Trunkfield told Mrs Coupar at a meeting on 29 May that in his view “the M registered vehicles were worn out”.

80. The report commented as follows: -

“5. Since early April SITA has been experiencing major recruitment problems, resulting in many of the services being late or not delivered at all. The shortage of staff is exacerbated by the three bank holidays that have occurred during this period, which has meant that Saturday was already in use as a catch up day, and could not therefore be used to deliver any shortcomings in the services.

6. Following the recent bank holiday at the end of May, the recruitment situation reached crisis point in that SITA was unable to deliver the recycling service and the community waste service. However, on Wednesday 30 May, the General Manager with SITA gave the Council assurances that all services would be brought up to date by the end of Sunday 3 June. This promise was not fulfilled, and therefore the only recycling undertaken last week was catching up from the previous week, following failure to complete recycling round on Saturday 26 May….

Conclusion

12. In view of the serious deterioration in the service delivered by SITA the Cabinet is asked to authorise the appropriate Strategic Directors, in consultation with the relevant Cabinet Member and the Leader, to take such action as may be deemed necessary to procure adequate waste collection and recycling services should SITA fail to make satisfactory proposals for an improved service as sought in the letter attached to this report.”

81. This state of affairs prompted a letter from SODC’s legal department to Mr Holgate at SITA: -

“The Council has been very patient over the last few months, recognising the difficulties that SITA have faced with staffing. The Council is not satisfied that SITA has addressed this issue. The difficulties appear to have been exacerbated by vehicle breakdowns that could have been avoided had SITA provided the new vehicles required under the contract. Other difficulties seem to be caused by a lack of any clear plan by SITA as how best to use the resources that are available.

The Council is no longer prepared to accept this poor level of service. Accordingly, the Council requires SITA, by 12.00 noon tomorrow (5 June) to provide detailed and credible proposals for the proper delivery of the contract. The Council now regards SITA to be in breach of contract. 288 default notices were issued in May, excluding any occasions when total rounds were missed. Such breaches entitle the Council to terminate the contract and if SITA fail to satisfy the Council with its proposals tomorrow, the Council will consider the appropriate action under the contract.”

82. Indeed, at this stage SODC made tentative approaches to those firms which had indicated interest in the new contract to provide temporary cover up to the 12 November in the event that SITA’s performance continued to be deficient in the interim.

83. Meanwhile, on 5 June, SITA had written to spell out a plan to improve recruitment in circumstances where BMW were recruiting for the manufacture of the new Mini at Cowley and making it very difficult for SITA to find staff.

84. The next day, SODC requested that SITA forward the performance bond “as a matter of urgency”.

85. The question of default procedures re-emerged on 14 June. In an internal SODC e-mail, Mr Jacques, in the run up to the next meeting with SITA was told “we are now defaulting them for not finishing rounds”. This, at least on SITA’s case, brought into sharp focus the legitimacy of default notices for partly completed rounds and whether, legitimate or not, there was an un-announced change of practice by SODC at this stage.

86. In a letter dated 15 June, SITA made clear its “commitment to honouring the contract up to disengagement in November “. Having touched on the question of recruitment and the need for a prompt response to notice of complaints, the letter went on: -

“I believe the above detailed response will show that SITA remain committed for the duration of the contract subject to the ongoing discussions with regard to disengagement.”

87. The June Contract Monitoring Meeting revealed a rather better picture in regard to vehicle breakdowns and recruitment and those firms who had been requested to be on stand-by to provide temporary cover were stood down as “the current contractor is at this time delivering the service as required”. Further progress on both the vehicle and recruitment front were reported at the July Contract Monitoring Meeting.

88. At this stage, it is clear from internal documents that SODC was anxious to terminate the contract:

“Attached is a draft letter to SITA setting out the release fee. There are some facts to check, and you may wish to add other conditions of the release.

We need to think what we do if SITA make an unsatisfactory offer, or just decide to continue with the contract. Members (and we!) will want to terminate it; have we got sufficient evidence to terminate for breach, even though the service has improved somewhat lately? When we get to Cabinet we need clear advice as to whether we can legitimately terminate or not, and what happens if we do. Brings it back to the bond again, I guess. Something for Margaret to consider if you could have a word please. Michael”

89. The draft letter attached to this e-mail, which was never in the event sent, put the sum sought by SODC for SITA’s release at over £3 million.

90. At a meeting on 31 July SITA’s representatives are noted to have told SODC that SITA had allocated a sum to get out of the contract (there being some flexibility in the proposed figure of £500,000) but “otherwise they stay”.

91. Kidson’s reported in draft form in July but in the event neither party considered that the content of the report either in draft or in its final form were helpful in resolving the impasse.

92. In early August Grundon was identified as the preferred contractor to take over once “an acceptable agreement” had been reached with SITA.

93. The position on the negotiations was summarised in a report of Mrs Coupar to the Cabinet of SODC dated 8 August: -

“6. SITA’s losses appear to be running at around £200,000 per annum. Officers consider that after some refinement the figure could increase to nearer £300,000 pa, however SITA

argue that they are introducing cost-reductions (for example a fixed price vehicle maintenance contract) that will reduce it. An annual loss of between £200,000 and £300,000 would convert to a settlement of between £760,000 and £1.2m if this was the agreed method of compensation.

7. SITA, however, made it very clear that there was a sum of money set aside as compensation for their release, and while they would not be precise they indicated it was around £500,000. This might be increased slightly but it is felt that £600,000 would be the most that might be achieved. A settlement of £500,000 to £600,000 equates to annual costs of between £130,000 and £155,000. SITA have promised to provide a definite offer by Monday, 5 August 2001. Therefore a verbal update on this issue will be given at the meeting.

8. SITA’s performance has improved over recent weeks and although not in accordance with the specification in every respect it may be considered acceptable, or capable of being brought up to an acceptable level.”

94. The report made it clear that the additional cost of the new contract would add about £10 to the Band E council tax. Accordingly “the Council may choose to require SITA to provide the contract for the remaining term”.

95. On 13 August Michael Jacques wrote to Ian Goodfellow at SITA proposing a settlement at “about £1.5 million”, based again on SITA’s original claim in respect of losses of £370,000 pa.

96. The response from SITA was to confirm their original indication of £500,000. SODC replied on 16 August: -

“Your offer of £500,000 will be put before Members but it falls short of their expectations and it is not one I can recommend to them. The Council has now to consider all options open to it and as one of these is termination of the contract the Council in writing this letter would not want to prejudice any of its options. It is for this reason that this letter is sent on a without prejudice basis.

If Members consider the preferred way forward is for the contract to continue with SITA, the Council will be seeking assurances that:

1. SITA will provide the four new vehicles, outstanding from the start of the contract.

2. SITA will ensure that any changes in working methods are agreed in advance with the Council.

3. All services will be completed each week.

4. That quality control measures will be introduced to ensure that materials collected for recycling are to a standard acceptable at the reprocessing stage, and that any contaminants are removed at the kerbside.

5. That the undertaking that recycling banks will not be more than 80% full at anytime is fulfilled.

Whilst there appears, in recent weeks, to have been some improvement in the level of your company’s performance under the contract it remains at the ‘just satisfactory’ level. It is clear that your company’s ability to continue to meet the terms of its obligations will depend entirely on it complying with the assurances sought above and the Council remains to be satisfied in this regard.”

97. The August Contract Monitoring Meeting gave rise to no significant issues. On 30 August SODC wrote to SITA rejecting the offer of £500,000 and indicating that, absent a substantially improved offer, SODC was “most likely to decide to enforce the contract with SITA on its existing terms” which would be “rigorously monitored and enforced”.

98. On 4 September, SITA wrote to SODC indicating that an additional sum of about £250,000 might be available from certain environmental trust funds. Further there was also a tentative offer to transfer assets as part of the underlying offer for use on the replacement contract. (Grundon indicated shortly thereafter that the provision of four V registered vehicles would have the effect of reducing its annual costs by £68,000.) All these suggestions were discussed at a meeting between the parties on 13 September. In a note prepared much later, Mrs Coupar asserted: -

“During a meeting with SITA on 13 September they made it very clear that if the Council do not agree to their early release from the contract, that the service will deteriorate.”

99. SITA’s proposals were spelt out in greater detail in their letter of 17 September: -

“Subject to an agreed voluntary termination of our contract in November 2001, SITA are prepared to pay South Oxfordshire District Council £500,000. In addition, I can confirm that SITA Environmental Trust has approved a bid for £250,000 to be spent on recycling in South Oxfordshire. At present this would be payable to Avon Friends of the Earth, who made the successful application. However, the Trust Board would be happy to consider an alternative application either direct from South Oxfordshire District Council, or another Environmental Body. In the meantime, these funds have been set aside by the Trust.

SITA also have a number of assets used to fulfil the existing contract between us, and we would be happy, subject to

agreeing terms based on current book value, to make these available to your incoming contractor.”

SODC agreed to put the offer to its members in an e-mail dated 20 September. However, it would appear that this proposal was overtaken by events.

100. The September Contract Monitoring Meeting touched on the continued sick leave of Mr Trunkfield with cover being provided to a limited extent by Mr Murray. As regard vehicles, it was reported that SITA was proposing to transfer some vehicles from Brighton to another contract which in turn would provide replacement (albeit hardly new) vehicles for the SODC contract.

101. On 28 September matters began to come to a head. Solicitors acting for SODC wrote to SITA as follows: -

“We are advised by the Council that SITA is in serious default on this contract, as evidenced by, among other points, over 1,000 formal default notices served on them by the Council so far this calendar year and the continuing, regularly exceeding the 100 notices a month which is the threshold level which entitles the Council to terminate the contract under clause 37 (9) of the Contract, still having produced no evidence of a performance bond under clause 12, no local manager in place, and not having produced the 4 new vehicles as required under the contract.

In view of continuing and unacceptable performance failures by SITA, and the need for the Council to have certainty over the delivery of this essential service, we must now require you to advise the Council in writing whether you are able to confirm that SITA will now and for the term of this contract perform the contract (as amended in agreed variations) to its full service specification within the contractual price.

If you are unable to provide that confirmation, or fail to provide it within 14 days of the date of this letter, or if SITA continue to fail to perform the contract having given such confirmation, the Council will have to conclude that SITA has neither the intention nor the ability to meet its obligations under this contract.”

102. The initial response was from SITA’s Company Secretary: -

“I am asked to confirm that SITA recognises its obligations under the contract and will use all reasonable endeavours to perform the contract (as amended by variation agreed between the parties)….

For the avoidance of doubt, SITA does not accept that the Council is entitled to terminate contract except as maybe mutually agreed between the parties.”

103. This did not satisfy SODC who responded at some length on 15 October: -

“Put simply, South Oxfordshire District Council is not concerned in whether SITA propose to use all reasonable endeavours to perform the contract, as SITA’s endeavours to date have been seriously deficient. Instead, we repeat that we require SITA’s written confirmation that it will now and for the term of contract perform the contract (as amended by variations agreed between the parties), to the full service specification and within the contractual price……

SITA having failed to respond adequately to the requirements set out explicitly in our earlier letter, we must now require your explicit written confirmation in the terms set out above by the end of the week (ie: receipt here on or before Friday 21 October 2001)

As stated in our letter, if SITA are unable to provide such confirmation, or fail to provide it by the deadline set out above, or if SITA subsequently fail to perform the contract despite such confirmation, the Council will have to conclude that SITA has neither the intention nor the ability to meet its obligations under this contract.”

104. The next stage was an important letter from SITA to SODC’s solicitors dated 19 October which was the catalyst for SODC’s decision to treat SITA as in repudiatory breach:

“SITA has contractual obligations to South Oxfordshire District Council. As advised in my previous letter, SITA accepts those obligations as contained within the Contract and as amended by variations between the parties. However, the Council is aware of the difficulties experienced by SITA in performance which currently hamper the provision of the services. Notwithstanding this, this Company does not accept that it has been in breach of Contract or that the provision of the services has been seriously deficient. Indeed, I would draw your attention to Michael Jacques’ letter, addressed to Mr Goodfellow of 16 August 2001, in which he specifies that the Company’s performance under the Contract “remains at the just satisfactory level”. This letter goes on to refer to the “Company’s ability to continue to meet the terms of its obligations”. This, of course, reflects the fact that the Company has met its obligations in the past.

You have also no doubt been advised of the continuing discussions between the parties concerning termination of the Contract and I would refer you, for example, to Michael Jacques’ letter to Mr Goodfellow of the 30 August 2001 where he states that the Council would “still prefer to agree a voluntary termination of the Contract”. Subsequent correspondence goes on to discuss the terms of such termination. I would suggest that it is, therefore, inappropriate for the Company to put in place any performance bond, when it is evident that both parties are of a like mind on this issue.

Concerning the local management, there has been no unilateral withdrawal of local management. The current incumbent is absent due to illness and I am sure that both you and your client would understand the implications of the Company’s statutory obligations should it seek to place any other manager in

a permanent position in such post under such circumstances. However, SITA is, of course, happy to provide any further information which the Council may require concerning the temporary management of the Contract.

I note your comments in respect of additional vehicles. However, it is my understanding that the Company’s contractual obligation is to provide a service in accordance with the specification and how this is implemented is at the discretion of the Contractor.

It is this Company’s perception that the Council is aware of all these issues which have been openly discussed on a regular basis. It would, therefore, appear to be most appropriate that discussions concerning early termination, as required by the Council and in accordance with SITA’s previous correspondence, be expedited whilst SITA continues to fulfil its contractual obligations as previously confirmed.”

105. This letter, together with advice from SODC’s solicitors, was put before the members on the 22nd October who executed a document to the effect that they would “support a decision to terminate the contract”. This was duly asserted in SODC’s solicitor's letter of the 22 October: -

“I am afraid that neither the Council nor ourselves can agree with the version of events set out in your letter, and we are bemused by your assertion that SITA is not in breach of the contract. You are aware that the service provided by SITA to South Oxfordshire District Council falls well below the level specified in the contract to the point where in excess of 1,000 default notices have been served upon SITA in the current calendar year, and that the service has deteriorated markedly since the correspondence with the Council which you cite, to such a point that during the month of September the Council served a total of 159 default notices, relating not simply to un-remedied failures relating to individual properties, but to failure to undertake whole collection rounds, and giving rise to liquidated damages totalling £9,929. You yourself accept that SITA is in breach of the contractual requirement to maintain a performance bond. You will be aware that the provision of a further four new vehicles is a contractual requirement arising from the Method Statement which SITA submitted as part of their tender. Further, in asserting that SITA has withdrawn local management of the contract, we rely upon SITA’s own statement that it has suspended the local manager. We have therefore to conclude that SITA is in breach on all four points, and we would also refer to the deterioration in SITA’s performance in respect of re-cycling the waste stream, where SITA is also fundamentally in breach of the contract, resulting in a loss of re-cycling credits to the Council.

…..[Having referred to SODC’s stance on default notices, the performance bond, the provision of new vehicles and of a local manager] …

Accordingly we have to conclude that SITA is in fundamental breach of the contract on each of four counts, let alone taking points collectively.

We have then gone on to consider whether we can place any reliance upon SITA’s capability or willingness to perform the contract. We note your assertions that SITA intends to use all reasonable endeavours to honour its contractual obligations. However, that assertion is undermined by SITA’s denial that it is in any way in breach of the contract, and refusal to propose any remedial action in respect of any of the breaches which we have drown specifically to SITA’s attention, and upon which we have specifically invited a response. On the present level of service, SITA have demonstrated no willingness to improve that service, which has indeed deteriorated markedly in the last month…..

This position is excused by the assertion that SITA is working towards a managed disengagement from the contract, when SITA is fully aware from previous correspondence with the Council that the Council has rejected SITA’s offer in respect of such disengagement, and SITA has declined to make any enhanced offer. Accordingly SITA cannot suggest that there is any current process or negotiation between itself and the Council leading to such agreed disengagement. Taking all that into account, we can only conclude that SITA have neither the capability nor the willingness to perform the contract, and have no intention of remedying even one of the fundamental breaches which we have identified to SITA on behalf of the Council. We have to conclude that SITA has repudiated the contract by conduct and by its clear statements to the Council.

Accordingly, and without prejudice to the Council’s ability to treat the contract as terminated forthwith, the Council will treat the contract as terminated by reason of repudiation and fundamental breach on the part of SITA as from Sunday 11th November 2001, and will arrange for an alternative service to be provided commencing from Monday 12 November….”

106. The inevitable counter from SITA was the proposition that this letter itself constituted repudiatory breach which it purported to accept by letter dated 25 October.

Discussion

107. There was an agreed list of issues and I take them in the order in which they were presented:

Issue 1

Were SITA contractually obliged to provide 8 new vehicles?

108. This was in due course conceded by SITA. To the extent it is relevant, it is clear from the method statement that these vehicles were destined for front line service initially undertaken by the M registered dustcarts. In the result, SITA only supplied 4 or 5 new dustcarts and that in a pretty dilatory manner. I accept SODC’s case that the

additional provision of a newer “narrow access” vehicle (which in any event proved to be unsuitable) was not to the point.

Issue 2

Were SITA contractually obliged to provide vehicles for performance of the contract, all of which were less than 6 years old?

109. The starting point here is Clause 29 (2) of the Conditions of Contract which provided that vehicles should not be more than 6 years old “except with the specific approval of the Manager”. This arrangement was reinforced in the lead up to the selection of SITA as the contractor as demonstrated by the content of the “question and answer minute”: see para 24 above.

110. SITA’s Method Statement asserted that the bulk of the current fleet was “fit for purpose” and, subject to the provision of 8 new vehicles, the fleet would continue to supply “an effective service” for the duration of the Contract. However, the statement went on to claim that “no vehicles will be over 6 years old at the commencement of the contract”.

111. In my judgment this latter claim was in fact a reference to the front line vehicles. Certainly the balance of the fleet was nowhere near 6 years old or less and SODC were fully aware of the situation. Heather Leyland of SODC had thereafter furnished a list of all the SITA vehicles “authorised to tip” at the Sutton Courtney disposal site. Her list was dated 20 October 1999 and itemised the registration numbers of the vehicles concerned. SITA responded with a list of those vehicles on the list which were to be used on the SODC contract. In short it is clear that SODC gave specific and informed approval to the arrangements on the basis that 8 would be renewed or replaced within a year or two. Such was confirmed by Mrs Coupar’s report to the Performance of Contract Board in October 2000: see para 43 above. Indeed notably no complaint was made on the topic in the letter from SODC’s solicitors in October 2001.

Issue 3

Subject to the answer on Issue 4 below where SITA on 22 October 2001 in repudiatory breach of the contract in respect of the past and/or continuing breaches relied on by SODC taken individually?

112. It was not suggested that, even if made good, the breaches encompassed by issues 1 and 2 constituted repudiatory breaches of the Contract. But there were other allegations of breach in respect of which, even taken in isolation, it was said, could properly be taken as repudiatory in nature because either the parties had agreed that such breach would justify termination or that the particular breach deprived the Claimant of substantially the whole benefit of the contract.

Issue 3a

Did SITA fail to provide the full time local management required by Clause 18 of the contract?

113. SODC’s broad complaint here is that “between June 2000 and October 2001 the Defendant nominated 6 different managers, none of whom were “dedicated solely to the management of the Contract”. Nonetheless the specific thrust of this complaint is that there was no manager dedicated to the contract in the 6 week period leading up to termination.

114. The contractual obligation was to have a manager or representative “continuously available at a local office and give his whole time to the supervision of the services”. This management was to be the undertaken at the Pennyroyal Depot. In the run up to the period of specific concern, the appointed manager was a Mr Keith Trunkfield. However, he was suspended on 6 September and thereafter went on sick-leave and no replacement was sought, let alone appointed.

115. When the topic was raised at the September Contract Monitoring Meeting held on 25 September 2001, Mr Murray undertook “to try and spend time at Penny Royal”, and in particular on Fridays when there were particular problems in having adequate staff. Mr Murray was of the view that the remainder of the team there were “capable of coping” though his attitude was no doubt coloured by the expectation that the Contract would come to an end in November by mutual agreement.

116. By mid-October, SODC were alleging that there had been a “unilateral” withdrawal of local management. This greatly overstated the position. There were obvious restraints on SITA making Mr Trunkfield redundant. There was no basis for asserting that it was abandoning its management obligations.

Issue 3b

If so, was such failure excused by the absence from work of Keith Trunkfield through sickness?

117. It strikes me as inevitable that there would be some short gap in the provision of supervision when unexpected and unplanned absences arose. This would usually arise in cases of illness. That said, the failure to provide a new manager throughout the period of Mr Trunkfield’s illness was not consistent with SITA’s obligation under the Contract.

Issue 3c

If so and subject to ‘b’ was such a failure a repudiatory breach of the contract?

118. I do not understand it to be suggested that the parties agree that any breach of the obligation gave rise to an entitlement to terminate. Nor does it strike me as even arguable that the absence of Mr Trunkfield over this period can constitute a repudiatory breach in the sense of depriving the Claimants of substantially the whole benefit of the Contract. Indeed, I am not persuaded that his absence was significant in terms of the actual provision of services by SITA. It simply gave rise on SODC’s part to “concern”. In fact, Mr Murray’s part time substitution appears to have been adequate to “cope with the problem”.

119. I have not forgotten SODC’s reliance on earlier interruptions in the provision of management cover and the indication from such experience as to what might be

SITA’s performance in the future. But I am unable to accept the proposition that SODC in this respect had a “cavalier” attitude to its contractual obligations in general or this in particular.

Issue 3d

Was SITA’s admitted failure to provide a performance bond a repudiatory breach of the contract?

120. It is common ground that a performance bond in the amount of £174,000 ought to have been supplied but was overlooked by both parties at the time of the Contract was executed. In this respect it is not contended as I understand it that the term was an inominate term, the relevant breach of which went to the root of the Contract. It is simply contended that it was a condition of the contract, breach of which was repudiatory per se.

121. My approach to this issue, which is one of construction, is guided by the judgment in State Trading Corporation of India v Golodetz [1989] 2 Lloyds Rep 277: -

“Unless the term in question has the effect of a condition precedent to some other aspect of the contract or has already been classified authoritatively as a condition in other contexts “the courts should not be too ready to interpret contractual clauses as conditions” per Lord Wilberforce in Bunge Corp v Tradax Export AS. At the end of the day if there is no other more specific guide to the correct solution to a particular dispute the Court may have no alternative but to follow the general statement of Bowen LJ in Bentsen v Taylor… by making what is in effect a value judgment about the commercial significance of the terms in question….”(Per Kerr LJ pp.283 – 284.)

122. Here:

a) There is no authority by way of classification of the term as a condition: see Keating 7th Edition para 10-41. The decision of the South African Courts in Swartz and Son v Wolmaransteadt Town Council [1960] 2 SALR 1 is not persuasive, particularly outside the context of building contracts.

b) The requirement was not a condition precedent.

c) The surrounding circumstances, as it strikes me, point away from the term being a condition:

i) there was no provision as to the time at which the bond should be furnished

ii) there was no provision even as to the form of the bond

iii) if and to the extent it was proper to infer that the form of it was to be the same as under the previous contract, it was a performance bond not enforceable on demand

iv) the bond was for a modest sum by comparison with the sums payable under the Contract (under the terms of which SODC paid in arrears).

123. In short, the failure of both parties to notice its absence until they were in dispute is indicative of the commercial unimportance of the term and any breach of it. I reject the submission that Clause 12 was a condition.

Issue 3e

Did SITA persistently fail to provide the services required by the contract and/or to provide services to the standard required by the contract?

124. The basis of this issue is the 3,000 or so default notices which were issued under the terms of the Contract. But it is accepted that the principal focus has to be on those notices issued in September and October 2001 (albeit it may be necessary to bear in mind earlier defects in performance when considering the assertion of renunciation by SITA of its future obligations under the Contract).

125. I accept SITA’s submission that there had been periods of poor performance particularly in December 2000/January 2001 attributable to the extra demands of Christmas and some very cold weather. Again there was a very bad patch at the end of May 2001 which prompted SODC to sound out other contractors as to their ability to provide replacement or supplementary services on a temporary basis.

126. By June, however, in standing down Grundon who had offered these services Mrs Coupar reported that “the current contractor is at this time delivering the services as required”. Thereafter, through the remainder of June, July and August 2001 the quality of the services improved both in terms of staffing and vehicle breakdowns which had been the major causes of difficulty. In short, by August the service provided was “acceptable”.

127. On the assumption that they were contractually legitimate, SODC rely on a) the number of missed round notices and b) the level of default notices and recurring complaint notices issued in September and October 2001 as evidencing failure to provide the services required by the contract to the standard required.

128. So far as missed rounds are concerned, it is manifest there was a startling increase in notices issued during these two months. SODC rely heavily on this crescendo compared with the immediately preceeding period. In fact, a similar number of “missed” rounds had been reported in January and June although the equivalent number of notices had been much less. As regards this disparity, I accept SITA’s submission that this was attributable to a change in practice on the part of SODC rather than a change in the quality of the service performed by SITA.

129. The new (and as will appear misplaced) reliance on missed rounds was coincidental with the introduction a new self policing system. It had been agreed at the 28 August

Contract Monitoring Meeting that SITA would “fax SODC each morning by 8.30 to advise the Council of the current situation e.g. cancelled community waste vehicles or rounds not started”. This in turn immediately provoked numerous missed round notices which were often duplicated and also were almost invariably concerned with a very small part of individual rounds.

130. Furthermore, it is worth putting the number of these notices in context. Each month there were hundreds of rounds. The total number of rounds partly “missed” amounted to 61. Thus, whilst it is true that there were more missed rounds notices issued in September/October, it is not a firm indicator of any deterioration in the service.

131. As regards the other notices, it is clear that the number of complaints recorded in SODC’s database did not in fact increase by comparison with earlier months. Further it has to be borne in mind that the Contract in its default notice regime recognised that there would be failures on a daily basis. Again putting the default numbers into context, there should have been 15,000 or so individual collections each day: about 1100 complaints were received over the relevant 2 month period.

132. Certainly there was no contemporary complaint prior to the notice of termination to the effect that matters had deteriorated. To the contrary the complaint in October was that the service had been unacceptable throughout. Accordingly I accept the submission that there was no marked decline in the service quality in September and October 2001.

Issue 3f

Did SITA persistently fail to provide the necessary resources required to fully perform the contract?

133. Leaving aside the complaint about the provision of a local manager, the provision of new vehicles and the provision of a performance bond which I have already covered, it remains wholly unclear to me what further contention is encompassed by this issue.

134. Of course SITA soon discovered that the Contract was loss making, all the more dispiriting no doubt given the fact that they had been the contractor in situ. The commercial focus of SITA was inevitably and properly on reducing cost.

135. SODC sought to argue that there had been a failure to pay sufficient wages to SITA’s staff, but this was not part of the pleaded case. It is clear that there was a problem in engaging staff in the tight employment market in Oxfordshire (particularly in the face of BMW’s recruitment at Cowley). In the result SITA was dependent on more expensive agency staff. It seems to me that there may be a nice balance between making a handsome in house wage increase and bearing the additional cost of agency staff. Such issues were not really investigated.

136. In any event the apparent thrust of SODC’s case on this topic is to suggest that SITA failed to respond unilaterally to its own assessment in January 2001 that wage rates needed to be increased by 25-33% to match local market levels. In fact, SITA sought additional funding from SODC to help meet this situation and the refusal by SODC to make a contribution formed the background of the agreement to seek mutual disengagement shortly thereafter. Unless in fact the outcome was a deterioration in

the service, the failure to act independently becomes irrelevant. Furthermore, I accept the position adopted by SITA that no substantial pay rise over and above the contractual arrangements could have been accomplished without SODC’s agreement. This is because any pay rise would have been effectively binding on those tendering for the replacement contract.

137. That all said I do not regard the complaint as adding anything to the other issues.

Issue 3g

Were such failures on the part of SITA as

may be established or admitted in respect of failure to provide the services and/or the resources necessary fully to perform the contract repudiatory?

138. The short answer is “no”: -

a) I have rejected any complaint about the allocation of resources.

b) The extent of defaults whether viewed generally or with emphasis on the period of September and October 2001, were not repudiatory against the background of the scale of performance required under this Contract, the provision of a contractual regime for default notices and the availability of substitute contractors in the event of poor performance.

c) It is also pertinent that the failures in service provision were usually corrected promptly. This topic is discussed in greater detail later in this judgment but for the present purposes it is sufficient to recall that only rarely were matters outstanding for more than a day.

Issue 4

In respect of each of the past and/or continuing breaches relied on by SODC and admitted or established as occurring at any time before the letter from Wragge & Co to SITA dated 28 September 2001, had SODC, with a knowledge of the breach, affirmed the contract before 22 October 2001 and/or waived the said breach and/or are SODC estopped for relying on the said breach as entitling them to terminate the contract?

139. In the light of my previous findings, this issue is largely redundant. I will express my conclusions very briefly:

a) It is not suggested that there was any affirmation of the Contract in the face of any failure in overall performance in September and October or any failure to furnish continual local management in September and October.

b) The failure to provide all 8 new vehicles was duly pursued by SODC throughout (albeit on the basis that a financial allowance was appropriate for the savings that were achieved). The impact of any breakdowns attributable to the age of the dust carts still employed would be reflected in the complaints (and in the presentation of default notices).

In my judgment no issue of affirmation, waiver or estoppel arises in these respects.

c) As regards to the provision of a performance bond, this should have been furnished at the time of the execution of the Contract, although as I have found it was not a condition precedent. Whilst agents of the Defendant must have been aware of the failure at that time, I accept that the penny did not drop until very much later. Again I do not consider that any question of affirmation, waiver or estoppel arises.

Issue 5

In the light of the answer on Issue 4 were SITA on 22 October 2001 in repudiatory breach of contract having regard in particular to any or all of the following:

a. All such past or continuing breaches of the contract as may be admitted or established if, and in so far as they were not repudiatory breaches when taken individually;

b. The position of SITA stated to SODC in a meeting of 7 February 2001.

c. Their letters to Wragge & Co dated 12 October 2001 and 19 October 2001?

140. By way of introduction to these issues it is worthwhile quoting from the decision of the Court of Appeal in Rice v Great Yarmouth Borough Council (30 June 2000 Court of Appeal) which concerned the question whether the local authority concerned was entitled to terminate contracts made with a contractor for the provision of leisure management and ground maintenance for a period of 4 years. The leading judgment was given by Lady Justice Hale: -

“35. The question for the court (and indeed the contracting parties) in any case like this is whether the cumulative effect of the breaches of the contract complained of is so serious as to justify the innocent party in bringing the contract to a premature end. The technical term is ‘repudiatory’ but that is just a label to describe the consequence which may flow. It is not always an entirely satisfactory label, if it implies that the conduct itself must always be such as to demonstrate an intention to abandon contractual obligations: while this will sometimes be so it is not an invariable requirement. As the judge indicated, there are three categories: (1) those cases in which the parties have agreed either that the term is so important that any breach will justify termination or that the particular breach is so important that it will justify termination; (2) those contractors who simply walk away from their obligations thus clearly indicating an intention no longer to be bound; and (3) those cases in which the cumulative effect of the breaches which have taken place is sufficiently serious to justify the innocent party in bringing the contract to a premature end.

36. It is clear that the test of what is sufficiently serious to bring the case within the third of these categories is severe. No case has been to us which addresses this question in the context of a long running contract to provide public services such as this. There are some parallels with a charterparty, but that is a somewhat less complex undertaking than these. There are also some parallels with building contracts, in the number and variety of the obligations involved and the varying gravity of the breaches which may be committed, some of which may be remediable and some not. In Sutcliffe v Chippendale and Edmundson (1971) 18 BLR 157, at P 161, His Honour Judge Sir William Stabb QC said this:

‘I take the view that the whole combination of circumstances that then existed and to which I have already eluded did justify the plaintiff in ordering the contractors off the site. I think that their manifest inability to comply with the completion date requirements, the nature and number of complaints received from sub-contractors and [the architect’s] own admission that in May and June the quality of work was deteriorating and the number of defects was multiplying, many of which he had tried unsuccessfully to have put right, all points to the truth of the plaintiff’s expressed view that the contractors had neither the ability, competence or the will by this time to complete the work in the manner required by the contract.’

37. Building contracts differ from these contracts in that there will, it is hoped, be an end product. Defects may or should be remedied during or, in some cases, after completion. Delay in completion can be compensated. These contracts contemplated a multitude of different results at different times, from cricket pitches ready for the summer season, football pitches ready for the autumn, flower beds in full bloom at the appropriate times, properly mown grass on lawns and bowling greens, raked bunkers in a pitch and putt course, edged and weeded rose beds, pruned shrubs, cleared litter, and so on and so on. Mr Smith accepted that in the case of a four year contract such as this, the court is entitled to look at the contractor’s performance over a year, the most important part of which is the spring and summer, but it must still ask itself whether the council was deprived of substantially the whole benefit of what it had contracted for during that period.

38. These contracts are, however, like building contracts in that the accumulation of past breaches is relevant, not only for its own sake, but also for what it shows about the future. In my view, the judge was right to ask himself whether the cumulative breaches were such as to justify an inference that the contractor would continue to deliver a substandard performance. However, I would agree with Mr Smith that the inference

should be that the council would thereby be deprived of a substantial part of the totality of that which it had contracted for that year, subject to the additional possibility that some aspects of the contract were so important that the parties are to be taken to have intended that depriving the council of that part of the contract would be sufficient in itself. This is not what the judge found in this case.”

141. It remained SODC’s case that the breaches as proven even if not, taken individually, repudiatory in nature, were so as a “package”. Part of SITA’s response to this contention was that not only were the breaches of both the vehicle and the performance bond obligations of modest significance, but both had been parked while the negotiation for managed disengagement continued. The basis of this submission was the exchange of letters in February/March 2001.

142. I accept that the parties had agreed to put those issues on one side. In any event I am quite unable to accept that taken even cumulatively, the identified breaches in respect of these two matters supplement any breach in respect of service provision and management obligations in September and October so as to render them repudiatory in nature and degree.

143. This raises (together with Issue 5c) a question of whether there was a renunciation or anticipatory breach on the part of SITA – namely the question that SITA had evinced an intention not to perform the contract: see Jaks v Cera Investment [1998] 2 Lloyds Reps.89.

144. As regards the meeting on 7 February 2001, I am unable to derive from the document (or indeed the witness evidence) the proposition that SITA’s representatives asserted (or could be understood to assert) that SITA proposed to abandon the Contract whether or not a negotiated release could be achieved.

145. Mrs Coupar’s evidence was to the effect that Mr Taylor “made it clear that SITA wished to withdraw from the contract.” That much is uncontroversial. But the exchanges give no support to the submission that, come what may, SITA were going to cease performance.

146. At the meeting on 26 January the topic of needing to make a substantial increase in wages was raised. Mrs Coupar’s note records that Mr Taylor asked whether, if the Council refused to furnish additional funds to help with the increased wage bill, SITA could “have amicable disengagement”. Mr Jacques’ note records that three options were discussed:

“1. Negotiation

2. Friendly disengagement

3. Unfriendly disengagement”

147. However, in the light of the subsequent exchanges, I place no significance on the fact that the option of SITA continuing to perform the Contract (despite the fact that it was loss making) was not discussed.

148. In her letter of 5 February Mrs Coupar recognised that, in the face of the Council’s decision not to make any additional payments, SITA might be unwilling to comply with the terms of the Contract and accordingly the “Council may be prepared to consider a managed disengagement”. She specifically asked SITA to respond to “the requirement to provide services on the terms set out in the contract”. At the meeting on 7 February notes were again kept by Mrs Coupar and Mr Jacques. Mrs Coupar’s note reads as regards Mr Taylor’s comments: “SITA – accept the reason but are not able to continue the contract but will look for a disengagement at the end of November”. Mr Jacques recorded Mr Taylor as saying: “will continue to provide the services on the terms agreed during the retendering process”.

149. It seems to me clear that SITA’s negotiating stance was that it was looking to buy itself out of the Contract but in the meantime would continue to perform it. I do not consider that it is a fair (let alone necessary) inference that if negotiations failed SITA planned to pull out.

150. Indeed, Mr Taylor’s letter of 10 February said in terms:

“Confirming our discussion on 7 February our preferred way forward now is a managed but friendly disengagement”.

Whilst he was not excluding a decision to cease performance, no such unambiguous assertion or even threat is made.

151. I have not forgotten that Mrs Coupar told the Council in her report dated 21 February that: -

“The Council could seek to enforce the contract with SITA on the existing terms. SITA have made it clear that they cannot continue on this basis so the Council would face the prospect of court action to seek damages for a breach of contract. In the meantime it is likely that the service would face severe disruption or possibly collapse, requiring the Council to bring in an alternative supplier. The Board is advised that it would be preferable to try and agree terms for a managed disengagement rather than run these risks: -”

152. This is a fair summary of the position including the possibility that there would be a refusal to perform on the part of SITA. But the highest it could be put was that Mrs Coupar was doubtful about SITA’s willingness to perform if the negotiations fell through.

153. In fact, I conclude that SITA was not contemplating, let alone concluding, that in the event of failure of the negotiations, it would abandon or refuse to perform the Contract. It was only too obvious that to do so would expose SITA to a large claim reflecting the cost of finding, engaging and paying (on a much more generous basis) a replacement contractor. In consequence, I regard it as substantially more probable that SITA would have accepted the need to perform the Contract for another 3 years and bear the cost. This conclusion is in accord with SITA’s status in the industry and the position that it adopted on other loss making contracts.

154. Further there is nothing in the correspondence to support the proposition that, if the negotiations failed, SITA were indicating, let alone contemplating, an intention not to continue performance: -

a) Mr Murray, in a letter dated 15 June, observed “I believe the above detailed response will show that SITA remain committed to the duration of the Contract subject to the ongoing discussions with regard to disengagement”.

b) Mr Holgate told Mr Jacques on the 21 July: -

“SITA have allocated a sum to get out of the Contract, otherwise we stay.”

155. The thrust of this complaint is that, read in their context, the letters to SODC’s solicitors clearly evinced an intention by SITA not to perform the Contract. In particular, it is contended that the initial letter was equivocal in its response to SODC’s request for confirmation that SITA would perform the Contract for the remainder of its term “to its full specification and at the contractual price”, the reply being to the effect that “SITA recognised its obligations under the contract and will use all reasonable endeavours to perform the contract”.

156. I do not categorise that response as equivocal. It expressly accepts that SITA was fully aware of its continuing contractual obligations. If it had been sought, an undertaking to perform the Contract without any default whatsoever would have been hopelessly unrealistic.

157. Furthermore, the second letter, written in the context of an assertion that the response was equivocal, repeated SITA’s position that “it accepts those obligations as contained within the contract”.

158. SODC focus on other features of that second letter as making it plain that nonetheless SITA had no intention of performing the contract viz:

i) The reference to the provision of services not having been “seriously deficient”,

ii) The suggestion that putting a performance bond in place would be “inappropriate”,

iii) An alleged evasion about the need to provide a full time local manager during Mr Trunkfield’s period of sick leave,

(iv) The assertion that SITA’s provision of the remainder of the 8 new vehicles was at its “discretion”.

159. But some of these points are simply by way of repetition of long standing areas of dispute, some of which had been parked following the exchange in February/March 2001. They no more evince an intention not to perform the Contract than the earlier stance that had been adopted.

160. The exception may be the suggestion in connection with the provision of vehicles that SITA had a discretion as to how its contractual obligations were to be implemented in this respect. This was, as already identified, an incorrect construction of the contract. Be that as it may, as I have already held, the stance was not on any view in regard to a matter of any substance. In this connection it has to be borne in mind that SODC’s complaint was prompted more by the need for a reliable service, not the age of the dustcarts used per se. The concern was more to the effect that SITA was making an illegitimate economic saving by not renewing as promised.

161. If the point be alive, the same considerations apply to the insistence of the provision of a performance bond being “inappropriate”. So it was in the context of negotiations for mutual disengagement. It cannot bear the interpretation that this refusal would be maintained even if the contract was to continue. Neither in isolation nor in conjunction with the asserted “discretion” as to the provision of new or younger vehicles could it be regarded as relating to a substantial part of SITA’s performance obligations.

162. SITA’s specific position is recorded in the letters. No doubt SODC were very concerned given the impression that Mrs Coupar had derived from the meeting between the parties on 13 September that “if the Council do not agree to the earlier release from the contract then the service will deteriorate”. Even if SITA’s representative had said something to that effect, of itself it is a mile short of renunciation of the contract. SODC simply remained unconvinced that SITA would deliver full contractual performance. That of itself is not repudiatory.

Issue 6

On the facts and in the circumstances found, were SODC estopped from terminating the contract because the parties were, or had been, negotiating a managed disengagement?

163. On my findings, this issue does not arise and in any event was not pursued as regards the service breaches. As regards the issue of supply vehicles and the provision of a performance bond, it was the Defendant’s contention that these issues had been “parked” pending negotiation of a managed disengagement. In my judgment that analysis is probably correct but I need not make any specific findings about it.

Issue 7

If having regard to the answers on issues 1 – 6 above, SITA were in repudiatory breach of contract on 22 October 2001 and being then still capable of acceptance by SODC, was Wragge & Co’s letter of 22 October effective to terminate the contract by acceptance of such repudiatory breach, having regard to its allegedly purporting to give notice at a future date and its requirement that the contract be performed meanwhile?

164. Again on my findings, this issue does not arise but I will express my provisional conclusions on it.

165. SITA’s submission was to the effect that the termination letter of 22 October was not a letter accepting a repudiatory breach because it sought to terminate the contract at a future date and called for performance meanwhile.

166. It appeared to be common ground between the parties that, if and in so far as the repudiation by SITA was anticipatory in nature, then the letter was ineffective since it purported to affirm the Contract up and until the 11 November and to treat it as terminated thereafter: Fercometal Sarl v MSC Mediterranean Shipping Co SA [1989] 1 AC 788: Norwest Holst Group v Harrison [1985] ICR 688 @ P.638. Indeed it was expressly without prejudice to the Council’s ability “to treat the contract as terminated forthwith”.

167. It is true that SODC was entitled to a reasonable period to make up its mind whether to terminate before it would be treated as having affirmed the contract. But the letter was not a general reservation of position let alone a call for a period of reflection. The letter unambiguously insisted on performance until the 11 November. SODC’s alternative suggestion that the letter was an immediate termination but with an offer to accept performance until the 9 November is unarguable.

168. SODC sought to escape this outcome by contending that the proper approach was different when the background was one of repudiatory past performance. I am unable to accept the distinction (albeit such circumstances are in practice far less likely to arise). Indeed, bearing in mind that it is SODC’s case that the Contract was repudiated both by actual and by anticipated repudiatory breaches, this distinction is unworkable.

169. It is, of course, a trite observation that SODC (on the assumption of a repudiatory breach, whether anticipatory or otherwise) would be in a difficult position having regard to its contractual obligation to continue waste disposal activities yet unable to put in place an alternative contractor immediately.

170. The short answer to this problem is that SODC had a number of contractual arrows in their quiver. In particular, SODC had rights of forfeiture under Clause 41 in circumstances where SITA had “abandoned the contract” or was “fundamentally in breach” of the Contract and in any event the right to engage a substitute contractor under Clause 37 (10).

Issue 8

171. If the answer on issue 7 is ‘no’, then having regard both to the answers on issues 1-7 above and to the letters from SITA to Wragge and Co dated 25 October 2001 and 6 October 2001:

a) were SITA’s repudiatory breaches of the contract on or about 10 November 2001 then still capable of acceptance by SODC and if so,

b) was SODC’s conduct then and thereafter in having no further dealings with SITA and to SITA’s knowledge engaging Grundon to provide the services effective to terminate the contract by acceptance of such repudiatory breach?

172. The essence of this issue (which again does not arise on my findings) is a contention by SODC in the alternative that SODC only accepted SITA’s repudiatory breach on 11 November by appointing and dealing with Grundon.

173. Quite apart from the strange interpretation of the correspondence involved in this submission, the contention fails in any event:

a) The Contract had been affirmed – at least until the 10 November.

b) Before that date, by its letter of 6 November, SITA had accepted SODC’s repudiation as contained in the letter of 22 October.

c) Therefore, there was no Contract in being on the 11 November.

Issue 9

Was a common law right to terminate the contract for repudiatory breach excluded by the provisions regarding termination and forfeiture contained within the terms of the contract in respect of any or all of the breaches as may be established or admitted?

174. Yet again this issue does not arise but I would express my conclusions briefly.

175. SITA submitted the answer was “yes”. The thrust of this contention was broadly as follows: -

a) The right to terminate under Clause 8 (3) giving 6 months notice following an adverse performance review was expressly “without prejudice to the Council’s other rights”. No such reservation was contained in Clauses 37 (9) (termination for a 100 default notices within a 4 week period) and Clause 41 (forfeiture for being “persistently or fundamentally in breach”).

b) The Contract accordingly contained elaborate express provisions providing a complete code for termination or forfeiture by SODC for serious breaches in performance.

c) Such was in stark contrast with the provisions of both the previous contract and indeed the subsequent contract with Grundon.

d) Accordingly, these provisions impliedly ousted any other rights of common law which would otherwise fall within Clauses 37 and 41.

176. I am unable to accept SITA’s contention. My reasons are again quite broadly as follows: -

a) The reservation of “other rights” in Clause 8 (3) included in my judgment both contractual and common law rights. Indeed this appears to be accepted by SITA. It follows, in fact, that the reservation in Clause 8 (3) is wholly inconsistent with the implication of an ouster contended for by SITA in regard to general breaches of performance.

b) Clause 37 (9) was limited to the implications of a number of default notices. It furnished an upper limit to the contractual safety valve relating to the impact of individual but minor defects in performance. It did not encompass any different or more substantial deficiencies in performance.

c) Clause 41 (2) did focus on a number of circumstances of “default” including bankruptcy, assignment and persistent breach. This gave rise to a discretionary contractual entitlement “without avoiding the contract” on the part of SODC to take over performance of the contract, after a warning period, using SITA’s equipment. It is a special liberty which is no more inconsistent with the retention of general contractual and common law rights in the event of breach than a mortgagee’s contractual right to possession in the event of default by a mortgagor.

177. I do not accordingly regard these provisions as containing a complete code in the relevant area. I do not derive any contra-indication (assuming the same to be admissible) from the earlier or later contracts.

178. In short, whilst I accept that (despite referring to the number of default notices in September) SODC did not rely on any contractual right of termination in its 22 October letter, it was not precluded from relying on other rights of termination (if any) at common law.

Issue 10

If the answer to Issue 9 is yes, in respect of which of the breaches as may be established or admitted did such exclusion operate?

179. It follows, once again, this issue does not arise and therefore I will say no more about it.

Issue 11

(a) What was the proper construction of Conditions of Contract Clause 37 and Appendix O of the Contract?

180. In its ordinary and natural meaning, it is my judgment that the machinery of Clause 37 is clear enough : -

i) On being informed about an alleged service failure, the manager or her delegate is entitled to investigate the matter. However, I accept SODC’s submission that an investigation was not required into any complaint: it was sufficient for the manager to be reasonably satisfied by the terms of the complaint itself.

ii) Following such an investigation (or if such an investigation is reasonably thought not to be useful or practicable) and the manager is reasonably satisfied that the failure is made out, an instruction for remedial action may be issued, such remedial action to be achieved not later than the next day.

iii) In the event of a failure to comply with such an instruction, the manager may issue a notice of default which will involve a deduction of £7.50.

iv) If there is a repeated failure, then the manager may issue a Notice of Recurring Complaint leading to a deduction of £7.50 for the first £12.50 for the second

and £38 for subsequent notices within any 12 month period. By way of supplement I accept SITA’s submissions that:

a) Notice of recurring complaint could only be issued in the event of an actual repeated failure to provide services to the same address.

b) A previous complaint as such was not sufficient justification: there must have been a previous default notice.

c) By the same token the 100 notices specified in Sub-Clause 9 must have been issued in accordance with Clause 37.

v) If a recurring complaint required investigation by a representative of the Council, then an inspection notice can be issued giving rise to a deduction of £35.50.

vi) Failure to perform services as required by such notices within the 24 hour period may lead to the issue of a further default notice.

vii) Any notice may be withdrawn at the discretion of the manager if his view is there were extenuating circumstances beyond the control of the contractor.

viii) On top of all or any such deductions, the Council may terminate the Contract forthwith if more than 100 such notices are legitimately issued in any 4 week period.

ix) Notwithstanding these provisions, if the manager is of the opinion that any failure in performances in respect of urgent service, the manager can arrange for others to perform the service in which event a deduction of £4,800 may be made where the whole of the services are not performed on a specific day and £370 in respect of a failure to perform a whole round on a specified day.

181. It was an important feature of SODC’s case that Clause 37 when read in conjunction with Appendix O specified various categories of default which gave rise to default notices from the time of the complaint absent any investigation, instruction to remedy or failure to remedy. But I am unable to accept their submission that there was such a scheme for so called “automatic notices” in regard to various problems such as failures in performance identified by a supervisor, failures in regard to bulky waste or special collection dates, and (more importantly) refuse not being collected from the back door of specified addresses.

182. It seems to me that Appendix O was a helpful attempt to put into diagrammatic form the machinery of Clause 37 but the inference that emerges from it that the 24 hour period available to remedy a complaint was not available in respect of these types of failures is inconsistent with the express terms of Clause 37, which, by virtue of Clause 3 (2), must be treated as the overriding provision.

183. I should add that in two further respects Appendix O is not consistent with Clause 37:

a) The rectification period was not “24 hours” but any time prior to the end of the following day.

b) A recurring complaint itself required both the failure to remedy a complaint and a pre-existing default notice: a mere second complaint was not enough.

184. I also reject the submission of SODC that the time for issuance of a default notice in respect of justified complaints being notified prior to 3 p.m. was the close of business that same day (i.e. 5 p.m.). It is obvious that SODC made the contractors aware of their pledge to meet such a timetable but there was no contractual provision to that effect.

(b) Was the contract varied to alter the procedure for the issue notices for the Contract Monitoring Meeting on 21 November 2000? If so, what was the affect of the variation, and did it take effect for longer than 3 months?

185. It is clear from the evidence of Heather Leyland that the default system was not operating in compliance with the regime that I have set out. In particular: -

a) Automatic default notices and recurring notices were issued without regard to the fact or timing of any remedial action.

b) Other default notices were issued on the basis that complaints notified by 3 p.m. needed to be remedied the same day.

c) Recurring complaint notices were also issued on the basis of a complaint without regard to a remedial action.

d) “Whole round notices” were issued despite no other contractor had been brought in and despite the failure of being in regard to only part of an individual round.

186. At the Contract Monitoring Meeting on 21 November 2000, it appears to have been agreed that the procedure set out in a document entitled “Procedure for Cancelling Default Notices, Repeated Complaint Notices and Inspection Notices” (and an accompanying form) was to be used for the issue of default notices under the Contract. SODC contend that the Contract was varied in this respect as a result of that meeting.

187. Clause 3 (1) of the Conditions, provides that any variation of the Contract must be in writing and signed by the manager. It is SODC’s case that a contractual variation to the default notice procedure was agreed at the Contract Monitoring Meeting and evidenced by the minutes the meeting as signed by Mrs Coupar and Mr Hughes.

188. There are obviously difficulties with treating a signed minute recording that “it was agreed that the proposed form and procedure bill was workable… will be given a 3 month trial period as of the beginning of December” as constituting a variation to the Contract, forgetting any difficulty about the issue of authority on the part of the signatories. Further, the only trial contemplated, on the basis that the suggested procedure was “workable”, was a form of notice to be used for a limited period. This notice simply dealt with the questions of appealing for cancellation of default notices. Objectively viewed, it is difficult to discern any intention to amend the Terms of the Contract.

189. Matters thereafter were simply left in the air. The question of extended use of the system was never discussed. The legitimacy of default notices remained a serious bone of contention between the parties throughout the managed disengagement talks. At no stage did anyone suggest that the Contract had been amended and, in my judgment, correctly so.

Issue 12 (a)

Were default notices and recurring complaint issued and deductions made in accordance with the contractual provisions (as applicable)?

190. Given my findings in respect to Issue 11, the short answer is “no”.

Issue 12 (b)

If not, is SITA estopped from denying their validity and/or has SITA waived their right to challenge their validity?

191. It is the essence of SODC’s case that there was a consistent and unchallenged procedure as to the making of default notices which created a conventional understanding allowing SODC to recover the relevant default sums and to terminate the Contract on the basis of the aggregate of such defaults even if non contractual.

192. SITA challenged that submission on various grounds:

i) There was insufficient certainty and clarity in the terms of the shared understanding.

ii) There was no adequate communication that it shared SODC’s mistaken assumptions.

iii) SODC cannot establish any detriment if SITA were allowed to resile from the assumption.

193. The evidence of Heather Leyland was that the system operated by her reflected in large part the system that had been developed under the previous contract. In some sense this was true, despite the wide diversions in Clause 37 from the default notice procedure under the earlier contract. It strikes me that almost everybody operating the terms of the contract had failed to read, let alone hoist in the impact of, the new terms. More importantly, I cannot detect any agreement to use the old regime as a template despite the express terms of the new contract.

194. The highest that SODC’s case can be put is that the procedure for issuing notices discussed at the Contract Monitoring Meeting reflected a mutual understanding of the way in which the Contract was to be operated which was never challenged.

195. This lack of challenge did not amount to assent. It was treated as no more than the repetition of the contract terms and not a revised version. Indeed SITA frequently thereafter questioned the manner in which the defaults were being issued until the issue was shelved in February 2001.

196. For example, in January 2001 Mrs Coupar noted in a letter to John Anderson in regard to a collection from one particular village: -

“As agreement could not be reached on the meaning of the relevant contract clause and the Council could not agree to write off defaults to the tune of £1000 as a compromise, a one off payment based on the daywork rates would be agreed pending further discussion and agreement on the relevant clauses in the contract.”

197. This followed a telephone conversation in which the possibility of each side taking legal advice on the default provisions in the Contract was mooted.

198. Later in a letter dated 13 September Mr Murray questioned various £370 full round default notices, albeit not on the basis that only part of the round had been missed but by reference to the fact that the missed properties were “collected” within 24 hours.

199. When Heather Leyland wrote to SITA, on 23 October in response to SITA’s challenge to the default notices: -

“I have checked the defaults that are being queried by you.

A few have been cancelled but the majority were correctly issued and are attached.

Assisted households – please refer to pages 40-42 and 167 of the contract – when an assisted household has not received a refuse collection, a default notice is immediately issued. If the refuse from this household has been missed on other occasions within the previous 12 months then a recurring complaint notice is also issued.

Recurring complaints - which you cite is already charged for under whole round £370 – see Article 37 (4) of the Conditions of Contract. As recycling from these households has been missed on previous occasions within the last 12 months, the recurring complaint notices were correctly issued.”

200. Notably she makes reference to specific provisions of the Contract without any suggestion that the system was in fact operated by reference to the earlier agreement or indeed the scheme that was particularised at the meeting in November 2000.

201. Nor can it be said that it would be unconscionable for SITA to be allowed to go back on any assumption let alone misunderstanding:

i) SITA were deprived of an opportunity to rectify complaints even where the original “failure” derived from a state of affairs for which they were not responsible (e.g. failure to put a dustbin in the street timorously, failure to put rubbish outside the back door where appropriate etc etc).

ii) The same complaints even if wholly unjustified and/or corrected within one day would form the basis of recurring complaints.

iii) The system operated in regard to whole round notices (i.e. partial rounds being sufficient to trigger the whole round default) was based on legal advice taken by SODC at some undisclosed date not revealed to SITA.

Issue 13

Are SODC entitled to rely on the letter of 22 October 2001 as a contractual termination under Clause 37 (9) if the requirements for termination under that clause are met?

202. This issue is redundant in the light of my earlier findings on the construction of Clause 37.

203. I have already found that the termination letter of 22 October did not expressly purport to be a notice of termination under Clause 37 (9). In those circumstances, it is SITA’s submission:

i) Notice of termination for repudiatory breach cannot constitute in the alternative notice of the exercise of an available contractual right of termination.

ii) In any event, the Council’s right is to terminate forthwith and not as from a future date.

204. I would be minded to accept SODC’s approach to this first issue that the letter of 22 October expressly contains the relevant allegation (in the context of contradicting the claim that SITA was not in breach of contract) that 159 default notices were served in September. The mere fact that the number of the relevant clause is not identified is not to the point.

205. But it is of little consequence since the submission in (ii) is obviously correct for the same reasons adumbrated earlier in this judgment.

Issue 14

Did SODC fail to comply with their good faith obligation under Clause 7 (5) of the contract?

206. In this regard SITA contend that there was a breach of sub-clause 5 by SODC in the following respects:

a) By producing the procedure document which misstated the provisions of the contract.

b) In issuing the default notices without providing an opportunity for the defaults to be remedied.

c) By issuing recurring complaint notices without any repeated failure being established.

d) By issuing missed round notices without another contractor being employed.

e) By issuing missed round notices in respect of partly missed rounds.

207. There is an element of unreality about these submissions which require each side to notify the other of non-contractual activity even if they generally differ to the proper construction of the relevant contract terms. I certainly acquit SODC and its officers from any awareness that their approach in this respect was improper or even incorrect.

208. In any event, it would only be significant as back-up for the proposition that any conventional estoppel (which I have rejected) would only cover the monetary payments and not impact on the termination provisions. I say no more about the issue.

Issue 15

If the answer to issue 13 is ‘yes’ then in respect of any 4 week period during the term of the contract in which SODC issued more than 100 notices in respect of defaults, (a) was that 4 week period sufficiently proximate to 22 October 2001 as to entitle SODC to rely on it under Clause 37 (9)?

209. I would doubt whether the outcome to these proceedings is sensitive to the answer to this question but given the requirement for termination (forthwith) I am persuaded the only relevant periods are those within the last 8 weeks leading up to 22nd October 2001.

(b) Do any notices purportedly issued in respect of whole or part missed rounds under Clause 37 (10) count towards the total of 100 notices required under Clause 37 (9).

210. None of the notices count. This is because : -

a) Only default notices, recurring complaint notices and inspection notices are eligible for aggregation under Clause 37 (9); Clause 37 (10) provides an entirely separate regime which is not dependant upon the issuance of any notice.

b) In any event the notices were issued despite:

i) no opportunity for remedy being allowed (despite the defaults being in respect of only part of the individual rounds)

ii) no alternative contractor had been called in to carry out the work.

(c) If the answer on Issue 23a below is yes, can SODC rely in justifying a termination under Clause 37 (9) on any notices that purport to support deductions which are penalties?

211. This issue does not bite on “notices” issued under Clause 37 (10). It is, on the construction accepted by me, not arguably a penalty clause because it reflects the costs of engagement of an alternative contractor and in any event no valid notices were issued under it.

212. It is not suggested that, even if the sums payable under Clauses 7b (ii) and (iii) were penalties the notices should not be valid for the purposes of Clause 37 (9).

(d) Was the contract varied to alter the procedure for the issue of notices at the Contract Monitoring Meeting of 21 November 2000? If so:

a) What was the effect of the variations and

b) Did it take effect for longer than 3 months?

213. I have already dealt with this issue earlier in this judgment:

(e) Were more than 100 notices eligible to be counted towards the said total issue in the said period in accordance with the contractual provisions, and if not how many such notices were so served?

214. I have already held that:

i) Missed round notices do not count.

ii) Automatic notices are invalid whether within or without the category set out in Appendix O. The more so in circumstances where the deficiency was corrected by the following day.

iii) Recurring complaint notices would only be validly issued if there was at least one underlying complaint resulting in a default notice and the current deficiency was not corrected by the end of the following day.

iv) Any notice which had been cancelled or was in fact a duplicate was not eligible.

215. One of the difficulties in assessing the total number of notices that were valid is identifying those occasions where the missed collection was collected not later than the end of the next day. The fact of the remedy was usually recorded but sometimes without a date. But it appears to me that the overwhelming probability is that almost all of the defaults were corrected within the specified period. That was the contractual obligation on SITA and there are few occasions on which it is suggested that there was any further delay.

216. If this approach is correct, I understood it to be common ground that there were less than 100 such notices validly issued over the last two 4 week periods under the Contract. If the matter is controversial I may need further submissions from the parties. There is no call for precision in this respect. But my understanding of the enormous range of tables on the topic produced by both parties purporting to analyse the position by reference to various assumptions was that the total number of legitimate notices issued in the two periods of 4 weeks was about 50 or 60.

(f) If the answer on Issue 15 (e) is no, are there any such eligible notices served otherwise and in accordance with the contractual provisions and in respect of which SITA are nevertheless estopped from denying their validity or have waived their right to challenge their validity (having regard to the answer on Issue 15 (c) above, and if so how many?

217. In the light of my findings under Issue 12 and 15, this does not arise. In any event, any shared understanding would not have extended to the termination provisions of Clause 37 (9).

Issue 16

Having regard to the answers on Issues 10-15 did SODC in fact validly terminate the contract pursuant to Clause 37 (9) by Wragge & Co’s letter dated 22 October 2001?

218. The answer is no.

Issue 17

If the answer to 16 is yes, are SODC entitled in principle and upon the true construction of the contract and subject to the answer on Issue 18 below to recover loss of bargain damages following such termination,

219. This issue accordingly does not arise.

Issues 18, 19 and 20

220. The first two of these issues were not pursued by SITA and Issue 20 relating to the quantum of SODC’s loss does not arise (and in any event was the subject of agreement).

Issue 21

a) Having regard to the answers on Issues 11 and 12 were sums wrongly deducted from SITA’s contractual payments by misapplication of the contractual provisions for deductions set out in Clause 37 of the contract:

b) If the answer on Issue 21a is yes and subject to the answer on Issue 22 below, what is the proper basis for determining whether or not such deductions are wrongly made?

221. It has been agreed that the quantum of SITA’s counter claim for unpaid invoices is £160,405.67. As regards the myriad of issues raised under this heading I am not willing to embark upon the detailed analysis until the parties have reflected on the impact of my construction of the contract. If necessary, I will entertain further written submissions but the sums involved do not, in my judgment, justify a substantial hearing.

Issue 22

If the answer on Issue 21a is yes, to what if any extent are SITA estopped from seeking to or have SITA waived their entitlement to seek repayment of the sum so deducted by not challenging the deductions and/or the procedure by which SODC made them earlier?

222. This issue is adequately dealt with under Issue 6, 12 and 15.

Issue 23 (a)

Were the deductions made by SODC in amounts higher than £7.50 each from payments to SITA in respect of notices pursuant to Clause 37 illegal and void as penalties?

223. SITA argue that all the liquidated damages charged at a higher rate than £7.50 (except for the inspection notice charge of £35.50) were penalties and thus not enforceable. I reject this submission: -

i) The code established by Clause 37 must be construed as a whole: it would require a clear case for only parts of the liquidated damages provision to be treated as a penalty.

ii) The sums involved are modest and do not give rise to the ready implication that they are by way of deterrence rather than recompense.

iii) The figures are put forward by way of administrative expenses and it is clear that some of the higher rates are coincident with the greater level of administrative action.

iv) The exception, it seems to me, is the figure of £38 for a recurring complaint notice for the third and subsequent complaints within 12 months. Initially this would be concurrent with the inspection notice charge of £35.50 and accordingly bears all the hallmark of a deterrence figure not least with a 12 month’s cut-off point. In that respect the provision is a penalty.

Issue 23 (b)

If so is the defendant entitled to payment of the amount of the sums so deducted in respect of such invalidly issued notices?

224. This does not arise.