Factual and Procedural Background
This case concerns a dispute between two partnerships, referred to as the first and second claimants, and a defendant company formerly known under a different name, relating to multiple Engineering, Procurement and Construction (EPC) contracts for the construction of solar power plants at various locations in the United Kingdom. The contracts involved turnkey delivery of photovoltaic (PV) projects, including design, construction, connection, commissioning, and operation readiness, with associated tariffs and power purchase agreements.
The defendant company was responsible for executing the works under the contracts but became insolvent during the performance period. The claimants pursued claims for delay damages and losses resulting from the defendant’s alleged breaches, including failure to meet commissioning deadlines and achieve specified tariff levels. The defendant counterclaimed for outstanding payments under the contracts, asserting agreements to reduce prices and waivers of delay damages.
The trial spanned several hearing dates in June 2018 before Deputy Judge Salter QC. Evidence was given by witnesses for both parties, including the claimants' sole witness and two witnesses for the defendant, with some evidence given through an interpreter. The court considered the contractual terms, factual background, witness credibility, and relevant legal principles.
Legal Issues Presented
- Whether clause 21.5 in the EPC contracts, providing for delay damages, constitutes an unenforceable penalty.
- Whether any delay in commissioning was excused by force majeure under the relevant contract clauses.
- The proper characterization of clause 6.2 in the Hamptworth contract as either a guarantee or an indemnity and the application of doctrines related to guarantees.
- Whether the defendant was discharged from liability under the guarantee or indemnity clauses due to variations or waivers.
- The extent of actual loss suffered by the claimants, including loss due to different tariff rates and costs to complete the projects.
- The validity of the defendant’s counterclaims for outstanding payments under the contracts.
- Whether the claimants waived their rights to delay damages by conduct or deed.
- The calculation and assessment of damages, including the application of discounts for speculative elements.
- The proper interpretation and effect of contractual milestones and payment conditions, including Provisional Acceptance Certificates.
- Whether set-offs and counterclaims by the defendant are justified against the claimants’ damages claims.
Arguments of the Parties
Claimants' Arguments
- Clause 21.5 represents a genuine pre-estimate of loss and is not a penalty.
- The delays were caused by the defendant’s breaches and not excused by force majeure.
- The defendant’s indemnity obligations are primary and not discharged by variations or waivers.
- The claimants suffered loss due to delayed commissioning and reduced tariff eligibility, warranting damages.
- Counterclaims by the defendant are overstated and should be set off only to the extent justified by contract and performance.
Defendant's Arguments
- Clause 21.5 is a penalty and unenforceable.
- Delays were caused or excused by force majeure events, including local protests and civil disorder.
- The defendant’s liability under the guarantee or indemnity was discharged due to variations to the principal contracts without consent.
- The claimants waived their rights to delay damages by accepting reduced payments or entering into deeds of amendment.
- The defendant is entitled to counterclaims for outstanding contract payments, including assignments of rights from the contractor.
- Loss calculations by claimants are speculative and not properly evidenced.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Holme v Brunskill |
Doctrine relating to discharge of guarantors by variations to principal contracts. |
The court held that the rule applies only to contracts properly characterized as guarantees and does not apply to contracts of indemnity. The defendant’s indemnity was held to be a primary liability not discharged by variations. |
| One Step (Support) Ltd v Morris-Garner [2018] UKSC 20 |
Principles for determining whether a clause is a penalty. |
The court applied the test that a sum is a penalty if it is extravagant or unconscionable compared to the legitimate interest of the innocent party. Clause 21.5 was held not to be a penalty. |
| Aktieselskabet Reidar v Arcos Ltd [1927] 1 KB 352 |
Distinction between liquidated damages and unliquidated damages for consequential loss. |
The court held that delay damages under clause 21.5 quantified damages for delay only, and separate damages could be claimed for loss due to failure to achieve specified tariff levels (ROCs). |
| Egbert v National Crown Bank [1918] AC 903 |
Requirement that variations must be legally binding to discharge a guarantor. |
The court considered this authority in examining whether variations discharged the defendant's guarantee obligations, concluding no binding variation discharged the defendant. |
| Scarf v Jardine (1882) 7 App Cas 345 |
Principles of election and waiver of rights. |
The court applied the principle that an unequivocal act communicated to the other party constitutes an election and waiver of rights. The defendant’s alleged waiver was rejected. |
| Royal Brompton Hospital NHS Trust v Hammond [2001] EWCA Civ 778 |
Judicial discretion in correcting errors in draft judgments. |
The court corrected an error regarding VAT inclusion in damages calculations in the final judgment. |
| Wood v Capita Insurance Services Ltd [2017] UKSC 24 |
Principles of contractual interpretation emphasizing natural meaning. |
The court applied the principle of giving effect to clear natural meaning in interpreting ambiguous contractual terms regarding commissioning dates. |
| Walford v Miles [1992] 2 AC 128 |
Good faith in contractual negotiations and agreements. |
Referenced in relation to negotiations and amendments to contracts and the parties’ intentions. |
Court's Reasoning and Analysis
The court undertook a detailed examination of the contractual terms, factual evidence, and legal principles. It recognized that the EPC contracts were sophisticated, negotiated agreements between experienced commercial parties. The delay damages clause (clause 21.5) was construed as a genuine pre-estimate of loss rather than a penalty, given the nature of the contracts and the commercial context.
The court assessed the evidence concerning alleged force majeure events, concluding that delays were not caused by physical obstruction or civil disorder but rather by the defendant’s own risk in obtaining necessary permits and consents. The defendant failed to provide sufficient notice as required by the contracts to rely on force majeure.
Regarding the guarantee clause (clause 6.2), the court characterized it as an indemnity with primary liability, thus excluding application of equitable doctrines that protect guarantors from discharge by variations unless expressly consented to. The defendant’s defenses based on such doctrines were rejected as legally unsound and factually unsupported.
The court carefully evaluated the claimants’ loss calculations, acknowledging the speculative nature of long-term financial projections but accepting the methodology as reasonable in principle. It applied a discount to account for uncertainty.
Counterclaims by the defendant for outstanding payments were scrutinized and largely rejected on the basis that contractual milestones for payment were not met, and relevant certificates were not properly issued. The court also rejected the defendant’s assertions that the claimants waived delay damages through conduct or deed.
The court addressed specific claims relating to costs of completion, Stamp Duty Land Tax, and security obligations, finding that certain costs were recoverable and that security arrangements were contractually the defendant’s responsibility despite related contracts with third parties.
In interpreting ambiguous contractual dates and provisions, the court favored the commercial rationale and natural meaning of the terms, resolving discrepancies accordingly.
Overall, the court balanced the parties’ contractual rights and obligations, applying established legal principles on penalties, force majeure, guarantees, indemnities, damages, and contractual interpretation to the facts and evidence presented.
Holding and Implications
The court UPHELD the claimants’ entitlement to delay damages and certain additional damages under the EPC contracts and REJECTED the defendant’s counterclaims and defenses based on penalty, force majeure, waiver, and discharge of guarantee.
Specifically, the first claimant was awarded delay damages of £631,759 under the Hamptworth contract. The second claimant was awarded delay damages and additional damages for shortfalls in tariff eligibility and costs to complete under the Beaford Brook, Rookery Farm, Bidwell, and Lower Marsh Farm contracts, with detailed sums specified in the judgment. The defendant’s counterclaims for outstanding contract payments largely failed.
The ruling reinforces the principle that liquidated damages clauses will be upheld if they represent a genuine pre-estimate of loss and are not extravagant or unconscionable. It clarifies that indemnity obligations are primary liabilities not discharged by unilateral or unnotified variations to principal contracts. The judgment also underscores the importance of strict compliance with contractual notice provisions for force majeure claims.
No new legal precedent was established, but the decision applies and confirms established principles in the context of complex EPC contracts for renewable energy projects.