CA-2024-002472 - [2025] EWCA Civ 1407

The final issue concerns the quantum of the termination payment. For ease of reference I set out again the terms of clause 10.5:

‘10.5 Where, in relation to any Supply Premises, this Contract is terminated by the Supplier pursuant to clause 10.2, the Customer shall within 10 days of the termination date pay to the Supplier the [sic.] 50 percent of the remaining value of this Contract to the Supplier in respect of the relevant Supply Premises (as determined by the Supplier acting reasonably) as notified by the Supplier.’

The issue is whether ‘the remaining value of this Contract to the Supplier in respect of the relevant Supply Premises’ refers to the income which URE would receive, or the profit which URE would make, in respect of those premises over the remaining term of the contract.

Mr Riley submitted that the natural meaning of these words is that they refer to the income which URE would receive over the remaining term of the contract, less the expenditure which it would incur over that remaining term, and that this interpretation is supported by the requirement for URE to carry out a calculation (‘as determined by the Supplier acting reasonably’), which would not be necessary if the words referred only to future income. He submitted that if URE were entitled to receive 50% of future income without giving credit for expenditure, it would obtain a windfall.

I would accept the submission of Mr James Wibberley, who dealt with this aspect of the case on behalf of URE, that the judge’s interpretation of clause 10.5 was correct. The words ‘the remaining value of this Contract to the Supplier’ are capable of referring to the future income which URE would receive and, when considered in their context, should be understood in this way. It is significant, as Mr Wibberley submitted, that URE was entitled to terminate the contract in respect of only some of the Supply Premises and, in that event, the remaining value of the contract had to be calculated only in respect of those premises for which the supply had been terminated. Anticipated income could readily be calculated for each set of premises based on their likely consumption, whereas costs might be incurred globally rather than attributable to separate premises. Moreover, if costs have to be taken into account, the problem arises that costs would not necessarily be incurred evenly over the life of the contract. For example, it was likely that there would be significant start-up costs, so that no profit might be made until the later stages of the contract, while the timing and pricing of any forward purchases of electricity would be adventitious. A calculation which took account only of future costs would be likely to present a distorted picture of the value of the contract to URE.

In my judgment clause 10.5 represents a compromise which was intended to provide a straightforward and easily calculated measure of compensation for termination of the contract, regardless of whether the termination was the result of a breach of contract by NHG or (as in this case) a specified event which did not constitute a breach. That compensation was to consist of 50% of the future income which URE would receive for any premises in respect of which the contract was terminated, without needing what could be complex calculations of profit to be carried out within the short period (10 days) referred to in the clause. It might involve an element of ‘swings and roundabouts’, but the parties were entitled to choose the certainty and prompt closing of accounts which such a compromise provided.