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Appendix – The 'Shipwreck Clause'

[The revised 'Shipwreck Clause' appears as sub-paragraph 14.3 of Condition B in the licences of those water and sewerage companies who retained it and as sub-paragraph 13.3 in the licences of those water only companies who retained it. For water only companies, all references below to paragraph 14 (and its sub-paragraphs) should therefore be read as references to paragraph 13 (and its sub-paragraphs).]

14. References to the Director relating to Notified Items and Relevant Changes of Circumstance and circumstances having a substantial adverse effect on the Appointed Business

14.1The Appointee may from time to time refer to the Director for determination by him (having considered the proposals of the Appointee) the questions set out in […] or, as the case may be, sub-paragraph 14.3 […].

(1) whether any circumstance (other than a relevant Change of Circumstance) has occurred which has or will have:

(a) a substantial adverse effect on the Appointed Business or on its assets, liabilities, financial position, or profits or losses, not being one which would have been avoided by prudent management action taken since the transfer date; or

(b) a substantial favourable effect on the Appointed Business, or on its assets, liabilities, financial position, or profits or losses, being one which is fortuitous and not attributable to prudent management action; and

(2) if so, what change should be made to the Adjustment factor.

For this purpose:

(i) what constitutes "prudent management action" shall be assessed by reference to the circumstances which were known or which ought reasonably to have been known to the Appointee at the relevant time;

(ii) an effect shall not be regarded as a substantial adverse effect or a substantial favourable effect in any case unless, if the questions set out in sub-paragraph 14.2 were to be asked in relation to the circumstance giving rise to it, the answer to that in 14.2(7) (taking the reference in it to ten per cent as a reference to twenty per cent) would be in the affirmative.