Herbert Smith claims success as gas case heads for appeal

Herbert Smith has claimed success for its client United Gas in a court battle with National Power over a controversial “take-or-pay” gas contract.

Under the three-year deal, of a type common to the North Sea gas industry, United Gas agreed to pay National Power a specified amount each year for gas delivery, whether or not it takes the gas.

But at one point, National Power, instead of supplying a fixed volume of gas to United Gas from its own resources, substituted gas it bought on the spot market. On this market, gas is traded in therms, a calorific value, rather than in a specified volume.

United Gas argued that it could not tell what volume it had received and therefore served notice to terminate the contract in May last year.

National Power initially won a summary judgment against United Gas and United Gas had to pay National Power £6m in October 1995. United Gas appealed and the Court of Appeal has now ruled that the issue is triable and, pending the result of the trial, which will probably take place next year, National Power has had to pay back £4m of the £6m.

Ted Greeno, Herbert Smith litigation partner, said: “More significantly for the North Sea gas industry, the Court of Appeal ruling confirms that gas suppliers under take-or-pay contracts cannot substitute supplies from the spot market.”

But Louise Thomson, in-house lawyer for National Power, said: “None of the issues have been decided by the court. We are confident that we kept to the terms of the agreement and the issue will have to be examined in the trial.”

National Power was represented by Denton Hall.