Teesside Gas Transportation Ltd v Cats North Sea Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Butcher |
| Judgment Date | 14 May 2019 |
| Neutral Citation | [2019] EWHC 1220 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2017-000086 |
| Date | 14 May 2019 |
[2019] EWHC 1220 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF
ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Royal Courts of Justice
Business and Property Courts
7 Rolls Buildings,
Fetter Lane, London,
EC4A 1NL
Mr Justice Butcher
Case No: CL-2017-000086
Simon Rainey QC and Henry Ellis (instructed by Boies Schiller Flexner (UK) LLP) for the Claimant
Tim Lord QC and Richard Eschwege (instructed by Pinsent Masons LLP) for the Defendants
Hearing dates: 31 January, 4–7, 11–12, 20–21 February 2019
Approved Judgment
INTRODUCTION
Some 230km east of Aberdeen, in the central North Sea, lies an offshore riser platform (the “Central Area Transmission System (CATS) Riser Platform”), owned and operated by the Defendants (the “CATS Parties”). The CATS Riser Platform is linked, by a bridge, to a production platform, not owned by the Defendants, namely the North Everest platform. A 404km high-pressure gas pipeline (the “CATS Pipeline”) runs from the CATS Riser Platform to an onshore redelivery terminal and gas processing plant (collectively, the “CATS Terminal”) at Seal Sands, Teesside. Several production fields in the North Sea are linked to the CATS Pipeline, delivering gas to it either directly or through a series of connexions at the CATS Riser Platform. Since becoming operational in 1993, the CATS Pipeline has been one of six principal pipelines delivering North Sea gas to the UK mainland.
On 10 September 1990, the Claimant (“TGTL”) and the predecessors of the Defendants entered into a ‘Capacity Reservation and Transportation Agreement’ (“CRTA”). Under the CRTA, TGTL was entitled to a pre-determined capacity of pipeline gas, through the exclusive use of specified points of entry (for gas entering the system) and exit (the redelivery of the gas from the transportation facilities into the processing facilities). The effect of this, as all parties were agreed, was to grant TGTL ‘a pipeline within a pipeline’.
The central issue in this case is the amount payable by TGTL to the CATS Parties under the CRTA. The CRTA provided for two different payment regimes. From April 1993 (when the CATS System became operational) until 1 October 2013, TGTL paid a fixed ‘Transportation Fee’. That fee was the subject of litigation in 1997–8 (to which I shall refer below), but is not in issue in these proceedings. From 1 October 2013 to 1 October 2018 (being the end-date of the CRTA), TGTL was to pay a non-fixed ‘Capacity Fee’. That fee was to be calculated pursuant to a contractual formula, which is at the heart of this dispute.
Of the amounts invoiced by the CATS Parties in respect of the five-year Capacity Fee period, TGTL has withheld some £37.7 million. TGTL seeks various declarations as to its entitlement to withhold all or some of that amount; the CATS Parties counterclaim in debt for the full unpaid sum, with contractual interest.
THE PARTIES
TGTL is a company incorporated in the late 1980s by ICI, which sold a 50% share to Enron Europe Ltd (“Enron Europe”) shortly thereafter. For that reason, TGTL is referred to in most of the contractual documentation as ‘the ICI/Enron Party’. Enron Europe bought ICI's remaining share in 1996. Following the collapse of Enron Europe's parent company in 2001, TGTL entered a scheme of arrangement, and was subsequently acquired by Deutsche Bank AG (“Deutsche”) in February 2008, Deutsche becoming TGTL's ‘Admitted Scheme Creditor’. Later that year, Deutsche sold some of its interest in TGTL to an investment entity managed by CarVal Investors GB LLP.
At all material times, TGTL's sole business activity was to acquire capacity within (what is now known as) the CATS Pipeline, and to sell on that capacity to a consortium operating a collection of fields downstream of the CATS Riser Platform, close to the CATS Terminal, known as the J-Block fields. The J-Block gas enters the system at TGTL's ‘Entry Point’, which is the most downstream subsea point of entry on the CATS Pipeline. TGTL was unique amongst shippers of gas through the CATS System, in that it was directly in competition with the CATS Parties for the sale of capacity through its ‘pipeline within a pipeline’. Since the expiry of the CRTA in 2018, TGTL has had no business activity or source of income.
The CATS Parties collectively own and manage the CATS System. The First and Second Defendants are wholly owned by CATS Management Limited (now known as Kellas Midstream Limited), itself a wholly owned subsidiary of Antin Infrastructure Partners. The First Defendant (or “CNSL”) holds a roughly 36.2% interest in the CATS System, which it purchased from Amoco (U.K.) Exploration Company, LLC (“Amoco”) on 1 October 2015. The Second Defendant holds a roughly 62.8% share in the CATS System, the vast majority of which it purchased from BG International Limited on 19 February 2013. Consequently, via CATS Management Limited, Antin owns a 99% stake in the CATS System. The remaining 1% share in the CATS System is held by the Third Defendant (as to roughly 2/3), and the Fourth Defendant (as to roughly 1/3). The relationship between the CATS Parties is governed by a Joint Operating Agreement dated 17 November 1992. Under that agreement, the CATS Parties are to nominate one company as ‘CATS Operator’, with various responsibilities for managing the CATS System. The original CATS Operator was Amoco; CNSL became CATS Operator on 1 October 2015.
FACTUAL BACKGROUND TO THE CRTA AND TAA The CRTA
The CRTA, the mechanism by which TGTL acquired its ‘pipeline within a pipeline’ was concluded in September 1990, some three years before the CATS System was fully constructed and operational. The CRTA was concluded in parallel with arrangements whereby another entity in which Enron had a substantial interest, Teesside Power Limited, agreed to purchase gas from the Everest and Lomond gas fields, which was to be used (after processing) to generate power and steam at the Teesside Power Station (then partly owned by Enron).
From April 1993 (when the system became operational) until 1 October 2013, TGTL paid for its share of the pipeline capacity through a fixed tariff (which was made up of a high initial tariff from 1993 to 2008, and a considerably reduced tariff from 2008 to 2013). There was in fact a dispute between the (then) parties to the CRTA concerning the tariff – in particular whether, and if so when, the ‘Commencement Date’ (from which the tariff was payable) occurred. That dispute led to proceedings, which were decided in favour of the CATS Parties by Langley J on 3 June 1997. In a further judgment dated 21 January 1998, Langley J rejected the CATS Parties' claim that TGTL's withholding of invoiced sums pursuant to the earlier dispute had been in bad faith (which, as set out below, is relevant to the question of contractual interest).
From October 2013, the Capacity Fee, which forms the basis of the present dispute, was payable. The provisions of the CRTA relevant to the Capacity Fee are set out in some detail below. Clause 4 (‘Capacity Reservation’) provided (in clause 4.1) for TGTL's right to use and sell on the Capacity Reservation. TGTL's Capacity Reservation Rate was defined in clause 1.1 as some 8.3m Cubic Metres per Day. Pursuant to clause 21, that was reduced to some 6.5m Cubic Metres per Day, effective as of the Contract Year 2017–18.
Under clause 4.5, the CATS Parties were free to use or sell all capacity other than TGTL's Capacity Reservation. If they contracted for the sale of capacity to third parties (by way of a ‘Non-Capacity Gas’ contract), the CATS Parties were required by clause 4.6 to provide TGTL with certain information about that contract, including its estimated period of life, the proposed points at which gas would enter and leave the CATS System, and a bona fide estimate of the aggregate quantity and composition of the Non-Capacity Gas in the system. Clause 4.6 is central to the present dispute, and is considered in detail below. Very few original clause 4.6 notices (many of which would now be 20–25 years old) were found and put in evidence for the purposes of this trial. However, it was common ground that notices were provided in respect of each Non-Capacity Gas contract.
Conclusion of the TAA in 1998
On 20 November 1998, the CATS Parties, TGTL, and a number of third-party shippers entered into a multilateral Transportation Allocation Agreement (the “TAA”). The purpose of this agreement, in broad terms, was to make provision for the allocation of gas to shippers because, though the gas entered the pipeline with varying quality and composition, it was necessarily mingled within the pipeline.
The TAA and the CRTA were intended to co-exist, and TGTL and the CATS Parties entered into ‘Agreement No.2’ amending the CRTA for this purpose. By clause 17.3 of Agreement No.2, all provisions of the CRTA were to remain in full force and effect other than those expressly set out in that Agreement. Those amendments were considerable, and very detailed; they included, amongst other amendments, the deletion of several sections of the CRTA and their replacement by provisions of the TAA. By way of (relevant) example, the Allocation provisions formerly found in Schedule XIII of the CRTA were replaced by the TAA. Clause 1.11 of the TAA provided a priority mechanism. In the event of conflict or inconsistency between the TAA and the CRTA (as amended), the TAA was to prevail in any matter relating to ‘nomination, allocation, attribution, measurement or substitution’ (these not being defined terms); in all other matters, the CRTA was to prevail.
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