Is electricity considered ‘goods’? (Green Deal Marketing Southern Ltd v Economy Energy Trading Ltd and others)

Is electricity considered ‘goods’? (Green Deal Marketing Southern Ltd v Economy Energy Trading Ltd and others)

Commercial analysis: Deterioration and cessation of relations between two companies that had partnered in the retail electricity market provides lawyers with an instructive case, particularly concerning the question of whether electricity is to be classed as ‘goods’. Jeffrey Chapman QC, barrister at Fountain Court Chambers, gives an overview on those details that the case of Green Deal Marketing Southern Ltd v Economy Energy Trading Ltd and others has helped bring into the light.

Green Deal Marketing Southern Ltd v Economy Energy Trading Ltd and others [2019] EWHC 507 (Ch)[2019] All ER (D) 79 (Mar)

What are the practical implications of this case?

The case of Green Deal Marketing Southern Ltd v Economy Energy Trading Ltd and others had the largest award made by an English court in a contested case of compensation to an agent whose agency had been terminated. It was made under regulation 17 of the Commercial Agents (Council Directive) Regulations 1993, SI 1993/3053, a notoriously difficult piece of legislation to interpret. It will be used in the future as an example of the way in which the court values an agent’s business at the date of termination in order to calculate the compensation due to the agent from his principal.

The court also decided (at para [143]) that electricity was ‘goods’ under SI 1993/3053 which may be important in future agency cases in order to decide whether an agency relationship is within the terms of SI 1993/3053.

What was the background?

EE was an energy company selling gas and electricity to consumers largely through pre-paid meter supplies. The claimant, GDM, had provided the defendant, EE, with a sales force whose job was to persuade consumers to ‘switch’ energy suppliers to EE. The commercial relationship between the parties started in May 2015 under the terms of a partnering agreement. On GDM’s case, that was replaced with effect from 29 June 2016 by a document entitled ‘Heads of Terms’.

EE argued that the document was not binding and required another agreement to be drawn up and signed in order to be effective. In the event, Ofgem started an investigation into EE into alleged non-compliance by EE with regulations designed to prevent mis-selling. Relations between EE and GDM thereafter worsened until the end of January 2017 when EE informed GDM that it intended to suspend field sales with immediate effect. On 27 February 2017, GDM’s solicitors (Brandsmiths) wrote to EE confirming the agreement between the parties had been terminated.

What did the court decide?

The court decided in summary:

  • the parties’ relationship was governed by the ‘Heads of Terms’
  • EE had no good grounds to terminate the ‘Heads of Terms’
  • EE had wrongfully terminated the ‘Heads of Terms’
  • GDM was an agent within the meaning of SI 1993/3053
  • GDM was entitled to £1,049,600 for compensation under SI 1993/3053 on the basis of the court’s assessment of the value of GDM’s business at the date of termination
  • as to formation of contracts, variation and superseding terms—the use of the description ‘Heads of Terms’ was not determinative and, applying the objective test from RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Co KG [2010] UKSC 14[2010] All ER (D) 95 (Mar) (at para [95]), the ‘Heads of Terms’ took effect as a valid contract with effect from the date it was signed on 29 June 2019 (at para [98])
  • as to repudiatory breach, key performance indicators and impact on a claim for repudiatory breach—the argument that any mis-selling by GDM was a repudiatory breach of contract by GDM was rejected (at para [124])
  • as to the application of the definition of ‘commercial agent’ in SI 1993/3053, reg 2(1) and the broad interpretation of ‘negotiating’—GDM was an agent under SI 1993/3053 and that its sales force ‘negotiated’ in the broader sense applicable to SI 1993/3053 when selling gas and electricity (at para [146])
  • as to the classification of electricity as ‘goods’ under SI 1993/3053— the 19th century sale of goods cases were unhelpful and concluded that electricity, like gas, was ‘goods’ (it is notable that, since the judgment, the Supreme Court has referred the case of Computer Associates Ltd v The Software Incubator Ltd [2018] EWCA Civ 518[2018] All ER (D) 21 (Apr) (referred to at para [143]) to the European Court of Justice on the issue of whether computer software which is downloaded constitutes ‘goods’—the judge said he was unsure why Gloster LJ in Computer Associates had found the meaning of goods in the 19th century sale of goods act cases to be helpful (at para [143(6)]))
  • as to the right to compensation under SI 1993/3053, reg 17 and damages for breach of contract—on the facts of this case, common law damages would be based on the same facts as the claim under and would amount to double recovery (at para [188])

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