Summary

Defendants' appeal against the judgment of Langley J relating to a pipeline for transporting natural gas to on-shore facilities in Teesside.

Facts

The defendants argued that under the terms of the Capacity Reservation and Transportation Agreement ('CRTA') they were only obliged to make payments if the reserved capacity in the pipeline was available to them. As there was a problem with the entry point that the defendants chose to use, they contended that 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 found against the defendants on both points. The defendants accepted his findings of fact but it became clear during the appeal that the parties did not agree what those findings meant. The plaintiffs accepted that if the appeal was allowed they would have to repay any sums paid under the judgment relating to the period before 1 June 1995. They resisted any claim for repayment from 1 April 1993 to 30 September 1994 on the basis that to order repayment would unjustly enrich the defendants and/or because the plaintiffs had change their position in the sense that had they known of the defects at the entry point earlier they would have been able to rectify the problem in a relatively short time.

Held

(1) The judge was right to hold that the facilities were not available on 1 April 1993. (2) The contract imposed an unqualified and absolute obligation to construct the transportation facilities which included the entry points so that they were capable of performing the transportation service by 1 April 1993. On the judge's findings they were not so capable because the entry point was not then available. This conclusion was inescapable and inevitably informed the proper construction of the words 'the CATS transportation facilities were available to perform the transportation service' in the definition of commencement date. It was not clear that the judge realised this. (3) 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 1 April 1996 but before 1 April 1998 it would give the defendant the right to terminate (clause 2.4(a) of the contract), even if they had opted for two entry points and were sending gas through one already. This provision had the effect that the plaintiffs took the risk if, for whatever reason, the entry point was not available. As the facilities were not available, the first commencement date notice was invalid. It was accepted that the facilities were available by the time of the second notice so the "send or pay" payments became due from 1 June 1995. (4) The court also did not accept the judge's construction of clause 7.5 although that did not affect the outcome of the appeal. (5) The plaintiffs rather than the defendants had been unjustly enriched in this case and they should make restitution unless they could invoke the defence of change of position (Lipkin & Gorman v Karpanale Ltd (1991) 2 AC 548). However, the change of position must relate to the receipt of the money, not as here, a mistaken belief that the plaintiffs had complied with the contract. (6) The defendants were entitled to recover what they paid for the period 1 April 1993 to 30 September 1994 as well as any payments they had made under the judgment for the period after this to 1 June 1995.

Appeal allowed.

* The House of Lords granted an application by Amoco Exploration Company seeking leave to appeal in this case on 7 February 2000. The Appeal Committee had been unable to make a unanimous decision to grant leave following a consideration of the applicant's petition and after inviting objections from the respondent. On 11 January 2000 the matter had therefore been referred to a hearing for determination. The appeal was set down for hearing and referred to an Appellate Committee on 28 June.