Acuity secures an important court decision for solar EPC contracts

Acuity secures an important court decision for solar EPC contracts

Following the important court decision for solar EPC contracts, partner Joy Barnett discusses her recent success with the novel case.

GPP Big Field LLP & GPP Langstone LLP v Solar EPC Solutions SL [2018] EWHC 2866

The background to the case

The dispute concerned five engineering, procurement and construction (EPC) contracts for the turnkey construction of solar power plants in the UK.

The contracts were between one or other of the claimants and Prosolia UK Ltd, the contractor which went into administration and then liquidation. The defendant was the contractor’s parent company and was sued as guarantor or indemnifier of the contractor’s obligations under four of the EPC contracts.

The claims were principally for damages for either the delayed completion of construction and/or non-completion of the construction works required under the EPC contracts, which were materially the same in most respects. The defendant counterclaimed for sums said to be due to it under the EPC contracts, including counterclaiming for damages concerning a further site.

The legal issues

The landmark case touches on two important areas of contract law – liquidated damages clauses and the difference between a guarantee and an indemnity.

The issues were:

  • Do liquidated damages clauses particularly where expressed to be “penalty” clauses amount to unenforceable penalty clauses?
  • Does an award for delay damages preclude a claim for damages for loss of future income (as the delay meant that the solar project became eligible for lower energy tariffs for 20 or 25 years, project and tariff dependent)?
  • Is there a difference between a guarantee and an indemnity clause and how are they to be construed?
  • Are the same defences available to a guarantor and an indemnifier? That is, does the doctrine of “unusual features” and/or rule in Holme v Brunskill apply equally to both contracts of guarantee and indemnity?

This latter point is a new and important clarification of this point of law, as determined by the judge, HHJ Salter QC, a leading authority in this area of law.

The decision

Judgment was handed down on 7 November 2018 and the claimants were awarded a combined sum of £1,755,470, plus interest totalling £164,474 and substantial interim costs of £400,000.

The judge ruled that:

  • All clauses must be construed and interpreted in context and are also not simply a test of whether they are a genuine pre-estimate of losses, but one where sophisticated parties negotiate and agree and determine between themselves the appropriate level of damages.
  • Upon proper construction of the relevant contractual clauses, these are separate heads of claim and therefore there is no extinguishment or overlap of the interpretation of a delay damages clause for late delivery of a project and the damages to be awarded for a missed contractual deadline in defined terms.
  • The law on contracts and guarantee and indemnity was a useful review of the advantages of an indemnity (being a primary obligation) and damages that follow, compared to the (secondary) obligations of a guarantee.

The judge clarified as a new and important point of law that the defences available to a guarantor to discharge its liability under a guarantee do not equally apply to an indemnifier, whose liability is therefore more wide-ranging and exposed, once granted.

The implications for businesses

  • Make sure that any liquidated damages clauses are not unconscionable and, where possible, expressly negotiate, agree and record the parties’ acknowledgement of the damages as a reasonable and/or realistic pre-estimate of losses, in the context of the contract itself and the parties’ business interests as a whole.
  • Liabilities as a primary obligation are more wide-ranging and beneficial, so ensure that you are indemnified and not simply guaranteed payment/performance, where possible.

For more information, please get in touch with Joy Barnett in our litigation team.

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