Vertex Data Science Ltd v Powergen Retail Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Tomlinson |
| Judgment Date | 09 June 2006 |
| Neutral Citation | [2006] EWHC 1340 (Comm) |
| Docket Number | Case No: 2006 Folio No. 320 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 09 June 2006 |
[2006] EWHC 1340 (Comm)
Mr Justice Tomlinson
Case No: 2006 Folio No. 320
IN THE HIGH COURT OF JUSTICE
COMMERCIAL COURT
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Ian Mill Q.C and Robert Howe (instructed by Clifford Chance LLP) for the Claimant
Anthony Grabiner Q.C. and Craig Orr (instructed by Freshfields Bruckhaus Deringer) for the Defendant
Hearing dates: 16 and 17 May 2006
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.
MR. JUSTICE TOMLINSON
The Claimant, to whom I shall refer as "Vertex," is a wholly owned subsidiary of United Utilities plc, which is as its name suggests a utility company. Vertex is the customer management outsourcing division of United Utilities. It provides customer service activities to clients in the commercial, utilities and local and central government sectors. Relevantly for present purposes the sort of services which Vertex provides include opening and closing accounts, billing customers, collecting revenue, managing enquiries and complaints and all associated back office, administrative and postal handling services.
The Defendant, to whom I shall refer as "Powergen," is a company within a group of companies which generates and supplies electricity. It is an indirect subsidiary of the German utility company E.On AG. For present purposes the relevant activity of Powergen is its supply of electricity to domestic customers within the UK.
In October 2002 Powergen acquired the business of TXU, an energy company formed from the merger of Norweb Energy and Eastern Energy and became a supplier of electricity to customers in the north west and eastern parts of England. Earlier in 2002 TXU had entered into an outsourcing contract with Vertex covering its customers in the north west. Thus it was that Vertex and Powergen first came into contact with each other. Their relationship thereafter has been unhappy.
Vertex currently supplies to Powergen outsourcing services of the type which I have described pursuant to a Master Services Agreement ("MSA") dated April 2005. As I shall shortly describe this MSA replaces an earlier agreement made in July 2003 which itself represented a renegotiation of a contract which had earlier been entered into between TXU and Vertex.
The MSA is a complex contract. With its associated and integral "Transaction Documents" it runs to 173 pages. The MSA took effect upon signature in April 2005 and the expiry date is May 2012. However there is provision for termination by either party after four years. In the event that Powergen exercises this option Vertex is entitled to no compensation for termination or for goodwill although Powergen is obliged to reimburse certain undepreciated agreed investment costs. A senior officer of Vertex has described the MSA as bringing about between Vertex and Powergen a "very complex, multilayered commercial relationship." "In such a complex project" he continues "there are many hundreds of services, projects, informal requests and de facto variations ongoing at any one time." A study of the contract and a reading of the evidence deployed on this application bears out these observations and demonstrates that the relationship between Vertex and Powergen created by the MSA requires close and continuing cooperation at an operational level on a daily basis. Vertex cannot perform its functions under the MSA without the continuing active cooperation of Powergen. Although mutual cooperation and mutual goodwill are different concepts, I find it difficult to conceive that the cooperation required for successful performance of the MSA could be achieved without mutual goodwill. The evidence also demonstrates, in my judgment, that the relationship between Vertex and Powergen has broken down at both operational and management levels.
On 24 March 2006 Powergen served upon Vertex notice of termination of the MSA. In that notice Powergen set out a timetable pursuant to which the provision of services by Vertex would cease. In the notice Powergen sets out details of what it alleges are material breaches of the MSA by Vertex which invest Powergen with the right of termination. Although the notice does not say so, Powergen also relies upon some of the alleged shortcomings in the performance of Vertex as amounting to an over-arching repudiatory breach of the MSA which Powergen is entitled to accept and has accepted as terminating the same.
Vertex disputes the entitlement of Powergen to terminate the contract, or any part of it. Vertex says that if Powergen is not restrained from acting on its notice of termination and/or restrained from taking any steps to prevent or hinder Vertex from performing its functions under the MSA Vertex will suffer irretrievable and unquantifiable loss for which an award of damages will be an inadequate remedy. By this application Vertex seeks an interim injunction restraining Powergen from acting on its notice of termination or taking any steps to prevent or hinder Vertex from performing its functions under the MSA. By its Claim Form Vertex seeks a declaration that the Purported Termination Notice was and is invalid and of no effect and a permanent injunction in like terms is now sought on an interim basis. Vertex also seeks an expedited trial and has made clear its willingness to cooperate in enabling such a trial to take place in the event that, in the light of injunctive relief being granted, Powergen wishes to have the matter dealt with on that basis.
Prior to the hearing before me Powergen conceded for the purposes of that hearing that there is a serious issue to be tried on the question whether it is entitled to terminate the MSA. That notwithstanding, and notwithstanding also that the court will strive to secure the performance of contractual obligations rather than countenancing their breach, it must be obvious that this is a contractual relationship of a kind which is inherently inappropriate for injunctive relief or specific performance. On this application for interim relief a threshold question is whether Vertex has a real prospect of obtaining at trial the permanent injunction which it seeks. It is only if I am satisfied on that score that I should go on to consider the balance of convenience – see American Cyanamid v. Ethicon [1975] A.C 396 at p.408 per Lord Diplock.
It is relevant first to consider the background against which the MSA was made. Its precursor was as I have said an agreement of July 2003. That in turn represented a renegotiation of the previous contract between Vertex and TXU. The contract of July 2003 had an expiry date of October 2012 with a minimum term of four years. It is said by Vertex that the "exit charge" payable by Powergen in the event of it opting for termination after four years was £11.5 million. The anticipated revenues to Vertex under this agreement were of the order of £100 million per annum according to Vertex, £140 million per annum according to Powergen. The value of the 2002 contract to Vertex had been, according to Vertex, of the order of £1.159 billion over ten years.
By as early as April 2004 the parties were in dispute. Serious issues arose, to the extent that in November 2004 Powergen served notice on Vertex that it regarded it as in material breach of the MSA. There was an extended period of negotiation between the parties in the course of which the July 2003 MSA was extensively renegotiated. During the course of the negotiations Powergen, in order to protect its position, served Notice of Termination on 28 February 2005. The 7 April 2005 MSA which was finally agreed is dramatically reduced in scope and value as compared with its predecessors. It is true that Vertex achieved an extension of the minimum term. This remained nominally four years, but now running from April 2005 rather than July 2003, an effective extension therefore of nearly two years. However the exit charge formula is completely different, now providing as I have already mentioned for reimbursement by Powergen to Vertex of certain undepreciated investment costs. Neither side has attempted to put a figure on what this might be and perhaps it is not presently possible so to do. Overall the length of the contract is in fact marginally shorter than before with the expiry date now 31 May 2012. The effective extension in the minimum term of the agreement is more than counterbalanced by the reduction in anticipated revenues under the new agreement. These are about £28 million per annum according to Powergen, or £30 million per annum according to Vertex, reducing to about £24 million per annum from 2006 onwards. The comparison between the 2005 and 2003 contracts bears out the contention of Powergen that the reduction in value of the contract reflected the seriousness of Powergen's concerns about the ability of Vertex to perform as an outsourcing partner. A Vertex Board Minute of 4 February 2005 reflects a recognition that "key decision makers [at Powergen] have a low opinion of Vertex service quality and value for money."
Underlying the MSA are nine individual transaction documents governing the individual outsourcing services to be supplied by Vertex to Powergen. The nine Transaction Documents and the broad areas which they cover are: —
1. Cash control – processing of postal payments, suspense management, missing payments.
CPI – visits to obtain information when a customer fails to pay.
Data Management – x-raying, sorting, categorising and scanning of all incoming postal mail, and handling of outgoing mail from the Data Management location.
India Services – responding to inbound customer...
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