Dwr Cymru Cyfyngedig (Welsh Water) v Corus UK Ltd

A commercial agreement must be construed from its language, nature and relevant background. The inclusion of an operative clause ordinarily indicates that the parties intended it to affect their legal rights and obligations.

Under sections 55 and 56 of the Water Industry Act 1991, the existence and extent of the regulator’s power to determine charges are established when the request for supply is first made. A later charges scheme does not remove that power where the relevant request preceded the scheme.

Where parties choose machinery for determining part of their relationship, each implicitly undertakes not to prevent that machinery from operating. If an agreed mechanism fails, a court may sometimes preserve the agreement by applying objective standards, although this may be impossible where numerous important terms remain undecided.

Welsh Water supplied non-potable water to Corus’s steelworks under a 1993 agreement. The agreement fixed terms until 31 March 2004. Clause 17 stated that Corus would thereafter retain a right to supply on terms agreed by the parties or, failing agreement, determined by the water regulator under section 56 of the Water Industry Act 1991.

Welsh Water later introduced a charges scheme and claimed payment at the scheme rates. On Welsh Water’s application for summary judgment under the Civil Procedure Rules 1998, Hart J held that clause 17 merely recorded the statutory position and conferred no continuing contractual rights. Corus appealed.

The central questions were whether clause 17 had contractual effect and whether the regulator retained power to determine charges after the fixed term expired.

1. Appeal allowed. Clause 17 was intended to have contractual effect. The expiry language referred to the end of the period during which the original agreed terms applied. The clause’s operative language, its place in a formal commercial agreement and its description as a renewal clause showed that it governed the parties’ continuing rights and obligations. Hart J’s contrary construction was wrong.
2. A contract for the supply of water does not take the supply outside section 55(1) of the Water Industry Act 1991. The contract may embody both the occupier’s request and the undertaker’s response. Section 55 therefore applied, and the regulator had power under section 56 to determine the post-expiry terms.
3. Sections 55(1), 56(5)(a) and 56(6) determine the regulator’s charging jurisdiction by reference to the circumstances when the request for supply was first made. They do not contemplate a continuing or renewed request. The supply under the 1993 agreement was continuous, and the relevant request preceded the introduction of the charges scheme. Sections 56(5)(a) and 56(6) therefore did not exclude the regulator’s power to determine charges under section 56(1)(b), subject to section 56(5)(b).
4. Sections 142 and 143 permitted a water undertaker to agree individual charging terms despite a relevant charges scheme. The agreement could not prevent Welsh Water from introducing a generally applicable scheme. However, it was implicit that neither contracting party would take steps preventing the agreed determination machinery from operating. If the later scheme had removed the regulator’s jurisdiction, Welsh Water would have been in breach and Corus could have claimed the difference between the scheme charges and the charges that the regulator would have determined.
5. The court did not finally decide whether it could supply reasonable terms if the statutory mechanism were unavailable. The court will strive to uphold an agreement intended to have legal effect, particularly after substantial performance. Nevertheless, an agreement may be unenforceable where many important terms remain undecided and there are no objective criteria for resolving them. Expert evidence might have enabled reasonable terms to be fixed here.

Maurice Kay and Ward LJJ agreed with Moore-Bick LJ.

1. Court of Appeal (Civil Division): In [2007] EWCA Civ 285, the court unanimously allowed Corus’s appeal and held that clause 17 had contractual effect.
2. High Court, Chancery Division: On Welsh Water’s application for summary judgment, Hart J held that clause 17 conferred no post-expiry contractual rights and rejected an alleged implied term preventing Welsh Water from depriving the regulator of power to determine charges. No citation is stated in the judgment.