Thames Valley Power Ltd v Total Gas & Power Ltd

JurisdictionEngland & Wales
CourtQueen's Bench Division (Commercial Court)
JudgeMR. JUSTICE CLARKE
Judgment Date27 September 2005
Neutral Citation[2005] EWHC 2208 (Comm)
Date27 September 2005
Docket Number2005 Folio 668

[2005] EWHC 2208 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

St. Dunstan's House

Before

Mr. Justice Clarke

2005 Folio 668

Between
Thames Valley Power Limited
Claimant
and
Total Gas & Power Limited
Defendant

MR. P. SHEPHERD Q.C. and MR. D. HERBERT (instructed by Herbert Smith) appeared on behalf of the Claimant.

MR. D. WOLFSON (instructed by Hammonds) appeared on behalf of the Defendant.

(As approved by the Judge)

MR. JUSTICE CLARKE
1

In 1994 Heathrow Airport Limited (which I will refer to as "HAL") a subsidiary of BAA put out to tender the contract to run and operate a combined heat and power facility at Heathrow for 15 years. The facility supplies heat to cargo sheds and offices and it uses about 20% of the airport's electricity.

2

The successful bidders for this contract were two companies ATCO Power Generation Limited and EDF Energy (Energy Branch) Plc. They formed Thames Valley Power Limited ("TVPL"), the claimants, to own and run the facility under a set of contracts with HAL. In order to operate the facility so as to be able to supply heat and electricity to Heathrow Airport, TVPL needed gas. They sought bids from a number of prospective gas suppliers. In the result they selected a proposal from Total. They entered into a contract for the supply of gas with a company called Total Marketing of which Total Gas & Power Limited, the defendant, is the successor. Since nothing turns on the distinction between the two, I shall refer to the two companies simply as "Total".

3

The Total group is the fourth largest oil and gas supplier in the world. Total's annual sales to TVPL represent about 0.3% of the Total Group's 2004 UK production. The contract between TVPL and Total is dated 12 th June 1995 and is known as "the Gas Supply Agreement" or GSA. TVPL is described as "the customer" and Total as "the supplier". It provides for the supply of gas over a 15 year period, less six days, from a date in the middle of 1995. The GSA is in two parts; there are standard conditions and special conditions; the latter prevail over the former.

4

Under the contract, Total are to be the sole suppliers of gas to the facility, (special condition 9), and TVPL are required to take and pay for the gas supplied. If they do not take a minimum amount of gas, they are required to pay for it nonetheless, (special condition 6.6).

5

Clause 6 of the special conditions contains an elaborate pricing mechanism. Until 1 st October 1997 the prices were to be fixed, although there was to be an increase after 1 st June 1996. Thereafter, the price was to be the lesser of two prices calculated quarterly according to two price formulae, P1 and P2, but never less than that prescribed by a third formula, P3. The pricing mechanism thus had both a ceiling, the lower of P1 and P2, and a floor, P3.

6

Clause 15 of the standard conditions is a force majeuree clause. It provides as follows:

"15.1 if either party is by reason of force majeuree rendered unable wholly or in part to carry out any of its obligations under this agreement then upon notice in writing of such force majeure from the party affected to the other party as soon as possible after the occurrence of the cause relied on, the party affected shall be released from its obligations and suspended from the exercise of its rights hereunder to the extent to which they are affected by the circumstances of force majeure and for the period during which those circumstances exist, provided that

(a) The party seeking relief under this standard condition shall advise the other party as soon as practicable of the force majeure together with its estimate of the likely effect of the force majeure on its ability to perform its obligations hereunder and of the likely period of such force majeure having regard to the matters referred to in paragraph (b) of this standard condition 15.1.

(b) The party affected shall use all reasonable endeavours to terminate the circumstances of force majeure if and to the extent reasonably practicable and with all reasonable speed and at reasonable cost having regard inter alia to the unexpired term of the contract period (but nothing in this proviso shall limit the absolute discretion of the party affected in regard to the settlement of any labour dispute constituting circumstances of force majeure); and

(c) nothing in this condition shall relieve either party of its obligations to indemnify or to make any payments due hereunder.

15.2, in this standard condition "force majeure" means any event or circumstances beyond the control of the party concerned resulting in the failure by that party in the fulfilment of any of its obligations under this agreement and which notwithstanding the exercise by it of reasonable diligence and foresight it was or would have been unable to prevent or overcome. Without limitation to the generality of this standard condition 15.2 it is acknowledged that any event or circumstance which qualifies as force majeure under the supplier's carriage agreement with British Gas shall be deemed to be a force majeure hereunder. In assessing the circumstances of force majeure affecting the customer, the price of gas under this agreement shall be excluded.

15.3, in the event of a circumstance of force majeure affecting the supplier's ability to supply gas hereunder, the supplier will, in so far as reasonably practicable, treat all its customers including the customer fairly and equally in determining the extent to which supplies are to be reduced, suspended or terminated".

7

On 5 th July 2005 Total served what purported to be a notice under clause 15 in the following terms:

"We refer to the above-mentioned Gas Supply Agreement which was assigned to Total Gas & Power Limited (TGP) in October 2000. As you are aware, gas prices have risen considerably in recent times, in particular during the winter months. As a result of these increasing prices and the price formula for the sale of gas contained in the Gas Supply Agreement which is based on statistics produced by the DTI and the Producer Prices Index published by the Central Statistical Office, it will for large parts of the year become uneconomic to continue to supply gas to you under the Gas Supply Agreement. Accordingly, we regret to inform you that unless there is a significant fall in the anticipated UK market price of gas during the autumn and winter months, TGP will be unable to continue to supply further quantities of gas under the Gas Supply Agreement. TGP is therefore giving you formal notice under clause 15 of the standard conditions of sale forming part of the gas sales agreement that TGP will be unable to carry out its obligation to supply gas to you under the gas sales agreement after 30 th September 2005 until further notice.

Under the terms of the gas sales agreement you are entitled to obtain your requirements for gas from alternative suppliers until such time as TGP is in a position to resume supplies to you. We can further inform you that during this period TGP would be willing to supply gas to you at a bare "pass through" price. That is the price at which TGP could itself source such quantities of gas on the market without any further margin plus the actual transportation and metering charges incurred in effecting the supply. TGP regrets that it has been constrained to take this action, and we hope to be in a position to resume gas supplies under the gas sales agreement in the future. In this respect we will endeavour to keep you informed of the evolution of the situation in relation to the market price for gas".

8

On 20 th July Herbert Smith, on behalf of TVPL replied saying that the increased cost of gas did not render Total unable to carry out its obligations, it merely rendered them less profitable. The letter requested an undertaking from Total that they would comply with their obligation to supply gas under the GSA and threatened proceedings if no such undertaking was given. By a letter of 25 th July, Total expressed the view that proceedings would be precipitous in the absence of proper consideration of the point that they had to make on the last sentence of condition 15.2 to which I shall later refer. They did not offer any undertaking.

9

On 28 th July a without prejudice meeting took place which failed to resolve matters. On 10 th August Herbert Smith sent Total a copy of the claim form to be issued on Friday 12 th.

10

Clause 11 of the special conditions contains a disputes procedure. It provides as follows:

11. DISPUTES

11.1 Notice of Dispute or Difference In the event of any dispute or disagreement between the parties regarding this Agreement or failure to agree matters contemplated herein as being subject to mutual agreement, either party may serve written notice thereof on the other.

11.2.1 Good Faith Dispute Resolution In all cases where a dispute or disagreement is notified pursuant to special condition 11.1, the provisions of Special Condition 11.2.2 shall apply in priority to the other provisions of this Special Condition 11.

11.2.2 The Parties shall, as soon as practicable after service of a written notice pursuant to Special Condition 11.1 and in any event within seven days following the service of such notice meet and use all reasonable endeavours to resolve that dispute or difference in good faith and, if on the expiry of a period of 30 calendar days following the service of the notice the parties shall have failed to resolve that dispute or difference, this Special Condition 11.2.2. shall cease to apply and Special Condition 11.3 shall then apply.

11.3 Appointment of an expert

11.3.1 Subject to Special Condition 11.2, where notice is served pursuant to Special...

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