Before:

LORD JUSTICE KENNEDY

LORD JUSTICE WARD

LORD JUSTICE TUCKEY
 
 

B E T W E E N

JUDGMENT
 
DATED: Friday 30 July 1999

LORD JUSTICE TUCKEY:

After a 38 day hearing between October 1996 and March 1997 Langley J gave judgment for the Claimants (the CATS Parties) against the Defendants (TGT) for about £87m. The CATS Parties built and own a 255 mile pipeline for transporting natural gas from a number of fields and platforms in the Graben area of the North Sea to on-shore facilities in Teesside. On 10th September 1990 before the pipeline had been built they entered into a Capacity Reservation and Transportation Agreement (CRTA) with TGT by which TGT reserved part of the capacity of the pipeline and the right to acquire a transportation service from the CATS Parties until 2018. TGT were obliged to pay for the capacity reserved for them from the CRTA commencement date whether or not they used it (send or pay). It was the CATS Parties' case which the Judge accepted that the commencement date was the 1st April 1993. TGT made payments for the reserved capacity until the end of September 1994 but then stopped paying. The judgment is for the amount due from that time. The Judge dismissed TGT's counter-claim for what they had paid up to that time.

At trial TGT advanced a number of reasons for not paying which are no longer in issue on this appeal. The one that is relates to the CATS Parties' obligation to provide sub-sea entry points to the pipeline. These were to be created at intervals along its length so that spurs could in due course be connected by TGT or its subcontractors to enable gas from outlying fields to be fed into the pipeline and carried to Teesside. In this way TGT could utilise their reserved capacity in the pipeline. In the event TGT would not have been able to utilise its capacity until late 1995 at the earliest. But in October 1994 a problem was discovered with T6, the entry point which TGT chose to use. Although this problem had been completely overcome by the time they needed to use the entry point TGT contended that under the terms of the CRTA they were only obliged to make payments if the reserved capacity in the pipeline was available to them. As they said it was not available, either the commencement date was delayed or under the payment provisions of the contract they owed nothing until the problem had been overcome. The Judge held against TGT on both points. On this appeal TGT challenge the Judge's construction of the CRTA and say he should have found in their favour. However they accept his findings of fact which I will need to examine in detail because as the argument developed before us it became clear that the parties did not agree what those findings mean. Before doing so however it is necessary to set out a little more of the background to the commercial context in which the CRTA came to be made and how the dispute arose.

The CATS Parties were the owners of the Everest and Lomond fields which were expected to produce gas from about April 1993. The pipeline was built at the same time as this field was developed. About 20% of its capacity was required to transport gas from this field to Teesside. The CRTA which reserved a further 20% of the pipeline's capacity for TGT was intended to contribute to the very substantial costs of constructing the pipeline by providing an assured revenue stream of approximately £8m. per quarter from the time it had been completed.

In 1990 TGT was a joint venture company between Enron and ICI. Enron acquired ICI's interest in 1996. Enron also had a substantial interest in a company which was to build a power station in Teesside. On the same day as the CRTA was concluded this company purchased a share of the production of the Everest and Lomond fields from the time they came on-stream. This gas was to be received through the pipeline at an on-shore reception facility in Teesside and processed for use as fuel for the power station. At this time TGT did not have gas to utilise its reserved capacity in the pipeline. However under long term gas sale and transportation agreements made in March 1993 Enron purchased and TGT agreed to transport to Teesside the entire gas production of the J Block field which was expected to come on-stream in late 1995. The intention was that J Block gas would enter the pipeline at T6 and would be received at another on-shore reception facility from which it would be supplied either to the power station or to the national gas transmission system. Enron were to operate both on-shore reception facilities in Teesside.

As part of his 200 page judgment in which he dealt with the many complex issues between the parties in a masterly and concise way, the Judge summarised the commercial context in which the CRTA came to be made as follows:

"The CATS Parties achieved the sale of Everest/Lomond gas and, as they thought, the guarantee of payments under the CRTA which no doubt was an important factor to justify the investment needed to construct the pipeline and to develop the Everest and Lomond fields granted also the prospect of other fields contracting to use the pipeline to transport gas to shore. Enron and its co-venturers achieved an assured supply for the proposed power station, the prospect of profit from processing the gas at its facilities and the ability (by the CRTA) to acquire and transport to those facilities further gas from other fields (in the event J Block) which it could process and sell. The overall context was the deregulation of the power supply industry in the United Kingdom and the consequent opportunities to compete in a market. The commercial judgments involved of course depended crucially not just on the prices payable under the agreements, but also obtainable in the market over many years."

By autumn 1994 the spot price of gas had started to fall and by mid 1995 it was half what it had been in 1990 and 1993. It has remained depressed ever since. The level of payments under the CRTA and the level of take or pay payments under the J Block GSAs were fixed (subject only to indexation) when the agreements were made, but Enron had not on sold any gas at those times. By late 1994 therefore they had, as the Judge said, " a pressing commercial interest to escape from or to achieve a re-negotiation of the prices payable under both the CRTA and more importantly the J Block GSAs".

It is against this background that the litigation started. Enron contended that it had not become obliged to take or pay for any gas under the GSAs. The J Block owners sued but the case settled before judgment. There is a further action by some of the CATS parties against ICI and Enron as guarantors of the payments to be made under the CRTA but no separate issues arise in that action although it is formally part of this appeal.

The CRTA is 348 pages long. It is obviously carefully drafted and comprehensive. We have been referred to many of its terms. To avoid overburdening this judgment with citation the relevant provisions are set out in an appendix to the judgment. TGT is described as "the ICI/Enron Party" throughout the agreement. I propose to start with a brief overview of the terms which are relevant to this appeal.

Clauses 3 and 6 contain the CATS Parties' principal obligations. By Clause 3.1 they are required to "cause the Transportation Facilities to be constructed and capable of performing the Transportation Service for Capacity Gas at the Capacity Reservation Rate by 1st April 1993".

The CATS Transportation Facilities meant the facilities to be constructed, owned and operated by the CATS parties. These facilities included "equipment comprising or relating to" all points of entry which were to be designed, procured, constructed, installed, commissioned, tested, inspected, repaired, maintained and owned by the CATS parties. Each entry point was to consist of "a sub-sea Tee/Y piece and all necessary valving and equipment to allow for the tie-in of" the spur pipeline without shutting down or depressurising the main pipeline (1,3.7, 3.8, Schedule 1 paragraph 5, and Schedule 4).

The tie-in was TGT's responsibility. It had to be carried out in accordance with procedures laid down in Clause 8.3 to 8.10 which were initiated by not less than 100 days notice to the CATS operator (Amoco). One of the purposes of the procedures was to ensure that the work was carried out in a way which did not adversely affect the pipeline. It is obvious that a tie-in requires elaborate planning and engineering and the work involved will take some time to complete. It cannot start of course until the spur pipeline (the Capacity Facilities) is ready to be tied-in.

To provide the Transportation Service the CATS Parties are required to accept Capacity Gas from a Designated Field, transport it through the pipeline and re-deliver it in a specified state at the re-delivery point in Teesside (6.1). Capacity Gas is TGT gas up to the amount of the capacity exclusively reserved for them under the agreement (the Capacity Reservation Rate) (1 and 4). The procedure for designating a field is set out in Clause 5. It requires TGT to give notice to the CATS operator (5.2), for the CATS operator to respond and for a procedure then to be followed with a view to agreement of the practicalities (5.3 to 5.14).

Transportation fees are to be calculated in accordance with Clauses 7.2 and 7.3. Send or pay payments were payable from the Commencement Date (7.4). This was the later of 1st April 1993 and the first day of the month after the CATS operator has given notice that the CATS Approvals have been obtained, the CATS System has been tested and commissioned and "the CATS Transportation Facilities are available to perform the Transportation Service for Capacity Gas at the Capacity Reservation Rate". (1). Clause 7.4 then lays down the formula for calculating send or pay payments based on the capacity reserved (C) less the amount actually delivered for which the transportation fee would have been paid.

Clause 7.5(a) says that C shall be reduced "to the extent that capacity is not available (as determined pursuant to Clause 7.5(b)) for the provision of the Transportation Service". Clause 7.5(b) says that "capacity shall be deemed not to be available when (and to the extent that) the CATS Parties are unable or fail to re-deliver Capacity Re-delivery Gas at the relevant re-delivery point for whatever reason including without limitation ... " The matters listed include maintenance, Force Majeure and failure to accept gas at the entry point, but exclude act or omission by TGT including failure to deliver gas to the entry point.

Facts.

TGT gave a designation notice under Clause 5.2 for J Block gas in January 1993. It chose T6 as the entry point and proposed a tie-in date of 30th June 1995. On 30th March 1993 Amoco gave its first Commencement Date notice. This meant, if the notice was valid, that the Commencement Date was 1st April 1993. TGT made send or pay payments from this date.

TGT's transportation agreement with the J Block owners required them to transport the gas from the T6 entry point. The J Block owners had to make the tie-in at this point. Phillips, the J Block operator, commissioned Rockwater, who are specialist sub-sea contractors, to carry out a pre tie-in inspection of the entry point at the end of October 1994. Before describing what happened I need to explain the layout of the entry point.

I have already referred to the contract description (Schedule 4). The Tee/Y piece formed the 24" spur which joined the 36" main pipeline. It was sealed by a flange at its end. There were two large ball valves along its length. The Judge said

"the purpose of the ball valves in the assembly was to provide a "double block and bleed" that is to enable the Tee to be isolated from the main CATS pipeline so that the connection could be safely made by closing both valves, venting any gas in the pipeline between them, removing the flange to expose the point of connection for the J Block pipeline and then welding or making a flanged connection to it. The valves could then be re-opened so that J Block gas would flow into the main CATS pipeline."

Venting was achieved through two smaller valves, one on the flange and the other between the ball valves. Of the Rockwater inspection the Judge said

"The valves were found not to be sealing as they should causing leaks of gas. The probability is that the condition of the valves was the same on 1st April 1993. The leaks were such that a tie-in by either weld or flange could not have proceeded then and investigation of the problem was required."

This paragraph has given rise to considerable argument. TGT submits that it amounts to a finding of fact that the entry point was not then available; the CATS parties say that it is merely a factual account of what was found. Accordingly, we have been shown some of the contemporaneous documents recording what was found, the parties' reaction to it and what followed. I do not propose to refer to these in any detail but the Amoco representatives' report of the inspection said:

"In the event none of the valves had sealed properly. All the normal remedial activities have been tried (under the guidance of two representatives on board from the valve manufacturer ...) to no avail...

The vessel can do no more and is demobilising - I would stress however that the Tee is being left safe with no concerns on the continued safe operation of the CATS line. We just have a "dead leg" into which we cannot proceed with the J Block tie-in."

It appears that the flow of gas through the valves was so great that it was unmeasurable.

On 11th November 1994 Phillips wrote to TGT saying that the recent inspection had revealed that all valves were leaking unacceptably such that in their current condition they would not be able to effect their tie-in planned to start in March 1995. TGT passed the complaint on to the CATS Parties and it is clear that from this time Amoco, as their operator, took responsibility for further investigating and solving the problem. To this end they retained Rockwater and paid for a series of tests both on-shore and off-shore. The Judge described what happened as follows:

"By 9th December 1994 it had been concluded that a manufacturing defect or design deficiency in the valves was "extremely improbable" and that the problem was a "system problem", meaning by that a question of devising a procedure to make the valves seal. That conclusion was right.

Certainly by 15th February 1995 and probably by early December 1994 it was not in any doubt that a tie-in by flange could and would be achieved successfully within the timescale required by Phillips.

By early March 1995 the procedures developed on-shore had been successfully applied off-shore and it was recorded that the tie-in "could easily proceed""

The cause of the problem, the Judge found, was:

"that the spring-loaded valve seats were not closing properly due to an insufficient pressure differential being created across the seal. "

The documents which we have seen show that in the course of the on-shore tests which took place on a test rig at the valve manufacturers' factory and later at Peterhead a procedure was evolved by which the ball valves could be "shocked" into closing by creating the required differential pressure by opening and closing the valves and venting in a particular sequence. This procedure had then to be tested off-shore at T6 to see that it worked effectively and safely. These tests showed that there was still some leakage across the valves but Phillips and Rockwater agreed that "an acceptable working procedure can be developed on the basis of the observed leak rates". They then proceeded with the tie-in although all parties thought that the solution might not be acceptable to the HSE. The problem had obviously been serious. Amoco's off-shore representative prepared a report after the March off-shore tests which he introduced by saying:

"The operation was mounted to put into practice the information gained at the trials recently carried out at Peterhead and to use that experience to return the 24" valves at T6 to a condition suitable for the tie-in of Phillips' pipeline. It having been established on a previous operation that these valves were passing substantial amounts of gas, while in the closed position and thus making the tie-in an impossibility."

At an early stage in the investigation of the problem the possibility of sealing the valves by injecting a freeze plug or inert gas buffer into the valves was considered and summarily rejected by all parties involved. I cannot therefore accept Mr. Aldous, QC's, Counsel for the CATS Parties, submission that this was one solution to the problem. Nor does it appear to have been the CATS Parties' case at trial because the Judge does not mention it.

Mr. Aldous also suggested that the CATS Parties' expert, Mr. Stanfield, whose evidence the Judge accepted, had been critical of Rockwater's inspection. He said that they had not looked at the whole picture and had not considered removing the flanges of the smaller valves to achieve better venting. But there is no criticism of Rockwater's inspection in the judgment and I would not expect there to be since they were accompanied by representatives from the valve manufacturers who no doubt advised as to "the normal remedial activities" in an effort to make the valves close properly.

The valves were successfully hydro tested in April 1995. A second Commencement Date notice was served with effect from 1st June 1995. TGT now concede that this was a valid notice. By 10th October 1995 a flanged tie-in was completed and pressure tested successfully.

The remainder of the relevant facts can be extracted from the Judge's findings which he made on the basis of accepting the evidence called on behalf of the CATS parties. These are:

"The entry points were designed, manufactured and installed according to best practice by reputable suppliers and installers. Installation sub-sea was completed in August 1992. The two ball valves were fully and properly tested, inspected and certified before installation. The test certificates showed zero leakage. Once installed sub-sea the valves were left open and not tested further in accordance with standard and established practice. At 1st April 1993 no tie-in was expected to be effected before September 1995. CATS could (as must be obvious) have inspected the entry point at or shortly before that date. They did not do so. This was entirely in accordance with the recognised practice to which I have referred.

I am satisfied generally that there was never any real likelihood that a successful tie-in could not be achieved to the existing assembly and that following Phillips' letter of 11th November 1994 any doubts about whether it could be achieved to meet Phillips' timetable were quickly dispelled.

I accept the evidence that it is well known that ball valves of the type in question may leak and that it will be no surprise to anyone that they did so. There was never any question or expectation that Phillips could or would just turn up and get on with the tie-in. The tie-in was achieved without any alteration or repair being made to the valves and without any modifications to the entry point as it existed at 31st March 1993 and had been approved by the DTI. "

Mr. Aldous also relies on the Judge's further finding as follows:

"Having heard Mr. Stansfield's explanation as to how, in his opinion, it would in fact at all times have been possible to shock the valves into closing so as to permit a welded connection to be made, I am satisfied that had it been thought of at the time (which it was not) that could in fact have been achieved. The entry point was therefore fit for a welded tie-in even if it was not appreciated that it was and the decision to permit a flanged connection made it unnecessary to consider the possibility further. "

I do not think this helps the CATS Parties' case. At trial TGT contended that the entry point was not available because they were required to make the tie-in by a welded connection so any leakage of gas made it impossible. The Judge held that either a welded or flanged connection could have been made. This finding is directed to that issue. What the Judge is saying is that it would not have made a difference to his conclusions if a welded connection had been required.

In order to decide what the Judge's findings of fact mean it is I think first necessary to consider how he resolved the construction issue about the commencement date.

The issue was whether the Transportation Facilities were "available" on 1st April 1993. The Judge said:

"... the concept of availability in my judgment looks to whether the Facilities are capable of use by (TGT) in the commercial circumstances envisaged by the CRTA including for example, the provisions for notification to make a field a Designated Field, which expressly recognised, as one would expect, that this was not and could not sensibly be a push-button contract. "

He then suggested that although availability had to be judged objectively at a given commencement date this did not preclude consideration of the actual circumstances pertaining at that date. This passage is criticised but it relates to an argument about out of specification gas with which I will have to deal later in this judgment and does not undermine what he said in the passage which I have cited and a further passage in which he said:

"The acid test, as it seems to me, is simply this. Would the CATS Parties have legitimately been able to say to TGT at 1st April 1993 (or on the subsequent Commencement Dates relied upon) that facilities are now available so that you may use them to transport Capacity Gas and have it re-delivered to specification as and when in compliance with the provisions of the CRTA you seek to do so ? "

It seems to me from both the passages I have cited that the Judge is construing the word "available" to mean "available as and when in accordance with the terms of the contract TGT could require gas to be transported". In reaching this conclusion he refers specifically to the procedure for designation (Clause 5) and he no doubt also had in mind Clause 8 (tie-in).

If the Judge had found as a fact that the facilities were available on 1st April 1993 it would not have been necessary for him to construe the contract in this way. He would have made a clear finding of fact to this effect and would not have had to consider, as he did, how quickly the problem was solved and whether it ever threatened Phillips' programme for making the tie-in.

I think the Judge found that the facilities were not available on 1st April 1993. A tie-in "could not have proceeded" then due to the fact that the valves were not sealing "as they should" because "the spring loaded valve seats were not closing properly".

The question still remains however whether on the facts found by the Judge the facilities were available. There is no Respondents' notice to this effect but many of Mr. Aldous's arguments were directed to this question. The argument proceeds from the fact that the valves did work in the end and nothing had to be done to them to achieve this result. The hardware, as it were, was always available. All that was lacking was know-how. This is what the Judge described as a "system problem".

I do not accept this argument. The valves were not working properly because their seats were not closing. This was not because there was anything wrong with the valves themselves but because the gas pressure at the entry point did not create sufficient differential pressure to make the seats close fully as they were designed to do. There was therefore a fault or defect at the entry point in this sense which was only cured by a "system" solution. But even if one looks at the valves in isolation I do not think one could say that the entry point was available if what was required to make the valves work properly was a fairly elaborate engineering exercise to come up with a solution to the problem based on trial and error in the course of prolonged on-shore and off-shore tests. This is obviously a matter of degree. The entry point is at the bottom of the North sea and not in a back garden. Tie-in is obviously an expensive and elaborate job. It is not like putting a hose onto a tap. Minor problems with the entry point would not make it unavailable. Nor, for example, would it be unavailable if Phillips' sub-sea contractors had not followed the normal procedures for closing the valves. In that case, of course, one would expect the problem to be overcome very quickly. But that was not the position here.

If it is accepted that the Transportation Facilities were available at the second Commencement Date one might ask what is the difference between then and the first date ? The entry point was exactly the same. The answer to this question I think is that at the earlier date it was not possible to tie-in to the entry point because the valves were not working properly and they could not be made to work properly until a system was developed to make them do so.

Mr. Aldous suggested that contractually it was TGT's responsibility for devising the system to overcome the problem. I do not agree. Whilst it is clear that they were entirely responsible for the design, construction and installation of the Capacity Facilities including the tie-in, the entry point including the valves was entirely the responsibility of the CATS Parties. TGT therefore had no responsibility for devising a system to make the valves work properly. The fact that Amoco took responsibility for doing so when the problem arose bears this out.

It follows from what I have said that I think the Judge was right to hold, as I think he did, that the facilities were not available on 1st April 1993.

Commencement Date.

The question then is whether the Judge's construction of the contract is right.

Mr. Aldous says that it is. He submits that when the contract talks of availability it is not looking at an instant ability to re-deliver gas but at the ability to do so within the time frame contemplated by the machinery of the contract. Thus, the definition of Commencement Date refers to the facility being "available to perform the Transportation Service" and Clause 6 defines this service as "subject to the other terms and conditions of this agreement". This therefore brings in the procedures which have to be followed to designate a field (Clause 5) and to effect a tie-in which require at least one hundred days notice (Clause 8). This makes commercial sense because otherwise TGT would hypothetically have to be able to tie-in to the entry point at a time when contractually they had no right to do so.

In considering these submissions I start with the assumption that the parties have said what they meant to say in this comprehensive and well drafted contract. The court should not therefore aspire to do anything more than to interpret the words used. If they are clear no gloss should be put on them and no meaning given to them based on the court's perception of the parties' expectations.

Clause 3.1 imposes an unqualified and absolute obligation to construct the Transportation Facilities which include the entry points so that they are capable of performing the Transportation Service by 1st April 1993. On the Judge's findings they were not so capable because the entry point was not then available. I think this conclusion is inescapable and inevitably informs the proper construction of the words "the CATS Transportation Facilities are available to perform the Transportation Service" in the definition of Commencement Date. It is not clear from his judgment that the Judge realised this.

The words "are available" denote an objective state of present facts not a prospective one. Either the facilities are available or they are not. There is no reference to other clauses in the contract: more particularly to other clauses which require TGT to do things before they may make use of their reserved capacity. The words are apt to describe the inherent fitness of the facilities for the purpose they are required not what TGT may have to do to use them.

If TGT have no gas the availability is hypothetical in the sense that they can make no use of the Transportation Service but it is not at all hypothetical in the sense that it triggers their liability to make send or pay payments for their reserved capacity. The contract clearly distinguishes between the reservation of capacity and the Transportation Service. It seems to me that the Judge lost sight of this distinction. There is no reason why the time which it would take to call on the CATS Parties to provide the Transportation Service should in any way determine when the reserved capacity became available at which time TGT became obliged to make send or pay payments.

Furthermore, as Mr. Sumption, QC, Counsel for TGT, submits, if the words "are available" refer to a prospective state of facts their meaning is uncertain. The procedures contemplated under Clause 5 and/or Clause 8 may take any length of time. One might just as well therefore say that all that was required was that the facilities would be available by the time gas was available to be transported. No-one suggested that this was what the contract meant.

Mr. Aldous submits that TGT's construction could give rise to bizarre consequences. Any latent defect in any entry point discovered long after the date of a Commencement Date notice would invalidate the notice. If this was after 1st April 1996 but before 1st April 1998 it would give TGT the right to terminate (Clause 2.4(a)). This would be the case even if they had opted for two entry points and were sending gas through one already.

Mr. Aldous is right about the consequences on the first part of this submission but I do not accept that they are bizarre. All commercial contracts involve an apportionment of risk. Here the CATS Parties had absolute responsibility for the construction and maintenance of the entry points so as to ensure that they were available for the service they were designed to perform and for which they were entitled to be paid provided they were available. There is nothing bizarre about a provision which has the effect that they take the risk if for whatever reason the entry point is not available.

Mr. Sumption's answer to the second part of Mr. Aldous's submission is that once they had made use of one entry point TGT would not have been able to contend that the Commencement Date had not occurred since they would not have been able to call for the Transportation Service unless they had accepted that it had occurred. (See Clause 6.1). I think he is right about this so TGT's rights, if any, would fall to be considered under the payment provisions in Clauses 7.4 and 7.5.

Finally, Mr. Aldous submitted that the "immediate use" test produced absurd results if one applied it to the specification of gas. The contract required the CATS Parties to re-deliver specification gas. TGT alleged that the gas from the Everest and Lomond field was off specification so if their gas was added to it CATS would not have been able to re-deliver specification gas. They therefore argued that the facilities were not available unless and until the CATS Parties installed facilities to process the Everest and Lomond gas. How would they know what facilities to install if TGT had not even designated a field ?

I think the Judge provided the answer to this suggested anomaly. What he said was:

"Once it is accepted that the CATS Parties at all times had the right, and would have exercised it if necessary, to shut in the Everest/Lomond fields until they met the specification, I do not think it can possibly be said that the Transportation Facilities were not "available" to TGT to perform the Transportation Service for Capacity Gas. "

He was obviously right about this whichever way one construes the contract provisions relating to the Commencement Date.

However, for the reasons I have given I have reluctantly reached the conclusion that he did not construe these provisions correctly. In short I think he should have construed the word "available" to mean "available then". The facilities were not available then and so it must follow that the first Commencement Date notice was invalid. It is now accepted that the facilities were available by the time of the second notice so the send or pay payments became due from 1st June 1995.

Clause 7.5.

The conclusion I have reached about the Commencement Date makes it strictly unnecessary for me to consider this issue of construction

Put shortly, the Judge construed the words "unable or fail to re-deliver Capacity Re-delivery Gas" in clause 7.5 (b) as:

"... directed at an actual inability or failure, which implies that there is Capacity Gas available or intended to use the Capacity at the time it occurs. That must, as it seems to me, be so in the case of a "failure" and it is an odd use of language to describe a party as "unable" to deliver something which no-one is asking them to deliver or even in a position to require them to do so."

He was obviously right about the word "failure" but the word "unable" is free-standing. What is more it can be related back to the words "capacity is not available" in Clause 7.5(a). It was common ground that the word "available" should have the same meaning here as it did in the definition of "Commencement Date".

I can see no reason for distinguishing between the situation where TGT has gas available and where it has not in a clause which is dealing with the formula for calculating send or pay payments which assume that the reserved capacity is not being used.

What is more, as Mr. Sumption points out, the Judge's construction really does produce odd results. If TGT are sending any gas they do not have to pay anything if the capacity is not available for any reason. If they are sending no gas they have to pay 100%.

For these brief reasons I regret that I do not accept the Judge's construction of Clause 7.5 either although this does not affect the outcome of the appeal.

Mr. Aldous accepts that if the appeal is allowed any sums paid under the judgment relating to the period before 1st June 1995 would have to be repaid by the CATS Parties. But he resists any claim for repayment of the money paid by TGT for the period from 1st April 1993 to 30th September 1994. He does so on the basis that to order repayment would unjustly enrich TGT and/or because the CATS Parties have changed their position in the sense that had they known of the defects in the valves earlier they would have been able to rectify the problem in a relatively short time.

TGT say that the CATS Parties should not be allowed to take these points since although change of position was pleaded it was not pursued at trial and the Judge was not asked to make any findings of fact about it. Nor (until the objection was taken) was it the subject of any Respondent's notice. I think there is substance in these objections, but as I think there is a simple answer to the argument which does not depend on evidence I will deal with it.

The basis of TGT's claim for repayment is mistake of fact. In other words, they made the send or pay payments between 1st April 1993 and 30th September 1994 in the belief that the facilities were available when in fact they were not. This I think is the correct analysis although, if it is not, the mistake must be one of law in which case the result would be the same as the law now stands.

If as a result of such a mistake the recipient has received money to which he is not contractually entitled, the paying party does not unjustly enrich himself by getting it back unless the recipient has changed his position.

In support of his submissions Mr. Aldous relied on Lipkin Gorman v. Karpnale Ltd [1991] 2 AC 548 where the House of Lords had to consider the liability of a casino to repay money stolen by a solicitor from his firm which he used to gamble in the casino. The House held that the casino had been unjustly enriched because they had not given full consideration for the money they received. At page 578 D-E Lord Goff said:

"The claim for money had and received is not, as I have previously mentioned, founded upon a wrong committed by the club against the solicitor. But it does not, in my opinion, follow that the court has carte blanche to reject the solicitor's claim simply because it thinks it unfair or unjust in the circumstances to grant recovery. The recovery of money in restitution is not, as a general rule, a matter of discretion for the court. A claim to recover money at common law is made as a matter of right; and even though the underlying principle of recovery is the principle of unjust enrichment, nevertheless, where a recovery is denied, it is denied on the basis of legal principle."

This disposes of any notion that TGT have been unjustly enriched in this case. It is the CATS Parties who have been unjustly enriched and they must make restitution unless they can invoke the defence of change of position. This, as Lord Goff said, is a defence which is well recognised in English law. In dealing with this defence at page 579 F-G Lord Goff said:

"In these circumstances it is right that we should ask ourselves: why do we feel that it would be unjust to allow restitution in cases such as these? The answer must be that, where an innocent defendant's position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution. If the plaintiff pays money to the defendant under a mistake of fact, and the defendant then, acting in good faith, pays the money or part of it to charity, it is unjust to require the defendant to make restitution to the extent that he has so changed his position."

This and other passages in the judgment make it clear I think that the change of position in a case such as this must relate to the receipt of the money. Here the CATS Parties do not say that they have changed their position in this respect. What they are saying is that they mistakenly believed that they had complied with the contract when they had not and if they had realised their mistake earlier they would have done something about it sooner. I do not think this is capable of giving rise to a defence of change of position. The contract decreed that they should not be entitled to send or pay payments unless the facilities were available. They took the risk that they were not when they asked for and received the payments. There is nothing unjust about requiring them to repay the money because they were wrong.

It follows that I think TGT are entitled to recover what they paid for the period between 1st April 1993 and 30th September 1994 as well as any payments they have made under the judgment for the period after this to 1st June 1995.

For these reasons I would allow this appeal. We were invited to allow the parties to work out the precise financial consequences of such a result. I hope they can do this and agree the terms of the consequent order.

LORD JUSTICE WARD:

I agree.

LORD JUSTICE KENNEDY:

I also agree.

Order: Appeal allowed. Appellants to pay 80% of costs in court below.