Dalkia Utilities Services Plc v Celtech International Ltd
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE CHRISTOPHER CLARKE,>MR JUSTICE CHRISTOPHER CLARKE |
| Judgment Date | 27 January 2006 |
| Neutral Citation | [2006] EWHC 63 (Comm) |
| Docket Number | Case No: 2004 FOLIO 311 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 27 January 2006 |
[2006] EWHC 63 (Comm)
Mr Justice Christopher Clarke
Case No: 2004 FOLIO 311
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Michael Soole Q.c., And Mr Scott Allen (instructed by Reynolds Porter Chamberlain) for The Claimant
Mr Charles Gibson Q.C., and Mr Hashim Reza (instructed by Constant & Constant) for the Defendant
Hearing dates: 4 th– 12 th October 2005
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
In the present case I have to decide, amongst other things, (i) which, if either, of the two parties to a 15 year agreement lawfully terminated it; (ii) whether, if one of them did so, it was by giving notice under a contractual termination clause or by way of acceptance of the repudiation of the contract by the other party, or both; and (iii) whether a notice of termination pursuant to a particular clause of the contract may, also, serve as an acceptance of a repudiation by the other party or may, if the notice was invalid and there was no such repudiation, itself, be a repudiation.
The dispute has certain remarkable features. First, at the time when the agreement was brought to an end, the relevant representatives of both parties, including the then managing director of the defendant and its external legal advisors, were ignorant of two important written amendments to it. Second, the last of those amendments contained provisions which, according to the claimant produced, on their literal meaning, a result that was commercially absurd and which was, on any view, surprising. Third, the claimant sought at the commencement of the trial to amend its Points of Claim to rectify the agreement as amended. I refused permission to amend. But the claimant contends that the absurdity of the literal meaning of the amendment can be remedied by a process of construction.
The Parties
The claimant – Dalkia Utilities Services Limited ("Dalkia") – designs, constructs, funds, installs, commissions and operates energy plants. It is part of a group which is said to be Europe's leading energy services provider.
The defendant – Celtech International Limited ("Celtech") – is a subsidiary in a group of UK companies involved in the paper industry. Its parent company is Celtech Holdings Ltd. It is ultimately controlled by Mr Fabio Perini, a wealthy and successful businessman, whose Group originally had a 50%, then a majority, and later a 100% interest in the holding company. Celtech's principal business is the manufacture of tissue paper which it does by making large reels, up to a couple of tonnes in weight. These reels are later converted by those who purchase them into industrial and domestic paper products such as towels and toilet paper. In 1993 Celtech embarked upon the construction of a large paper mill at a site at Lansil Industrial Estate, Lancaster, the total cost of which was in the region of £17 million. In order to operate the mill Celtech required both electricity and steam. For that purpose it negotiated a series of agreements with Dalkia (then named AHS Emstar Utilities Services PLC) whereby Dalkia would provide energy services by means of an energy plant, described as a combined heat and power facility ("CHP"), the cost of which was anticipated to be in the region of £3 million.
Between 17 th October 1994 and 27 th June 1997 Dalkia and Celtech signed six agreements in connection with the construction of the Plant and the supply and management of the Energy Services and the Charges for them:
i. an agreement dated 17 th October 1994 in connection with the development of the project to design, build, commission and operate the Plant;
ii. the Principal Agreement dated 24 th October 1995 whereby Dalkia agreed (a) to procure the design, construction, funding, installation, commissioning and operation of the Combined Heat and Power Plant ("the Plant") which was to provide the necessary electricity and steam to the mill and (b), over a fifteen year period, to supply certain defined Energy Services by means of the Plant;
iii. an agreement dated 24th October 1995 by which Celtech (as landlord) agreed to lease to Dalkia the property that would house the Plant ("the Agreement for Lease");
iv. an agreement dated 17 th April 1996 covering certain new works which Dalkia agreed to finance, which amended certain specific provisions of the Principal Agreement ("the First Amendment Agreement");
v. a supplemental letter agreement dated 22 nd May 1996 in connection with the provision of further services by Dalkia ("the Supplemental Agreement"); and
vi. an agreement dated 27 th June 1997 that again amended the Principal Agreement and provided for rescheduling of the finance element payable by Celtech and for charges for new works ("the Second Amendment Agreement").
The Plant took gas from the mains gas supply, for which Celtech paid, and converted it into electricity ("power") and steam ("heat") which were used to operate the paper mill. The purpose of the CHP facility was to take advantage of the energy efficiencies which it was thought would be achieved so as to reduce the cost of electricity and steam below that which would arise if power and heat were derived solely from conventional sources, in particular electricity from the grid. The generation of power by the facility should have been almost as efficient as the national grid, but without the inevitable energy loss in transmission, and the "waste heat" recovered through a heat exchanger 1 to raise steam was effectively free. The electricity derived from the Plant could be used in the mill and, depending on the relationship between gas and electricity prices, sold back to the grid. The Plant was housed on a discrete parcel of land located within the paper mill. The freehold of this land is owned by Celtech.
The Principal Agreement came into force on its date – 24 th October 1995. It was conditional on Celtech executing and delivering to Dalkia the Agreement for Lease. Under clause 3.1 – headed "Supply of Energy Service"—Dalkia undertook to procure the design, construction, funding, installation, commissioning and operation of what was described as the Interim Energy Plant and the New Plant. The Interim Energy Plant consisted of a fired packaged boiler and a number of boiler ancillaries. The New Plant comprised a gas turbine driven generator set, gas turbine ancillary equipment, a waste heat boiler, and a standby boiler 2, with boiler ancillaries, a computer based plant management system and various other items of plant and equipment. Under clause 3.2 Dalkia was bound to supply from what turned out to be 15 th March 1996 until 2 nd December 1996 3 what was described as the Interim Energy Service, defined in Part 1 of Schedule G as being a quantity of saturated steam to be supplied by the use of the interim energy plant. From 2 nd December 1996 Dalkia was to supply the New Energy Service, defined in Part 2 of Schedule G as electricity and steam up to certain maximum quantities and turbine exhaust gases. These utilities were to be supplied by the New Plant which Dalkia and its staff were to operate, and which Dalkia was to maintain and repair. For its part Celtech was obliged, by clause 3.7, to supply a number of specified Support Services including space within the building for the New Plant and concrete foundation plinths therefor.
The Principal Agreement was to last in the first instance for an "Initial Period" of 15 years from the Certification Date, i.e. from 2 nd December 1996 until 2 nd December 2011. Thereafter it was to continue for successive periods of one year unless either party gave a year's notice to terminate at the end of any such successive period. By clause 2.2.3 of the Second Amendment Agreement the Initial Period was defined to mean the period commencing on the Certification Date and ending on 31 st December 2011.
Charges
Clause 4 provided for Dalkia to charge Celtech and Celtech to pay for the Energy Service in accordance with Schedule A. Part II of that Schedule specified that for the duration of the agreement Celtech should pay for the New Energy Service, an annual charge of £950,232 in 12 equal monthly instalments. That charge was divided into two parts:
a. The "Finance Element" of the annual charge, being £409,926;
b. The "Operational Element" of the annual charge, being £540,306;
in each case exclusive of VAT. The monthly instalments for the finance element of the annual charge of £409,926 were £34,160. Payment of those monthly instalments has the effect, using an interest rate of 9.1%, of completely amortising the capital
cost of the Plant (which was £3,340,804) by the end of the 15 year period: see Schedule J to the Principal Agreement. The operational element was a fixed rate price for the operation of the plant and the supply of electricity, steam and gas produced by it. That element paid for the employment of 4 Dalkia workers to monitor the equipment and those who supervised them at Dalkia's regional office in Manchester, some sub-contract labour for maintenance tasks, together with other maintenance, repair and replacement and insurance costs. Celtech remained responsible for payment for the gas and electricity used by the Plant.Variation of the Charges
Increased payments on account of costs savings
Schedule B provided for variation of the charges. In respect of the finance element clause B1.1 provided that after Celtech's first full annual accounting period after the fourth anniversary of the Certification Date and after each full...
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