Case No: 2000 Folio 926
 
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 10th October 2000

B e f o r e :

THE HON MR JUSTICE LANGLEY

	SEVERN TRENT PLC	Claimant	
	- v -		
	(1) DWR CYMRU CYFYNGEDIG
(WELSH WATER LIMITED)
(2) WPD HOLDINGS UK
(3) UNITED UTILITIES PLC	

Defendants	

- - - - - - - - - - - - - - - - - - - - -

Mr C. Carr QC and Mr M. Brealey  (instructed by  Messrs Clifford Chance for the Claimants)
Lord Grabiner QC and Mr M. Fealy  (instructed by  Messrs Slaughter & May for the 1st Defendant)
Mr M. Brindle QC  (instructed by  Messrs Allen & Overy for the 2nd Defendant)
Mr R. Field QC and Mr N. Giffin  (instructed by  Messrs Herbert Smith for the 3rd Defendant)

JUDGMENT
With reference to R.S.C. Order 68 Rule 1 and the Practice direction of the Master of The Rolls
dated 9th July 1990 ([1990] 1 W.L.R. 1126)

I certify that the attached text records my judgment and direct that no further note or transcript need be made

			The Hon. Mr Justice Langley
COPIES OF THIS JUDGMENT ARE AVAILABLE  IN WORD 6 for WINDOWS 3.1 ON PROVISION OF A CLEAN DISC. APPLY TO THE CLERK TO THE HONOURABLE MR JUSTICE LANGLEY 

Mr Justice Langley:

 Mr Justice Langley:
 THE PARTIES
The Claimant (Severn Trent) owns Severn Trent Water Limited, which provides water and sewerage services in the Midlands and part of Wales.
The first Defendant ("DCC") is presently a wholly-owned subsidiary of Hyder plc and provides water and sewerage services in a large part of Wales. Hyder also owns South Wales Electricity plc ("Swalec") which provides electricity distribution services in south Wales.
The second Defendant, ("WPD") owns South Western Electricity plc and is the sister company of WPD Limited ("WPDL") a company incorporated in Guernsey which was acquired on behalf of WPD for the purpose of making an offer to acquire all the shares in Hyder, an offer which is now wholly unconditional following a contested take-over bid.
The third Defendant ("United Utilities") owns North West Water plc, which provides water and sewerage services in the north west of England.
THE CLAIM
By its Claim Form, dated August 18, 2000, Severn Trent seeks to prevent DCC from concluding an Operation and Maintenance and Customer Services Agreement ("the O&M Agreement") with a new company called UUCo ("Newco") in breach of Council Directive 93/38 EEC of 14 June 1993 and the domestic implementing regulations, The Utilities Contracts Regulations, 1996. Severn Trent contends that the services the subject of the O&M Agreement should be put out to competitive tender in accordance with the rules set out in the Directive and Regulations.
WPD, by a Share Sale Agreement dated May 26, 2000, has agreed with United Utilities that it will procure DCC to conclude the O&M Agreement with Newco and United Utilities has agreed with WPD to acquire Newco and to provide the services to DCC through Newco.
At a hearing before Thomas J on August 23, on their application, WPD and United Utilities were joined as Defendants and the trial of the action was ordered to take place on September 21.
BACKGROUND AND CHRONOLOGY
The context in which the claim arises is a hotly contested bid for Hyder. The bidders were Nomura, the Japanese investment company, and WPDL. Nomura made a formal offer for Hyder on April 28, 2000 at 260 pence per share. On April 30 WPD issued its first stock exchange announcement stating that it was considering making a bid for Hyder. The announcement also stated that WPD intended that DCC would enter into an operation and maintenance agreement with United Utilities. 
WPD is principally engaged in the business of electricity distribution and the attraction of Hyder was Hyder's ownership of Swalec. United Utilities collaborated with WPD in WPD's plans to acquire Hyder with the intention that United Utilities would take responsibility for substantially the whole of the operation and maintenance of DCC's business. Water and sewerage services is a business in which United Utilities, unlike WPD, has considerable experience. At present the services intended to be provided by United Utilities for DCC under the O&M Agreement are provided "in-house" by Hyder and DCC. 
The O&M Agreement is transitional in the sense that progressively over a period of seven years the majority of the services to be provided by United Utilities under it will be put out to competitive tender by DCC in accordance with Directive 93/38 and the 1996 Regulations where applicable. United Utilities will then have to compete with other bidders for the individual service contracts involved. Severn Trent contends that the services to be provided over those seven years under the O&M Agreement should themselves be the subject of a competitive process. Part of its commercial concern is that as an incumbent United Utilities would be better placed to bid for the individual contracts. The defendants say those concerns are exaggerated and in any event addressed in the terms imposed upon them by the regulator of water services (Ofwat). 
The Share Sale Agreement concluded on May 26 envisaged the transfer of specific assets and employees from various Hyder service subsidiaries to Newco, the replacement of a series of existing service arrangements, either in-house or intra-group, by the O&M contract between DCC and Newco, and the acquisition of Newco by United Utilities.
On May 31 WPDL made its formal offer for Hyder at 300 pence per share. The offer expressly referred to the intention that United Utilities would provide certain operational and maintenance and customer services to DCC via Newco.
On June 26 WPDL formally published the terms of its offer. They included a description of the terms of the proposed O&M Agreement, and the role of United Utilities, and stated that a copy of the draft Agreement was available for inspection.
On June 29 Hyder advised its shareholders not to accept either bid. On August 1 Nomura made an increased offer of 320 pence per share. WPDL responded by increasing its offer to 340 pence a share. Hyder recommended acceptance of the Nomura offer but withheld recommending acceptance of the WPDL offer because of the need for the offer to be cleared by Ofwat and the DTI. The WPDL offer was expressly not conditional on the absence of a successful challenge to the Newco arrangements. That risk lay with WPDL and not United Utilities which is entitled to rescind the arrangements with WPDL if the O&M Agreement is not concluded.
The regulatory concerns were two-fold. First, whether the proposed new structure of DCC (owning assets but outsourcing its day to day functions by competitive tendering)was acceptable. Second, whether the offer would result in a merger between DCC and United Utilities; if it did it would trigger a mandatory reference to the Competition Commission.
By August 2 both these concerns had been resolved in favour of WPDL after some changes were required to the draft O&M Agreement and to the conditions of DCC's Appointment as a Water and Sewerage Undertaker designed to ensure that United Utilities could not "materially influence" DCC and that the future tendering process would not put United Utilities at an advantage compared to other potential tenderers.
On August 7, Hyder recommended acceptance of the WPDL increased offer.
On August 9, Nomura made an increased offer of 360 pence a share. The take-over panel ordered sealed bids to be submitted by August 11. WPDL submitted a bid of 365 pence a share, valuing Hyder at approximately £565m. Nomura did not submit a bid. The panel announced that WPDL had won the sealed bid procedure. Nomura appealed. 
On August 10, Clifford Chance on behalf of Severn Trent had written to DCC stating that it would be a breach of the procurement rules if DCC concluded the O&M Agreement with Newco without putting the contract out to competitive tender. On August 14 Severn Trent served formal notice on DCC pursuant to the Regulations of its intention to seek interim relief. Severn Trent also complained to the European Commission and to Ofwat.
On August 16 the panel rejected Nomura's appeal and the next day Nomura announced that it would not challenge the panel's decision any further.
On August 18, the present proceedings were commenced naming only DCC as defendant. On September 6 WPDL declared its offer unconditional as to acceptances, and on September 15 it declared it wholly unconditional.
At the hearing before Thomas J on August 23, an undertaking was given by DCC that it would not implement the O&M Agreement before September 21, the day originally fixed for the present liability trial. The trial in fact took place before me on September 22. At the conclusion of the hearing and on the basis that Severn Trent's cross-undertaking was extended to protect WPD and United Utilities as well as DCC, DCC's undertaking was extended until further order or judgment.
THE PRESENT TRIAL
The issues raised by the pleadings and addressed in the ever-increasing volume of evidence and written submissions before the court can be described as follows:
(1) DELAY. Whether Severn Trent has brought the proceedings promptly as required by the Regulations or the fact that the claim is in effect for quia timet relief.
(2) REMEDY. If Severn Trent is otherwise entitled to succeed, should it be limited to a remedy in damages and not injunction.
(3) APPLICATION OF THE REGULATIONS. Does the O&M Agreement fall within the Regulations at all or is it excluded from them because (a) it does not involve a procurement of services and/or (b) it is part of and incidental to a wider transaction, namely WPDL's public offer for Hyder, to which the Regulations do not apply or (c) because Regulation 8 operates expressly to exclude the O&M Contract from the Regulations.
(4) PART A/ PART B. Whether the O&M Agreement is a "PART A" services contract under the Regulations or a "PART B" contract, the latter being one for which there is in any event no requirement for a call for competition.
As the parties recognised and the court is conscious, the hearing has been conducted in a manner which is far from ideal. The unrealistic time estimate and the court's commitments led to an acknowledgement that not all the issues could possibly be dealt with in a single day. It was therefore agreed that the PART A/PART B issue should not form part of the hearing. Even on that basis, and with the parties agreeing to apportion the available court time between them, the hearing was necessarily and unsatisfactorily prepared and compressed leaving the court with a considerable task in completing the necessary reading and preparing this judgment. Nonetheless, as asked, I have endeavoured to do so. 
The issues which have been tried fall into two main categories and I propose, as the parties did, to address Issues (1) Delay and (2) Remedies together before turning to Issue (3). 
ISSUES (1) and (2) DELAY and REMEDIES
The relevant provisions of the 1996 Regulations are to be found in Regulation 32. So far as material that Regulation provides:
Enforcement of obligations
32.- (1) The obligation on a utility to comply with the provisions of these Regulations ... and with any enforceable Community obligation in respect of a contract (other than one excluded from the application of these Regulations by regulation 6, 7, 8 or 10), is a duty owed to providers.

	(2) A breach of the duty owed pursuant to paragraph (1) shall not be a criminal offence but any breach of the duty shall be actionable by any provider who, in consequence, suffers, or risks suffering, loss or damage.

	(3) ....

	(4) Proceedings under this regulation may not be brought unless-
	(a) the provider bringing the proceedings has informed the utility of the breach or apprehended breach of the duty owed to him pursuant to paragraph (1) above by that utility and of his intention to bring proceedings under this regulation in respect of it; and
	(b) they are brought promptly and in any event within 3 months from the date when grounds for the bringing of the proceedings first arose unless the Court considers that there is good reason for extending the period within which proceedings may be brought.

	(5) Subject to paragraph (6) below, but otherwise without prejudice to any other powers of the court, in proceedings brought under this regulation the Court may-
	(a) by interim order suspend the procedure leading to the award of the contract in relation to which the breach of duty owed pursuant to paragraph (1) above is alleged, or suspend the implementation of any decision or action taken by the utility in the course of following such a procedure; and 
	(b) if satisfied that a decision or action taken by a utility was in breach of the duty owed pursuant to paragraph (1) above-
(i) order the setting aside of that decision or action or order the utility to amend any document, or
(ii) award damages to a provider who has suffered loss or damage as a consequence of the breach, or
(iii) do both of those things.

(6) In proceedings under this regulation the Court shall not have power to order any remedy other than an award of damages in respect of a breach of the duty owed pursuant to paragraph (1) above if the contract in relation to which the breach occurred has been entered into.

There are a number of features of these provisions which have been the subject of submissions and which merit comment, albeit in the circumstances in fairly summary form.
(1) The obligation to comply with the Regulations is enforceable as a breach of duty owed to providers, such as Severn Trent in this case. Mr Carr was concerned to submit that the effect was at least in part to place such providers in the role of guardians of the undoubted public interest in observance of the procurement rules and thus to submit that the public interest should not lightly be damnified by excluding claims by reason of delay or limiting the remedies to damages. I am not persuaded by these submissions. The public interest is addressed by the roles of the Community and regulatory authorities both of which have been and are involved and concerned in the issues. A breach of the duty is expressly only actionable by a provider who suffers or risks suffering loss or damage: 32(2).
(2) Regulation  32(4) (a) contemplates that proceedings may be brought in respect of an "apprehended" breach of duty as well as for an actual breach. That is this case. Severn Trent so allege in the Claim Form. The O&M Agreement has not been entered into by DCC and it must yet exercise an independent mind before determining whether or not it is to do so.
(3) The need for the provider to inform the utility of the breach or apprehended breach before bringing proceedings is, I think, intended, in the case at least of apprehended or remediable breaches, to provide an opportunity for the utility to address the issue before committing itself. The same concept is reflected in the provision that only a remedy in damages is available once the relevant contract has been concluded: 32(6).
(4) The requirement that the proceedings be brought "promptly and in any event within 3 months from the date when grounds for the bringing of proceedings first arose" is, I think, intended to recognise that procurement contracts by utilities are likely to involve very substantial commercial arrangements and essential public services where certainty in commercial relationships is or may be of considerable importance not only to the parties but to the interests of third parties including the public: c.f. R v Panel On Take-Overs and Mergers ex parte Datafin [1987] 1QB 815 at 840C and R v Independent Television Commission ex parte TVNi Ltd (the Times, 30/12/91).
(5) Regulation 32 (4)(b) is in similar terms to the former RSC Order 53 rule 4(1). The rationale is no doubt the same. It also follows, as a matter both of the language of the Regulation and authority, that acting "promptly" may require that proceedings be brought well within the 3 month period: R v Stratford-on-Avon D.C. ex parte Jackson [1985] 1 WLR 1319 at 1322H to 1323 A per Ackner LJ.
(6) Although there is no formal application for an extension of time (should Severn Trent need an extension) I think it right to approach these issues on the basis that if necessary it is open to Severn Trent to show "good reason" for an extension.
(7) I see nothing in the Regulation, nor in the Remedies Directive 92/13, which justifies the submission made by Mr Carr that the effectiveness of enforcement of the Regulations requires or supports a presumption in favour of the grant of restraining relief rather than confining a provider to a claim for damages. I think the factors with which the courts are familiar are material to what is expressed to be a general discretion as to whether to grant relief and if so to decide the appropriate relief to be granted. Those factors include delay, prejudice, the adequacy or otherwise of damages and the general policy considerations to which I have referred.
(8) There is to my mind a conceptual difficulty in deciding when "grounds for bringing" proceedings first arise where the proceedings are in respect of an "apprehended" breach. Mr Carr did not submit that the test was other than an objective one. Equally he did not put forward any point of time, contending that on the facts any point of time reasonably open to the court was both within the 3 months and meant proceedings were taken promptly. For my part, I agree that close analysis of such questions is less important than the overall question of discretion which is whether in the particular circumstances and the context of the Regulations proceedings claiming in effect injunctive relief are appropriate or whether Severn Trent should be precluded from pursuing any remedy or left to pursue a claim only for damages should the O&M Agreement in fact be concluded.
THE SUBMISSIONS
Severn Trent submits that any proceedings against DCC prior to August 7, 2000 (when Hyder recommended acceptance of WPDL's increased offer) would have been premature and it was only at that point that it might be said that it was "reasonable" to bring proceedings. Mr Carr points out that no breach of the Regulations has yet taken place and it is only DCC which can commit such a breach. He also submits that damages would not be an adequate remedy given the importance of the O&M Agreement and the difficulty of quantifying a loss of a chance. He submits that the only disadvantage to DCC would be that it would now have to put the O&M Agreement out to tender, a process on the length and complexity of which (should it be required) the parties (unsurprisingly) differ greatly.
The Defendants submit that the proceedings could and should have been commenced at the end of April, when public reference was first made to what became the O&M Agreement, or at the latest in mid-June when (as referred to below) Severn Trent made representations to Ofwat about the proposed arrangements between DCC, WPD and United Utilities. They further submit that any potential loss to Severn Trent would be financial and damages would be an adequate remedy which DCC is able to pay; that Severn Trent will in any event be able to tender for the great majority of the services as they come to be outsourced; that the public interest is adequately safeguarded, and that the prejudice to third parties from now "re-winding the story" of the take-over makes the grant of injunctive relief inappropriate.
FURTHER FACTS
There is very little evidence if any before the court to establish a case of prejudice from any failure to seek injunctive relief earlier. It is not possible and probably always would be speculative for the court to assess what (if anything) might have changed had proceedings been taken (or the intention to do so been imparted) at any earlier stage. There are obvious uncertainties as to the reactions, for example, of Nomura, shareholders and the market. Nonetheless WPDL has proceeded on the basis that the conclusion of the O&M Agreement is not a condition of its bid and United Utilities is protected in the event that it is not concluded.
On the other hand there is evidence in the form of a newspaper cutting that shows that at least by June 6, Severn Trent were considering a complaint to the European Commission if the management of DCC was "handed over" to United Utilities "without a competitive tender". Further, also on June 6, Ofwat sought responses to certain questions concerning the proposed take-over of Hyder by WPDL. Severn Trent responded to these questions on June 15. It is, I think, fair to characterise the response as one which not only raised all the considerations for the regulatory authority which remain alive or have already been addressed but also the complaint which is the subject of the present proceedings. The document is therefore compelling evidence that at the least in mid-June Severn Trent "apprehended" and took seriously the prospect that if it ever was concluded the O&M Agreement would involve a breach of the Regulations. The point that Severn Trent takes is that for so long as the Board of Hyder was not recommending WPDL's offer and a fortiori whilst it was recommending Nomura's offer, and having in mind the regulatory hurdles that WPDL faced but Nomura did not, it would be unrealistic, if not absurd, to criticise Severn Trent for not proceeding before WPDL's offer was recommended and the hurdles apparently overcome.
Mr Carr, in agreement with Mr Field, submitted that the test to be applied involved matters of balance and degree, encapsulated by asking whether and if so when there was a real risk of a breach of the Regulations taking place. I agree, and it is right that I should say that I have not found it at all an easy question to answer.
Even trying to eschew hindsight, I think that at least by mid-June WPDL's bid must or should have been seen as a serious one and one which had a real prospect of succeeding. Substantial sums were committed to it. The regulators had sought formal consultation upon it. Equally it must have been apparent that the arrangements with United Utilities were an essential commercial condition of the offers which WPDL was making although it was not certain, (as it is not yet certain), that DCC would ever enter into the O&M Agreement. On the other hand I agree with Mr Carr that there is something unrealistic about a submission that would require Severn Trent to start proceedings for an apprehended breach of duty by DCC when DCC itself has agreed to nothing which could amount to such a breach and those intending that it should do so are not even in a position to influence it and may never be so.
On balance I have concluded that Mr Carr's submissions are to be preferred and that it would not be right to conclude that in the short timescale in fact involved Severn Trent had failed to bring these proceedings "promptly" within the meaning of Regulation 32.
There remains the discretion as to the appropriate remedy, albeit that discretion cannot be separated from the question of promptitude itself. I think there is much force in Mr Carr's submissions that if Severn Trent is right as to the application of the Regulations, WPDL has proceeded with the take-over in the knowledge of that risk, the O&M Agreement may yet not be concluded in any event, the Regulations could still be complied with and the evidence of any real prejudice is speculative. There is, for example, no evidence to suggest that DCC will not continue to receive the present services if the O&M Agreement is not concluded. I also accept that damages will be particularly difficult to prove and quantify albeit the courts are not unfamiliar with such exercises. On the other hand, I also think, even without compelling evidence, there may be commercial risks if the O&M Agreement is now required to be put out to tender and the overall public interest is largely met by the role of the regulators and indeed the fact that if the O&M Agreement is concluded the services in question or a very substantial part of them will in any event be open to competitive tender over a reasonably short time-scale.
Nonetheless the conclusion I have reached is that injunctive relief remains both appropriate and proportionate in principle and that it would be wrong (subject to the other issues) to shut out Severn Trent from seeking such relief. I have held that it acted promptly in bringing these proceedings and on the evidence before the court I do not think a case has been made out which could justify depriving Severn Trent of the only remedy which is likely to provide it with effective relief. I should add that Mr Carr made clear in the course of his submissions that if given the opportunity Severn Trent did intend to tender for the role proposed for United Utilities under the O&M Agreement. .
ISSUE (3)
The material provisions of the Regulations are as follows:
5(1) These Regulations apply whenever a utility seeks offers in relation to a proposed supply, works or Part A services contract other than a contract excluded from the operation of these Regulations by regulation  ... 8 ....

8(1) For the purposes of this regulation 
(a) an "affiliated undertaking" means 
(i) in respect of a utility which is subject to the seventh Council Directive 83/349/EEC of 13 June 1983 on consolidated accounts, any undertaking the accounts of which are consolidated with those of that utility;
(ii) in any other case...
(aa) ....
(bb) an undertaking is a fellow subsidiary undertaking of a utility if both are subsidiary undertakings of the same parent undertaking.

(b) a "relevant affiliated undertaking" is one which has as one of its activities the provision of services and which provides those services principally to one or more of its affiliated undertakings: without prejudice to the determination of whether services are principally provided to affiliated undertakings in other cases, in the case of an undertaking which has been in existence for 36 months or more, it shall be taken to be so if, for the proceeding 36 months, 80% or more of the average turnover of 
(i) the undertaking ....
in respect of the provision of services of the type or similar to those to be provided under the contract ... was derived from the provision of those services to affiliated undertakings.

8(2) These Regulations shall not apply to the seeking of offers in relation to a service contract which
(a) a utility proposes to award to a relevant affiliated undertaking.

By way of background, the underlying purpose of Regulation 8 was to provide a measure of exemption from the operation of the procurement rules for utilities which were structured in such a way that the services were provided by subsidiary companies within the group itself. Regulation 8 derives from Article 13 of the Directive. Despite Mr Brindle's submissions seeking to reconcile the two for my part I cannot do so. Article 13 in my judgment makes it a condition of the operation of the exception that the relevant affiliated undertaking has provided 80% of the services to an affiliate for the preceding 3 years, a condition which of course Newco could not begin to meet. That led to undeveloped submissions on direct effect and the need to construe the Regulation in accordance with the Directive regardless of the language used apparently precluding such a construction. In the event I do not find it necessary to embark on such questions even if, which I am not, I was in a position to do so.
The Defendants' submissions can, I think, be addressed shortly.
(1) it is submitted that DCC has not "sought offers" in relation to the services the subject of the O&M Agreement. It will simply be entering into a contract in predetermined form with a predetermined party. The language of the directive, Article 4(1), is "awarding supply works or services contracts", and the Defendants recognise that the law in this area must be approached by looking at the substance of the transaction and the purpose of the Directive. Plainly the very purpose of the procurement rules would be emasculated if a utility could contend that where it looked only to a single counterparty they did not apply because it did not "seek offers" or there was no procurement of services. In my judgment it is sufficient for the Regulations to bite that the utility is concerned to obtain the supply of relevant services to it and that the contract in point is or is to be such a contract.
(2) It is submitted that the O&M Agreement is only one facet of the overall transaction governed by the Share Sale Agreement and indeed the take-over bid which cannot or should not be characterised as an exercise in the procurement of services but rather as the reorganisation and sale of an existing business. The Defendants emphasise that all the services are presently provided in-house and are in effect being relocated in Newco which is then being sold to United Utilities. They also stress that substantial assets are to be acquired by Newco and many employees transferred to the company. In support of this submission I was referred to Gestion Hotelera Internacional SA v Communidad Autonoma De Canarias [1994] ECR 1-1329 and the approach of the court in asking whether the procurement of works in that case was "merely incidental to the main object" of the contract in question.
I reject these submissions. It would also be an emasculation of the Regulations if it were open to a utility to parcel up such services and the assets required to provide them either wholly or individually into separate corporate entities and then "sell" those entities to a single preferred purchaser. As Mr Carr submitted, the O&M Agreement is not simply the sale of a business. It involves such a sale but accompanied by an agreement to provide services for 7 years. Further I do not think the O&M Agreement can properly be described as "incidental" let alone "merely incidental" either to the sale of assets to Newco or to the sale of Newco itself or indeed to the take-over. The assets are to be sold to enable United Utilities through Newco to provide the services; Newco is to be sold to United Utilities for the same purpose; and it was an important and not an incidental part of the WPDL offer that DCC should be managed and serviced not by WPDL but by United Utilities.
(3) There is an issue as to whether Regulation 8 has any application at all. Mr Carr has submitted that whilst Regulation 8(1)(a)(i) applies to DCC, in that it is subject to Directive 83/349 on consolidated accounts, the accounts of Newco will never be consolidated with the accounts of DCC and the words "in any other case" in Regulation 8(1)(a)(ii) are therefore inapplicable to Newco: see Article 1(3) of the Directive. Mr Brindle submits that DCC is not subject to Directive 83/349 because it is exempt from it and so Regulation 8(a)(ii)(bb) can and does apply. Again, these submissions were not fully developed but I am prepared to assume that Mr Brindle is right. The evidence is also that "the business" to be transferred to Newco will have a turnover of which some 80.2% will relate to services provided to DCC. 
What is not in dispute is that for the Defendants' submission even to get off the ground there has to be at least a moment in time when both Newco and DCC are fellow subsidiaries of the same parent and Newco is providing the O & M services principally to DCC. Again there is a dispute as to whether this can ever be so under the terms of the Share Sale Agreement but at best for the Defendants if the agreements are completed as drawn the sale of Newco by WPDL to United Utilities will follow immediately upon the transfer of the assets from DCC to Newco. The purpose is of course that United Utilities should provide the services and as and when DCC enters into the O&M Agreement with Newco so United Utilities will acquire Newco which will then cease to be an affiliate of DCC and WPD.
In my judgment such an arrangement plainly falls outside both the spirit and wording of Regulation 8. At no time can it sensibly said that Newco has had as one of its activities the provision of services "principally" to DCC as its affiliate. The raison d'etre of Newco is to provide a vehicle for those services to be provided by a non-affiliate.
I think, therefore, that Severn Trent is right and the Defendants are wrong on all the matters argued on Issue (3). In referring to "the defendants" in this context I should perhaps note that by agreement submissions on this Issue were made by both WPD and United Utilities but not by DCC. 
OVERALL CONCLUSION
In my judgment, on the issues tried, it is open to Severn Trent to pursue the proceedings it has commenced for the relief which is claimed in them.