In Manchester Ship Canal Company Ltd v Environment Agency  EWHC 1340 (QB), HHJ Claire Moulder (sitting as a Judge of the High Court) struck out the Manchester Ship Canal Company’s £13m claim against the Environment Agency under a contract agreed between the MSCC and the Mersey River Board (a predecessor of the EA) in 1963 and subsequently confirmed in Schedule 2 of the Mersey River Board Act 1964.
Under the agreement, the MSCC gave consent to the MRB undertaking improvement works to the River Irwell which had the potential to increase siltation in the Manchester Ship Canal during high flows. In return, Clause 4 of the agreement provided that if, at a site to be agreed between the parties or in the absence of agreement determined by an arbitrator, the flows on the River Irwell exceeded certain specified amounts, then compensation was payable by the MRB to MSCC at specified rates. Clause 7 of the agreement required the MRB to install new measuring gauges at the site agreed or determined under Clause 4, for the purpose of measuring the flows at that location. Clause 8 required the MRB to keep continuous records of the flows and to make those records available to the MSCC on request. Clause 9 provided that in the event that the parties were unable to agree an arbitrator for the purposes of a determination under Clause 4, then an arbitrator may be appointed by the President of the Institute of Civil Engineers on the application of either party on notice of the other.
MSCC’s claim was for compensation arising out of high flows during the Boxing Day 2015 floods, which they said applying Clause 4 generated a liability of c.£13m. However, no agreement had at any stage been reached pursuant to Clause 4 as to the location of the site at which flows were to be measured. Nor had there been any arbitrator’s determination on the matter. The EA submitted that this was fatal to the claim because Clause 4 provided that liability only arose if the specified flow rates were exceeded at the location that that been agreed or determined.
In response, MSCC contended, relying on Sudbrook Trading Estate Ltd v Eagleton  1 A.C. 444 and Herbert v Doyle  EWCA Civ 1095, that the requirement for agreement/arbitration of the measuring site could be regarded as a non-essential part of the machinery of the agreement and the court could substitute its own decision as to the appropriate location of the site. MSCC further contended that the court could use, as a proxy for the site that was to have been agreed or determined under Clause 4, gauges on the River Irwell at Adelphi Weir or Manchester Racecourse, which had been installed prior to the agreement.
The Court accepted the EA’s submission that MSCC’s case had no realistic prospect of success. Sudbrook and Herbert were distinguished on the following grounds:
1) In Sudbrook the Court’s conclusion was on the basis that the provisions for valuing land in a contract for the sale of land could be regarded as non-essential because the fair or reasonable value of the property could be ascertained even if the mechanism in the contract failed. That was not the case in the present case, where the nature of what the court was being asked to determine – the most appropriate location for assessing hydraulic flows – required special knowledge and where the agreement envisaged that the issue would be determined by civil engineers with specialist expertise, rather than lawyers.
2) Herbertwas distinguishable because the agreement in that case would have been unworkable in practice if the court was unable to step in because one party would have been given a unilateral right of veto over the agreement’s operation. In the present case, by contrast, the arbitration clause avoided the possibility of deadlock because in the event of one party refusing to agree to appoint an arbitrator, the other party was empowered to apply to the President of the Institute of Civil Engineers.
3) Even if the court were minded to intervene, MSCC’s case lacked clarity as to which of the two proposed proxy sites – Adelphi Weir or Manchester Racecourse – should be used. MSCC’s pleaded case argued for the former but its expert’s report argued for the latter.
Charles Banner appeared for the Environment Agency.