Scottish Court of Session Decisions

Scottish Power Generation Ltd v. British Energy Generation (UK) Limited & Anor [A5684_01.html] ScotCS 1 [2002] ScotCS 119 (25th April, 2002)

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Cameron of Lochbroom Lord Reed Lord Emslie	A 5684/01 OPINION OF THE COURT delivered by LORD REED in RECLAIMING MOTION in the cause SCOTTISH POWER GENERATION LIMITED Pursuer and Respondent; against BRITISH ENERGY GENERATION (UK) LIMITED First Defender and Reclaimer; and SSE ENERGY SUPPLY LIMITED Second Defender: _______

 

 

Act: Currie, Q.C., Keen, Q.C., Clive; Shepherd & Wedderburn, W.S.

Alt: Brailsford, Q.C., S.C. Smith; MacRoberts

25 April 2002

1. This reclaiming motion concerns an order made by the Lord Ordinary in terms of section 47(2) of the Court of Session Act 1988. It relates to a dispute between the same parties which is focused in two actions on the commercial roll. The order was made in only one of the two actions, but nothing turns on that fact. The dispute concerns a contract called the Nuclear Energy Agreement ("NEA"), originally entered into in 1990. The original parties to the NEA were Scottish Nuclear Limited, Scottish Power plc and Scottish Hydro-Electric plc. The agreement was subsequently renegotiated and amended, with the intention that it continue in existence until 1 April 2005. The pursuers in the action in which the order was made are Scottish Power Generation Limited ("SP"), the successors of Scottish Power UK plc, previously known as Scottish Power plc. The first defenders and reclaimers, British Energy Generation (UK) Limited ("BEG"), were formerly known as Scottish Nuclear Limited. The second defenders, SSE Energy Supply Limited ("SSE"), the successors of Scottish and Southern Energy plc, previously known as Scottish Hydro-Electric Limited, have taken no part in the reclaiming motion.
2. The second action is at the instance of BEG and is directed against SP and SSE and is, in effect, a counterclaim to SP's action.
3. There is no dispute between parties that the purpose of the NEA was to regulate the terms on which BEG sold, to SP and to SSE, electricity generated by BEG at their nuclear stations in Scotland. The NEA contained complex provisions for determining the price to be paid for such electricity. The formula was essentially dependent on an arrangement in the market for electricity in England, by virtue of which a "pool price" was set. That arrangement was however brought to an end with effect from 27 March 2001, with the consequence that the price payable under the NEA was no longer calculable in accordance with its express terms.
4. Part of the procedure for the operation of the formula, set out in Part 1E of the schedule to the NEA, involved SP giving BEG an estimate of the pool price for the ensuing year. As the Lord Ordinary notes, invoices would initially be based on that estimate. There was then a procedure for correcting the invoiced amounts by reference to any difference between the estimated pool price and the actual pool price once the latter was known. A partial correction was carried through at the end of the year in which electricity had been supplied, and a second correction was carried through at the end of the following year.
5. In February 2001 it was not known with certainty when the pool arrangements would be brought to an end. SP, in accordance with their obligations under the NEA, provided an estimate of pool prices for the year to come in the normal way. This estimate was put forward only on the hypothesis that there would continue to be a pool price until March 2002, and SP reserved their position otherwise. In the event, the pool arrangement was brought to an end with effect from 27 March 2001, since when, we were told, the market price for the supply of electricity had fallen from its previous levels.
6. There is no dispute that since 27 March 2001 BEG have continued to invoice SP on the basis of the pool price estimate supplied by SP in February 2001, notwithstanding that (a) the hypothesis on which SP made the estimate has not come to pass, and (b) in the absence of a pool price, there is no means of correcting prices based on the estimated pool price by reference to any actual pool price. SP have, at least until the making of the order, continued to pay the invoices in full. They have done so under reservation of their contention that sums paid in response to BEG's invoices have been excessive.
7. In the two actions, the parties advance competing contentions as to the contractual consequences of the abolition of the pool price arrangement in England. In their action SP conclude for declarator (a) that in consequence of the termination of the pool trading arrangements in England the price payable by SP to BEG is no longer capable of being calculated by reference to the formula set out in Part 1E of the schedule to the NEA and (b) either (i) that there is an implied term in the NEA that in those circumstances the price is to be determined by reference to certain principles set out in Part 1K of the schedule to the NEA and that, failing agreement on the price by reference to those principles, any party shall be entitled to refer the question of price to the Disputes Procedure provided for in Part 4 of the schedule to the NEA, or alternatively (ii) that in the circumstances the NEA came to an end on 27 March 2001 by reason of frustration. In the other action, BEG conclude for declarators that in respect of the annual review periods falling between 27 March 2001 and 1^st April 2005 there should be read into the NEA certain provisions to replace the provisions of the original formula for payment. These provisions are alleged to be the nearest equivalent in present conditions to the formula originally contracted for.
8. The interlocutor reclaimed against was pronounced in consequence of a motion enrolled by SP in both actions. What was proposed, in outline, was that there should be set up a designated account to contain the amounts by which the prices invoiced by BEG (both in the past and in the future) exceeded the price which SP regarded as appropriate. In that regard, SP put forward a pricing calculation in terms of which they set out a methodology for calculating the extent to which the payments made were excessive. According to SP, the pricing calculation was not intended to be definitive or to state the absolute minimum which they contended should be paid, and they expressly reserved the right to contend ultimately that the proper price should be even lower. By application of the methodology in the pricing calculation, SP estimated that they had overpaid £52.3 million so far, and that by the end of the NEA the total overpayment would have reached £320 million.
9. Before the Lord Ordinary, SP argued that these "disputed payments," being the £52.3 million already said to have been overpaid and the alleged overpayment element of each future payment, should be held in trust in the designated account in order to protect the funds in it from the claims of the parties' creditors. So far as the former sum was concerned, two possibilities were contemplated. Either a lump sum should be paid into the designated account by BEG, or alternatively SP should be authorised to deduct a sum from each future payment, and to pay such deductions into the designated account, until the total of £52.3 million had been reached. As the Lord Ordinary said (para. 6 of his Opinion):

"In effect, if the motion were granted a sum broadly equivalent to (but not definitive of) the disputed element of the payments since March 2001 and for the remainder of the life of the NEA would eventually be put in neutral hands pending resolution of the dispute."

It remains only to add that the Lord Ordinary was made aware that a debate on the parties' respective preliminary pleas had been fixed for August 2002. Under pleas to relevancy, SP and BEG each sought dismissal of the action pursued by the other, and in addition SSE challenged the relevancy of BEG's averments as to a replicatory formula.

10. In pronouncing the interlocutor reclaimed against, the Lord Ordinary purported to act under section 47(2) of the Court of Session Act 1988. That section is in the following terms:

"In any cause in dependence before the court, the court may, on the motion of any party to the cause, make such order regarding the interim possession of any property to which the cause relates, or regarding the subject matter of the cause, as the court may think fit."

In considering the matter of competency, the Lord Ordinary held at paragraph 15 that the disputed sums were not "property" for the purposes of the first part of the subsection, and accordingly that SP could only succeed by reference to the second part of the subsection. In addressing that matter he said:

"I accept that it is necessary to ask what the subject matter of the cause is, and that that is to be answered by reference to the conclusions and averments. Applying that approach to the present case, I am of opinion that the subject matter of the cause is (1) whether the NEA continues to subsist after 27 March 2001 in the events which have happened, and (2) if so, what the terms as to computation of price are which are to be implied into it or otherwise regarded as forming part of it in the events which have happened. The parties' whole purpose in seeking the remedies that they do is to enable them to know how to compute the payments which fall to be made for electricity supplied in the period of the NEA after March 2001. In so far as payments have been made and may continue to be made prior to the final decision of the case, the determination of the issues focused by the declaratory conclusions will inevitably determine the basis on which it will be possible to calculate whether SP ought to pay more to BEG than they have done, or on the other hand BEG ought to repay to SP part of the payments already made, and in either case the amount of the payment or repayment required. Although parties do not state monetary conclusions, the practical aim is to discover what money is, and will become due. In my opinion in that situation an order regulating how disputed funds are to be held pending resolution of the issue which will determine to whom they should be paid is properly to be regarded as an order regarding the subject matter of the cause."

11. The Lord Ordinary's conclusions on this matter were not criticised before this court. Although, shortly before the hearing of the reclaiming motion, BEG supplemented their grounds of appeal with a ground attacking the competency of the order, based upon assertions as to the effect of the First Protocol to the European Convention on Human Rights, that ground was expressly departed from at the start of the hearing before us. Accordingly, we heard no argument as to whether the Lord Ordinary's order was competent under the second part of section 47(2) of the 1988 Act, and we express no opinion on that matter.
12. When he came to consider whether as a matter of discretion he ought to make the order sought, the Lord Ordinary said this:

"I begin by noting the fact that both SP and BEG accept that the contractual procedure laid down in the NEA for calculation of the price to be paid for electricity supplied by BEG to SP has been incapable of being operated according to its terms since 27 March 2001. Each party's primary contention is that by implication or otherwise the procedure remains capable of being rendered operable, but neither suggests that it can simply continue to be operated in the way it was before 27 March 2001. In particular, it does not seem to me that it would be right to treat the basis on which BEG have continued to invoice SP as having any prima facie entitlement to be regarded as bringing out the correct sum due. That basis involves using SP's estimate of Pool Price in circumstances to which it was not intended to apply and in which the normal safeguard of subsequent correction by reference to the actual Pool Price is unavailable. Conversely, although the methodology put forward by SP in the Pricing Calculation has a limited measure of independent support, it was not suggested that it has any better claim to be regarded as prima facie correct. The situation is therefore that BEG have since March 2001 supplied electricity to SP and continue to do so. Some payment is prima facie due. The court is not, however, in a position to form any view at this stage as to whether the sums claimed by BEG, or the sums suggested by SP, or any other particular sums will ultimately be found to be due. There is, in effect, a dispute the amount of which can, in broad terms, be regarded as the difference between the invoiced amount and the amount brought out by applying the methodology set out in the Pricing Calculation. The amount involved is already very large (£52.3 million), and will, if the dispute is not resolved, as it may not be, before the expiry of the NEA in 2005, rise to about £320 million. In that situation, it seems to me that there is much to be said for the proposition that it is desirable in principle that the disputed money should be preserved in neutral hands pending the resolution of the dispute, and that it should not be left in the hands of one or other party and vulnerable to the claims of his creditors and all the exigencies of that party's commercial life. I accept (counsel for BEG)'s submission that there is in the material before me no real and specific reason to be apprehensive about BEG's ability (with or without group support) to make repayment in due course, but that does not in my view deprive the point of its force. It is the difficulty of accurate forecast over a period of years combined with the size of the sum in issue that seems to me to afford cogent ground for setting the disputed sum safely aside in neutral hands. I appreciate that to deprive BEG of the use of the disputed sum will have an adverse economic impact on them, but that point would have more force if they were in a position to make out a case that their approach to computation of the sums due was prima facie the correct one."

13. Thereafter the Lord Ordinary expressed the view, at paragraph 25, that he could see no justification for declining to make a section 47(2) order simply because to make the order would innovate on the status quo:

"when the effect of taking that course is to leave a very large disputed sum of money, to which neither party at this stage can claim a better prima facie entitlement than the other, in the hands of one party and vulnerable to the claim of that party's creditors".

14. At paragraph 26 the Lord Ordinary stated:

"I was at first impressed by (counsel for BEG)'s submission that I should be slow to intervene where the contract itself makes provision for partial retention of disputed amounts. I am however persuaded by (counsel for SP's) submission that Clause 13.2.2 of the NEA cannot be determinative when it is common ground between parties that the payment provisions of the NEA cannot now be operated according to their terms".

15. The Lord Ordinary thereafter, at paragraph 27, stated his conclusion that "it is appropriate to make an order in broadly the terms sought". As regards the form of the order concerning the alleged overpayment to date, he did not consider it appropriate to order BEG to pay a lump sum into the designated account. He considered it more appropriate to adopt the alternative course of authorising SP to retain £6.54 million per month from future payments, and ordering them to deposit the sums so retained in the designated account, until the total of £53.3 million had been so deposited.
16. The Lord Ordinary's interlocutor of 4 January 2002 provided inter alia as follows:

"(1) authorises the pursuers and the first defenders to establish with Lloyds TSB Scotland PLC or such other bank or trustee company as may be agreed between them an account (the designated account) on terms that all sums deposited therein shall remain on deposit pending final determination or agreement of the extent of the pursuers' liability to make payment to the first defenders for supplies of electricity to them by the first defenders made after 27 March 2001, and that on such determination or agreement the balance at credit of the designated account shall belong to the party or parties entitled thereto in accordance with such determination or agreement;

(2) in respect that the pursuers estimate in accordance with the Pricing Calculation, No. 6/18 of process, that they have since 27 March 2001 made overpayments amounting in total to £52.3 million in respect of supplies of electricity to them by the first defenders, authorises the pursuers to withhold from each future monthly payment in respect of such supplies the sum of £6.54 million until a total of £53.3 million has been so withheld, and ordains the pursuers to pay all sums so withheld into the designated account;

(3) in respect of further invoices relating to the supply of electricity by the first defenders to the pursuers after the date hereof, authorises and ordains the pursuers to pay into the designated account on or before the due date for payment of each invoice the difference (if any) between the sum invoiced and the sum estimated by them in accordance with the methodology set out in the Pricing Calculation, No. 6/18 of process, as the sum that they may be liable to pay."

Leave to reclaim was granted on condition that the order pronounced by the Lord Ordinary would in the meantime remain in force.

17. Following the granting of leave to reclaim, SP's pleadings were amended so as to support certain of the submissions made to the Lord Ordinary and to reflect the order which he made. This amendment had no material effect on the submissions made before this court.
18. Since BEG conceded before us, as previously narrated, that an order of the kind made by the Lord Ordinary was competent, the substantial issue for determination concerns the exercise by the Lord Ordinary of his discretion under section 47(2) of the 1988 Act. It is well settled that the exercise of such a discretion will not be disturbed on appeal unless it can be demonstrated that the Lord Ordinary misdirected himself in law, or took into account some irrelevant factor, or overlooked some relevant factor, or that the order was so unreasonable that no reasonable Lord Ordinary properly directing himself could have pronounced it (see Stevenson v. Midlothian District Council 1983 S.C. (H.L.) 50).
19. For BEG it was submitted before us that the Lord Ordinary did not appear to have made any distinction in the order between the nature of any claim which SP might have as regards payments already made on invoices rendered by BEG prior to the making of the order, and those yet to be made in regard to future invoices. So far as the sum of £52.3 million was concerned, the Lord Ordinary had apparently accepted that what had already been paid by SP could be "retained" by them, in the form of withholding sums from new invoices in respect of future supplies of electricity by BEG to SP. On that basis he had made an order in the nature of consignation by a seller who had already received payment of the price. Consignation was available only in limited circumstances, as was pointed out in Macphail, Sheriff Court Practice, 2nd ed., para. 11-44. Reference was also made to Donaldson v. Findlay, Bannatyne & Co. (1846) 5 Bell's App. 105; George Cohen & Co. Ltd. v. Jamieson & Paterson, 1963 S.C. 289; and Lithgow Factoring Ltd. v. Nordvik Salmon Farms Ltd., 1999 S.L.T. 106. Before proceeding to make an interim order of this kind, the court should be satisfied that there had been shown a prima facie case for a finding that money was due together with, possibly, some imminent financial difficulty in the affairs of the intended consignor. The Lord Ordinary was however satisfied that there was no reason to be apprehensive about BEG's financial position. Furthermore he was unable at this interim stage, and on the pleadings and arguments presented to him, to determine whether any sum would ultimately be due by BEG to SP. He appeared to proceed on a principle the effect of which was to create a presumption in favour of the order sought, thereby placing on BEG an onus to show cause why such an order should not be granted. It could not be said that the sums paid by SP against past invoices had been paid in error, since both parties knew that the pool price arrangements had ceased on 27 March 2001. There could be substantial prejudice to the creditors of BEG in the form of an order which placed the monies in a designated account on the conditions set out in the interlocutor of 4 January 2002. Reference was made to Craiglaw Developments Ltd. v. Wilson, 1999 S.L.T. 1046. Likewise the Lord Ordinary's order interfered with the contractual rights of the parties. For example, any withholding of payment in respect of any future invoice or invoices rendered for the supply of electricity in terms of the NEA could be treated by BEG as a material breach of contract, giving rise to a claim for money due with interest or, it might be, as repudiation of the contract on SP's part, justifying rescission and a claim for damages. The effect of the order was to displace these rights for the future. Moreover, in so far as BEG might ultimately be found entitled to the whole or some part of the funds placed in the designated account, the effect of the order was that once placed on account BEG as creditor had no claim for interest against SP as the debtor. Reference was made to Stiven v. Reynolds & Co., (1891) 18 R. 422. In this respect also, the balance of convenience lay against the grant of the order which had been made. In these circumstances the Lord Ordinary had erred in the exercise of his discretion.
20. For SP it was submitted that the relevant background was that both sides agreed that the price mechanism in the NEA was no longer available. Both took up different positions on the matter of what was to be done in regard to any substituted price mechanism for what was an unusual contract. No one party's position could be identified as being more likely to succeed than the other's. But the band of dispute could be identified in broad terms as being the difference between the amounts invoiced by BEG and the amounts calculated by SP by application of the methodology set out in their pricing calculation. The pricing calculation was not put up as a minimum. Rather if the contract were held to have been frustrated, it would be open to SP to argue for a lower price than that brought out in the pricing calculation. The invoices issued by BEG since the pool price arrangement came to an end were not invoices under the contract between parties, since the contractual machinery for correction depended on the continued existence of the pool price. Such invoices had no contractual validity. The sums paid had been paid under reservation of SP's rights, which included a right of repetition. In the circumstances, it was preferable to have the issues regulated by the court, rather than have the prospect of a proliferation of individual actions under the contract such as might otherwise arise. SP's preference was for such regulation, rather than to seek a solution by way of frustration of the contract. In reaching his decision the Lord Ordinary had taken account of the whole circumstances of the case, including the continuing commercial relationship between the parties for the supply of electricity. The real issue was what machinery, if any, could be interpolated into the contract for the determination of the price. It was realistic to place some portion of the sums passing for the supply of electricity into neutral hands for, although there was no immediate risk of BEG being unable to repay money in the future, there was force in the Lord Ordinary's concern that it should not be vulnerable to their creditors. On the other hand, if BEG were ultimately successful, the sums in question would then be available to their creditors. Before the Lord Ordinary, although this matter was not recorded by him, it was accepted by BEG that, in the ordinary course, payments for the supply of electricity were passed to their parent company. The issue of interference with BEG's right to seek any remedies that might be available to them had not been live before the Lord Ordinary. The original mechanism for the correction of the price dealt with the situation where there was a variance between the estimate provided by SP to BEG and the actual figures. If the contract were held to have been frustrated, there would be no such mechanism. On SP's proposed mechanism, the parties would be subject to a disputes procedure which would, failing agreement between the parties, produce a price. On BEG's proposals, it was not clear what, if any, price adjustment would be required. In these circumstances, where there was uncertainty as to the basis upon which SP should be obliged to pay for or indeed accept electricity from BEG, then in the absence of clear legal authority, and in an unusually complex situation, it was appropriate that the court should intervene. At an earlier stage SP had offered a protocol to regulate payment, but BEG had demanded payment on the invoices rendered. The Lord Ordinary had arrived at a fair solution after taking account of all the relevant circumstances and looking to the balance of convenience where there was, as he had accepted, a neutral balance prima facie of the cases presented before him by each party.
21. It is appropriate to start by reminding ourselves of the principles upon which an interim order may be pronounced. While the court is given a wide discretion by the terms of section 47(1) and (2) of the 1988 Act, that discretion must, in our opinion, be exercised with regard to recognised principles and the relevant considerations in any particular case. We refer to the Opinion of Lord President Hope in Mackenzie's Trs. v. Highland Regional Council, 1995 S.L.T. 218. In that case the court was concerned with an application in terms of section 232 of the Town and Country Planning (Scotland) Act 1972 with regard to the adoption of a local plan. Subsection (2)(a) of that section provided that on any application the court:

"may by interim order wholly or in part suspend the operation of the plan ... either generally or in so far as it affects any property of the applicant, until the final determination of the proceedings".

The scope of the court's power to grant an interim order was not specifically fettered by the statutory wording. But at p.220 Lord President Hope said this:

"It is necessary to say something at the outset about the factors which the court should take into account in considering an application for an interim order under s. 232(2)(a) of the Act. The question must depend ultimately on the balance of convenience. But the nature and degree of the harm likely to be suffered on either side by the grant or refusal of the interim order is not the only issue. Regard must be had also to the relative strength of the cases put forward in averment and argument by each party as one of the factors that may go to make up the balance of convenience."

22. In like manner, we do not consider that section 47(2) of the 1988 Act gives the court a wholly unfettered discretion to determine whether or not to grant an interim order. In a series of cases involving section 47(2) directed to "keep open" obligations in commercial leases, beginning with Church Commissioners for England v. Abbey National plc, 1994 SC 651, the court has recognised that it is competent to grant an interim order to reinstate a person in his possessory right or to grant specific relief against an illegal act. But it is clear from the opinions in Church Commissioners for England that in order to justify such an interim order, the petitioner must establish a prima facie case that an obligation exists, that there is a continuing or threatened breach of that obligation and, further, that the balance of convenience favours the making of the order sought.
23. In subsequent cases in which orders have been sought under section 47(2) of the 1988 Act, the court has generally followed the approach we have set out above. That is to say, the court has determined, first, whether the applicant for the order has established a prima facie case in relation to the alleged breach of an obligation incumbent on the other party, whether contractual or otherwise, and, second, if so, whether the balance of convenience favours the grant or refusal of the interim order sought. We refer as examples to Retail Parks Investments Ltd. v. Royal Bank of Scotland plc, 1995 S.L.T. 1156; Overgate Centre Ltd. v. William Low Supermarkets Ltd., 1995 S.L.T. 1181; Highland and Universal Properties Ltd. v. Safeway Properties Ltd., 1996 S.L.T. 559; Millar & Bryce Ltd. v. Keeper of the Registers of Scotland, 1997 S.L.T. 1000. In the Retail Parks Investments case Lord Penrose quoted a passage from Burn Murdoch, Interdict at p.2 as follows:

"Distinct considerations are involved according as the interdict to be granted is final and perpetual, or merely ad interim. In the latter case the leading principle is generally the preservation of the status quo, more especially if matters are already the subject of an action: 'The principle is pendente lite nihil innovandum, particularly if the innovation is a practical decision of the case.'"

Lord Penrose went on to observe at p.1161:

"Where one is concerned with orders for the protection or enforcement of contractual provisions the measure of the court's power must take account of and generally be qualified by what the parties have agreed in their contract. It is not for the court to make the parties' bargain, and certainly not to supply deficiencies in that contract."

24. Similarly, the court has declined to make interim orders in the nature of consignation except in relation to sums admittedly or certainly due. In other words, the power to intervene ad interim has been held to arise only in respect of established rights, since by going further the court would run the risk of becoming involved in rewriting contractual arrangements, or at least innovating on the rights and obligations of parties. The leading authorities here are Donaldson v. Findlay Bannatyne & Co. (1846) 5 Bell's App. 105, where the House of Lords recalled an order for interim consignation and strongly criticised the Second Division for making it on inadequate grounds, and George Cohen Sons & Co. Ltd. v. Jamieson & Paterson, 1963 S.C. 289. Reference may also be made in this context to the observations in MacPhail, Sheriff Court Practice, 2nd ed., para. 11-44.
25. It is also necessary to bear in mind that an interim order sought under the second part of section 47(2) of the 1988 Act must necessarily relate to the subject matter of the cause. While no issue was taken before us as to the competency of the order pronounced, it is nonetheless essential to identify the subject matter of the cause before any consideration can be given to the appropriateness of making an order of the kind sought by SP in this case. In Black Arrow Group plc. v Park, 1990 S.L.T. 254, Lord Justice Clerk Ross identified the subject matter of the cause by reference to the conclusions of the action and the averments of parties. That is consistent with the approach adopted in different circumstances in Mackenzie's Trustees. In Black Arrow, the court held that it was the continued existence of the contract that was put in issue, and that a distinction fell to be drawn between the existence of the contract and its terms. For that reason the interim order granted by the Lord Ordinary was held to be incompetent and was recalled. But the case equally makes clear the need to identify the issues in the action and the respective positions of parties before the matter of the appropriateness of an order can be addressed.
26. From these authorities we derive the following principles which are relevant to a case of the present kind. First, the Lord Ordinary has to identify the issues in the action, including the legal basis of the claims with which he is dealing. Secondly, he has to consider whether the party seeking the order has demonstrated a prima facie case that an obligation exists, and that there is a continuing or threatened breach of that obligation which the order will address. Thirdly, he has to avoid significantly innovating on the parties' contractual rights and obligations. Fourthly, he has to consider whether the balance of convenience is such as to justify the making of the interim order, bearing in mind the nature and degree of the harm likely to be suffered on either side by the grant or refusal of the interim order, and the relative strength of the cases put forward by each party.
27. In the present case the two actions fall to be regarded as one. In the action at the instance of SP the continued existence of the NEA is put in issue, since SP have a conclusion seeking declarator that the contract has been frustrated. This consequence of the abolition of the pool price is denied by BEG, under reference to the terms of the NEA. In the parties' cases in relation to the machinery which they contend should be imported into the contract for the purpose of calculating the price, there is again no common ground other than that a term relating to price is essential for the continued existence of the contract. Each party attacks the relevancy of the other's averments. It is therefore possible that at the end of the day no mechanism can be derived from the NEA for the pricing of electricity supplied since 27 March 2001. The Lord Ordinary however appears to have regarded as the parties' primary position that the contract continues in existence but that its terms in the altered circumstances fall to be determined. He makes reference to the disputed sums on that basis. But in the absence of any common ground between the parties on such matters, there is nothing to identify the existence, let alone the amount, of any disputed sum. In the parties' pleadings before the Lord Ordinary, there was no identification of any disputed funds as such. Nor did the pleadings for either party disclose any basis upon which the price payable for electricity could be directly calculated without, in the case of SP's pleadings, invoking a disputes procedure. Nor did SP's pleadings refer to any entitlement to repetition of sums allegedly overpaid, let alone set out any basis upon which such an entitlement might exist. Even now, following the amendment previously mentioned, the only pecuniary conclusion in SP's pleadings is predicated on the hypothesis that the NEA came to an end on 27 March 2001, as set out in their fourth plea-in-law. While the declarators sought may provide a basis, as yet undetermined, for implement of the NEA for the remainder of its existence, a substantial issue is raised as to whether or not the contract has already been frustrated. In these circumstances, it is difficult to see how any "disputed funds" can presently be identified so as to enable an order to be made in terms of section 47(2)for the purpose of securing such funds. That was a factor which, in our opinion, fell to be taken into account in any determination as to the appropriateness of an order of the nature which was sought by SP. As Lord Penrose pointed out in the Retail Parks Investments case, the court must be careful not to innovate upon parties' contractual rights at an interim stage, especially where the nature of such rights forms the subject-matter of the action, and thereby end up supplying deficiencies in the bargain made by the parties.
28. Furthermore, as regards the legal basis of SP's motion, the Lord Ordinary does not appear to have drawn any distinction between the alleged overpayment of £52.3 million already made by SP and the allegation that future invoices would result in further overpayments, nor to have attempted to analyse the very different legal and contractual issues arising in respect of these allegations. As regards sums due on invoices rendered in the past, SP elected not to exercise any right that they might have had at the time to withhold payment, whether on the ground that the contract was frustrated or because the necessary machinery for calculation of the price to be interpolated into the NEA was not yet in place. Indeed if, as senior counsel for SP maintained before us, the invoices on which payment was made from March 2001 onwards were contractually invalid on the basis that the estimate of February 2001 was accepted subject to its intrinsic qualification regarding cessation of the price-fixing mechanism, then by making payment as they did, SP may be said either to have impliedly validated these invoices as invoices for the time being issued within the contractual framework, or to have elected to meet non-contractual demands when they were under no obligation to do so. Even in their amended pleadings, they do not assert a right of retention or set-off in respect of future payments to be made by them for electricity supplied, by reason of a claim to repetition of past overpayments. If, as the Lord Ordinary appears to have accepted, BEG accepted the relevant payments in settlement of the sums demanded in the invoices, then, subject to any later adjustment under the NEA or on the frustration of that contract, those monies thereafter formed part of their assets.
29. In electing to proceed in the way that he did, the Lord Ordinary was thus, on an interim basis, judging it appropriate to allow deductions to be made from future payments against invoices rendered by BEG on the basis of a right which SP did not then assert, and to authorise this to be done in relation to invoices which, for aught yet seen, may have been properly calculated and issued by BEG. In our view he was not entitled to exercise his discretion in this way. If SP considered that they had a right to withhold payment in respect of past invoices, then they could simply have retained sums at their own hand, and did not require an order of the court to do so. So far as future invoices are concerned, then again if SP considered that they had a right to withhold payment, they did not require the authorisation of the court to do so.
30. It is notable that both before the Lord Ordinary and again before us, counsel for SP advanced the argument that if the order sought were not granted, SP would be forced to reconsider the possibility of withholding the disputed amount, and that to do so could lead to assertions that they were in breach of contract, with consequent court actions and diligence on the dependence. But this merely served to emphasise that, by exercising his discretion in the way he did, the Lord Ordinary was materially interfering with the contractual rights and obligations of both parties and depriving BEG in particular of the right to challenge any withholding of future payments. The effect of his order overall was to enable SP to say to BEG: you will for the future receive no more than the price that we regard as appropriate until this dispute is resolved. This is a matter of real significance where, as we were informed, parties have already been in negotiation with a view to resolving the dispute. In the context of such negotiations, the prejudice caused to BEG by an interim order giving the court's authority to the position adopted by SP must be a material factor in any assessment of where the balance of convenience lies, particularly where neither party can establish that its position is prima facie any more correct than that adopted by the other.
31. When we come to examine the remaining considerations which weighed with the Lord Ordinary, it is difficult to perceive any principle which guided him. We accept that it is in certain circumstances appropriate to depart from the principle of the preservation of the status quo, but in general that will only be done where the interim order is employed to grant specific relief from what is prima facie an unlawful act. For example, in the case of a failure by one party to perform an obligation, relief may be given by way of an order to perform it. But in the present case SP were not, and are not, deprived of any right which they might have had, or may have, to challenge the invoices, and moreover the only sums of money which were, up to the grant of the order, in the hands of BEG were those which SP had voluntarily paid over on invoices rendered. The factors to which the Lord Ordinary appears to have given weight are (i) the possible risk of insolvency, (ii) the size of the sums involved and (iii) the possible duration of the litigation. But as to the first of these, the Lord Ordinary disposes of the risk of insolvency himself in what he says of the financial position of BEG. As to the second, the size of the sums involved merely reflect the nature of the commercial arrangements between the parties, and may be of no greater significance than much smaller sums in other litigations. The third is largely speculative, bearing in mind that a debate has been fixed for August of this year which may determine some or all of the principal legal issues in contention. Whether these factors are taken individually or in combination, they do not in our opinion provide a principled basis for distinguishing this case from countless others or for making an interim order under section 47(2) of the 1988 Act.
32. We would only add that if in our view the Lord Ordinary had been warranted in making the order authorising the withholding of the sums referred to in paragraphs 2 and 3 of the interlocutor of 4 January 2002, then we would have rejected as unsound the criticisms by counsel for BEG that this would be to place such sums out of reach of BEG's creditors or prevent any claim for payment of interest that might arise under the contract in respect of any sums to which BEG might ultimately become entitled.
33. In summary, therefore, we regard the decision of the Lord Ordinary as flawed in that he failed to exercise his discretion in accordance with the principles which should inform the grant of an interim order under section 47(2) of the 1988 Act. In particular, we consider that the Lord Ordinary failed to analyse the legal basis of the parties' respective positions. Reflecting that failure of analysis, the Lord Ordinary then erred in making an interim order which significantly innovated on the parties' contractual rights and obligations in relation to both past and future invoices and payments, while at the same time holding that SP had not demonstrated a prima facie case that BEG had acted in breach of contract and would continue to do so. And in considering the balance of convenience, the Lord Ordinary appears to us have discounted the general rule which seeks to preserve the status quo without giving sound reasons for doing so, and to have placed insufficient weight upon the prejudice which the order would occasion to BEG.
34. In the whole circumstances we shall allow the reclaiming motion and recall the Lord Ordinary's interlocutor of 4 January 2002.