Celtech International Ltd. v Dalkia Utilities Services Plc [2004] EWHC 193 (Ch)

Case No 6958 of 2003[2004] EWHC 193 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 12 February 2004
Before
THE HONOURABLE MR JUSTICE DAVID RICHARDS
Between
CELTECH INTERNATIONAL LIMITEDApplicantDALKIA UTILITIES SERVICES PLCRespondent
Mr H Reza (instructed by Constant & Constant) for ApplicantMr M Collings (instructed by Beachcroft Wansboroughs) for RespondentHearing Hearing dates : 15,16 and 18 December 2004
JudgmentMr Justice David RichardsMr Justice David Richards :
[1]This is an application to restrain the presentation of a petition to wind up Celtech International Limited ("the Company") based on a statutory demand for £3,648,367.29 served by Dalkia Utilities Services plc ("Dalkia") on 14 October 2003. Dalkia alleges this sum to be due as a result of its termination of a long-term power supply and financing contract with the Company. The Company asserts that Dalkia was not entitled to terminate the contract and that in any event no such sum is due from it to Dalkia. Dalkia has more recently accepted that the sum stated in the statutory demand is incorrect but claims that a larger sum is due. This too is rejected by the Company.[2]The Company owns and operates a paper mill at a site in Lancashire. The mill is a substantial plant occupying some 7,600 sq. metres on a 37-acre site owned by the Company. It manufactures tissue paper. The Company is part of a larger group, operating in the United Kingdom, Italy and elsewhere and controlled by Mr Fabio Perini who is said in the evidence to be a wealthy and successful businessman.[3]Operation of the mill requires both electricity and steam. These are provided by an industrial cogeneration or combined heat and power plant ("the CHP plant") constructed and operated at the site by Dalkia, which is part of a major energy services group. The CHP plant uses gas from the mains gas supply which it converts into the electricity and steam required for the mill.[4]The construction, operation and financing of the CHP plant and the supply of power by it have been the subject of a series of agreements between Dalkia and the Company. These are: i. an agreement dated 24th October 1995 by which the Company (as landlord) agreed to lease to Dalkia (then called AHS Emstar plc) the property that housed the CHP plant ("the Agreement for Lease"); ii. a 15-year agreement dated 24th October 1995 by which Dalkia agreed to build and operate the CHP plant and to provide energy services to the Company ("the Principal Agreement"). The Principal Agreement comprises two main elements. First, it provides for the construction and financing of the CHP plant. Secondly it contains terms regulating the operating, repair, and maintenance services to be supplied in connection with the operation of the CHP plant during the lifetime of the Principal Agreement; iii. an agreement dated 17th April 1996 by which Dalkia agreed to finance the costs of new works and the parties agreed to amend specific provisions of the Principal Agreement ("the First Amendment Agreement"); iv. a supplemental letter agreement dated 22nd May 1996 in connection with the provision of further services by Dalkia; v. an agreement dated 27th June 1997 that again amended the Principal Agreement and provided for a rescheduling of the finance element payable by the Company and the charges for the new works ("the Second Amendment Agreement").[5]Having regard to the sums claimed in the statutory demand and issues raised in correspondence between the parties since late July 2003, the Court is primarily concerned in this application with the Principal Agreement as amended by the Second Amendment Agreement.[6]The significant provisions of the Principal and other Agreements are as follows: a) Clause 2.1 provides for the Agreement to continue for a period of 15 years from the date of both parties’ signature to the certificate of practical completion, which was 2 December 1996. It is subject to prior termination in accordance with clause 14. b) Under clause 3.1 Dalkia is to procure the design, construction, funding, installation, commissioning and operation of the CHP plant. c) Under clause 3.3 Dalkia is to supply for the term of the Agreement the energy services, comprising electricity, steam and turbine exhaust gases described in Part II of Schedule G to the Agreement. d) Clause 4.1 provides that the Company should pay charges to Dalkia in accordance with Schedule A. Part II of Schedule A provides for an annual charge of £950,232 payable in 12 equal monthly instalments during the 15-year term of the Agreement. The annual charge is divided into two categories, a Finance Element of £409,926 and an Operational Element of £540,306, both exclusive of VAT. The Finance Element in effect refunded the cost of construction of the CHP plant at a fixed rate of return. The Operational Element represented a fixed rate price for operation of the plant and supply of the electricity, steam and gases produced by it. The Company remained responsible for payment of the gas used by the CHP plant. e) Additional charges arose under the First Amendment Agreement. It provided for certain additional works to be undertaken at the Company’s site which were to be funded by Dalkia and repaid by the Company. The additional works, defined as Part 1 Works and Part 2 Works (collectively "the New Works"), are described in the Appendix. The costs were not to exceed £330,000 for the Part 1 Works and £170,000 for the Part 2 Works. Additional charges (the New Works Charges) were added to the charges payable under the Principal Agreement. The charges relating to the Part 1 Works were payable over the first three years of the term at a rate of £390 p.a. for each £1,000 of the costs of the Part 1 Works and the charges relating to the Part 2 Works were payable over the full 15 years at a rate of £123 p.a. for each £1,000 the costs of the Part 2 Works. f) Clause 5 and Schedule B provided for variations to the charges. The Company exercised an option under paragraph B 1.7(i) to delay commencement of the payment of the Finance Element of the Charges for 6 months, resulting in an increased annual rate of £424,226. In addition, exercise of this option results, under paragraph B 1.7(ii), in the payment of an additional sum of £212,113 on the expiry of the 15-year term unless certain other payments have been made in the meantime. g) Following exercise by the Company of the option under paragraph B 1.7(i), the parties entered into the Second Amendment Agreement for the purpose of rescheduling the Finance Element and the New Works Charge, with payment commencing in August 1997. The monthly payment of the Finance Element was increased from £34,160.50 to £35,352.17, except that on the final payment date (31 December 2011) the payment would be £247,465.19 comprising £35,352.17 and the sum of £212,113.02 referred to in sub-paragraph (f) above. As to the New Works Charges, the Part 1 charge was fixed at £9,887 per month with a final payment of £69,209 on 31 December 1999 and the Part 2 charge was fixed at £542.70 per month with a final payment of £3,798.90 on 31 December 2011. h) Payment of the Finance Element and the New Works charge was to be made on the 25th day of each month following the month in respect of which they were due. i) A new clause 9A was added to the Principal Agreement by the First Amendment Agreement and amended by the Second Amendment Agreement. Under clause 9A.7 as amended, interest was payable on any unpaid part of the monthly charge at a rate of 4% above the base rate of National Westminster Bank, compounded monthly. There was a similar provision in Schedule C to the Principal Agreement. j) Clause 14 of the Principal Agreement makes provision for the early termination of the Agreement, different rights being exercisable in different circumstances. It is clause 14.4 which is in point on the present application and reads as follows:
"In the event of [the Company] being in material breach of its obligations to pay the Charges [Dalkia] shall have the right to terminate this Agreement immediately."
This is to be contrasted with clause 14.2 which gives either party a general right to terminate in the event of a material breach by the other party only if, in the case of a breach which is capable of being remedied, the other party has not remedied it within 120 days after receipt of written notice to do so, or, in the case of a breach which is incapable of being remedied, it has continued for 120 days after written notice of the breach has been given by the other party. Clause 14.1 gives an immediate right of termination to one party if the other party ceases to trade or goes into liquidation, receivership or administration or on the occurrence of certain other events indicating insolvency. k) Clause 15 sets out the consequences of termination. The provision which is directly in point is clause 15.4 which provides as follows:
"On a termination of this Agreement by [Dalkia] pursuant to clauses 14.1, 14.2, 14.4, 14.5, 14.6, 14.7, 14.8 or 14.9 on or after the CERTIFICATION DATE (i) [the Company] shall pay [Dalkia] a sum equal to the aggregate of • the TERMINATION SUM as specified in Schedule D. • any expenditure incurred on the repair and/or replacement of the NEW PLANT over and above that which has already been recovered through the CHARGES defined in Schedule A up to the date of such termination. • any expenditure on labour, materials and subcontractors incurred in the provision of the ENERGY SERVICE which would have been recovered through the CHARGES defined in Schedule A but for the early termination and for any redundancy, employment associated costs, or other costs which [Dalkia] may incur as a result of termination. • any other costs and losses incurred by [Dalkia] in relation to the fulfilment of its obligations under clause 3 and otherwise as provided for under this Agreement up to and including the date of termination."
Clause 15.6(i) provides that:
"In the event that this Agreement is terminated for whatever the cause the following shall apply: (i) [The Company] shall pay for the provision of the ENERGY SERVICE up to the date of termination including any pro rata proportion of the CHARGES for the period up to that date together with any other sums payable hereunder in respect of activities or other matters prior to that date. l) Clause 16 contains a right of suspension as follows: "
If the [Company] fails to comply with any of their obligations pursuant to this Agreement [Dalkia] shall serve written notice on [the Company] outlining the failure and requesting the same be remedied within 24 hours. If the failure remains unremedied after the 24 hours has elapsed [Dalkia] shall be entitled forthwith to suspend the performance of any or all of its obligations until such time as the failure is remedied. The entitlement of [Dalkia] to suspend its obligations shall be without prejudice to any other rights or remedies that [Dalkia] may have pursuant to this Agreement." m) The "Termination Sum" referred to in clause 15.4 was defined in the unamended Principal Agreement as the sum described in Schedule D. Schedule D set out fixed lump sum payments applicable to each anniversary of the Certification Date ranging from £4,121,330 for the first anniversary to nil for the 15th anniversary, and provided that the termination sum payable on termination between anniversaries should be calculated on a proportionate basis. n) This definition of "Termination Sum" was amended by the Second Amendment Agreement to mean "the sum described in clause 9A.7" Clause 9A.7, added by the First Amendment Agreement and amended by the Second Amendment Agreement, provides:
"[The Company] shall pay interest on demand on any part of the Charges and/or interest thereon which is due and unpaid, at the rate of 4% above the base rate for the time being of National Westminster Bank Plc from the date on which such sums were due for payment until the date of actual payment. Interest payable under clause 9A.5, 9A.6 and 9A.7 shall be compounded monthly."
This was a highly significant amendment for the purposes of this application. It meant that instead of a potentially large sum calculated in accordance with Schedule D, the Termination Sum became a sum of interest which was likely to be relatively small or even non-existent. While Dalkia has raised in argument but not in evidence the possibility that the amendment did not reflect the parties’ agreement, so that a case may be made for rectification, it accepts that for the purposes of this application the Termination Sum must be treated as having the meaning provided by the Second Amendment Agreement and does not therefore refer to the sums in Schedule D.[7]It appears that the Agreement proved uneconomic from the Company’s point of view, and with a relative decline in electricity prices as against gas prices the amounts payable under the Agreement were in excess of market rates. The Company sought to renegotiate the Agreement during 2001 but without success.[8]From March to late July 2003 the Company was experiencing some difficult trading conditions and cashflow problems. In late June 2003 the Company again sought to renegotiate the terms of the Agreement, again without success. The Company was in arrears with payment of the Charges. Both the Company and Dalkia have put in evidence and relied on letters marked without prejudice as well as open letters, and in the summary which follows I do not distinguish between the two categories. On 7 July 2003 Dalkia wrote to the Company to say that sums of £105,536-odd had not been paid on due payment dates of 25 May and 25 June 2003 and to demand immediate payment. In a letter of the same date the Company referred to its "current difficulties" and stated "As for the amounts due by Celtech to Dalkia, we are making every effort, in the light of the current financial situation of the Company, to pay the outstanding invoices, and will inform you as to when this can happen".[9]In a response on 17 July 2003 Dalkia insisted on full payment immediately, coupled with a suggestion for savings on the Company’s energy costs. In its reply dated 23 July 2003 the Company indicated that continuation of the Agreement on its present terms "can only lead Celtech International to bankruptcy" and made reference to the possibility of administration.[10]The amounts payable on 25 May and 25 June 2003 remained unpaid and the monthly sum of £121,376 due on 25 July 2003 was not paid. In addition an invoice dated 23 January 2002 for £39,966 remained unpaid. Dalkia wrote to the Company on 24 July 2003 requiring payment of the full amount of £372,416 and stating that failure to pay it on 25 July 2003 would "force us to issue a notice under Clause 16 of the Agreement to suspend service." The Company responded on 25 July 2003, referring to "the very great difficulties" which it was facing and which it attributed in large part to the terms of the Agreement, and saying that suspension by Dalkia was likely to lead to administration or liquidation. It stated that:
"It seems inevitable that CIL will have to request a six month moratorium at the least. During this period CIL would use the grid directly, and Dalkia could suspend the power supply. This economy alone would enable CIL to generate some cash flow, that the Company would commit to apply to meeting the current Dalkia outstandings."
[11]Dalkia’s response, in a letter dated 28 July 2003, was to allow a delay of 30 days in payment of the sum of £121,376 payable on 25 July 2003 but to require immediate payment of the remaining sums totalling £251,034 by 31 July 2003 failing which it would issue a notice of suspension under clause 16 to take effect from 5pm on 1 August 2003. Dalkia later warned that non-payment could lead to termination with very substantial sums becoming payable by the Company (letter of 31 July 2003).[12]The Company replied in a letter in which it stated:
"You are well aware of the difficulties of CIL, mainly due to the losses resulting from the contract with Dalkia. In the light of these difficulties it is the Directors’ opinion that CIL cannot make that deadline, and must therefore expect to receive formal notice of suspension of service by yourselves with effect from Friday 1st August 2003 at 5.00pm. You will appreciate that, though it may be your right to suspend service as per Clause 16 of the Contract (and please note that CIL reserves its position on this issue), we would have preferred the six month moratorium requested by Antonio Veronesi on behalf of our Shareholder UK Tissues A.A. This would have enabled CIL to generate more cash flow, which would have been applied to meeting your current outstandings."
[13]The service was suspended and in a letter dated 1 August 2003 the Company wrote that it "simply does not presently have within its power and cash resources to make these payments". In a separate letter on the same day, the Company made a formal offer to settle the outstanding invoices on the basis of a six-month moratorium on all amounts due, payment of the current outstanding sum of £372,416 in six equal monthly instalments starting on 1 September 2003, and negotiations with a view to a revised Agreement.[14]On 5 August 2003 Dalkia served a statutory demand for £390,915.45. It comprised the amounts referred to in paragraph 10 above and a total of £18,499.41 for other amounts invoiced on various dates in 2002 and 2003. An accompanying letter included the following:
"In light of your continued intransigence, we yesterday issued a Statutory Demand for payment of the outstanding sums due, a copy of which is attached for your information. As discussed between our Mr Bermejo and your Mr Veronesi yesterday evening, we intend to fully exercise our rights if this demand is not satisfied shortly. For the avoidance of doubt, we reserve all rights we may have whether arising from our contract or otherwise. Whilst I understand the difficulties involved I would strongly urge the payment of the outstanding sum of £390,915.45 in accordance with the Statutory Demand. We can look forward to discussing realistic options for the future."
The terms of the letter are important in that the Company maintains that the effect of service of the statutory demand and the terms of the letter was to allow it 21 days in which to make payment of the sums due and that in the meantime any right of termination under clause 14 of the Agreement (to which Dalkia had briefly referred in an earlier letter) could not be exercised.[15]By letter dated 11 August 2003 Dalkia warned that unless the amount outstanding was paid or proposals for prompt payment were made by 4pm on 12 August 2003, Dalkia would terminate the Agreement in accordance with clause 14.4. The Company responded with a further offer which was virtually the same as the moratorium offer made on 1 August. This offer was rejected and after some further discussions Dalkia gave written notice of termination in reliance on clause 14.4 of the Agreement.[16]The total amount demanded in the Statutory Demand was paid by the Company on 18 and 22 August 2003. In the meantime, on 14 August 2003, the Company’s solicitors wrote to Dalkia’s solicitors, taking issue with the suspension on 1 August and the termination on 12 August on a number of grounds. On behalf of the Company they stated that the notice of termination was a wrongful repudiation by Dalkia of the Agreement which the Company accepted.[17]On 15 October 2003 Dalkia served a second Statutory Demand on the Company. The amount claimed was £3,648,247.29 and the present application was issued to restrain the presentation of a winding-up petition based on this demand.[18]According to the particulars of debt attached to the second Statutory Demand the amount claimed comprised the following elements: vii. The Termination Sum specified in Schedule D to the Agreement, calculated to be £3,266,183 inclusive of VAT. viii. The expenditure on labour, materials and subcontractors as specified in the third bullet point of clause 15.4(i), which was stated to comprise three sums totalling £330,239.59. ix. Costs and losses incurred by Dalkia as specified in the fourth bullet point of clause 15.4(i) which were stated to total £51,844.70.[19]The Statutory Demand was therefore prepared on a basis which did not take account of the amendments made by the Second Amendment Agreement. The Termination Sum as defined was no longer the sum specified in Schedule D but instead referred to the new clause 9A.7, which dealt only with any interest due on the Charges.[20]Dalkia accepts that the definition of the Termination Sum has been amended and that the figures in Schedule D to the Principal Agreement are no longer in point. Dalkia’s total claim is now for £4,606,881 calculated in the manner set out in a written statement signed on 8 December 2003. No claim is now pursued in respect of the Termination Sum under the first bullet point of clause 15.4(i). This removes the major part of the sum claimed in the Statutory Demand. However, Dalkia now claims that it is entitled to a larger sum, £3,829,666 (excluding VAT) under the third bullet point, as well as sums (excluding VAT) for salary costs (£17,034) and termination of a maintenance contract (£51,908) included in the Statutory Demand. The claim under the fourth bullet point is reduced to £22,142 (excluding VAT) to give credit for a payment made by the Company.[21]The Company resists payment of the sum previously claimed in the Statutory Demand and the sums as now set out in Dalkia’s recent evidence, on a considerable number of grounds. The function of the Court on this application is not to determine whether those grounds are well-founded, but only whether they demonstrate that the sums claimed are genuinely disputed on substantial grounds. If so, they could not properly be made the basis of a winding-up petition and Dalkia should pursue its claim in an action.[22]Although the Company raised a large number of grounds for disputing Dalkia’s claim, supported by extensive reference to authorities, it is not necessary to deal with each of them if I am satisfied that, on at least one or more of them, the claims are shown to be subject to substantial dispute.[23]Logically, the first issue to be considered is whether Dalkia was entitled to terminate the Agreement under clause 14.4. The Company submits that it was not entitled to do so, on two separate grounds. First, the Company was not "in material breach" of its obligations to pay the Charges, which is the pre-condition to exercise of the right of termination. Secondly, and in any event, Dalkia had waived its right to terminate for a period of 21 days from service of the statutory demand on 5 August 2003.[24]So far as material breach is concerned, the Company accepts that on 12 August 2003 it had not paid the April and May invoices, each for £105,536, by the due dates of 25 May and 25 June respectively. The June invoice for £121,376 was due for payment on 25 July 2003 but by a letter dated 28 July 2003 Dalkia agreed to extend the time for payment by 30 days. This extension was agreed in the context of requiring immediate payment of the earlier invoices, and was not supported by consideration. In my judgment, Dalkia was entitled to withdraw this concession and did so by service of its statutory demand on 5 August 2003. On 12 August 2003 the Company was therefore also in breach of its obligation to pay the June invoice. The Company accepts that the other sums included in the Statutory Demand had been outstanding for some time.[25]The Agreement, not surprisingly, contains no definition of "material breach". Mr Reza for the Company submitted that the breach must be repudiatory, but that would mean that clause 14.4 did no more than state Dalkia’s common law rights. The meaning of "material breach" must be derived from its contractual context, including the contractual consequences of such a breach. The primary factors in determining whether breach of an obligation to pay Charges under this Agreement is material will be the amount unpaid and the length of time it has been unpaid. I was referred to a number of authorities on the meaning of material breach in other contracts. The factual and contractual contexts of those cases differ significantly from each other and from the present case, so that it is difficult to derive any very helpful guidance from them. Nonetheless, they emphasise that the focus is on the materiality of the breach, rather than the materiality of the obligation, and, as Colman J put it in National Power plc v. United Gas Co Ltd (3.7.98), a breach is material if it is: "serious in the wide sense of having a serious effect on the benefit which the innocent party would otherwise derive from performance of the contract in accordance with its terms".[26]I think that Mr Reza was right to emphasise that in considering the meaning of "material" in clause 14.4 it is right to have regard to the contractual consequences of a material breach. Those consequences are the early termination of a 15 year contract and an obligation on the Company, certainly until the definition of Termination Sum was amended, to make a very substantial payment. These consequences would suggest that "material" would carry a proportionately greater degree of seriousness than would be the case if the contractual consequences were themselves less serious. The Agreement provides for the payment of interest on outstanding amounts, and by clause 16 Dalkia has the power to suspend the performance of its obligations for any breach by the Company. This is itself a serious consequence, which has some bearing on the gravity of breach necessary to bring clause 14.4 into operation. In my judgment, having regard in particular to the consequences of termination, the breach of payment obligations in this case comes into the grey area where the positions of both parties are seriously arguable. Focussing on the three monthly instalments, a total of some £332,000 is not trivial nor is a failure to pay £105,536 for 11 weeks and another £105,536 for nearly 7 weeks. However, set against a contract period of 15 years and a total amount payable over that period of over £13.5 million, these failures are arguably not "material". There is therefore in my view a serious issue to be tried as to whether the pre-condition of a material breach of the Company’s payment obligations existed on 12 August 2003.[27]In contrast, the Company’s other ground for arguing that Dalkia was not entitled to terminate the Agreement under clause 14.4 does not in my judgment raise a substantial ground of dispute. The Company argues that the effect of the Statutory Demand and Dalkia’s accompanying letter on 5 August 2003 was to extend the Company’s time for payment by 21 days, thereby suspending any contractual right of termination for that period. It is said that the demand and the letter constituted a waiver or forbearance by Dalkia of its contractual right to require immediate payment. This involves a basic misunderstanding of the nature and purpose of a statutory demand. Although not a necessary precursor to a presentation of a winding-up petition, it is a means provided by section 123(1)(a) of the Insolvency Act 1986 of proving that a company is unable to pay its debts for the purpose of a winding-up petition. Neither its statutory purpose nor its wording provide a basis for treating it as an extension of time to pay the debt detailed in it or as a waiver of other rights in the meantime. As the warning printed prominently on the first page makes clear, failure to deal with the demand within 21 days means that "a winding-up order could be made in respect of the Company", and the same message is conveyed on the third page of the statutory form.[28]Moreover, the letter from Dalkia which accompanied the statutory demand stated in terms that Dalkia intended to exercise fully its rights if the demand was not satisfied "shortly" and that "for the avoidance of doubt, we reserve all rights we may have whether arising from our contract or otherwise." While I do not consider that a statutory demand can in any event be treated as a waiver of rights or extension of time for payment, the terms of the letter seem to me to be clear that this was not the case here. The Company made much of the last paragraph of the letter in which it was urged by Dalkia to make "payment of the outstanding sum of £390,915.45 in accordance with the Statutory Demand". Even on their own they are a very weak basis for suggesting a waiver of contractual rights, but when those rights are expressly reserved in the same letter they cannot in my view form any basis for a waiver.[29]If, contrary to my conclusion, the Company was unarguably in material breach of its payment obligations on 12 August 2003, the Company raised a number of arguments as to why the amount claimed by Dalkia was not due.[30]The first and most obvious argument is that there is a genuine and substantial dispute as to the amount, if any, due to Dalkia under clause 15.4. The basis for the amounts claimed by Dalkia bears very little relation to the basis for the amounts claimed in the Statutory Demand. The main constituent of the claim as now formulated is £3,829,666, plus VAT of £670,191. This is claimed under the third bullet point of clause 15.4(i). It is explained by Mr David Faulkner in paragraph 8 of his second witness statement as being the total of the remaining instalments of the Finance Element of the Charges, including the Part 2 charges arising under the Amendment Agreements, for the whole term of the Agreement. There is no discount for accelerated payment and it is very substantially larger than the amount previously claimed under the first bullet point and calculated in error by reference to the now redundant Schedule D.[31]No amendment has been made to the third bullet point, suggesting that the parties did not intend to change its meaning. It would be very surprising if the loss previously covered by the Termination Sum payable under the first bullet point could now be claimed, albeit in a larger amount, under the third bullet point. The third bullet point provides for payment on termination of a sum equal to:
"any expenditure on labour, materials and subcontractors incurred in the provision of the Energy Service which would have been recovered through the Charges defined in Schedule A but for the early termination and for any redundancy, employment associated costs, or other costs which [Dalkia] may incur as a result of termination."
The large claim now made under this bullet point is said to relate to the first part of it. It is to be noted, first, that it entitles Dalkia to recover the amount of "any expenditure…..incurred". The claim however is for the total instalments due in the future under the Finance Element of the Charges. While those instalments include the capital cost of the construction of the CHP plant they are not restricted to past expenditure but include a substantial financing element. There is no evidence before the Court or which has been provided to the Company of the "expenditure…..incurred on labour, materials and subcontractors" which would quantify and explain even a part of the sum claimed.[32]Secondly, it is to be noted that the relevant expenditure under this bullet point must have been incurred "in the provision of the Energy Service". The "Energy Service" means for these purposes the "New Energy Service" which is defined as "the service to be provided after the Certification Date, as set out in Schedule G." Part II of Schedule G provides that: "From the Certification Date for the duration of the Agreement [Dalkia] shall supply the following utilities to the Premises using the New Plant" and there are then set out the electricity, steam and turbine exhaust gases to be supplied. Schedule G also imposes on Dalkia obligations, in order "to achieve the above New Energy Service" to use competent staff and to maintain the CHP plant. It seems to me clear, and even if not clear it is seriously arguable, that "expenditure on labour, materials and subcontractors incurred in the provision of the New Energy Services" is referring not to the cost of construction of the CHP plant, still less to the return on capital secured by the Finance Element, but to the expenditure on providing the defined utilities, including the maintenance of the CHP plant. Such expenditure would be recovered through the Operational Element of the Charges while the Agreement continued. That Element ceases to be payable on Termination, and the purpose and effect of the third bullet point is to enable Dalkia to recoup prior expenditure which has not yet been fully recouped. This results in a logical structure for clause 15.4(i) before it was amended. The Termination Sum payable under the first bullet point compensated Dalkia in respect of the capital cost of the CHP plant and its intended return on that capital expenditure. The second and third bullet points reimbursed it for expenditure incurred which would otherwise have been recovered through the Operational Element of the Charges, and the fourth bullet point was a sweep up provision.[33]I conclude therefore on this aspect that it is at the very least seriously arguable that Dalkia, by claiming the remaining instalments of the Finance Element, is making a claim which does not fall within the third bullet point.[34]For the purposes of this application this reduces its claim as now formulated from £4,606,881 to £107,024. This latter figure comprises three elements. First, £17,034 plus VAT of £2,981, for redundancy and salary costs, is claimed under the third bullet point of clause 15.4(i). Secondly, £51,908, plus VAT of £9,084, is claimed under the third bullet point as the cost of terminating a gas turbine maintenance contract. In its evidence the Company states that it has at no time received any evidence, statements, or documentary or other relevant material to support these claims, and none has been put in evidence by Dalkia. Without any evidence to support these amounts, I regard them as being subject to a genuine dispute. Thirdly, a sum of £26,013 (£22,142 plus VAT) is claimed under the fourth bullet point in respect of invoices rendered to the Company but not paid. Other invoices originally included in the Statutory Demand under the fourth bullet point have been paid. The remaining sum relates to the Charges for the period in early August 2003 when the provision of services had been suspended by Dalkia. The Company has argued that Dalkia had no right to exercise its power of suspension under clause 16. While I see little substance in that argument, it is unnecessary to go into it because even if this sum is otherwise due from the Company, I have held that there is a genuine dispute as to whether Dalkia was entitled to terminate the Agreement and the Company may have a cross-claim for damages which would exceed the amount of this invoice. In any event, it would not be right in my judgment for a petition to proceed on the basis of such a small sum when compared to the sums claimed of over £4 million in respect of which there is a substantial dispute between the parties.[35]In the alternative, Mr Collings for Dalkia argued that the failure by the Company to pay the amounts outstanding in early August 2003 combined with its repeated statements that it was unable to meet its future obligations under the Agreement amounted to a repudiatory breach of the Agreement. He submitted that Dalkia accepted the repudiation by its termination of the Agreement and was entitled to claim damages of a substantial amount. This is something of a late thought on the part of Dalkia. No attempt has yet been made to quantify, even in the most rudimentary fashion, the damages and so they could not form the basis of a winding-up petition. In any case, the argument that there was a repudiatory breach is one which is subject to serious dispute and should be considered and decided in an action.[36]Substantial argument was advanced on behalf of the Company, both orally and in writing, on a number of other issues, including whether sums payable or alleged to be payable under clause 15.4 were unenforceable as penalties. In the light of the conclusions which I have already reached, it is unnecessary to go into these other questions.[37]Accordingly I will grant an injunction restraining Dalkia from presenting a petition to wind up the Company based either on the Statutory Demand dated 14 October 2003 or otherwise on claims arising from the Agreement, unless they are the subject of a judgment in favour of Dalkia. I will ask Counsel to prepare and if possible agree a draft form of the order.