Centrica Plc and another v Premier Power Ltd

JurisdictionEngland & Wales
JudgeLord Justice Waller,Lord Justice Longmore,Lord Justice Hughes
Judgment Date27 November 2007
Neutral Citation[2007] EWCA Civ 1225
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: A3/2007/0345
Date27 November 2007

[2007] EWCA Civ 1225

2006 [EWHC] 3068 (Comm)

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION, COMMERCIAL COURT

Mrs Justice Gloster DBE

Before

Lord Justice Waller

Vice President of the Court of Appeal, Civil Division

Lord Justice Longmore and

Lord Justice Hughes

Case No: A3/2007/0345

And A3/2007/0341

Between
Centrica Plc and Anr
Respondent
and
Premier Power Limited
Appellant

Lord Grabiner QC and Mr Daniel Toledano (instructed by Messrs Denton Wilde Sapte LLP) for the Appellant

Mr J Sumption QC, Mr John McCaughran QC and Mr Sa'ad Hossain (instructed by Messrs Ashurst) for the Respondent

Hearing dates: 5 th, 6 th November 2007

Judgement

Lord Justice Waller
1

This case is concerned with the construction of a long term interruptible gas supply agreement (the GSA) entered into between British Gas (BG) and Premier Power Limited (PPL) on 1 April 1992 under which gas was to be supplied to Ballylumford Power Station via pipelines, including a pipeline at that time still to be constructed under the Irish Sea. The plan at the time was that the pipeline would be constructed and run by BG or an affiliate of BG. The case is, in particular, concerned with how the provisions of that agreement, concerned with charging for the transmission of gas through the pipeline, should be construed in the light of changes in circumstances after April 1992. The GSA provided for PPL to pay a commodity charge and “transmission charges” which related to the costs of connection to the national transmission system and transportation along the pipelines. The transmission charges contained an element of capital recovery, covered by an actual monthly charge (AMC), certain predictable charges, such as routine testing known as BGPOCs, and unpredictable charges (BGUOCs), the focus of this appeal (all as defined in an annex – Annex 5 to the agreement).

2

The judge in her judgment sets out the detail, but it is possible to summarise the position in the following way. When the agreement was entered into the pipeline under the Irish Sea was to be built, owned and operated by an affiliate of BG, Premier Transco Limited (later renamed Premier Transmission Limited (PTL)). When deliveries started in 1996 PTL performed, as between itself and BG, initially under a Transportation Agreement dated 6 September 1996. So far as charges for transportation were concerned, that agreement was effectively back to back with the GSA so far as AMC, BGPOCs and BGUOCs were concerned. In February 1997 BG demerged into two publicly listed companies, Centrica and BG plc. This had consequences which are non-controversial. BG was replaced by Centrica and performance by Centrica was to be carried out by its wholly owned subsidiary, British Gas Trading Limited (BGTL). Thus, for BG in the agreement, one must now read Centrica.

3

The demerger also resulted in PTL becoming a subsidiary of BG plc and it followed that PTL was no longer an affiliate of BG or Centrica. So far as those operating the GSA were concerned at the time of the demerger, the fact that PTL was no longer an affiliate did not make any difference to the way the GSA operated. So far as transmission charges were concerned, effectively PTL charged Centrica under the Transportation Agreement and Centrica charged the same AMC, BGPOCs and BGUOCs under the GSA. The transfer agreement was then replaced by the Transportation Code in 2001. PTL from that time charged under the provisions of that code which, so far as charging for transportation was concerned, was again effectively back to back with the equivalent provisions of the GSA, and Centrica in its turn charged PPL under the provisions of the GSA, i.e. Annex 5. PPL continued to pay the same without protest, and indeed paid until February 2002 a further charge made by PTL by virtue of the Transport Code called “balancing and scheduling charges” treating them as BGUOCs.

4

What caused a problem as between PPL and Centrica followed government action which from 1 October 2004 changed the basis of charging as between PTL and Centrica, resulting in a different method of charging and in increased charges which Centrica sought to pass on to PPL as BGUOCs. From 1 October 2004, PTL's conveyance licence was modified, pursuant to the Gas (Northern Ireland) Order 1996 and The Energy (Northern Ireland) Order 2003, requiring PTL to charge what were termed “monthly postalised payments” (MPPs). These were introduced so as to force pipeline owners to charge a common tariff, assessed by reference to all pipelines transmitting gas to those in Northern Ireland, whatever length of pipeline was being used, so that those receiving deliveries over great lengths of pipeline were paying the same as those over the shorter distances.

5

In invoicing Centrica for the transmission costs PTL no longer used the detailed provisions aimed at defining the capital cost of building and operating the pipeline but charged the MPPs, and Centrica, when charging PPL, also sought to pass on the MPPs again no longer charging by reference to the provisions relating to AMC and BGPOCs as set out in Annex 5 of the GSA. They relied simply on the provision relating to BGUOCs in that annex. As invoices shown to us demonstrated, a format different from that which had been employed up until October 2004 was adopted.

6

Centrica had no option but to accept the new basis of charging by PTL, but PPL maintained that it was not open to Centrica to charge on the basis of MPPs. A point taken was that, since PTL was no longer an affiliate, BGUOCs were no longer recoverable. PPL, through its solicitors, offered to accept liability on the basis of charges calculated as previously, offering indeed to treat PTL as if it was an affiliate incurring the charges as contemplated when the GSA was made in 1992, but PPL refused to pay on the basis of the MPPs being charged by PTL to Centrica. At the same time they also refused to pay the charges known as “balancing and scheduling charges” imposed by the Transportation Code which PPL had paid up until October 2004.

7

The sums in issue so far as the MPPs are concerned are very much higher than those relating to scheduling and balancing charges; in the case of MPPs the sum was as at the date of the hearing at first instance, nearly £26 million and, in the case of and balancing and scheduling charges, was some £3.2 million. The GSA has until 31 March 2009 to run with an option for PPL to extend to 2012, and sums in issue are accordingly very large indeed.

8

Centrica maintained that both the MPPs and the balancing and scheduling charges were recoverable under the existing terms of the GSA. In the alternative they pointed to provisions which in certain circumstances entitled Centrica to vary the GSA, and they argued that, if they were wrong in their primary contention, the terms as to variation were engaged and they were entitled to vary the terms so as to allow for recovery of both MPPs and balancing and scheduling charges.

9

Before the judge Centrica failed on their primary case, that on a true construction of the GSA both MPPs and balancing and scheduling charges were recoverable as BGUOCs. They also failed on their entitlement to vary so far as balancing and scheduling charges were concerned but succeeded on their entitlement to vary as far as MPPs were concerned.

10

PPL have appealed the variation aspect relating to MPPs, and Centrica have appealed on their primary case on construction. That latter case relates to both MPPs and balancing and scheduling charges but, if that case fails, they do not pursue an appeal in relation to their entitlement to vary so far as the balancing and scheduling charges are concerned.

11

The appeal was opened by Lord Grabiner QC for PPL seeking to reverse the judge's decision on the variation aspect. Mr Sumption QC then opened his appeal on construction and responded on the variation appeal. Lord Grabiner responded on construction and replied shortly on variation. Mr Sumption replied shortly on construction. It is logical, so far as this judgment is concerned, to start as the judge did with construction.

12

It is convenient at this stage to set out the relevant terms of the GSA,but with this explanation in order to save having to quote some terms. Under the GSA gas was to be transmitted through one pipeline that already existed owned and operated by Bord Gais Eireann (BGE) up to the coast of Scotland, and another under the Irish Sea to be constructed by BG or an affiliate.

“….

NOW THIS AGREEMENT WITNESSETH that British Gas hereby agrees to supply and the Customer hereby agrees to take and pay for gas and to pay transmission charges in accordance with and subject to the Special Conditions below and the provisions of the Annexes to this Agreement.

2.1. The Customer shall pay to British Gas:

(a) a commodity charge for gas supplied under this Agreement (referred to as the Modified Reference Price) and

(b) A charge for the costs of connection to the national transmission system of British Gas and gas transportation along the Pipeline (referred to as the Transmission Charges).

2.6. The Transmission Charges shall be calculated and paid in accordance with Annex 5 and General Condition 4.

4. Payment:

(1) British Gas will render invoices promptly for Transmission Charges (except BG Unpredictable Operating Costs Payable by the Customer) and for gas supplied hereunder following the period of supply which will, wherever reasonably possible, correspond to a period of one Month. The invoices shall include, but need not be...

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