Entire agreement / non-reliance clause didn’t help dodge the factual matrix
11 November 2021
A private finance initiative project agreement between FCCB and the Council provided for the construction and operation by FCCB of a waste to energy thermal treatment plant for Council and third party waste. Income received by FCCB from third parties in excess of certain thresholds would be shared between the Council and FCCB.
Should those thresholds be indexed by reference to actual inflation indices (FCCB’s position) or a constant rate (the Council’s position)? The former would protect FCCB against its costs inflating over the course of this long term agreement. FCCB referred to guidance notes (not incorporated into the agreement) published by HM Treasury and the Department for Environment, Food and Rural Affairs recommending that the contractor should not bear inflation risk in PFI projects.
The Council argued that the guidance was irrelevant and inadmissible owing to entire agreement/non-reliance clauses. The agreement did not apply indexation to the thresholds and instead referred to values contained in FCCB’s base case financial model (incorporated into the agreement) which assumed a constant rate. The model was prepared for FCCB’s tender and the Council had instructed bidders to assume indexation rates to be 2.5% p/a.
The court held that the guidance formed part of the background known or assumed by the parties at the time of execution. It didn’t override express terms but could be used as part of the factual matrix in construing those terms. An objective reading of the model indicated that the parties intended for the thresholds to be indexed by reference to actual inflation indices and not the assumed constant rate.