[1] In Laverty v British Gas Trading Ltd [2014] EWHC 2721 (Ch), under the heading 'The Gas Code and the Electricity Code', Etherton C described these provisions as follows (Gas - paragraphs 14- 15, and Electricity - paragraphs 19 to 20):

'14. Schedule 2B to the Gas Act contains the Gas Code. Paragraph 8(1) provides as follows so far as relevant:

“Where a gas supplier supplies gas to a consumer otherwise than in pursuance of a contract, the supplier shall be deemed to have contracted with the consumer for the supply of gas as from the time … when he began so to supply gas to the consumer”.

15. The term “consumer” is defined in paragraph 1(1) of Schedule 2B to mean “a person who is supplied with gas conveyed to particular premises… by a gas transporter”.

...

19. Schedule 6 to the Electricity Act 1989 contains the Electricity Code. Paragraph 3 (1) provides as follows so far as relevant:

“Where an electricity supplier supplies electricity to any premises otherwise than in pursuance of a contract, the supplier shall be deemed to have contracted with the occupier (or the owner if the premises are unoccupied) for the supply of electricity as from the time … when he began so to supply electricity.”

20. There is no statutory definition of “occupier” or “owner” for the purposes of the Electricity Code.'

[2] In the Electricity Act 1989, Schedule 6, paragraph 3, there is subparagraph 3(2), which provides:

'Where-

(a) the owner or occupier of any premises takes a supply of electricity which has been conveyed to those premises by an electricity distributor;

(b) that supply is not made by an authorised supplier; and

(c) a supply of electricity so conveyed has been previously made by an electricity supplier,

the owner or occupier shall be deemed to have contracted with the appropriate supplier for the supply of electricity as from the time (“the relevant time”) when he began to take such a supply.'

To determine who is the 'appropriate supplier', reference needs to be made to subpargraph 3(4), which reads:

'The Authority shall publish a document containing provision for determining the “appropriate supplier” for the purposes of sub-paragraph (2).'

The 'Authority' is defined by section 3A of the Electricity Act 1989. Section 3A(1) provides:

'The principal objective of the...Gas and Electricity Markets Authority (in this Act referred to as “the Authority”)...'

(the Gas and Electricity Markets Authority was established under section 1 of the Utilities Act 2000)

For completeness, Electricity Act 1989, Schedule 6, paragraph 3 also provides the following relevant subparagraphs to paragraph 3:

'(5) The Authority may revise the current document published under sub-paragraph (4); and where it does so it shall publish the revised document.'

And

'(3) Nothing in sub-paragraph (2) shall be taken to afford a defence in any criminal proceedings.'

And

'(6) The express terms and conditions of a contract which, by virtue of sub-paragraph...(2), is deemed to have been made shall be provided for by a scheme made under this paragraph.

(7) Each electricity supplier shall make (and may from time to time revise), a scheme for determining the terms and conditions which are to be incorporated in the contracts which, by virtue of sub-paragraph... (2), are to be deemed to have been made.'

The above subparagraph 3(7) is the same as for a scenario falling with subparagraph 3(1). Also the same, is subparagraph 3(8) and 3(9):

'The terms and conditions so determined may include terms and conditions for enabling the electricity supplier to determine, in any case where the meter is not read immediately before the relevant time, the quantity of electricity which is to be treated as supplied by the supplier to the premises, or taken by the owner or occupier of the premises, during the period beginning with the relevant time and ending with-

(a) the time when the meter is first read after the relevant time; or

(b) the time when the supplier ceases to supply electricity to the premises, or the owner or occupier ceases to take a supply of electricity,

whichever is the earlier.

A scheme under this paragraph may (subject to section 7B) make different provision for different cases or classes of cases, or for different areas, determined by, or in accordance with, the provisions of the scheme.'

Section 7B of the Electricity Act 1989 is entitled 'Uniform prices etc. in certain areas of Scotland' (set out in a different footnote)

[3] In the Gas Act 1986, Schedule 2B, paragraph 8, there is subparagraph 8(2), which provides:

'(2) Where-

(a) the owner or occupier of any premises takes a supply of gas which has been conveyed to those premises by a gas transporter in pursuance of arrangements made with the transporter by a gas shipper, or by a person authorised to make the arrangements by an exemption granted under section 6A of this Act,

(b) that supply is not made by a gas supplier, or by a person authorised to make it by an exemption granted under section 6A of this Act or an exception contained in Schedule 2A to this Act; and

(c) a supply of gas so conveyed has been previously made by a gas supplier,

the owner or occupier shall be deemed to have contracted with the appropriate supplier for the supply of gas as from the time (“the relevant time”) when he began to take such a supply; but nothing in this sub-paragraph shall be taken to afford a defence in any criminal proceedings.'

The meaning of 'appropriate supplier' is provided by the next subparagraph, subparagraph 8(3), which reads:

'In sub-paragraph (2) above “the appropriate supplier” means -

(a) the gas supplier who previously supplied gas to the premises or, if more than one, the gas supplier who last supplied gas to the premises; or

(b) where that supplier's licence has been assigned generally, or has been assigned so far as relating to the premises, the person to whom the licence was so assigned; or

(c) where that supplier's licence has been revoked on his application, or has been so restricted on his application as to exclude the premises, the gas supplier with whom that supplier made arrangements for securing continuity of supply to the premises.'

For completeness, the Gas Act 1986, Schedule 2B, paragraph 8 also provides the following relevant subparagraphs to paragraph 8:

'(7) The express terms and conditions of a contract which, by virtue of sub-paragraph... (2) above, is deemed to have been made shall be provided for by a scheme made under this paragraph'

And

'(8) Each gas supplier shall make, and from time to time revise, a scheme for determining the terms and conditions which are to be incorporated in the contracts which, by virtue of sub-paragraph...(2) above, are to be deemed to have been made; but this sub-paragraph shall not apply in any case where it is reasonably expected that neither of those sub-paragraphs will apply.'

The above subparagraph 8(8) is the same as for a scenario falling with subparagraph 8(1). Also the same, is subparagraph 8(9) and 8(10):

'(9) The terms and conditions so determined may include terms and conditions for enabling the gas supplier to determine, in any case where the meter is not read immediately before the relevant time, the number of therms or kilowatt hours which are to be treated as supplied to the consumer, or taken by the owner or occupier of the premises, during the period beginning with the relevant time and ending with—

(a) the time when the meter is first read after the relevant time, or

(b) the time when the supplier ceases to supply gas to the consumer, or the owner or occupier ceases to take a supply of gas.

whichever is the earlier.

(10) A scheme under this paragraph may make different provisions for different cases or classes of cases, or for different areas, determined by, or in accordance with, the provisions of the scheme.'

[4] This observation comes from where, in Laverty v British Gas Trading Ltd [2014] EWHC 2721 (Ch) ('Laverty'), Etherton C was determining whether or not a liabilty under a deemed contract is proveable pursuant to Insolvency Rules 1986, r.13.12.(1)(b) (note the Insolvency Rules 1986, have been superseded by Insolvency (England and Wales) Rules 2016). For completeness, on this, Etherton C in Laverty said, from paragraphs 81 to 83 inclusive:

'...liability under the Deemed Contracts is provable pursuant to rule 13.12(1)(b) as a liability to which the Companies became subject after the date of administration by reason of an obligation incurred before that date. The three parts to the test suggested by Lord Neuberger in paragraph [77] of [Nortel GmbH [2013] 3 WLR 504] are satisfied with the present case. As to (a) in paragraph [77], there is a loose analogy with the position as to the costs of litigation analysed by Lord Sumption in Nortel. From the moment that gas or electricity is supplied to premises, and for the duration of such supply, the consumer (in the case of gas) and the owner or occupier (in the case of electricity) becomes bound by the statutory framework of the Gas Act and the Electricity Act, as the case may be, which includes a present or future, actual or contingent liability to pay for the supply pursuant to a deemed contract where the supply is otherwise than in pursuance of an actual contract. In the words of Lord Neuberger in paragraph [73] of Nortel, from the moment the supplied commenced the consumer, occupier or owners “fell within the scope of the regime”.

As to (b) in paragraph [77] of Nortel, immediately prior to their administration the Companies were, in the words of Lord Neuberger in paragraph [77], “vulnerable to the specific liability” under a deemed contract since there was then a high probability or at the very least a distinct possibility that [the supplier] would terminate the 2011–2012 Contracts pursuant to the provisions enabling it to do so in the Terms. Accordingly, prior to administration the Companies came under an “obligation” within rule 13.12(1)(b). That obligation was necessarily (in the words of Lord Neuberger in paragraph [75] of Nortel ) more inchoate or imprecise than the “debt or liability” within rule 13.12(1)(b). It was (again in Lord Neuberger's words) the anterior source of that liability.

As to part (c) of Lord Neuberger's test in paragraph [77] of Nortel, the above analysis of the application of rule 13.12(1)(b) to the facts of the present case is entirely consistent with the regime in the Gas Act and the Electricity Act. Nor do I accept [counsel for the supplier's] submission that uncertainty over the amount of the future debt in relation to the future supply of gas and electricity to the Stores rendered the liability of the Companies to [the supplier] unprovable. [The supplier] was entitled to prove from time to time for the charges incurred following the commencement of the administration for supplies actually made to the date of proof. There is nothing in Park Air Services which states otherwise.'

[5a] Section 7B of the Electricity Act 1989 is entitled 'Uniform prices etc. in certain areas of Scotland' and reads:

'(1) The Secretary of State may, by an order made under this section, require the holder of-

(a) a transmission licence; or

(b) a distribution licence,

to apply in respect of the use of the transmission or, as the case may be, distribution system, or any part of the system, in a specified area charges which do not distinguish (whether directly or indirectly) between users in different parts of the area.

(2) The Secretary of State may, by such an order, require the holder of a supply licence-

(a) to charge prices; or

(b) to offer conditions of contract,

in respect of a comparable supply of electricity in a specified area which do not distinguish (whether directly or indirectly) between consumers in different parts of the area.

(3) The Secretary of State shall not specify in such an order any particular or maximum charge or price or any particular condition of contract.

(4) Such an order may make different provision for different cases or descriptions of case.

(5) For the purposes of this section-

(a) a specified area is an area of Scotland specified in such an order; and

(b) supplies of electricity are comparable if they are-

(i) at the same or similar voltages; and

(ii) are in accordance with the same or similar demand characteristics.'

[5b] It is not clear why the words 'or taken by the owner or occupier of the premises' appear in paragraph 8(9) of The Gas Code (Schedule 2B, Gas Act 1986).

[6] Section 3A(1) of the Electricity Act 1989 provides:

'The principal objective of the...Gas and Electricity Markets Authority (in this Act referred to as “the Authority”)...'

(the Gas and Electricity Markets Authority was established under section 1 of the Utilities Act 2000)

[7] The position of 'the Director' no longer exists in relation to Gas. It should, arguably, read 'Authority' - meaning 'Gas and Electricity Markets Authority'

(1) The Gas Act 1986 contained, between 18.8.86 and 30.9.01, section 1 entitled 'The Director General of Gas Supply'. During that period, that section contained subsection 1(1), which read:

'The Secretary of State shall appoint an officer to be known as the Director General of Gas Supply (in this Act referred to as “the Director”) for the purpose of performing the functions assigned to the Director by this Part.'

(2) on 20.12.00, section 4AA of the Gas Act 1986 came into force (in its first iteration). That first iteration contained in section 4AA(1), the following:

'The principal objective of the Secretary of State and the Gas and Electricity Markets Authority (in this Act referred to as “the Authority”)...'

(3) Section 1 of the Utilities Act 2000, entitled 'Gas and Electricity Markets Authority', came into force on 1.11.20, and read (and continues to read):

'(1) There shall be a body corporate to be known as the Gas and Electricity Markets Authority (in this Act referred to as “the Authority”) for the purpose of carrying out–
(a) functions transferred to the Authority from the Director General of Gas Supply and the Director General of Electricity Supply; and
(b) the other functions of the Authority under this Act.
(2) The functions of the Authority are performed on behalf of the Crown.
(3) The offices of Director General of Gas Supply and Director General of Electricity Supply are abolished.
(4) Schedule 1 has effect with respect to the Authority

[8] On Ofgem's website (website page, available here):, an electricity supply licence

'This allows the licensee to supply electricity to premises.

An Electricity Supply Licence can be for supply to either:

domestic and non-domestic premises,

or non-domestic premises only.'

See also James v London Electricity Plc [2004] EWHC 3226 (QB), wherein HHJ Wilkie QC sitting as a Judge of the High Court had to determine whether or not a electricity supplier under the Electricity Act 1989 (as modified by the Utilities Act 2000) was a 'public authority' for the purposes of the Human Rights Act 1998. The Judge held that it was not a 'public authority', but in reaching that conclusion, the Judge set out out some comments about the legal framework within which electricity suppliers sit, from paragraphs 12 to 21 (Miss Davies is counsel for the electricity supplier/defendant; Mr James was the appellant/claimant):

'12. Prior to the coming into effect of the Utilities Act 2000 Miss Davies readily, and in my judgment rightly, accepts that the function of electricity supply was a public function. However, she says that the impact of that Act upon the Electricity Act 1989 is such that it sets up a wholly different arrangement of functions. The principal purpose of the Act is to provide effective competition between persons engaged in commercial activities connected with the generation, transmission, distribution or supply of electricity. That much is stated as being the principal objective of the Secretary of State and the Gas and Electricity Markets Authority by virtue of section 3A(1) of the Electricity Act 1989, as substituted by the 2000 Act. The scheme which the Act sets up is that the authority has, as one of its functions, the granting of one or other of a number of licences. Those licences authorise a person to generate or to transmit or to distribute or to supply electricity. The power is given under section 6(1) of the Act. But 6(2) of the Act provides that the same person may not be the holder of both a distribution licence and a supply licence. Subsection (8) of that section provides that a licence shall, unless previously revoked in accordance with any term of the licence, continue in force for such period as may be specified in or determined by or under the licence.

13. Section 9 of the 1989 Act sets out the general duties of certain licence holders. It imposes specific duties on an electricity distributer. It also sets out specific duties on the holder of a licence authorising transmission of electricity, but — and Miss Davies relies substantially on this — there is no statutory duty at all placed on the holder of a licence to supply electricity.

14. The obtaining of a licence is a sine qua nom for engaging in the activity of supplying electricity. Section 4 of the 1989 Act provides that a person who, amongst other things, supplies electricity to any person shall be guilty of an offence unless authorised to do so by a licence.

15. The content of the licence is determined in part by the authority granting it, but for the main part by the Secretary of State. Section 33 of the Utilities Act 2000 provides that the Secretary of State may determine conditions for inclusion in electricity licences and if she does so, then they shall be standard conditions contained in any licence which is granted.

16. The change which the 2000 Act brought in the arrangements for the supply of electricity plainly had the potential of affecting very large numbers of individual customers who previously had been quite happily supplied by he previous statutory bodies. Schedule 7 provides for transitional provisions. Part 3 concerns former tariff customers, that is to say customers who were previously customers of the public electricity supplier. Paragraph 23(2) provides that where, immediately before the commencement date a public electricity supplier is supplying tariff customers with their electricity, the supplier's supply successor shall be deemed to have contracted with those customers for the supply of electricity as from that day. Subparagraph (3) provides the express terms and conditions of a contract which, by virtue of subparagraph (2) is deemed to have been made by the supplier, shall be provided for by the scheme under this paragraph which relates to that supplier.

17. The licence, as I have indicated, to a very large degree contains standard conditions which have been determined by the Secretary of State. Condition 32 is the condition which imposes certain duties on the licence holder in respect of the supply to domestic customers. The duty is, upon receipt of a request from a domestic customer, to offer to enter into a domestic supply contract with that customer and, if the customer accepts those terms, to supply electricity to those premises in accordance with the terms offered. There are certain further provisions which excuse the licence holder from making or continuing a supply but, subject to that, once the customer requests, an offer is made and is accepted, there is then a duty to supply. Circumstances can arise where the licence has terminated in which case the authority appears, by condition 29, to have the authority to revoke the supply licence of an electricity supplier. If those circumstances arise in respect of a holder of a licence other than the particular licence holder, then condition 29 empowers the authority in writing to direct another licence holder to supply electricity. This only applies if the licence holder to whom the direction is made could comply with the ‘last resort’ supply direction without prejudicing its ability to continue to supply its customers and fulfil its contractual obligations for the supply of electricity. Such ‘last resort’ supply direction can continue for a maximum of six months, but the same excuses that the original licence holder may have had for not supplying a customer will apply equally in respect of a ‘last resort’ direction.

18. As I have already indicated, the principal objective of this statutory scheme is to promote effective competition. Reference has been made in the evidence of Mr Morton for the first respondent and also in the documentation which he has exhibited, to reports of the Gas and Electricity Markets Authority (‘OFGEM’) indicating that the furtherance of competition is the main concern of that body.

19. The licence holder has certain powers granted by statute. Those are contained in Schedule 6 to the 1989 Act, which is entitled ‘The Electricity Code'. They include certain limited powers of entry for certain limited purposes. They also include certain legal requirements for the exercise of the powers of entry, which involve the application to a Magistrates' Court for a warrant, notice of which application should be given by the Magistrates' Court to anybody affected by the warrant.

20. What I have just described seems to be a deliberate attempt by Parliament to provide for different regimes, depending on whether the particular party is involved in the infrastructure of the electricity supply industry or the ultimate supply of electricity to a consumer. There is, in particular, no statutory duty upon a supplier to supply to a customer, whereas there is a specific statutory duty on holders of licences in respect of distribution. The process of supply is not pursuant to any statutory power but is carefully drawn to be a matter of contract between the supplier and the ultimate consumer. The ability to make such a contract is not given direct by statute, but is granted in a licence given by an authority. It is true to say that the main conditions in that licence are determined by the Secretary of State. Certain of the provisions within the licence are such as to ensure that if one licence holder drops out for any reason, then there is a continuity of supply by the substitution by direction of one licence holder for supply for the one which has dropped out.

21. In my judgment, where Parliament has specifically and deliberately removed from electricity suppliers many of the indices of a public character which had previously marked the public nature of the electricity supply industry prior to that change in legislation, and specifically requires the supply henceforth to proceed by way of contract, and where licence holders may be entirely new providers as well as the successors in title to the old suppliers, it is very difficult to say that such a deliberate change in the regime nonetheless leaves it with the characteristics of a public function so as to attract the operation of the Human Rights Act. As was said in the Poplar case, the fact that the acts are supervised by a public regulatory body does not necessarily indicate that they are of a public nature. Whilst the regulatory body may be deemed to be public, the activities of the body which is regulated may well not be public. It seems to me that where Parliament has specifically constructed a scheme in which the indices of a private activity are to the fore in the way which I have described, then, in deference to the decision of Parliament, I am obliged to conclude that Miss Davies is right and that Mr James' argument is wrong.'

[9] On Ofgem's website (website page, available here):

'This allows the licensee to supply gas to any premises through pipes. A Gas Supplier Licence can allow supply to either:

domestic and non-domestic premises, or

non-domestic premises only.'

[10] On Ofgem's website, the conditions are divided into types, as follows (website page, available here):

(1) Standard Licence Conditions

Standard Licence Conditions are conditions that apply to all licensees of a particular licence type.  These can be in and out of effect for licensees.

(2) Amended Standard Licence Conditions

Amended Standard Licence Conditions are Standard Licence Conditions that have been modified for an individual licensee.

(3) Special Conditions

Special Conditions are conditions that apply only to individual licensees and form part of their licence alongside Standard Licence Conditions, any amended Standard Licence Conditions, and any Standard Special Conditions that may apply to them.

(4) Standard Special Conditions (Gas only)

Standard Special Conditions were created during the gas Distribution Network sales, when Transco sold off four of their distribution networks. The Standard Special Conditions apply only to Gas Transporters with distribution networks and to National Grid Gas Plc.

[11] Condition 7 in each of: (1) 'Electricity suppliers Licence: Standard Conditions - Consolidated to 05 January 2024'; and (2) 'Gas suppliers Licence: Standard Conditions – Consolidated to 05 January 2024', is called 'Terms of Contracts and Deemed Contracts'

(1) Electricity suppliers Licence: Standard Conditions - Consolidated to 05 January 2024.

'Termination of Contracts and Deemed Contracts

7.1 Each Contract and Deemed Contract for the supply of electricity to a premises must provide for itself to end when a Last Resort Supply Direction given to any other Electricity Supplier has effect in relation to that premises.

7.2 If a Domestic Supply Contract provides for both the supply of electricity to a premises and the provision of any other good or service, the reference in paragraph 7.1 to ending that contract is a reference to ending it for the supply of electricity to the premises only.

7.2A The reference in paragraph 7.2 to any other service shall not be construed to include the collection of Green Deal Charges pursuant to paragraph 2 of standard condition 36.

Terms of Deemed Contracts must not be unduly onerous

7.3 The licensee must take all reasonable steps to ensure that the terms of each of its Deemed Contracts are not unduly onerous.

7.4 One way in which the terms of a Deemed Contract will be unduly onerous for any class of Domestic Customers or for any class of Non-Domestic Customers is if the revenue derived from supplying electricity to the premises of the relevant class of customers on those terms:

(b) significantly exceeds the licensee’s costs of supplying electricity to such premises; and

(b) exceeds such costs of supplying electricity by significantly more than the licensee’s revenue exceeds its costs of supplying electricity to the premises of the generality of its Domestic Customers or, as the case may be, to the premises of the generality of its Non-Domestic Customers (in each case excluding from the calculation premises supplied in accordance with standard condition 8 (Obligations under Last Resort Supply Direction)).

Continuity and termination of Deemed Contracts

7.5 In addition to the requirement of paragraph 7.1, a Deemed Contract must:

(a) provide that, where a Customer intends his premises to be supplied with electricity under a Contract with the licensee or any other Electricity Supplier, the Deemed Contract will continue to have effect until the licensee or the other Electricity Supplier, as appropriate, begins to supply electricity to the premises under a Contract; and

(b) if the Customer is a Domestic Customer, include a term to give effect (under the Deemed Contract) to the requirements of paragraph 1 of standard condition 24 (Termination of Domestic Supply Contracts) (which relates to the termination arrangements that apply when there is a change in the ownership or occupation of Domestic Premises).

7.6 If the licensee supplies electricity to a Customer’s premises under a Deemed Contract, the licensee must not charge the Customer a Termination Fee.

7.6A A Deemed Contract must not:

(a) provide for any fixed term period;

(b) provide for any Termination Fee; or

(c) subject to sub-paragraph 5(b), require a Customer to give any form of notice before they are able to change supplier.

7.6B In relation to any Customer which is subject to a Deemed Contract, the licensee must not, and must ensure that its staff and any Representative does not, inform that Customer that they are:

(a) required to pay a Termination Fee;

(b) subject to a fixed term period; or

(c) subject to sub-paragraph 5(b), are required to give any form of notice before they are able to change supplier.

Information for Customers about Deemed Contracts

7.7 If the licensee supplies electricity to a Customer’s premises under a Deemed Contract, it must take all reasonable steps to provide that Customer with:

(a) the Principal Terms of the Deemed Contract; and

(b) Notice that Contracts, with terms that may be different from the terms of Deemed Contracts, may be available and of how information about such Contracts may be obtained.

7.8 If a person requests a copy of a Deemed Contract that the licensee has available, the licensee must provide it to that person within a reasonable period of time after receiving the request.

Calculation of consumption under Deemed Contracts

7.9 In determining the number of kilowatt hours of electricity that are to be treated as supplied to or taken at premises under a Deemed Contract, the licensee must act reasonably and take into account available electricity consumption data for the premises and any other relevant factor.

Effect of Last Resort Supply Direction on Deemed Contracts

7.10 If a Customer is being supplied with electricity under a Deemed Contract because a Last Resort Supply Direction has been issued in relation to his premises, paragraph 7.3 and sub-paragraph 7.7(b) do not apply until that direction stops having effect.

Terms of Deemed Contracts

7.11 The licensee must ensure that the terms and conditions of each Deemed Contract comply with the provisions of standard condition 7.

7.12 The licensee must ensure that each Deemed Contract contains terms and conditions which:

(a) reflect the effect of the provisions of standard condition 7; and

(b) require the licensee to honour Customer Credit Balances, provided and to the extent that the licensee committed to do so before the Authority gave it a Last Resort Supply Direction and the Deemed Contract arose as a result of the Last Resort Supply Direction.

7.13 The licensee must not enforce or take advantage of any term of a Deemed Contract if:

(a) the inclusion of that term is incompatible with standard condition 7; or

(b) the enforcement or the taking advantage of that term would be so incompatible.

Guidance

7.14 The licensee must have regard to any guidance on standard condition 7 (including in respect of definitions which appear in standard condition 1) which, following consultation (which may be conducted before this condition takes effect), the Authority may issue and may from time to time revise (following further consultation).'

(2) Gas suppliers Licence: Standard Conditions – Consolidated to 05 January 2024.

'Termination of Contracts and Deemed Contracts

7.1 Each Contract and Deemed Contract for the supply of gas to a premises must provide for itself to end when a Last Resort Supply Direction given to any other Gas Supplier has effect in relation to that premises.

7.2 If a Domestic Supply Contract provides for both the supply of gas to a premises and the provision of any other good or service, the reference in paragraph 7.1 to ending that contract is a reference to ending it for the supply of gas to the premises only.

Terms of Deemed Contracts must not be unduly onerous

7.3 The licensee must take all reasonable steps to ensure that the terms of each of its Deemed Contracts are not unduly onerous.

7.4 One way in which the terms of a Deemed Contract will be unduly onerous for any class of Domestic Customers or for any class of Non-Domestic Customers is if the revenue derived from supplying gas to the premises of the relevant class of customers on those terms:

(a) significantly exceeds the licensee’s costs of supplying gas to such premises; and

(b) exceeds such costs of supplying gas by significantly more than the licensee’s revenue exceeds its costs of supplying gas to the premises of the generality of its Domestic Customers or, as the case may be, to the premises of the generality of its Non-Domestic Customers (in each case excluding from the calculation premises supplied in accordance with standard condition 8 (Obligations under Last Resort Supply Direction)).

Continuity and termination of Deemed Contracts

7.5 In addition to the requirement of paragraph 7.1, a Deemed Contract must:

(a) include a term to give effect (under the Deemed Contract) to the requirements of paragraph 3 of standard condition 16 (Security and emergency arrangements) (which relates to the rights and obligations of the parties to a Contract where a direction given to the licensee under section 2(1)(b) of the Energy Act 1976 is in force);

(b) if the Customer is a Non-Domestic Customer, include a term to give effect (under the Deemed Contract) to the requirements of paragraph 4 of standard condition 16 (Security and emergency arrangements) (which relates to the rights and obligations of the parties to a Contract during a pipeline system emergency);

(c) provide that, where a Customer intends his premises to be supplied with gas under a Contract with the licensee or any other Gas Supplier, the Deemed Contract will continue to have effect until the licensee or the other Gas Supplier, as appropriate, begins to supply gas to the premises under a Contract; and

(d) if the Customer is a Domestic Customer, include a term to give effect (under the Deemed Contract) to the requirements of paragraph 1 of standard condition 24 (Termination of Domestic Supply Contracts) (which relates to the termination arrangements that apply when there is a change in the ownership or occupation of Domestic Premises).

7.6 If the licensee supplies gas to a Customer’s premises under a Deemed Contract, the licensee must not charge the Customer a Termination Fee.

7.6A A Deemed Contract must not:

(a) provide for any fixed term period;

(b) provide for any Termination Fee; or

(c) subject to sub-paragraph 5(d), require a Customer to give any form of notice before they are able to change supplier.

7.6B In relation to any Customer which is subject to a Deemed Contract, the licensee must not, and must ensure that its staff and any Representative does not, inform that Customer that they are:

(a) required to pay a Termination Fee;

(b) subject to a fixed term period; or

(c) subject to sub-paragraph 5(d), are required to give any form of notice before they are able to change supplier.

Information for Customers about Deemed Contracts

7.7 If the licensee supplies gas to a Customer’s premises under a Deemed Contract, it must take all reasonable steps to provide that Customer with:

(a) the Principal Terms of the Deemed Contract; and

(b) Notice that Contracts, with terms that may be different from the terms of Deemed Contracts, may be available and of how information about such Contracts may be obtained.

7.8 If a person requests a copy of a Deemed Contract that the licensee has available, the licensee must provide it to that person within a reasonable period of time after receiving the request.

Calculation of consumption under Deemed Contracts

7.9 In determining the number of kilowatt hours of gas that are to be treated as supplied to or taken at premises under a Deemed Contract, the licensee must act reasonably and take into account available gas consumption data for the premises and any other relevant factor.

Effect of Last Resort Supply Direction on Deemed Contracts

7.10 If a Customer is being supplied with gas under a Deemed Contract because a Last Resort Supply Direction has been issued in relation to his premises, paragraph 7.3 and sub-paragraph 7.7(b) do not apply until that direction stops having effect.

Terms of Deemed Contracts

7.11 The licensee must ensure that the terms and conditions of each Deemed Contract comply with the provisions of standard condition 7.

7.12 The licensee must ensure that each Deemed Contract contains terms and conditions which:

(a) reflect the effect of the provisions of standard condition 7; and

(b) require the licensee to honour Customer Credit Balances, provided and to the extent that the licensee committed to do so before the Authority gave it a Last Resort Supply Direction and the Deemed Contract arose as a result of the Last Resort Supply Direction.

7.13 The licensee must not enforce or take advantage of any term of a Deemed Contract if:

(a) the inclusion of that term is incompatible with standard condition 7; or

(b) the enforcement or the taking advantage of that term would be so incompatible.

Guidance

7.14 The licensee must have regard to any guidance on standard condition 7 (including in respect of definitions which appear in standard condition 1) which, following consultation (which may be conducted before this condition takes effect), the Authority may issue and may from time to time revise (following further consultation).'

[12] The consultation was a Insolvency Service consultation: 'Consultation on the Continuity of Essential Supplies' - which lead to a paper being released, entitled 'Summary of Responses: Consultation on the Continuity of Essential Supplies February 2015'. With that paper (page 131), were the responses the Insolvency Service had received. These included, a response from Ofgem, dated 8.10.14: 'Ofgem response - continuity of supply of essential services to insolvent businesses'. Within it, under the heading 'How the energy retail market works' Ofgem touched on deemed contracts.

The figure 84% was referenced with a footnote, which provided:

Proposals for non-domestic automatic rollovers and contract renewals. 14 February 2014. https://www.ofgem.gov.uk/ofgem-publications/86071/automaticrolloversconsultationfinal.pdf '

That link to an Ofgem report entitled 'Proposals for non-domestic automatic rollovers and contract renewals' published on 14.2.14 (so again, old, but noteworthy). In this report, Ofgem states at paragraph 3.4:

'Our request for information (RFI) showed that deemed and OOC prices were significantly higher than those offered for negotiated contracts. An annual deemed electricity bill was typically 82 per cent more expensive than an equivalent acquisition contract and 69 per cent more expensive for gas.'

The report continues, from paragraph 3.5:

'3.5 Although suppliers have different methodologies for calculating their deemed and OOC rates, these higher prices are generally attributable to three main factors, shown in Figure 3.1 below.

3.6. Suppliers face additional costs when purchasing electricity or gas on contracts with an uncertain duration, as this exposes them to more volatile prices. For customers on fixed-term contracts, suppliers can purchase at a fixed price in advance (see 4.6 for more detail).

3.7. Suppliers highlighted the higher risk of non-payment as the reason for higher deemed and OOC rates. One estimated that half of deemed customers are in debt and the average balance owed by those who left was £1,500. For deemed contracts, suppliers cannot object to the transfer of a customer with outstanding debt. Some suppliers have indicated that deemed prices could be lower if they were able to object for debt.

3.8. A significant number of micro-business consumers are on deemed or OOC rates; an estimated 10 per cent for electricity and 11 per cent for gas. In the extreme, consumers had been on these rates for over 10 years. Over half had been on these types of contract for more than a year (see figure 1.5 in Appendix 4).'

[13] This is the issue that arose for determination in Laverty v British Gas Trading Ltd [2014] EWHC 2721 (Ch) ('Laverty'). In Laverty, Etherton C said, at paragraphs 64 to 66:

'A core element of [the supplier's] submissions on this aspect is that the Deemed Contracts are in all material respects analogous to actual contracts entered into by an administrator after the commencement of the administration. I agree with [counsel] for the Liquidators, that the analogy with an express contract is misplaced. An express contract will only come into existence in the course of an administration by virtue of a positive and conscious act by the administrator. That is precisely why, as [counsel for the suppliers] conceded, a deemed contract does not fall within paragraph 99(4) of Schedule B1 to IA 1986.

Further, an express contract contains all the terms and conditions expressly or impliedly agreed by the parties to it. By contrast, neither the Gas Code nor the Electricity Code specifies the terms and conditions of contracts deemed to be made between the supplier and (in the case of gas) the consumer or (in the case of electricity) the occupier or owner. Those terms are left to each supplier to determine pursuant to a scheme made by the suppliers. Such terms, including tariffs, duration and termination are not negotiated but are determined and imposed by the supplier.

[Counsel for the suppliers] observed that deemed contracts under the Gas Code and the Electricity Code exist within a regulatory framework. Indeed, the licences granted to [the suppliers] to supply gas and electricity contain a requirement for [the suppliers] to take all reasonable steps to ensure that the terms of its deemed contracts are not unduly onerous. The only relevant specificity given to that general requirement, however, is a provision in the licenses that a deemed contract will be unduly onerous for any class of non-domestic customers if the revenue derived from supplying gas or electricity (as the case may be) to premises of the relevant class of customers on those terms (a) significantly exceeds [the supplier's] costs of supplying gas or electricity to such premises, and (b) exceeds such costs of supplying gas or electricity significantly by more than the [the supplier's] revenue exceeds its costs of supplying gas or electricity to the premises of the generality of its non-domestic customers.'

[14] In Npower Commercial Gas Ltd v SEP Properties Ltd [2022] EWHC 1844 (QB) ('Npower'), Murray J heard an oral permission to appeal hearing against a judgment, wherein the first instance judge had given judgment in favour of the relevant electricity supplier (NP Commercial Gas Ltd (an assignee of the rights and obligations)) and against a property owner (SEP Properties Ltd; 'SEP'), for electricity (details below). The oral permission to appeal hearing was for further permission to appeal. The property owners already had permission to appeal on paper for one ground (Ground 1), but sought permission to appeal on their other 5 grounds (Grounds 2 to 6).

The claim related to the supply of electricity by NP (NP Commercial Gas Ltd's assignor) '...to a meter in the commercial unit in the Property known as 14 Cresswell Crescent.' (paragraph 13) pursuant to a written agreement (so not a deemed contract) entered into between NP and SEP. The meter was labelled 'Meter 2' or 'M2' and the written contract was labelled 'M2 Supply Contract') (paragraphs 13 and 14). There was also a Meter 1 at No.14 Cresswell Cresent. The claim was for electricity: (1) supplied but unpaid for; and (2) anticipated supply, by the time of judgment (paragraph 14). Paragraph 15 records SEP's defence:

'SEP denies liability on the basis that the electricity supplied by NP to Meter 2 did not supply electricity to the commercial unit at 14 Cresswell Crescent but instead to the associated residential unit upstairs known as 30 Cresswell Crescent. SEP maintains that, under the M2 Supply Contract, NP was obliged to supply electricity to the “site”, which is 14 Cresswell Crescent. NP failed to do that as Meter 2 was supplying the flat at 30 Cresswell Crescent. According to SEP, it is for NP to pursue the relevant occupier/owner of 30 Cresswell Crescent for payment of the electricity supplied via Meter 2. As a matter of contract, SEP has no obligation to NP under the M2 Supply Contract.'

SEP also counterclaimed, for money it had already, it said, mistakenly paid NP in relation to invoices issued under the M2 Supply Contract (paragraph 26). 

[Note, for electricity supply deemed contracts, the word is 'premises' (Electricity Act 1989, Schedule 6, subparagraph 3(1)) rather than 'Site']

The M2 Supply Contract:

(1) arose from SEP's energy broker procuring from NP a written proposal in relation to M2, which SEP accepted (paragraph 22).

(2) contained, Condition 8.2, which provided:

“To avoid doubt, you will continue to be responsible for paying all charges that relate to the site under your contract until the landlord or new owner or occupier takes over responsibility for the supply or until we de-energise the site.”

On 29.1.16, SEP granted a 20 year lease of various ground floor units in Cresswell Cresent, including No.14, to a leaseholder ((1) One Stop Stores Ltd and (2) Trigger Retail Limited) (paragraph 24), but SEP failed to notify NP of this fact (paragraph 34(i)), and so 'accordingly, the M2 Supply Contract never came to an end under the relevant terms of the M2 Supply Contract and therefore remains in full force and effect.' (paragraph 34(ii) - permission to appeal against this (Ground 2) was refused (paragraph 42))

On c.14.7.20, after SEP had not paid certain invoices, NP issued its claim (paragrph 25). 

In the first instance judge's judgement, he labelled various issues: (1) Issue A; (2) Issue B; (3) the 'Site Issue' (paragraph 30).

Site Issue

In relation to the Site Issue, Murray J recorded, as paragraph 31, the first instance judge's conclusion:

'… the 'site' which NP was required to supply electricity on a proper construction of the supply contract was Meter 2, that is to say the existing commercial meter located at Daves Discount Stores at No 14 Cresswell Crescent, and registered at that physical address in the ECOES database.'

Murray J recorded, at paragraphs 32 and 33:

'In light of that conclusion, [the first instance judge] found at [38] that: 

“… it follows that SEP is required to pay NP for all electricity supplied by NP to Meter 2 as the contracted site, under Condition 5.1 of the Conditions attaching to the supply contract.”

A concomitant finding of the [first instance judge]...was that where the electricity went after it had been supplied by NP “to the contracted site” (that is, to Meter 2), and how it was used, was the responsibility of SEP as the customer under the M2 Supply Contract.' [bold added]

Murray J recorded Foxton J's rejection of SEP's Ground 4 appeal point against this finding.

'The Recorder's reasoning on this issue is very persuasive and reflects not simply the terms of the contract itself, but a detailed consideration of the history and background of the supply of electricity to the relevant properties. The Judge's conclusion receives strong support from the inclusion of M2 and the second meter's unique 'supply number' in the site information in the CPSI sheet for this contract.

[SEP] offers no credible alternative to the argument that the supply was to be made to the electricity meter (that being the point where consumption is measured, and it not being realistic for the electricity supplier to monitor where the electricity goes after that point). The suggestion that, if electricity was diverted from Meter 2 to a destination other than 14 Cresswell Crescent, [SEP] did not have to pay for it is wholly uncommercial given that it was [SEP], and not the [NP], who was in a position to control events 'downstream' of Meter 2.' (paragraph 48)[bold added]

SEP argued that 'Site': (1) did not mean the MPAN (meter administration point number), but rather (2) the physical premises that was being supplied (paragraph 47).

But Murray J agreed with Foxton J on this. After setting out Foxton J's decision to refuse permission to appeal on Ground 4 on paper, Murray J set out why he was also refusing permission to appeal on Ground 4, at paragraphs 49 to 51:

'How a word is to be understood in a contract depends on its use in the contract, having regard to the immediate context as well as the contract as a whole. While there are multiple uses of the word “site” in the contract that, in their immediate context, must be understood to refer to physical premises as opposed to a meter, metering point or MPAN, each use of the term needs to be considered on its own merits.

The issue for the judge...was what the term “site” signifies for purposes of determining the location to which NP was required to supply electricity under the MS Supply Contract in order to fulfil its contractual obligations to SEP. SEP has offered no plausible alternative answer to the question as to what it means to supply electricity to the site under the M2 Supply Contract. In this context, a meter is necessarily involved. There are two supply contracts referring to the premises at 14 Cresswell Crescent. The principal distinction between the two contracts is the identification of the relevant meter, each registered with its own MPAN in the national database of all meters and MPANs registered with energy suppliers, namely, the Electricity Central Online Enquiry Service (“ECOES”) database.

As I have noted at [...33] above, the judge observed that what happened to the electricity after it was supplied to Meter 2 was a matter within the control of SEP and not NP.' [bold added]

The Site issue was resolved by the Court finding that the contract was to supply electricity to the Site, which meant, the meter - M2. Once it was shown that NP had supplied the electricity to the meter, it did not matter where the electricity went after that, whether to power electrical appliances etc in 14 Cresswell Cresent, or was diverted upstairs, to supply electricity to the flat at 30 Cresswell Crescent. While 'Site' in a written electricity supply contract is not the same as 'Premises' in a deemed electricity supply contract, and while the deemed contract terms are unknown, it remains to be seen whether a Court will take the same approach to deemed contracts, as in Npower. In terms of the quantum of electricity supplied, supply to the relevant meter is all that matters. What happens thereafter to the electricity, is not relevant to liability to pay for that electricity.

As an aside, though SEP disputed the finding (and unsuccessfully sought permission to appeal against the finding (paragraph 55)), SEP not exactly an innocent bystander to the diversion of electricity at Cresswell Crescent. The first instance judge found that:

'...[SEP] had diverted electricity to other upstairs unmetered flats occupied by its employees as required and knew throughout that electricity from Meter 2 was not supplied exclusively to Flat 30 but to those flats as well.'