Centrica Plc & Anor v Premier Power Ltd

Contractual charging provisions are construed objectively by reference to the agreement and its admissible commercial background when made. They cannot be widened by later events, assignments or related agreements. A defined right to vary charges may be exercised only where the contractual conditions are clearly satisfied and the proposed variation is within the contractual discretion. A regulatory change affecting the commercial operation of a pipeline may trigger such a power, but a change in the method of recovering costs does not itself show that the costs of operating the pipeline have changed. Estoppel by convention requires conduct communicating a common assumption, reliance and injustice. An assumption arising during an existing contract will not ordinarily operate prospectively after its error has been revealed.

Centrica and British Gas Trading claimed payment from Premier Power under a long-term gas supply agreement for postalisation charges and balancing and scheduling charges connected with gas transportation to Ballylumford Power Station.

The court considered whether the charges were recoverable under the existing definition of Transmission Charges, whether Centrica could vary the agreement unilaterally, and whether an estoppel by convention arose from earlier payments and dealings. The central issues were the proper construction of the charging provisions, the scope of the variation power, and the alleged common assumption.

1. Construction. The GSA was to be construed as it would have been understood by a reasonable person in 1992. Its meaning could not be enlarged by the 1997 novation, later transportation arrangements or the Transportation Code. The BGUOC definition covered costs and expenses incurred by the seller or its Affiliate in operating, repairing or maintaining the Pipeline. It did not cover liabilities owed to an unconnected pipeline operator. The postalisation charges were also charges for use of the postalised network, rather than costs of operating the Pipeline. Neither the postalisation charges nor the balancing and scheduling charges were recoverable under the existing GSA.
2. Variation. The variation clause contained two independent assumptions. The second required a legislative, regulatory or similar change affecting the operation of the Pipeline in a way that would or might affect its operating costs. The introduction of postalisation affected the Pipeline’s commercial operation and materially restricted the transaction contemplated by the GSA because Centrica could no longer recover the transportation charges in the contractual form. The variation power was therefore triggered for the postalisation charges. The proposed pass-through was reasonably appropriate and not capricious. The Transportation Code did not materially restrict the relevant transactions or affect the costs of operating the Pipeline, so the variation power was unavailable for balancing and scheduling charges.
3. Estoppel. Payment alone did not communicate acceptance of the contractual meaning. The evidence did not establish the alleged common assumption, reliance or unconscionability. In any event, the alleged assumption had been revealed as erroneous by April 2002. The estoppel claim therefore failed for both categories of charge.
4. The claimants could vary the GSA to pass through postalisation charges, but could not recover or vary the agreement to pass through balancing and scheduling charges. The estoppel claims failed.