RELEVANT CONTRACT PROVISIONS

Neutral Citation Number: [2018] EWHC 2866 (Comm)

Claim No LM-2016-000101

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

LONDON CIRCUIT COMMERCIAL COURT (QBD)

 1) GPP BIG FIELD LLP  (2) GPP LANGSTONE LLP  Claimants

– and –

SOLAR EPC SOLUTIONS SL

(formerly known as PROSOLIA SIGLIO XXI)

Part 2: the Beaford Brook contract.

Background:

Claims:

1. The claimant claims a sum of £113,794, for liquidated damages for the Contractor’s failure to achieve the “commissioning of the plant by the date specified in the contract”.
2. Alternative Claim: Claim for damages at common law if Clause 21.5 cannot be enforced.

Defenses:

1. Penalty Clause: Solar argues that clause 21.5 is a penalty clause and therefore unenforceable against the Contractor.
2. Timely Delivery: Solar contends that the Beaford Brook project was delivered on time, negating any period of delay.
3. Waiver of Liquidated Damages: Solar claims the second claimant waived any right to liquidated damages by not deducting from the Contractor’s invoices and/or by entering into a Deed of Amendment on 2 October 2013.

Issues:

– Is clause 21.5 (Delay Damages)  an unenforceable penalty?

– Was the project delivered on time?

– Has the Claimant waived its rigts to claim Delay Damages?

1. Is clause 21.5 an unenforceable penalty?

The provisions of the Beaford Brook contract relevant to Solar’s argument that clause 21.5 is a penalty, are similar to those in the Hamptworth contract, though the projects differ in specifications, price, payment milestones, and execution terms.

Despite these differences, the considerations that led to the conclusion that clause 21.5 in the Hamptworth (see part 1 of the case) contract was not a penalty apply equally to the Beaford Brook contract. The delay damages period starting in mid-April is during the peak generation period, and the damages were proportional to the MWp of the plants. No factors were suggested that would make clause 21.5 penal in Beaford Brook but not in Hamptworth.

Therefore, I reject Solar’s defense that clause 21.5 would have been unenforceable as a penalty against the Contractor.

2. Was the project delivered on time?

Solar argues that the Contractor met its obligations by completing the construction work on 25 March 2013, ahead of the contractual completion date. The delay in connecting and energizing the plant was due to Western Power Distribution (WPD) failing to keep its original connection date of 26 March 2013.

In support, Solar cites a letter from WPD dated 26 July 2013, which confirms:

1. WPD initially agreed to connect the plant on 26 March 2013 but it was finally connected on 24 May 2013.
2. The delay was caused by a system outage due to a 33 kV cable fault, not by the Contractor.
3. The delay was not due to any fault or breach by the Contractor or the plant operator.

Solar contends that the Beaford Brook contract required the Contractor to have the project “ready for commercial operation” by 31 March 2013, not actually in commercial operation. Clause 3.1 and 3.2 specify readiness for operation and providing necessary services, rather than ensuring the plant was fully operational. Therefore, Solar argues that the Contractor fulfilled its obligations by ensuring the project’s readiness, and was not responsible for WPD’s delay in connection.

I understand and accept that the phrase “a delay of more than 15 calendar days for the date of the commissioning” in clause 21.5 must be interpreted within the context of the Contractor’s obligations specified in the contract. Recital II and clause 3.2 clarify that the contract is a “turnkey construction contract” that includes the connection and commissioning of the PV Project. Clause 3.1 specifies the Contractor’s commitment to deliver the project “fully completed, started-up and commissioned.” Therefore, it is reasonable to require Delay Damages for any delay in actual commissioning, regardless of the cause. Delays due to circumstances beyond the Contractor’s control can be addressed by the force majeure provisions in clause 21.3, though Solar has not argued this applies here.

It is agreed that commissioning did not occur until 29 May 2013, five days after connection, as confirmed by a letter from Ofgem dated 18 November 2013, resulting in a 44-day delay.

3. Has the second claimant waived its right to claim Delay Damages?

Solar’s argument on this issue, as pleaded in paragraphs 23 and 24 of the Amended Defence and Counterclaim, has two parts:

1. Solar argues that clause 21.5 provides a mandatory mechanism for claiming Delay Damages, and the second claimant waived its right to these damages by not using this mechanism.
2. Alternatively, Solar argues that the second claimant waived its right to delay damages by entering into a Deed of Amendment on 2 October 2013, which was inconsistent with a claim for Delay Damages since it was made after the damages had accrued.

Clause 21.5 states that the Contractor shall pay a “penalty” by deducting the amount from the next invoice. While this provision seems mandatory (“shall be paid” and “shall be deducted”), it actually confers a right, not a duty, on the second claimant. Along with clause 19.4(ii), it allows the second claimant to withhold Delay Damages from payments due to the Contractor, but it does not prescribe this as the only method for recovering Delay Damages.

I am further convinced that the second claimant’s failure to deduct Delay Damages did not constitute a waiver of its right to those sums for three reasons:

1. Clause 19.6: This clause requires the Contractor to show Delay Damages as a deduction on its invoice, which was not done. Since neither side followed the contractual procedure, the second claimant’s lack of deduction cannot be seen as an unequivocal waiver.
2. Clause 19.9: This clause provides:
3. The payment of any instalment does not implicit that the [second claimant] accepts that the works have been duly executed by the Contractor or that the [second claimant] waives any right against the Contractor. As a consequence, the [second claimant] expressly reserves the right to bring a claim against the Contractor, without prejudice to the payment made ..

Clause 44.1: This clause specifies that rights can only be waived in writing and specifically. Following the Supreme Court decision in Rock Advertising Ltd v MWB Business Exchange Centres Ltd, this clause is enforceable, precluding Solar’s waiver argument.

The effect of the Deed of Amendment

Solar’s second waiver argument is based on the following facts:

1. On 2 September 2013, Mr. Garcia for the Contractor and Mr. Gaarn-Larsen for the second claimant signed a Provisional Acceptance Certificate for the Beaford Brook project.
2. On 2 December 2013, the Contractor, the second claimant, Solar, and Green Power Partners II K/S entered into a Deed of Amendment to the Beaford Brook contract. This amendment adjusted the project’s installed capacity and payment schedule.

Solar argues that the second claimant’s agreement to this Deed of Amendment, which altered the payment terms, indicates an election to abandon any accrued Delay Damages claims. Mr. Walford asserts that this adjustment is inconsistent with a continuing right to claim Delay Damages.

However, given clause 19.9, which states that payment does not imply acceptance or waiver of rights, the second claimant’s actions are not inconsistent with maintaining a right to Delay Damages. There is no evidence that Delay Damages were discussed during the amendment negotiations, and the Deed itself does not mention them. Therefore, the second claimant did not unequivocally abandon its right to these damages. Additionally, clause 44.1 requires any waiver to be “in writing and specifically,” which is not present in the Deed of Amendment. Thus, Solar’s waiver argument fails on both counts.

Conclusion: 

The actual commissioning date of the Beaford Brook project was confirmed by Ofgem as 29 May 2013. With the contractual date set at 31 March 2013 and accounting for the 15-day grace period, the Delay Damages period is 44 days. Thus, the Contractor would be liable under clause 21.5 to pay £113,794 in liquidated Delay Damages, which must be considered in determining any amount due from Solar to the second claimant.

Actual loss: 

It unnecessary to address the claimant’s alternative claim for actual loss in detail, but it is discussed by the court it in case the decision on clause 21.5 is overturned:

The alternative claim for common law damages alleges that the loss due to the Contractor’s failure to commission the plant on time, resulting in lost revenue quantified at £173,703.85.

Solar objects, arguing the claim is for gross revenue loss, not net profits. This is valid, as damages should reflect the claimant’s net position had the contract been properly performed. The second claimant’s schedule shows gross income loss but does not account for operational expenses.

Solar also contends the claim is compromised by the Deed of Amendment, but I reject this defense. However, without evidence of net loss, the court cannot reliably assess damages. Even if operational costs were minimal, no evidence supports this. Therefore, there is no reliable basis for awarding common law damages for the delay in commissioning the Beaford Brook project if clause 21.5 is not enforceable.

Lessons learned: 

1. Importance of Clear Contractual Clauses:

• Liquidated Damages: Clause 21.5, which deals with liquidated damages for delays, must be clear and enforceable. Ensuring that such clauses are not considered penalty clauses is crucial for their enforceability.
• Definitions and Obligations: Clearly defining what constitutes “commissioning” and “readiness for operation” is essential to avoid disputes. The difference between being ready for operation and being in actual commercial operation was a significant point of contention.

2. Proper Documentation and Adherence to Procedures:

• Invoicing and Deductions: Both parties must follow the contractual procedures for invoicing and deductions. The failure to show delay damages on invoices led to disputes about waiver of rights.
• Amendments and Waivers: Any amendments or waivers should be explicitly documented in writing, as required by clause 44.1. Verbal agreements or assumptions can lead to significant legal challenges.

3. Addressing External Factors:

• Force Majeure Provisions: Contracts should account for delays caused by external factors, such as third-party actions (e.g., delays by Western Power Distribution). Properly invoking force majeure clauses can protect parties from being unfairly penalized.

4. Waiver of Rights:

• Intent and Actions: A waiver of rights must be unequivocal and intentional. The second claimant’s failure to deduct delay damages and the subsequent Deed of Amendment were not sufficient to prove an unequivocal waiver.
• Specific Provisions: Clauses like 19.9 and 44.1 that reserve rights and specify conditions for waivers are essential to prevent unintended waivers.

5. Evidentiary Support for Claims:

• Actual Loss vs. Liquidated Damages: In the event that liquidated damages are unenforceable, claimants must provide clear evidence of actual losses, including net profits rather than gross revenues, to support their claims.
• Detailed Calculations: Claims for lost revenue or profits must include detailed calculations that account for operational expenses. Lack of such detailed evidence can undermine the credibility and enforceability of the claims.

6. Impact of Amendments:

• Context of Amendments: The context and content of amendments to the contract must be carefully considered. Amendments that adjust payment terms or project specifications should explicitly address how they impact other contractual rights and obligations, such as claims for delay damages.

7. Legal Precedents:

• Consistency with Precedents: The enforceability of clauses and interpretation of waiver rights should be consistent with legal precedents, such as the Supreme Court’s decision in Rock Advertising Ltd v MWB Business Exchange Centres Ltd, which supports the enforceability of “no oral waiver” clauses.

Conclusion

The Beaford Brook case underscores the importance of precise and enforceable contractual terms, the necessity of following prescribed procedures, and the value of clear documentation. It highlights the need for thorough evidentiary support in claims for damages and the careful consideration of the impact of contract amendments on existing rights. Properly addressing these aspects can significantly reduce the risk of disputes and enhance the enforceability of contractual