Laverty & Ors v British Gas Trading Ltd

This judgment follows the trial of a preliminary issue ordered by Mr Justice Henderson on 21 March 2014 on the application of the joint liquidators of PGL Realisations plc (“PGL”), PStores Realisations Limited and Dorsman Estates Limited (together “the Companies”).

On 19 January 2012 administrators were appointed in respect of the Companies (“the Administrators”). They were the same administrators for each of the Companies. On 19 July 2013 an order was made for the compulsory liquidation of the Companies. Some of the Administrators were appointed joint liquidators of each of the Companies (“the Liquidators”).

The preliminary issue concerns the priority to be given to the payment of certain charges owed to the respondent, British Gas Trading Limited (“BGT”), for gas and electricity supplied to retail premises after the Companies entered into administration and after they had been vacated by the Companies, that is to say whether those charges rank as expenses of the administration within rule 2.67(1)(f) of the Insolvency Rules 1986 (“the Rules”) or are provable debts within rule 12.3(1) and rule 13(12)(1)(b) of the Rules.

For the purposes of deciding the preliminary issue, the factual background can be stated very shortly.

Before they became insolvent the Companies owned and operated the Peacocks chain of clothing stores in England, Wales and Scotland (“the Stores”). For the purpose of the trial of the preliminary issue it is common ground that one or other of the Companies owned or occupied each of the Stores.

BGT has been at all relevant times a gas supplier and an electricity supplier licensed by the Gas and Electricity Markets Authority. Prior to the administration of the Companies BGT supplied gas and electricity to the Stores under written contracts made with PGL, then known as Peacock Group plc. There were contracts for the supply of gas and contracts for the supply of electricity. Each contract governed a number of different Stores. The contracts were for a fixed term from 1 April 2011 to 31 March 2012 (“the 2011–2012 Contracts”). Each of the 2011-2012 Contracts stated a maximum and a minimum annual consumption and the price. In the case of the electricity contracts the price included a standing charge and a unit charge. The standing charge included amounts intended to cover charges payable by BGT itself to third parties. They are described in the witness statement of Nina Morris, BGT’s head of litigation. Each of the 2011-2012 Contracts incorporated BGL’s standard terms entitled “Large and Multi Site Terms and Conditions for Gas and Electricity Supply TC 08/10” (“the Terms”).

The following are relevant provisions of the Terms. Clause 1.1 provided that BGT agreed to provide gas and electricity at the sites specified in the contract and the customer agreed to take the gas or electricity supplied. Clauses 2.1 and 2.2 provided that the customer agreed to pay the prices for the supply of each site set out in the contract. Clause 2.6 provided that BGT could also charge the reasonable cost of stopping and disconnecting the supply. Clause 5.4 provided that BGT could impose an additional charge if the billed volume was less than the contractual minimum consumption. Clause 6.1 provided that the supply may be stopped or limited if the customer was wound up or went into administration or receivership, or if the customer’s business became insolvent, or the customer made an arrangements with its creditors. Clause 12.1 provided for the customer to give notice if it was going to leave a site permanently and to take and inform BGT of the final meter reading. Clause 12.2 provided that the contract would continue to apply to the site even after the customer permanently left it until the requirements of clause 12.1 were met and in addition another owner or occupier took over the supply at the site with BGT’s written consent, that is to say BGT agreed to accept them as a customer and to an assignment or novation of the current contract to them. If the customer left the site without complying with those conditions BGT might charge a termination fee for that site. Clause 13 provided that BGT could immediately end the contract, without prejudice to any other rights it had, and the customer might have to pay a termination fee if, among other reasons, BGT gave written notice because the customer stopped trading or its business was wound up or if the customer’s business became insolvent or went into administration or receivership or the customer entered into an arrangement with its creditors or if BGT reasonably believed there was a risk of those things happening.

Following the entry of the Companies into administration on 19 January 2012 BGT served notices on 20 January 2012 and on 23 January 2012 terminating the 2011-2012 Contracts pursuant to clause 13 of the Terms on the ground of PGL’s administration.

BGT continued to supply gas and electricity to the Stores under contracts deemed to arise under the Gas Act 1986 (“the Gas Act”) and the Electricity Act 1989 (“the Electricity Act”) respectively (“the Deemed Contracts”). On 23 January 2012 BGT sent the tariffs for the Deemed Contracts to the Administrators. They comprised daily consumption charges and a daily standing charge.

On 22 February 2012 the Administrators sold a large number of Stores to a purchaser of the Companies’ business. On various dates in February and March 2012 the Companies ceased trading from the remaining 176 Stores (“the Closed Stores”). The Liquidators say that the Closed Stores were vacated, and from that time no further use of them was made by the Companies and none of the Companies made any use of the supply by BGT of gas or electricity.

It appears that, despite the vacation of the Closed Stores by the Administrators, gas and electricity may have been used in them. The Liquidators say that they suspect that the landlords of some of the Closed Stores re-let them informally, without accepting a surrender of the lease, or that squatters went into occupation of them.

Following the order on 19 July 2013 for the winding up of the Companies, on 22 July 2013 the 70 leases of Stores which had not already been surrendered or assigned by the Companies were disclaimed by the Liquidators.

The Administrators accepted that the price of gas and electricity supplied to the Stores during the administration while the Companies continued to trade from them was an expense of the administration. An agreed amount of £1,384,607.45 (excluding VAT) has been paid in respect of that liability. BGT and the Liquidators are in dispute, however, as to payment pursuant to the Deemed Contracts for the supply of gas and electricity to the Closed Stores after they were (according to the Liquidators) vacated by the Administrators (“the Post-Trading Liabilities”). BGT claims that more than £1.2 million (excluding VAT) is payable in respect of the Post-Trading Liabilities. The Liquidators do not dispute that payment is due from one or more of the Companies for Post-Trading Liabilities pursuant to the Deemed Contracts. The dispute with which the preliminary issue is concerned is as to the priority of payment out of the assets of the Companies. The Liquidators say that any Post-Trading Liabilities are provable as an ordinary unsecured debt. BGT claims that they are payable as expenses of the administration and so in priority to the debts of the general body of unsecured creditors.

Schedule 2B to the Gas Act contains the Gas Code. Paragraph 8(1) provides as follows so far as relevant:

“Where a gas supplier supplies gas to a consumer otherwise than in pursuance of a contract, the supplier shall be deemed to have contracted with the consumer for the supply of gas as from the time … when he began so to supply gas to the consumer”.

The term “consumer” is defined in paragraph 1(1) of Schedule 2B to mean “a person who is supplied with gas conveyed to particular premises… by a gas transporter”.

Paragraph 8(8) of the Gas Code provides that each gas supplier shall make, and from time to time revise, a scheme for determining the terms and conditions which are to be incorporated in contracts deemed to be made under paragraph 8(1).

The relevant scheme made by BGT pursuant to paragraph 8 of the Gas Code is the “British Gas Standby Contract Scheme 2001 - Gas” (“BGT’s Gas Scheme”). Under that Scheme at the relevant time the terms and conditions of contracts deemed to be made under paragraph 8 of the Gas Code were the same as the Terms, that is to say exactly the same as the standard terms incorporated in the 2011-2012 Contracts.

Paragraph 2.3 of BGT’s Gas Scheme provides as follows so far as relevant:

“2.3

Subject to the provisions of paragraph 3 below each [deemed contract] will continue to apply in respect of the supply of gas to the property, without prejudice to any Terms and Conditions expressed to have effect thereafter, until whichever of the following first occurs; namely, the time when:

(a)

the circumstances referred to in sub-paragraphs 8(1) … of the Gas Code cease to apply; or

(b)

it is terminated in accordance with its terms; or

(c)

another contract for the supply of gas to the property takes effect (whether with the Company or another licensed supplier).”

Schedule 6 to the Electricity Act 1989 contains the Electricity Code. Paragraph 3 (1) provides as follows so far as relevant:

“Where an electricity supplier supplies electricity to any premises otherwise than in pursuance of a contract, the supplier shall be deemed to have contracted with the occupier (or the owner if the premises are unoccupied) for the supply of electricity as from the time … when he began so to supply electricity.”

There is no statutory definition of “occupier” or “owner” for the purposes of the Electricity Code.

Paragraph 3(7) of the Electricity Code provides that each electricity supplier shall make, and from time to time revise, a scheme for determining the terms and conditions which are to be incorporated in contracts deemed to be made under paragraph 3(1).

The relevant scheme made by BGT pursuant to paragraph 3 of the Electricity Code is the “British Gas Standby Contract Scheme 2001 - Electricity” (“BGT’s Electricity Scheme”). Under that Scheme at the relevant time the terms and conditions of contracts deemed to be made under paragraph 3 of the Electricity Code were the same as the Terms, that is to say exactly the same as the standard terms incorporated in the 2011-2012 Contracts.

Paragraph 2.3 of BGT’s Electricity Scheme is in the same terms as paragraph 2.3 of BGT’s Gas Scheme with the substitution of “the Electricity Code” for “the Gas Code” and “electricity” for “gas”.

The preliminary issue ordered to be tried by Mr Justice Henderson was as follows:

“Whether the charges that are owed to the Respondent pursuant to deemed contracts under Schedule 2B to the Gas Act 1986 and Schedule 6 to the Electricity Act 1989 are:

(1)

provable debts within Rule 13.12(1)(b) of the Insolvency Rules 1986 or

(2)

administration expenses within Rule 2.67(1)(f) of the Insolvency Rules 1986 on the basis that they have been “imposed by a statute whose terms render it clear that the liability to make the disbursement falls on the administrator as part of the administration – either because of the nature of the liability or because of the terms of the statute” (per Lord Neuberger in Nortel GmbH [2013] 3 WLR 504 at para 100)

in circumstances where (a) the deemed contracts came into being after the appointment of administrators (‘the Administrators’) (b) the charges relate exclusively to the supply of gas and electricity in the period after the Administrators ceased trading or otherwise making use of, for the benefit of the administration, the premises to which gas and electricity were being supplied and (c) the charges do not relate to or arise out of anything done by the Administrators or on their behalf in the course of the administrations”.

The wording of the preliminary issue was intended to exclude, and so leave to a future trial if necessary, disputes about material facts, including, for example, the circumstances in which there was, and the persons responsible for, any consumption of gas and electricity at the Closed Stores after they were vacated by the Companies and disputes about the conduct of the Administrators which might have a material bearing on the priority issue.

For the purposes of the preliminary issue, it is necessary to mention only the following aspects of the insolvency legislation.

In an administration and a liquidation of a company the order of priority for payment out of the company’s assets is, in summary terms, as follows (see Re Nortel GmbH [2014] AC 209 at para [39]):

Expenses of the winding up or administration, therefore, have priority over most other creditors, including the general body of unsecured creditors, in what is colloquially referred to as “the waterfall” of priorities. In the present case, there are sufficient assets for the Liquidators to pay expenses at the second level but insufficient assets to make a distribution in respect of provable unsecured debts at the fifth level. The Liquidators do not contend that the disputed charges in the present case are non-provable liabilities.

Rule 2.69 of the Rules provides that unsecured debts which are neither expenses of the insolvency proceedings nor preferential debts rank equally between themselves in an administration and, in circumstances where they cannot be paid in full, must abate in equal proportions between themselves. The same applies in the case of a company in winding up (rule 4.181).

Rule 12.2 of the Rules provides that all fees, costs, charges and other expenses incurred in the course of winding up or administration are to be regarded as expenses of the winding up or the administration, as the case may be.

Rule 2.67 of the Rules specifies the order of priority of payment of expenses of the administration. The expenses specified in rule 2.67(1)(f) are “any necessary disbursements by the administrator in the course of the administration”. Rule 4.128(3)(m) of the Rules is the equivalent provision for winding up.

As to what is a provable debt, rule 12.3(1) of the Rules states that (subject to certain matters which are irrelevant for present purposes) in administration and winding up all claims by creditors are provable as debts against the company whether they are present or future, certain or contingent, ascertained or sounding only in damages.

The meaning of “debt” in relation to the winding up or administration of a company is defined in rule 13.12 of the Rules. So far as relevant, that provides as follows:

(1)

‘Debt’ in relation to the winding up of a company, means … any of the following:

(a)

any debt or liability to which the company is subject –

(i)

in the case of a winding up which was not immediately preceded by an administration, at the date on which the company went into liquidation,

(ii)

in the case of winding up which was immediately preceded by an administration, at the date on which the company entered administration;

(b)

any debt or liability to which the company may become subject after that date by reason of any obligation incurred before that date;….

(3)

For the purposes of any references in any provision of the Act or the Rules about winding up to a debt or liability, it is immaterial whether the debt or liability is present or future, whether it is certain or contingent, or whether its amount is fixed or liquidated, or is capable of being ascertained by fixed rules or as a matter of opinion; and references in any such provision to owing a debt are to be read accordingly.

(4)

In any provision of the Act or Rules about winding up, except in so far as the context otherwise requires, “liability” means (subject to paragraph (3) above) a liability to pay money or money’s worth, including any liability under an enactment, any liability for breach of trust, any liability in contract, tort or bailment, and any liability arising out of an obligation to make restitution.

(5)

This rule shall apply when a company is in administration and shall be read as if…. references to winding up were references to administration….”

As I have said, the dispute which is the subject of the preliminary issue is whether the Post-Trading Liabilities are, as BGT contends, payable as expenses of the administration of the Companies or, as the Liquidators contend, provable as unsecured debts within rule 13.12(1)(b).

It is common ground that the relevant principles for determining the preliminary issue are most clearly and fully set out in the judgments of Lord Neuberger and Lord Sumption in Nortel and in the speech of Lord Hoffmann in Re Toshoku UK plc [2002] UKHL 6, [2002] 1 WLR 671. Both sides relied heavily on those cases and so, with some misgivings in view of the consequences for the length of this judgment, it is necessary to examine them in greater detail than would ordinarily be the case.

Nortel concerned liability arising under the financial support direction (“FSD”) regime of the Pensions Act 2004 (“the 2004 Act”). That regime enables the Pensions Regulator in certain circumstances to impose an obligation on some or all of other group companies (known as “targets”) to provide reasonable financial support to the under-funded pension scheme of a service company or insufficiently resourced employer within the same group. This is achieved by issuing a FSD. Failure to comply with the obligation to provide reasonable financial support then enables the Regulator to impose, by issuing a Contribution Notice (a “CN”), a specific monetary liability on the target, payable to the trustees of the pension fund.

In both of the appeals before the Supreme Court in Nortel there were pension schemes that had been in significant deficit for a period of time, and the critical question for the court was how the administrators of target companies should treat the company’s liability under the regime where the FSD was not served by the Regulator until after the company had gone into administration (or insolvent liquidation).

It was common ground in the Supreme Court in Nortel that the potential liability under a FSD could not be both a provable debt and an expense of the administration. Lord Neuberger considered that for that reason, and in the circumstances of that case, it was appropriate to consider the provable debt issue first.

On the question whether the potential liability under a FSD falls within rule 13.12(1), Lord Neuberger said (at para. [70]) that he agreed with David Richards J in Re T & N Ltd [2006] 1 WLR 1728 at [115], that paragraph (a) of rule 13.12(1) is concerned with liabilities to which the company “is subject” at the date of the insolvency event, whereas paragraph (b) is directed to those liabilities to which it “may become subject” subsequent to that date, and that there is no overlap between these two categories.

Lord Neuberger said the following on the meaning and application of rule 13.12(1)(b) in paragraphs [74] to [77] of his judgment:

“74 The meaning of the word “obligation” will, of course, depend on its context. However, perhaps more than many words, “obligation” can have a number of different meanings or nuances. In many contexts, it has the same meaning as “liability”, but it clearly cannot have such a meaning here. Indeed, in the context of rule 13.12 , it must imply a more inchoate, or imprecise, meaning than “liability”, as the liability is what can be proved for, whereas the obligation is the anterior source of that liability.

75 Where a liability arises after the insolvency event as a result of a contract entered into by a company, there is no real problem. The contract, in so far as it imposes any actual or contingent liabilities on the company, can fairly be said to impose the incurred obligation. Accordingly, in such a case the question whether the liability falls within paragraph (b) will depend on whether the contract was entered into before or after the insolvency event.

76 Where the liability arises other than under a contract, the position is not necessarily so straightforward. There can be no doubt but that an arrangement other than a contractual one can give rise to an “obligation” for the purposes of paragraph (b). That seems to follow from rule 13.12(4) . As Lord Hoffmann said, (albeit in a slightly different context) in relation to contingent liabilities arising on a liquidation, in Secretary of State for Trade and Industry v Frid [2004] 2 AC 506 , para 19, “How those debts arose—whether by contract, statute or tort, voluntarily or by compulsion—is not material”.

77 However, the mere fact that a company could become under a liability pursuant to a provision in a statute which was in force before the insolvency event, cannot mean that, where the liability arises after the insolvency event, it falls within rule 13.12(1)(b). It would be dangerous to try and suggest a universally applicable formula, given the many different statutory and other liabilities and obligations which could exist. However, I would suggest that, at least normally, in order for a company to have incurred a relevant “obligation” under rule 13.12(1)(b), it must have taken, or been subjected to, some step or combination of steps which (a) had some legal effect (such as putting it under some legal duty or into some legal relationship), and which (b) resulted in it being vulnerable to the specific liability in question, such that there would be a real prospect of that liability being incurred. If these two requirements are satisfied, it is also, I think, relevant to consider (c) whether it would be consistent with the regime under which the liability is imposed to conclude that the step or combination of steps gave rise to an obligation under rule 13.12(1)(b)”.

Lord Neuberger concluded that the FSD liabilities in Nortel were to be treated as provable debts within rule 13.12(1)(b). He went on to consider whether a FSD issued after an insolvency event is an administration expense even though it was not strictly necessary for him to do so in view of the acceptance of all parties in Nortel that it could not be an expense if it was also a provable debt. The question he addressed was whether, if the potential liability under the FSD regime did not give rise to a provable debt under rule 13.12, it would be within the expression “charges and other expenses incurred in the course of … administration” within rule 12.2 and, more particularly, within the expression “any necessary disbursements by the administrator in the course of the administration” within rule 2.67(1)(f).

Lord Neuberger gave the following guidance on the meaning and application of rule 2.67(1)(f) in paragraphs [99] – [101] of his judgment:

“99.

... In Charles R Davidson & Co v M'Robb [1918] AC 304, 321, Lord Dunedin explained that “in the course of his employment” had a more limited meaning than “during the period of his employment” and connoted “something which is part of his service” namely “work, or the natural incidents connected with the class of work”, a view echoed by Lord Russell of Killowen in Alderman v Great Western Railway Co [1937] AC 454 , 459.

100.

While it would be dangerous to treat any formulation as an absolute rule, it seems to me, at any rate subject to closer examination of the authorities and counter-arguments, a disbursement falls within rule 2.67(1)(f) if it arises out of something done in the administration (normally by the administrator or on the administrator's behalf), or if it is imposed by a statute whose terms render it clear that the liability to make the disbursement falls on an administrator as part of the administration—either because of the nature of the liability or because of the terms of the statute.

101 Thus, if an administrator, on behalf of the company, enters into a transaction which gives rise to tax, or starts (or adopts) proceedings which give rise to a liability for costs, that tax or those costs would fall within the rule, as they arise from his actions as administrator during the administration”.

Lord Neuberger then referred to cases in which it has been held that liquidators were liable to meet business and domestic rates and community charge, namely Re International Marine Hydropathic Co (1884) 28 Ch D 470, Re National Arms and Ammunition Co (1885) 28 Ch D 474, Re Blazer Fire Lighter Ltd [1895] 1 Ch 402,Re Kentish Homes Ltd [1993] BCLC 1375, andExeter City Council v Bairstow [2007] Bus LR 813. He said that the explanation in the judgments in those cases of the basis on which a liquidator has been held liable for rates or community charge as an expense of the liquidation have not been entirely consistent but that the current state of the law is that the liquidator remained in rateable occupation of the property in question. In that connection he referred to Lord Hoffmann’s speech in Toshoku and the judgment of David Richards J in the Exeter City Council case. He said (at para. [103]) that it is a matter of statutory interpretation of the rates and community charge legislation that the liability for rates and community charge falling due after an insolvency event on property retained by the liquidator ranks as an expense of the liquidation and the same logic must apply in an administration. He said that is consistent with the fact that liability for rates and community charge arises from day to day, and the liability is treated as an expense only in respect of the company's occupation of property during the liquidation.

Lord Neuberger considered that his conclusion on this aspect derived a degree of support form the fact that it is always open to a liquidator to disclaim onerous property under sections 178 to 182 of the Insolvency Act 1986 (“IA 1986”) and, if he or she chooses not to do so, it would presumably be as a result of a conscious decision to retain the property for the benefit of the creditors. He acknowledged that an administrator cannot disclaim property but said that there is force in the point that the rating authorities should not be worse off because a company opts for administration rather than liquidation, given that the normal reason for preferring administration to liquidation is to seek a better outcome for creditors and shareholders of the company: see paragraph 3(1) of Schedule B1 to the IA 1986 Act.

In the light of those considerations Lord Neuberger concluded that a potential liability under a FSD or a liability under a CN does not fall within the scope of expenses of an administration within rule 12.2 or rule 2.67(1)(f) for the following reasons. First, there is no question of such a liability resulting from any act or decision taken by or on behalf of the administrator or any act or decision taken during the administration. The liability self-evidently arises out of events which occurred before the insolvency event. Secondly, he did not consider that the terms of the 2004 Act, properly interpreted, mean that a liability under a CN would be an expense of the administration, if it was not a provable debt under rule 13.12. The mere fact that an event occurs during the administration of a company which a statute provides gives rise to a debt on the part of the company cannot, of itself, be enough to render payment of the debt an expense of the administration. It would be a debt payable “during the period of” the administration but it would not be “part of” the administration or a payment which was one of the “natural incidents connected with” the administration, to use the language of Lord Dunedin in the Davidson case [1918] AC 304 , 324. Lord Neuberger said that something more would be required, either from the wording of the 2004 Act or from the nature of the liabilities which it imposes, before a CN issued after the target's insolvency event could be held to be an expense of the administration or liquidation. He observed that the 2004 Act and the FSD regulations were silent on the issue of the status of the liability under the FSD regime where the target has suffered or suffers an insolvency event.

Lord Neuberger went on, therefore, to consider whether there was any indication that could be gathered from the 2004 Act, its aims and procedures, that it was intended that such a liability should rank as an expense of the target's administration or liquidation, if it does not give rise to a provable debt. In concluding that the indications were against such a conclusion, Lord Neuberger took into account what he considered would be various anomalies: see para. [108] cross-referring to paras. [59]-[63]. Among other things, he considered that it would be somewhat arbitrary that the characterisation and treatment of the liability under the FSD regime should be different according to whether a CN was issued in respect of a company before an insolvency event or it was issued after an insolvency event but based on a state of affairs which existed before the insolvency event. He also considered that it would be anomalous if the legislature had given the Pensions Regulator who was proposing to issue a FSD in respect of a company not yet in administration or liquidation “a significant and somewhat arbitrary power” (see para. [61]) to wait for the insolvency event so as to recover much more under a CN served afterwards than would be recovered under a CN issued following a FSD issued before the insolvency event. In addition to those anomalies, Lord Neuberger made the general point (at para. [109]) that, once the facts giving rise to a right to raise a claim by issuing a FSD exist, it would be very unusual for the beneficiary of the right to be better off as a result of a delay in raising the claim.

Lord Neuberger made the following general observation at paragraph [111] on the expenses aspect of the appeal:

“In a case, such as the present, where (i) the statutory liability is one which could have been imposed before or after liquidation, (ii) the liability does not give rise to a provable debt (as is being assumed for present purposes) and (iii) the statute is completely silent as to how the liability should be treated if it is imposed after an insolvency event, the liability can only be an expense of the liquidation or administration if the nature of the liability is such that it must reasonably have been intended by the legislature that it should rank ahead of provable debts. It would be wrong to suggest that this is a test which may not need to be refined in future cases, but it appears to me to be supported by the facts and arguments raised on these appeals.”

Lord Mance, Lord Clarke and Lord Toulson agreed with Lord Neuberger. Lord Sumption, with whom Lord Mance and Lord Clarke concurred, agreed with the order proposed by Lord Neuberger and added some observations of his own on the question what constitutes an “obligation incurred” for the purpose of rule 13.12(1)(b). He said (at para. [130]) that the context shows that it means a legal rule applying before the date when the company goes into liquidation which may, contingently on some future event, give rise to a “debt or liability” arising after that date. He added that it cannot extend to every legal rule which may on any contingency have that effect since otherwise every debt or liability would be provable irrespective of the date when it accrued, unless the law changed after the company went into liquidation. He considered that cannot be right since the scheme depends on there being a common date as at which the fund falls to be valued and distributed pari passu. Some limitation must be read into rule 13.12(1)(b).

Lord Sumption referred to a line of cases, by which the Court of Appeal had considered itself bound and in which it was held that a liability for costs arising from a judgment given after the commencement of the insolvency was not provable as a contingent debt, even if the litigation was in progress when the company went into liquidation. He considered that those cases were wrongly decided. His reasoning was expressed as follows at paragraph [136]:

“In the costs cases, I consider that those who engage in litigation whether as claimant or defendant, submit themselves to a statutory scheme which gives rise to a relationship between them governed by rules of court. They are liable under those rules to be made to pay costs contingently on the outcome and on the exercise of the court's discretion. An order for costs made in proceedings which were begun before the judgment debtor went into liquidation is in my view provable as a contingent liability, as indeed it has been held to be in the case of arbitration proceedings: In Re Smith; Ex p Edwards (1886) 3 Morr 179. In both cases, the order for costs is made against someone who is subject to a scheme of rules under which that is a contingent outcome. … Of course, an order for costs like many other contingencies to which a debt or liability may arise, depends on the exercise of a discretion and may never be made. But that does not make it special. It is not a condition of the right to prove for a debt or liability which is contingent at the date when the company went into liquidation that the contingency should be bound to occur or that its occurrence should be determined by absolute rather than discretionary factors.”

Toshoku concerned a company in creditors’ voluntary liquidation, and whose only substantial asset as at the date of liquidation was a debt owed to it by one of its subsidiaries in the sum of US$156.3 million (including arrears of interest at the contractual rate). The indebted subsidiary was, however, heavily insolvent, with realisable assets worth around US$43 million and a total indebtedness of about US$381.75 million. After negotiations with the subsidiary’s creditors, the company agreed to a full and final settlement for US$21.5 million with nothing paid by way of the accrued interest. Although Toshoku received no interest from the subsidiary after the liquidation date, the effect of the tax legislation was that it was liable to pay corporation tax on profits computed on the assumption that it received all interest contractually payable by the subsidiary, and the liquidator was the proper officer liable to pay the tax. Toshoku’s liquidators applied to the court for directions as to whether, assuming there was a liability to tax, it was an “expense [ ] properly incurred in the winding up” within section 115 of IA 1986 and a “necessary disbursement by the liquidator in the course of his administration” within rule 4.218(1) of the Rules (the winding up equivalent of rule 2.69(1)).

Counsel for the liquidators submitted in the House of Lords that a liability falling within rule 4.218(1) was payable as an expense only if it arose as a result of a step taken with a view to, or for the purposes of, obtaining a benefit for the insolvent estate. He contended that, as the liquidator had neither received interest nor taken any steps to recover it, it was not payable as an expense. Lord Hoffmann, with whom the other members of the appellate committee agreed, rejected that argument. In the course of his analysis Lord Hoffmann referred to Re Lundy Granite Co; Ex p. Heavan (1871) LR 6 Ch App 462. In paragraph [29] Lord Hoffmann summarised the principle to be derived from that case as:

“ one which permits, on equitable grounds, the concept of a liability incurred as an expense of the liquidation to be expanded to include liabilities incurred before the liquidation in respect of property afterwards retained by the liquidator for the benefit of the insolvent estate.”

Lord Hoffmann distinguished liability under that principle from expenses incurred after the liquidation date, which need no further equitable reason why they should be paid. He said that such expenses may or may not necessarily be for the benefit of the estate. They may simply be liabilities which, as liquidator, he or she has to pay. Lord Hoffmann illustrated the difference between the treatment of pre-liquidation debts under the Lundy Granite Co principle and the treatment of post-liquidation liabilities by reference to the 19^th century cases on rates. Lord Hoffmann gave his conclusion on those cases in paragraph [34] as follows:

“34.

It therefore did not follow that because a liquidator might in certain circumstances retain possession of leased property without having to pay the rent as an expense of the liquidation, he did not in the same circumstances have to pay the rates. In Re ABC Coupler and Engineering Co Ltd [1970] 1 WLR 702, for example, the rent did not become a liquidation expense until some time after the winding up order, notwithstanding that the company remained in occupation. And in Re HH Realisations Ltd 31 P &CR 249 the company remained in occupation for some time after the rent had ceased to be a liquidation expense. But in both cases the company would in my opinion have been liable to pay rates on the simple ground that it was in rateable occupation. The rates would have been an obligation incurred after the liquidation which (unlike the rent) was not provable and was therefore payable in full. ”

Lord Hoffmann held that, since it was expressly enacted by statute that a company was chargeable to corporation tax on profits or gains arising in the winding up, the tax was a post-liquidation liability which the liquidator was obliged to discharge and was therefore a necessary disbursement within rule 4.218(1).

In the Exeter City Council case David Richards J granted a declaration that non-domestic rates in respect of retail premises occupied by the insolvent company while it was in administration were payable as expenses of the administration. He cited Toshoku as authority that rates accruing on premises occupied by a company while in liquidation are payable as an expense of the liquidation within rule 4.218. He concluded that the position was the same in “new style” administrations since rule 2.67 is in substantially similar terms to rule 4.218 and was introduced well after the decision of the House of Lords in Toshoku, and there was no reason to give it a different interpretation. He held that the rates were payable as necessary disbursements within rule 2.67(1)(f), which is for all material purposes identical to rule 4.218(1)(m).

BGT’s stance on the preliminary issue is that liability under the Deemed Contracts is not a provable debt but ranks as an administration expense. The Liquidators’ stance is the opposite, that is to say liability under the Deemed Contracts is not an administration expense but it is a provable unsecured debt.

In his oral submissions Mr William Trower QC, for BGT, placed heavy reliance on the rates cases as analysed in Toshoku and Nortel. He highlighted the following features of the analysis in those cases, namely that an administrator’s liability to pay the rates in full is a matter of statutory interpretation, is not dependent on the proof of any specific benefit to the administration, does not depend upon a pre-administration contract or obligation, is dependent upon and arises because of the company’s status as occupier of the premises and continues only so long as that status continues, the liability arises from day to day, and the liquidator can always disclaim onerous property.

Mr Trower argued that the position in relation to the Deemed Contracts is similar. He submitted that liability under the Deemed Contracts is dependent on status, namely the status of the Companies as owners or occupiers of the Stores (for electricity) or as consumers (for gas). He said that a person is a “consumer” as defined in the Gas Act if the relevant premises are supplied with gas and irrespective of any actual use of the gas in the premises. Mr Trower also said that, like the administrator of a company in rateable occupation of premises, liability under the Deemed Contracts could have been brought to an end by disclaimer by the Liquidators (as it eventually was in respect of certain Stores). The Administrators had no power to disclaim property, but that was a point addressed by Lord Neuberger in paragraph [104] of Nortel where he said that the rating authorities should not be worse off because a company opts for administration rather than liquidation, given that the normal reason for preferring administration to liquidation is to seek a better outcome for creditors and shareholders of the company.

Mr Trower pointed out that there are, in any event, other ways in which the Deemed Contracts could have been brought to an end by the Administrators. In particular, the Administrators could have requested, or at any event consented to, the disconnection of the supplies. I was told that BGT did in fact request permission from the Administrators to disconnect the supplies of gas and electricity to the Stores but the Administrators refused. On the basis of what I was told in oral submissions, it seems that may have been because there was a charge for disconnection and the Administrators thought that charge could be avoided if the Companies went into liquidation and disclaimed the Deemed Contracts and the leases, as did indeed ultimately occur.

On the issue of status, Mr Trower emphasised the wording of paragraph 8(1) of the Gas Code (supply of gas to a consumer) and paragraph 3 of the Electricity Code (supply of electricity pursuant to a deemed contract with the occupier or the owner) as well as paragraph 2.3 of BGT’s Gas Scheme and paragraph 2.3 of BGT’s Electricity Scheme. He said that the effect of those provisions was that liability for gas and electricity charges under the Deemed Contracts subsisted only so long as the Companies’ status of owners or occupiers or consumers existed. In that respect, he submitted, the liability of the Administrators under the Deemed Contracts, like that of an administrator in respect of rates, arose from day to day. Indeed the tariffs payable under the Deemed Contracts were specified as daily rates.

Mr Trower reinforced his submissions with reliance on a variety of other factors. He submitted that the supply of gas or electricity was a detriment to BGT or involved the transfer by BGT to the Companies of an asset of value. Mr Trower said that, apart from disconnection of the supply, other options available to an administrator in the same position as the Administrators in this case are the negotiation of a new express contract with the existing supplier or the negotiation of a new contract with another supplier. Mr Trower emphasised that the Administrators were, in the light of the various options open to them, in a better position than administrators or liquidators in respect of liability for rates or community charge. He submitted that in all the circumstances the case for priority for charges for gas and electricity under the Deeded Contracts is stronger than the case for priority in the rates cases.

Mr Trower pointed out that, if the Administrators had agreed a new contract with BGT, the liability arising under it would undoubtedly have been payable as an expense of the administration and had priority over the Administrators’ remuneration and other expenses: see paragraph 99(4) of Schedule B1 to IA1986. Such liability would have had what is colloquially called “super priority”. Mr Trower accepted that a deemed contract pursuant to the Gas Code and the Electricity Code could not properly be described as a “contract entered into by the … administrator” within paragraph 99(4) of Schedule B1. He submitted that, nevertheless, it is entirely consistent with the super priority given to liabilities under an express contract entered into by an administrator that priority as an expense should also be given to liabilities under a deemed contract pursuant to which gas and electricity continues to be supplied to the company’s premises during administration. He observed that in most cases the supply of a product would not take place unless there were a fresh agreement with administrators, and he contended that the position as to priority should be no different in a case where a supply of gas and electricity continues to be provided in circumstances in which administrators have declined to enter into a new agreement with the supplier or to terminate the supply in one of the other ways in which that would have been possible.

He contrasted the ability of the Administrators to terminate the supply of gas and electricity to the Closed Stores and the consequent liability to pay gas and electricity charges with the limited options available to BGT as supplier. BGT does not have the right to terminate a supply in the event of a disputed debt or liability. BGT could effect entry and disconnection pursuant to a warrant granted by magistrates but this would have its own difficulties in the event of an administration which gives rise to the statutory moratorium. In fact, as I have already mentioned, it seems that the administrators in the present case refused to give consent to disconnection.

Those are powerful submissions but I do not accept them. It is important to bear in mind the nature of the liability which is in issue. There is a factual dispute as to whether and in what circumstances gas and electricity continued to be used in the Stores after the date when the administrators say they were vacated by the Companies. In so far as gas and electricity continued to be used in the Closed Stores the Administrators may be liable by virtue of their conduct for the full cost as administration expenses. There may be other conduct of the Administrators giving rise to a liability to pay the charges under the Deemed Contracts as expenses of the administration after the Stores were vacated by the companies such as the Administrators’ refusal to permit BGT to disconnect the supplies. Those factual matters all remain in dispute and will be resolved at a further trial. The question on expenses with which the preliminary issue is concerned is purely a matter of statutory interpretation, namely whether the provisions of the Gas Act and the Electricity Act make it clear that liability under the Deemed Contracts to pay charges for the supply of gas or electricity to the Closed Stores, even when not actually used by the Companies, falls on the Administrators pursuant to rule 2.67(1)(f) as an expense of the administration. In other words, the preliminary issue on this aspect reflects the wording of the second part of the statement of principle by Lord Neuberger in Nortel at paragraph [100]. Such liability would, for example, cover the standing charge for electricity under the Deemed Contracts irrespective of actual use of the supply.

A core element of BGT’s submissions on this aspect is that the Deemed Contracts are in all material respects analogous to actual contracts entered into by an administrator after the commencement of the administration. I agree with Mr Antony Zacaroli QC, for the Liquidators, that the analogy with an express contract is misplaced. An express contract will only come into existence in the course of an administration by virtue of a positive and conscious act by the administrator. That is precisely why, as Mr Trower conceded, a deemed contract does not fall within paragraph 99(4) of Schedule B1 to IA 1986.

Further, an express contract contains all the terms and conditions expressly or impliedly agreed by the parties to it. By contrast, neither the Gas Code nor the Electricity Code specifies the terms and conditions of contracts deemed to be made between the supplier and (in the case of gas) the consumer or (in the case of electricity) the occupier or owner. Those terms are left to each supplier to determine pursuant to a scheme made by the suppliers. Such terms, including tariffs, duration and termination are not negotiated but are determined and imposed by the supplier.

Mr Trower observed that deemed contracts under the Gas Code and the Electricity Code exist within a regulatory framework. Indeed, the licences granted to BGT to supply gas and electricity contain a requirement for BGT to take all reasonable steps to ensure that the terms of its deemed contracts are not unduly onerous. The only relevant specificity given to that general requirement, however, is a provision in the licenses that a deemed contract will be unduly onerous for any class of non-domestic customers if the revenue derived from supplying gas or electricity (as the case may be) to premises of the relevant class of customers on those terms (a) significantly exceeds BGT’s costs of supplying gas or electricity to such premises, and (b) exceeds such costs of supplying gas or electricity significantly by more than the BGT’s revenue exceeds its costs of supplying gas or electricity to the premises of the generality of its non-domestic customers.

The particular nature of deemed contracts under the Gas Code and the Electricity Code also explains why the rating cases do not provide a helpful analogy. I was not taken to the reported rates cases themselves but, as appears from the analysis of them in the judgment of Lord Neuberger in Nortel, they are not entirely consistent in their explanations of the basis on which a liquidator has been held liable for rates and for community charge as an expense of the liquidation. It appears from Lord Neuberger’s judgment that they are to be explained on the basis that the obligation to pay rates by virtue of rateable occupation arises on each day as a new and independent liability, which is dependent neither on any prior occupation nor on the possibility or prospect of future occupation and which does not arise out of any pre-existing obligation or liability. They are therefore, payable in full as expenses of the administration or the liquidation as a new and independent liability each and every day on which the company continues in rateable occupation after the commencement of the insolvency event.

That is not comparable to liability under a contract deemed to be made pursuant to the Gas Code and the Electricity Code. Such a deemed contract commences from the moment that gas and electricity are supplied to any premises otherwise than pursuant to an actual contract. Neither the Gas Code nor the Electricity Code specifies when a deemed contract comes to an end. The duration and methods for terminating a deemed contract are matters to be specified, like the other terms, in a scheme to be made by each supplier. The deemed contract and liability pursuant to it will continue in accordance with the terms of the deemed contract until it is brought to an end. The fact that the tariffs payable to BGT under the Deemed Contracts with the Companies were specified in terms of daily rates does not in any way qualify the continuing nature of the Deemed Contracts.

Nor do I accept Mr Trower’s analogy between the rates cases and deemed contracts on the basis that liability in both cases turns on the status of the company from time to time, that is to say the status of the company as an occupier in the rates cases and as consumer or owner or occupier in relation to deemed contracts. As Mr Zacaroli observed, in the present case clause 2.3 of BGT’s Gas Scheme and clause 2.3 of BGT’s Electricity Scheme expressly provides that, even if the person supplied with gas or electricity ceases to be a consumer or owner or occupier (as the case may be), provisions in the Terms which are expressed to continue to have effect thereafter will be binding. In the present case, the Terms provide that, even if the customer has left the site permanently, the contract will continue to apply to the site and the customer will continue to be responsible for all charges for supply at the site until the customer has complied with the conditions mentioned in clause 12.2.

Indeed, in so far as there is any status which mirrors the beginning and continuation of liability under deemed contracts it is simply the fact of supply of gas or electricity otherwise than in pursuance of an express contract. BGT’s case is that “supply” for this purpose denotes the supply to the premises in question, irrespective of the actual use of the supply at the premises by the consumer or occupier or owner (as the case may be). There is, however, simply no indication at all in the Gas Code or the Electricity Code that the mere fact of continuing supply entitles the supplier in an administration or liquidation to a right to priority payment over unsecured creditors. The relevant provisions of the Gas Code and the Electricity Code do not distinguish between supplies following the termination of an actual contract and supplies where there has never been an actual contract and, in either case, between supplies made before or after the commencement of administration or winding up.

Mr Zacaroli submitted that the terms of BGT’s Gas Scheme and BGT’s Electricity Scheme, like those of any other supplier’s scheme, are irrelevant to the issue of statutory interpretation which is the subject of the preliminary issue because such terms are the result of individual decisions on terms and conditions by each supplier, of which Parliament would have been unaware and which Parliament could not have predicted. I can see the force of that submission but, even if it were incorrect, there is nothing in the Terms in the present case which throws any light at all upon the issue of priority of payment following entry into administration or winding up.

Further, unlike the rates case, where the liability applies in relation to occupation which begins, continues and ends with a positive decision by the occupier, a deemed contract under the Gas Code and the Electricity Code arises automatically upon determination of an actual contract by the supplier. The administrator or liquidator may not be in a position to bring the deemed contract to an end even though the insolvent company no longer has any need for the gas or electricity supplied to the premises. The administrator or liquidator may not be able to satisfy the conditions in clause 12.2 of the Terms. Further, there is no evidence before the court of the circumstances in which a customer is entitled to require that the supply be disconnected. The evidence of Ms Morris in her witness statement is that there is no obligation on BGT in its gas licence and its electricity licence or otherwise to disconnect a gas meter or an electricity meter when a non-domestic customer ceases to trade from premises. Certainly there is nothing in the Terms which confers any right on the customer under any circumstances to require disconnection. On the contrary, as I have said, the effect of clause 12.2, is that liability under a deemed contract, which comes into existence automatically, continues even if the owner or occupier or consumer vacates the site permanently unless and until the express conditions of clause 12.2 of the Terms are satisfied. Insofar as it ever becomes material, the actual circumstances in which the Administrators may have refused BGT’s request for permission to disconnect and the circumstances of any attempt by the Administrators or the Liquidators to satisfy clause 12.2 will have to be explored at a further trial on the facts. They are irrelevant, however, to the issue of statutory interpretation.

Mr Zacaroli also emphasised the improbability that Parliament would have conferred on a supplier of gas or electricity the power unilaterally to achieve priority over unsecured creditors in respect of liability under a deemed contract, both the terms of which and the timing of which lie in the hands of the supplier. I have already mentioned the ability of the supplier, within a very light and loose regulatory framework, to determine the precise terms, duration and means of termination of a deemed contract. In relation to the bringing into existence of a deemed contract, it is entirely a matter for the supplier to decide whether, and if so when, it will bring an express supply contract to an end. In the present case clause 6.1 and clause 13.1 of the Terms entitled BGT to bring the 2011-2012 Contracts to an end if the Companies stopped trading, were wound up, became insolvent, or went into administration or receivership or entered into an arrangement with their creditors or “where we reasonably believe there is a risk of these things happening”. The anomaly in an administration or liquidation of this kind of timing consequence under the control of the creditor (elevating a provable debt into an expense of the administration or liquidation) was one of the matters relied upon by Lord Neuberger in Nortel for dismissing the claim that the liability in that case was an expense of the administration: see Nortel at [59]-[61] and [108]. This seems to me to be equally a relevant factor in the present case.

Finally, on this aspect of the preliminary issues, Mr Zacaroli relied upon section 233 of IA 1986 Act. That section provides that where a company enters administration or goes into liquidation and a request is made by or with the concurrence of the administrator or the liquidator for a supply of gas or electricity, the supplier may make it a condition of the giving of the supply that the administrator or the liquidator, as the case may be, personally guarantees the payment of any charges in respect of the supply. The supplier may not, however, make it a condition of the giving of the supply, or do anything which has the effect of making it a condition of the giving of the supply, that any outstanding charges in respect of a supply given to the company before the effective date (viz. the date on which the company entered into administration or went into liquidation) are paid.

Mr Trower submitted that section 233 does not in any way undermine the argument of BGT that liability to make payment under the Deemed Contracts is an administration expense either because of the nature of the liability or because of the terms of the Gas Act and the Electricity Act. Indeed, he submitted that section 233 is entirely consistent with BGT’s argument since any liability under the guarantee would undoubtedly rank as an expense of the administration or liquidation. Mr Trower submitted that the position should be no different where the supply of gas or electricity has continued without any such guarantee. He further submitted that, in any event, it is not possible to deduce from section 233 that the obtaining of such a guarantee is the only way in which a supplier can obtain priority for payment of its charges post administration or winding up. Finally, Mr Trower submitted that the overriding principal purpose of section 233 is a different matter, namely to preclude a gas or electricity supplier from holding an administrator or a liquidator to ransom by making payment of outstanding pre-administration or pre-liquidation charges a condition of continuing the supply of gas or electricity.

I consider that the provisions of section s 233 of IA 1986 Act are, without in any sense being determinative of the issue, of some relevance on the question of statutory intent and as weighing against the priority of payment of charges under a deemed contract under the Gas Code and the Electricity Code, when taken together when all the other factors I have mentioned. IA 1986 and the Gas Act were enacted on the same day. The Electricity Act was enacted a few years later. I consider it is of some relevance that Parliament specifically addressed the issue of continued supply of gas and electricity to companies in administration or liquidation in the IA 1986, providing a mechanism by which the supplier could achieve priority for payment in respect of the continued supply, but yet made no such provision in the Gas Code or the Electricity Code. If the intention of Parliament was that a supplier would be entitled to priority over the general body of unsecured creditors for charges under deemed contracts by the treatment of deemed contracts as actual contracts made by the administrator or liquidator or at any event by the treatment of such charges as expenses of the administration or liquidation, it is unclear why Parliament felt it necessary to provide the specific guarantee mechanism in section 233 of IA 1986.

BGT relies on several strands of argument in support of its case that liability under the Deemed Contracts does not constitute a provable debt within rule 13.12(1)(b). Firstly, it contends that the only source of liability arises under the Deemed Contracts, which came into existence after the commencement of the administration. Secondly, it is said that the relevant supply of gas and electricity, if not delivered under deemed contracts pursuant to the Gas Code and Electricity Code, could only be supplied pursuant to contracts made after the commencement of administration. Thirdly, it is said, consistently with Mr Trower’s submissions in relation to expenses, that the relevant status of the Companies (as owners, occupiers or consumers) giving rise to the Deemed Contracts was the status that existed after administration. For all those reasons Mr Trower submitted that none of parts (a), (b) or (c) of the general test suggested by Lord Neuberger in paragraph [77] of Nortel is satisfied. In relation to parts (a) and (b) of that test, all the relevant steps giving rise to liability arose after the administration began: status, the making of the Deemed Contracts and the relevant vulnerability of the Companies arising from the termination of the 2011 – 2012 Contracts.

Fourthly, so far as concerns specifically part (c) of Lord Neuberger’s test in paragraph [77] of Nortel, Mr Trower submitted that there was insufficient connection between the status of the Companies as occupiers, owners or consumers before administration and the ultimate liability which accrued under the Deemed Contracts after administration began. Putting it a different way, Mr Trower said that the status of the Companies as owners, occupiers or consumers had no legal consequences until the 2011-2012 Contracts were terminated after administration had began.

Generally, Mr Trower’s analysis was that the Deemed Contracts alone were the source of the obligation and liability for the cost of gas and electricity supplied once the 2011-2012 Contracts were terminated and the position was no different than if express contracts had been made. Mr Trower sought to bolster that analysis with the observation that it was impossible to tell before administration when the liability under deemed contracts would arise and how much it would be. Unlike the 2011-2012 Contracts there was no provision under the Deemed Contracts for any minimum or maximum supply. Mr Trower also emphasised, in that connection, that there are difficulties in submitting a proof in respect of exclusively future supplies to be made by a creditor. He referred me on that point to the observations of Lord Millett in Christopher Moran Holdings Ltd v Bairstow [2000] 2 AC 172 at 187, in which Lord Millett said that a critical distinction is to be made between contracts which have been fully performed by the creditor as at the date of entry into insolvency proceedings and contracts which remain executory on his part. Lord Millett said that the creditor who is contracted for payment for goods or services still to be supplied by him is not and may never become entitled to payment and cannot sue or prove in respect of a debt. Mr Trower contrasted the situation in the present case with that in Nortel. In that case everything material to give rise to an obligation within rules 13.12(1)(b) had occurred before the administration whereas, in the present case, there was no relevant supply of gas or electricity under a deemed contract before the administration began.

In terms of general policy, Mr Trower submitted that it would be unsatisfactory, and contrary to the way in which the law has developed on administration and liquidation expenses, if, in the absence of express provision in the Gas Act and the Electricity Act making the administrator or liquidator liable for post-insolvency supplies pursuant to deemed contracts, liability for payment of those supplies in full as an expense of the administration or liquidation should depend upon an extended application of the Lundy Granite Co principle, not least because that principle is itself an anomalous exception to a general rule.

Those submissions are impressive but I nevertheless agree with the Liquidators that liability under the Deemed Contracts is provable pursuant to rule 13.12(1) (b) as a liability to which the Companies became subject after the date of administration by reason of an obligation incurred before that date. The three parts to the test suggested by Lord Neuberger in paragraph [77] of Nortel are satisfied with the present case. As to (a) in paragraph [77], there is a loose analogy with the position as to the costs of litigation analysed by Lord Sumption in Nortel. From the moment that gas or electricity is supplied to premises, and for the duration of such supply, the consumer (in the case of gas) and the owner or occupier (in the case of electricity) becomes bound by the statutory framework of the Gas Act and the Electricity Act, as the case may be, which includes a present or future, actual or contingent liability to pay for the supply pursuant to a deemed contract where the supply is otherwise than in pursuance of an actual contract. In the words of Lord Neuberger in paragraph [73] of Nortel, from the moment the supplied commenced the consumer, occupier or owners “fell within the scope of the regime”.

As to (b) in paragraph [77] of Nortel, immediately prior to their administration the Companies were, in the words of Lord Neuberger in paragraph [77], “vulnerable to the specific liability” under a deemed contract since there was then a high probability or at the very least a distinct possibility that BGT would terminate the 2011-2012 Contracts pursuant to the provisions enabling it to do so in the Terms. Accordingly, prior to administration the Companies came under an “obligation” within rule 13.12(1)(b). That obligation was necessarily (in the words of Lord Neuberger in paragraph [75] of Nortel) more inchoate or imprecise than the “debt or liability” within rule 13.12(1)(b). It was (again in Lord Neuberger’s words) the anterior source of that liability.

As to part (c) of Lord Neuberger’s test in paragraph [77] of Nortel, the above analysis of the application of rule 13.12(1)(b) to the facts of the present case is entirely consistent with the regime in the Gas Act and the Electricity Act. Nor do I accept Mr Trower’s submission that uncertainty over the amount of the future debt in relation to the future supply of gas and electricity to the Stores rendered the liability of the Companies to BGT unprovable. BGT was entitled to prove from time to time for the charges incurred following the commencement of the administration for supplies actually made to the date of proof. There is nothing in Park Air Services which states otherwise.

For the reasons I have given, I find in favour of (1) and against (2) of the preliminary issue.