[2018] EWHC 2866

The disputes here related to five solar power generation plants made between one of the claimants (“GPP”) as employer, and Prosolia UK Ltd as contractor. Prosolia was now insolvent. Solar was the parent company of Prosolia and was sued as guarantor and/or indemnifier of Prosolia’s obligations. This summary concentrates on the “Hamptworth contract” only.

GPP’s primary claim was for £631k, which it said was due by way of liquidated damages (LADs) under clause 21.5 arising from the failure to achieve the specified commissioning date. Solar said that the LAD clause was a penalty clause, and so was unenforceable, and that Prosolia was relieved of its obligation to achieve “commissioning” by the contractual date because a substantial part of any relevant delay was caused by force majeure.

Solar said that clause 21.5 expressly described the sum payable as “the penalty”. This was a “powerful indicator” of the parties’ intentions. Further, the extent of the loss likely to be suffered would be dependent upon the output of the plant and the prevailing electricity price. Yet the five EPC contracts provided for the same penalty of £500 per day per MWp, even though each of the five plants had a different output, and there was a difference of over 30% in the expected electricity prices recorded in the various contracts. Therefore the sum chosen was not based on any genuine pre-estimate of the likely losses.

Mr Richard Slater QC accepted the witness evidence to the effect that there were no negotiations about the £500 figure. However, this was not sufficient to say that clause 21.5 was an unenforceable penalty. What mattered therefore was the substance of the clause in question. Delay damages provisions are common in construction contracts, and the parties were experienced and commercially sophisticated, and of equal bargaining power, who were well able to assess the commercial implications of the clause.

Further, the sum specified was not “extravagant or unconscionable” in comparison with the legitimate interest of GPP in ensuring timely performance. Based on the proposed construction period, the relevant period would have been expected to begin in mid-July, at the height of the peak generation period. There was no difficulty in the £500 figure being a “round sum.” It was the nature of LADs that they are often used (as here) in cases where precise prediction of the likely loss is difficult, and are therefore often expressed in round. Further, the clause in question referred to both a “penalty” and “delay damages”.

Solar’s second defence was that protests by local residents, amounted to “disturbance, commotion or civil disorder” or “acts of...sabotage” which prevented Prosolia from progressing with the works along the chosen route, compelling them to abandon the already partially built route for the cabling in favour of a longer and more costly one. According to the witness evidence, as the: “sub-contractors were trenching the roads, there were public demonstrations and human barriers, which were jumping into and occupying the trenches creating serious and present risk to the health and safety of the public and the contractor’s staff and visitors.”

However, in the opinion of the Judge, the evidence did not establish that the cause of that delay was “disturbance, commotion or civil disorder.” Instead, it showed that the delay was caused by Prosolia’s assessment that, given the strength of the local opposition, it was unlikely to get the necessary planning permissions and consents needed for its original substation location and cable route. Under the terms of the Hamptworth contract this was Prosolia’s responsibility. The risk that they could not be obtained was therefore theirs.

In addition, there had not been a formal notice as required by the contract. Mr Richard Salter QC noted that the invocation of force majeure was a formal step, and it made “perfect commercial sense” for the parties to require the formality of written notification. The provision of “some information about the alleged objections of the local community to the cable route” did not amount to compliance with formal force majeure notification requirements.