Powergen Retail Ltd. v British Sugar Plc

This is an appeal by the Claimant, Powergen Retail Limited (“Powergen”), against the decision of His Honour Judge Cowell dated 29 September 2005, striking out its claim on the ground that it had no right to bring it.

The Judge’s decision, and this appeal, turn on the interpretation and effect of two written agreements, and more especially the second. The first, dated 29 April 1998, was entered into between Eastern Natural Gas Retail Ltd and the Defendant British Sugar PLC (“British Sugar”) and provided for the large scale supply by Eastern Natural Gas of natural gas to specified premises (“the premises”) of a company, ABR Foods Ltd, which was then a subsidiary of British Sugar. This agreement is referred to as “the Supply Agreement”. Eastern Natural Gas Retail Ltd was subsequently renamed TXU UK Ltd (“TXU”), and traded as TXU Energi (sic). The second agreement, dated 21 October 2002, referred to as “the Sale and Purchase Agreement” or “SPA”, was made between TXU Europe Group PLC and other companies in the TXU Europe Group, including TXU, as vendors and Powergen UK PLC and other companies in its group, including Powergen, as purchasers. Under it Powergen purchased certain of the assets of TXU. Powergen claims that it acquired under the SPA the right to moneys alleged to be due from British Sugar under the Supply Agreement. British Sugar denies this. The Judge held that the assets acquired by Powergen under the SPA did not include that contractual right, and accordingly he struck out the claim.

The only issue on this appeal is whether the Judge correctly interpreted the SPA. The other grounds of appeal have sensibly been abandoned. Powergen does not suggest that it acquired the right to the debt allegedly due from British Sugar by any other transaction. Manifestly, the alleged debt could have been the subject of a specific assignment by TXU to Powergen. An attempt at such an assignment was made, but it has been conceded by Powergen that it was ineffective.

Neither party suggests that the interpretation of the SPA would be affected by any oral evidence that might be adduced at a trial or by any documents that are not now before the Court.

Clause 3.3 of the Supply Agreement provided that it, and the supply of gas under it, should terminate on the Expiry Date, which was specified as 0600 hours on 1 September 1998. In fact, TXU continued to supply gas to the premises in question until about 8 April 1999. For the purposes of this appeal, it may be assumed that the supply continued until that date on the terms of the Supply Agreement. It is not suggested that British Sugar did not pay in full all invoices submitted to it at the time of supply. However, clause 5.5 provided:

“If it is discovered that any meter reading has been inaccurate or omitted or any translation of reading into charges has been incorrect then the amount of money due to or (subject to the proviso set out in Clause 5.2.2) from Eastern Natural Gas shall be paid forthwith.”

Clause 5.2.2 is irrelevant. Clause 5.10 provided that clause 5.3 survived the termination of the Agreement, but perhaps curiously did not place any express limitation of time on its survival.

On 30 July 2003, i.e. over 4 years after the termination of the Supply Agreement a company called Utility Billing & Metering Ltd (“UBM”), purporting to act on behalf of TXU, wrote to British Sugar stating that it had been undercharged some £530,000 under the Supply Agreement. Subsequent correspondence led to the disclosure that TXU had gone into administration in November 2002, and that UBM were in fact acting for Powergen, which claims to have acquired the right to the alleged undercharge from British Sugar under clause 5.3 of the Supply Agreement.

If there was an undercharge recoverable under clause 5.3, it must have been discovered shortly before 30 July 2003. Thus there was nothing due from British Sugar under the Supply Agreement at the date of the SPA; at most, there was a contingent liability on its part, and conversely only a contingent right on the part of TXU.

There are now in evidence two versions of the SPA. The first is the document executed on 21 October 2002, on which date the agreement was both signed and completed. It contains a number of agreed material manuscript alterations to the typescript. The second is described as the rectified agreement, and is attached to an agreement dated 5 June 2003 executed on behalf of the parties to the original agreement, and which records the agreement of those parties that “the document attached hereto is the rectified agreement relating to the sale and purchase of certain assets of the TXU Europe Group dated 21^st October 2002 between the parties hereto … which reflects the common intention of the parties as at that date” save in immaterial respects. The rectified agreement differs in certain respects from the original agreement. The manuscript deletions in the original agreement might well be relevant to its interpretation, but for the purposes of this appeal I have ignored them. The citations below are from the rectified agreement.

Under the SPA, the Powergen Group of companies acquired a gas supply business, an electricity supply business, an electricity generating business, 3 electricity power stations, approximately 5.5 million domestic customers, a number of industrial or commercial customers and the 1900 employees of the TXU Group. It paid a very substantial sum for these assets: £1.37 billion. I am concerned with the sale of the gas and electricity supply business, which was acquired by Powergen: it is common ground that it is only under the provisions of the SPA relating to the supply business that it could have acquired the claim now in dispute.

Clause 1.2 stipulated that for the purposes of the specified assets of the gas supply business, the Purchaser was Powergen. Clauses 2.1, 2.3 and 2.4 of the SPA are as follows:

2.1: On and subject to the terms and conditions of the Agreement, including without limitation, the terms and conditions set forth in clause 2.10 below, and with the intent that the Supply Business is transferred as a going concern to the purchaser, the Vendors shall sell and the Purchaser shall purchase with full title guarantee the following Assets with effect from Completion (the interest of each Vendor being set out in clause 3.1 and/or against the relevant Assets in the Schedules to this Agreement, so far as is practicable).

2.1.1: the Equipment relating to the Supply Business;

2.1.2: the Business Intellectual Property Rights and the Domain Names other than those relating to the Generating Business, subject to the burden attaching to each of them;

2.1.3: the Goodwill relating to the Supply Business;

2.1.4: the benefit, subject to the burden (other than the burden in relation to any obligation or liability in respect of which any Vendor or relevant member of the Vendors’ Group was in breach or arising from such breach prior to Completion) attaching to each of them, of the Supply Business Contracts;

2.1.5: the ROC’s;

2.1.6: the Supply Business Fixed Plant and Machinery;

2.1.7: the Business Records relating to the Supply Business;

2.1.8: the beneficial interest in the Supply Subsidiary Shares;

2.1.9: the beneficial interest in Joint Venture Shares;

2.1.10: the beneficial interest in the Industry Company Shares;

2.1.11: the benefit of the Insurance Claims (other than those relating to the Generating Business), to the extent received or capable of being received by the Vendors, and provided that all costs of recovery shall be borne by the Purchaser;

And in the case of the shares referred to in sub-clauses 2.1.8, 2.1.9 and 2.1.10 together with all the rights attaching to them.

…

2.3: The Supply Business Vendors shall hold on trust for the Purchaser any sums received after Completion by any of the Supply Business Vendors in respect of the Generating Business Debtors and any such monies so collected (including any VAT thereon) shall be passed as soon as reasonably practicable by the Purchaser).

2.4: The Supply Business Vendors and the Generating Business Vendors shall make all necessary arrangements for any bank account into which the Generating Business Debtors and Debtors (other than Securitised Debtors) shall be payable to be transferred into the name of the Purchaser with effect from the Completion Date.

Clause 2.7, 8.1, 8.5 and 8.9 provide:

2.7: Nothing in this Agreement shall transfer or be deemed to transfer to the Purchaser any of the Excluded Assets.

8.1: The Purchaser undertakes to perform and discharge at their own cost all obligations and liabilities of the Vendors and/or the relevant member of the Vendor’s Group arising under the Contracts or the occupation or ownership of any of the Properties, whether arising before, on or after the Completion Date; provided that the Purchaser shall not be required to perform or discharge any such obligations and liabilities in respect of which any Vendor or relevant member of the Vendor’s Group was in breach or arising from such breach prior to completion.

8.5: The Vendors shall, subject to clause 8.7, on or with effect from the Completion Date assign or procure the assignment to the Purchaser at the Purchaser’s cost and expense of any of the Contracts which are capable of assignment without the consent of third parties.

8.9: The Vendors shall hold any proceeds or profits of the Contracts which are received by them after the Completion Date for the benefit of the Purchaser and shall account to the Purchaser as soon as reasonably practicable after receipt of such proceeds or profits.

Clause 10 contained provision for the Vendors to give the Purchasers access to information and records retained after completion, and for the Purchasers to give to the Vendors access to the Business Records they acquired under the agreement.

All of these provisions referred to contractual definitions, of which there was a considerable number. “Supply Business” was defined as “the business of retailing, marketing and supplying electricity, gas and associated product offerings to Domestic Customers and I&C (industrial and commercial) Customers to any Premises in the United Kingdom, as carried on by the Supply Business Vendors (or certain of them)”. The most important of the contractual definitions is that of Supply Business Contracts, which were defined as follows:

“(A)

the current contracts and engagements of the Supply Business Vendors in relation to the Supply Business at the Completion Date set out in Schedule 5, but excluding (1) the Industry Contracts, (2) any Energy Trading Contracts, (3) any sales agency contracts other than the agreement with Pertemps Recruitment Partnership dated 5^th November 2001 and (4) CHP offtake or tolling contracts; and (B) the Renewable Contracts.”

This definition fed into the definition of “Contract”, which was “the Supply Business Contracts and the Generating Business Contracts including the benefit of all rights and claims arising in respect of them”, and similarly into the provisions of, for example, clauses 8.1 and 8.9. “Generating Business Contracts” were similarly defined as “the current contracts and engagements of the Generating Business Vendors in connection with the Generating Business …”, but in that context there was also a definition of “Generating Business Debtors”. There was a definition of “Debtors”, namely “the aggregate amounts owed to the Supply Business Vendors (including any VAT thereon) at the Completion Date in connection with the Supply Business by or in respect of trade debtors, trade bills receivables and other debtors”. There was no express sale of the sums due from Debtors, but as has been seen the Vendors were to transfer to Powergen any bank account into which debtors were payable.

“Excluded Assets” were defined as those assets detailed in Schedule 4 to the SPA and the Trading Systems. The definition of Trading Systems is irrelevant, but the contents of Schedule 4 are not.

Schedule 5 listed, under the heading “Customer Contracts”:

•

All contracts for Domestic Customers for gas and electricity supplies to which TXU UK Ltd is a party (actual and Deemed Contracts)

•

All Contracts for I&C Customers gas and electricity supplies (actual and Deemed Contracts)

The Supply Agreement was not specifically referred to in the SPA.

“Business Records” were defined as: “all the information and records in the possession of the Vendors (or any other relevant member of the Vendors’ Group as listed in the Schedules) in relation to the Supply Business and the Generating Business, including (i) know how; (ii) accounting, financial, marketing, sales, supply, personnel, management and technical information, correspondence and literature including customer lists (iii) drawings, software (including firmware relating to or comprised in any hardware), supporting documentation, disks and other material embodying or incorporating or constituting any of the Business Intellectual Property Rights to be machine readable or other forms) including relating to customers, suppliers or employees; (iv) environmental audits, asbestos studies and registers and all relevant monitoring data; in each case, in whatever form or medium it is held or recorded, excluding any documents the Vendors are required by law to retain.

It can be seen that the SPA did not expressly transfer to Powergen the debts of the Supply Business. This is in contrast to the provisions of the SPA relating to, for example, the Generating Business, which specifically included in the sale the Generating Business Debtors. Mr Thanki submitted that it was nonetheless clear from the agreement as a whole that TXU was not to retain any part of the gas supply business, which was to be transferred to Powergen as a going concern. A going concern must include, he submitted, the debts and other rights of the transferor. That Powergen was to acquire debts and other sums due was confirmed by the fact that it was to acquire the Business Records relating to the Supply Business, which would mean that TXU itself would be unable in practice to collect any outstanding debts.

On behalf of British Sugar, Mr Boardman pointed out that the SPA was a sale of specified assets rather than a comprehensive sale of the entirety of the Vendors’ assets. He emphasised the word “current” in the definition of Supply Business Contracts. He submitted that the Supply Agreement could not sensibly be described as a “current contract”, and that Powergen’s case involved ignoring the adjective or treating its inclusion in the definition as an error, something which the Court may do only in the clearest of cases, of which this is not one. With regard to the transfer of the Business Records of TXU, he pointed to the exclusion, in Schedule 1, of documents the Vendors were required by law to retain, and submitted that by virtue of section 221 of the Companies Act 1986 this would have included the documents required to pursue claims under expired contracts. In addition, under clause 10.2 TXU retained a right of access to its records, albeit for a limited period of 6 months.

Mr Thanki accepted that at the date of the SPA the Supply Agreement could not be described as a “current” contract, given any ordinary or natural meaning of the word. That was clearly an inevitable concession. In the absence of any indication to the contrary, I should have interpreted the phrase “current contracts and engagements … in relation to the Supply Business …” to mean the continuing contracts and engagements under which the Supply Business Vendors supplied energy at the date of the SPA. On this basis, an expired contract, i.e. one under which no further energy was due to be supplied by TXU, would not be a current contract. The word “engagement” adds nothing for present purposes, since in this case the supply was clearly under a contract, and in any event “engagement” must similarly be qualified by “current” if the composite phrase is to have any logic. It may well be that an expired contract under which at the date of the SPA no further energy was to be supplied but under which a final invoice was due to be submitted should be regarded as a “current” contract for the purposes of the SPA, and if so the debt of the customer under that contract to pay the amount of the final invoice would be a sum due under a current contract, and that debt would have been sold under clause 2.1.4 as the benefit of a Supply Business Contract. It is perhaps more difficult to regard overdue sums due from customers under contracts that had expired at the date of the SPA as due under current contracts. Such sums would be included in debtors or book debts, and a contract intended to transfer the right to such sums would include an express sale of book debts or of outstanding debts or debtors. One would normally also expect a warranty by the vendor in relation to the book debts, since their total nominal value may have a significant impact on the consideration payable by the purchaser. There is no such warranty in the SPA.

It is not clear that all debtors of the Supply Business under expired contracts were to be transferred to Powergen. It is difficult to see why there was no express transfer of Debtors as defined. Clause 2.3 is limited to sums received after completion in respect of Generating Business Debtors. It may be that Supply Business customers undertook to pay sums due into specified bank accounts of TXU, so that by transferring the bank accounts under clause 2.4 Powergen in practice acquired sums payable under continuing contracts, but that still leaves overdue sums under expired contracts outside any express provision.

In construing the SPA, I bear in mind that it was negotiated under pressure, and on that basis one may be more forgiving of loose wording. Mr Thanki gave as an example of the imperfections of the SPA the omission of any identification of the purchaser of the generating business sold under clause 2.5. However, the SPA is a detailed written contract drafted by a leading City firm of solicitors. The parties took the opportunity to rectify it some 8 months after its completion, and did not alter the provisions material to this dispute when they did so. Those facts considerably limit the latitude appropriate to its interpretation.

I accept Mr Thanki’s submission that the fact that the business records of the supply business were to be transferred to Powergen is some indication of an intention to transfer debtors, since the records transferred were not limited to those relating to continuing supply contracts. Ultimately, however, I do not think it necessary to arrive at a conclusion on the ambit of current contracts. The provisions of the SPA other than the definition of Supply Business Contracts are not sufficiently clear as to enable, let alone require, the Court to conclude that the word “current” was inserted in error, and should be ignored. Some effect must be given to it. While it would be possible to conclude that an extended meaning was intended, so as to include contracts under which the supply of gas (or electricity) had come to an end but final invoices had not been submitted or, if submitted, paid at the date of the SPA, it would be doing violence to language to describe the Supply Agreement dated 29 April 1998, which had come to an end so far as the supply of gas and (I assume) the payment of the supplier’s invoices so long before, as current at the date of the Agreement.

I am encouraged in this conclusion by the wording of the definition of Renewables Contracts in Schedule 1, as meaning “current contracts … for the purchase of ROCs including those contracts which have expired but which still give entitlement to ROCs. (ROCs are renewable obligations certificates issued under section 32B of the Electricity Act 1989.) The italics are mine. No similar express inclusion was inserted into the definition of Supply Business Contracts, although the parties were clearly aware of the effect of the adjective “current”.

Moreover, the sum now claimed from British Sugar had not been demanded, or indeed quantified at the date of the SPA. The claim was unknown at the date of the SPA both to TXU and to Powergen. It follows that it would not have been a book debt (since it would not have been included in the books and records of TXU) at the date of the SPA. Similarly, that sum was not within the definition of “Debtors” in Schedule 1 to that Agreement, so that even if there had been an express sale of Debtors, the present claim would not have been included in it.

In my judgment, it follows that the claim to the sum sought in these proceedings was not transferred by any general words in the SPA. There was no specific transfer of such a claim. And it similarly follows that in my judgment the Judge reached a correct conclusion as to the interpretation and effect of the SPA.

For these reasons, Powergen’s appeal will be dismissed.