AES Barry Ltd v TXU Europe Energy Trading Ltd ((in Administration))
| Jurisdiction | England & Wales |
| Judge | MR.JUSTICE PATTEN,MR. JUSTICE PATTEN |
| Judgment Date | 15 July 2004 |
| Neutral Citation | [2004] EWHC 1757 (Ch) |
| Docket Number | No.7613 OF 2002 |
| Court | Chancery Division |
| Date | 15 July 2004 |
[2004] EWHC 1757 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Mr. Justice Patten
No.7613 OF 2002
MR. M. COLLINGS (instructed by Messrs. Norton Rose) appeared on behalf of the Applicant
MR. W. TROWER Q.C. and MR. A. GOODISON (instructed by Messrs. Herbert Smith) appeared on behalf of the Respondent
This is an application by A.E.S. Barry Ltd. for an order under s.11(3) of the Insolvency Act 1986 for permission to commence proceedings in the Commercial Court against the respondent company (“the Company”) which is in administration. The effect of an administration order under s.11 is to introduce automatically a stay of all existing and future proceedings, and also to prevent the enforcement of any property or other rights against the Company during the administration.
In this particular case the purpose of the intended action is, it is said, to resolve, through the medium of the court, various issues of construction arising under an agreement entered into between A.E.S. Barry and the Company on the 18th October 2002. The agreement in question was what is commonly referred to as a type og power purchase agreement (“PPA”) under which, for a period of six years, in return for the payment of a fee the Company agreed to supply gas to operate the power station in Barry, South Wales, which is owned and operated by the applicant. As part of the agreement the Company took the resulting electrical output and of course bore the commercial risks involved in selling that on in the market.
The administration order was made on the 19th November 2002, both in relation to this company and I believe at the same time in relation to a number of other companies in the TXU group. I understand also that some of those companies are now in liquidation. The administration order specified three of the statutory purposes: the approval of a voluntary arrangement under Part 1 of the Insolvency Act or, secondly, the sanctioning of a s.45 scheme, or thirdly, the more advantageous realisation of the Company's assets than would be effected on a winding up.
In the event, the Company's assets have now been disposed of so that the administrators, as things stand today, simply hold a fund which I understand is well in excess of £1 billion, which will be used to make distributions to the Company's creditors in the event that the administration comes to an end in a s.45 scheme.
The PPA provided that the making of an administration order was an event of default entitling the applicant to serve what is referred to in the agreement as an “early termination notice” under clause 23.2. That has the effect of bringing the PPA to an end and of crystallising the Company's liabilities to AES in the form of what is described as an early termination payment. This is defined by means of a complicated formula set out in clause 23 of the agreement, which it is unnecessary I think for me to set out in detail in this judgment. In summary, it requires the parties to calculate the net present value of all projected revenues, to add various costs and the value of certain other obligations, and then to deduct what is described and defined in the agreement as the “net present value of the post-tolling revenue”. It is, I am told, the interpretation of those words, and ultimately the implementation of those provisions in terms of calculating the payment to be made, that has led to the dispute between the parties.
Under clause 23.3.3 of the PPA the parties are required to attempt to calculate the quantum of the early termination payment, but in the event that there is non-payment of that sum or a dispute about the amount of the early termination payment then either party has the right to refer the matter to an expert pursuant to clause 36 of the agreement. Clause 23.3.3 goes on to provide that the expert will then be instructed to calculate the early termination payment in accordance with that clause and with schedule 13 of the agreement.
The definition of “post-tolling revenues” is set out at the beginning of the agreement and is extremely complicated. I do not intend to attempt to paraphrase it. It involves reference to a number of hypothetical assumptions which it is unlikely, as I see it, that a court could sensibly attempt to interpret without some evidence and understanding of the way in which business of this kind under these agreements was carried out between the companies at the relevant time.
The provisions of schedule 13 to the agreement to some extent bear this out by providing that the expert, if appointed, to determine the amount of the payment and, in particular, the amount of the post-tolling revenues (which is an essential component of that calculation) shall be instructed to appoint somebody referred to as the economic consultant as his adviser in order to determine the post-tolling revenues or, if applicable, something that is referred to as the “forecast spread”. Attached to schedule 13 is a letter of instruction to the economic consultant which sets out the detailed matters that he is required to consider as part of that exercise.
Mr. Collings, on behalf of AES, submits to me that the failure of the parties so far to agree the amount of the early termination payment is largely due to an inability to resolve what are essentially questions of construction on the agreement. The purpose therefore of the Commercial Court proceedings which are exhibited in the evidence in draft is to seek the court's determination on a number of such issues which, when resolved by the court, it is anticipated will enable the parties then to resolve their differences.
It is, however, accepted that in the event that that proves impossible either party would be free, if they chose, to refer the matter to the expert for determination in accordance with the procedures that I have just referred to. There is therefore no certainty that even at the end of the Commercial Court proceedings there will necessarily be a rapid resolution of this dispute.
On behalf of the administrator, Mr. Trower submits that the matter is in fact not as straightforward as that. He says that the selection of issues to be determined in the Commercial Court will not in fact achieve a resolution of all the matters in dispute, and that even to resolve those matters it will be necessary for the court to receive factual evidence in relation to the position as understood by both parties at the time they entered into the agreement; in other words the usual factual matrix and, secondly, possibly expert evidence dealing with the technical aspects of the calculation.
I have taken the view that it is unnecessary for me and probably impossible for me to resolve on this application the precise degree of complexity which is potentially involved in those proceedings. In order to do that I would have to perform the very task which it is proposed to set before the Commercial Court judge, and I certainly do not intend to do that in the context of this application. It is enough I think for me to indicate that, on my preliminary review of the proceedings set against the agreement which they are intended to interpret, I am far from convinced that this is a straightforward and simple matter of construction that can be resolved on a minimum amount of evidence and largely on the basis that the judge can simply read the agreement and decide what it means.
That has some relevance I think in relation to the timetabling of the action. The evidence on behalf of the applicant is that if I were to give leave to commence these proceedings now the evidence which already exists in draft on behalf of AES could be completed on both sides during the course of the long vacation with a CMC early next term, and a two-day hearing probably no later than the end of October. However, if my initial view is correct and the litigation turns out to be more complicated than that, it seems to me likely that that is an extremely optimistic timetable, and that the resolution of the action may not occur until much later in the year at the earliest.
The application, however, can, in my judgment, be resolved without having to decide on the precise degree of complexity involved in the Commercial Court litigation. The moratorium imposed under s.11 is primarily concerned to avoid the assets of the Company from being removed by creditors whilst the administrators continue to attempt to achieve the statutory purposes for which the administration order was made. In the most ordinary type of case that would be the more advantageous realisation of the assets, and it is obvious in that context why the moratorium is necessary. There may be cases, and indeed there are reported cases, where applications of this kind are made even in those circumstances, such as, for example, in the case of a lease which is forfeited on the insolvency of a Company where the landlord seeks to regain his property free from the shackles of the administration order. But in a more ordinary case, where the creditors’ claim is simply a monetary one, the court has to carefully scrutinise whether or not it is appropriate to allow that claim to be determined and enforced in advance of the achievement of the statutory purposes and the conclusion of the administration, either by a scheme or, if all else fails, by an order for the liquidation of the Company.
The relevant principles to be applied are set out in the judgment of the Court of Appeal in the reported case of In re Atlantic Computer Systems plc [1992] Ch.505. There, at p.542, Lord Justice Nicholls, giving the judgment...
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