In its June 2020 decision in Essex County Council v UBB Waste (Essex) Ltd, the England and Wales High Court of Justice determined that the Essex County Council had the right to terminate a major waste treatment contract after the operator failed to meet the required acceptance testing standards. The dispute dealt with a 25-year contract awarded by the Council pursuant to a tendering process for the design, construction, financing, commissioning, operation, and maintenance of a mechanical biological household waste treatment plant in Basildon. After construction, the facility was required to pass the acceptance tests prescribed under the contract. After failing to pass those tests, the Council sought a court declaration entitling it to terminate the contract.
As the Court noted, under the contract, UBB Waste (Essex) Ltd (UBB) gave an express warranty to use “the degree of skill and care in the design of the Works that would reasonably be expected of a competent professional designer experienced in carrying out design activities of a similar nature, scope and complexity.” However, defects in the design of the facility led to a failure to meet the acceptance testing standards since the facility was unable to process the prescribed amount of waste. After a lengthy analysis of the relevant technical evidence, the Court determined that the Council had the right to terminate the contract notwithstanding its delay in seeking to exercise that right:
Conclusions
Despite the complexity of the evidence and the subtlety of the erudite arguments in this case, the Authority’s case is very straightforward. UBB did not achieve Service Commencement by the Acceptance Longstop Date. UBB was therefore not only in continuing breach of clause 13.1.2 but its failure to achieve the issue of the Acceptance Test Certificate by the Longstop Date was a Contractor Default as defined. Accordingly, Essex was entitled to terminate the contract for Contractor Default pursuant to clause 67.
There is no express or implied term requiring the Authority to exercise its right to terminate the contract within a reasonable time, albeit such right might be lost through election. On the evidence before me, the right had not been lost by 13 June 2019 in circumstances where the facility had still not passed the Acceptance Tests.
There is no reason of principle that would prevent the court from granting a declaration as to the Authority’s entitlement to terminate the agreement as at that date.
As this case illustrates, the right to terminate a contract for non-performance will often turn on the interpretation of contractual performance milestones. When awarding multi-staged contracts, purchasing institutions would be wise to clearly define the acceptance testing standards that must be met by their contractors prior to proceeding with the long-term operation of facilities or other similar complex systems. Failing to do so can compromise the ability to access clear contractual off-ramps in the face of contractor non-performance.
