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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Gwynt Y Mor Ofto Plc v Gwynt Y Mor Offshore Wind Farm Ltd & Ors [2020] EWHC 850 (Comm) (08 April 2020) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2020/850.html Cite as: [2020] EWHC 850 (Comm) |
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BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Rolls Building, Fetter Lane London, EC4A 1NL |
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B e f o r e :
____________________
| GWYNT Y MÔR OFTO PLC |
Claimant |
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- and – |
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| (1) GWYNT Y MÔR OFFSHORE WIND FARM LIMITED (2) UK GREEN INVESTMENT GYM PARTICIPANT LIMITED (3) INNOGY GYM 2 LIMITED (4) INNOGY GYM 3 LIMITED (5) INNOGY GYM 4 LIMITED (6) GYM OFFSHORE ONE LIMITED (7) GYM OFFSHORE TWO LIMITED (8) GYM OFFSHORE THREE LIMITED (9) GYM RENEWABLES ONE LIMITED |
Defendants |
____________________
for the Claimant
Anneliese Day QC and Max Kasriel (instructed by Norton Rose Fulbright LLP)
for the Defendants
Hearing dates: 11-13 and 17 June 2019
Further written submissions 9, 13 and 17 September 2019
____________________
Crown Copyright ©
Covid-19 Protocol: This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to Bailii. The date and time for hand-down is deemed to be 4 pm Wednesday 8 April 2020.
Lord Justice Phillips:
"If any of the Assets are destroyed or damaged prior to Completion (Pre-Completion Damage), then, following Completion, the [defendants] shall indemnify the [claimant] against the full cost of reinstatement of any Assets affected by Pre-Completion Damage."
i) that the Indemnity (on a true interpretation) applies only if the cables were damaged in the period between the signing of the SPA and Completion;
ii) ongoing corrosion (and the consequential failure of the two cables) did not entail that the cables were damaged within the terms of the Indemnity;
iii) that even if corrosion did amount to the cables being damaged, such damage occurred prior to execution of the SPA or (in the case of the failures of the cables), after Completion; and
iv) that it was in any event a condition of claiming under the Indemnity that the claimant had given notice of any Pre-Completion Damage (pursuant to clause 8.3 of the SPA) so as to permit the defendants to put forward proposals for making good the damage, a condition the claimant failed to fulfil.
"If any of the Assets are destroyed or damaged between the date of this Agreement and Completion (Pre-Completion Damage)….".
The background facts
The Wind Farm
The tender process
Negotiation of the SPA
The terms of the SPA
"8.2 If any of the Assets are destroyed or damaged prior to Completion (Pre-Completion Damage), then, following Completion, the [defendants] shall indemnify the [claimant] against the full cost of reinstatement of any Assets affected by Pre-Completion Damage. Without prejudice to any claim made by the [claimant] under this Clause 8.2, to the extent that the [defendants] receive any payments from insurers or third parties in connection with any Pre-Completion Damage, such amounts shall, for the purposes of calculating the total liability of the Vendors [under limitations on liability provisions] only, be deducted from the amount of the Claim.
8.3 If the [claimant] becomes aware of any Pre-Completion Damage which may give rise to a Claim the [claimant] shall:
8.3.1 give written notice (including reasonable particulars of such Third Party Claim or circumstance) to the Operating Company on behalf of the Vendors;
8.3.2 give the Vendors and their professional advisers reasonable access to the applicable Asset to enable the Vendors and their professional advisers to examine such Pre-Completion Damage, subject to the Outage Restrictions; and
8.3.3 subject to Clauses 8.4 and 8.5 below and to the Outage Restrictions, permit the Vendors to replace the Asset that is subject to the Pre-Completion Damage and/or make good the Pre-Completion Damage.
8.4 Following receipt of written notice in accordance with Clause 8.3.1, the Operating Company on behalf of the Vendors shall within fifteen (15) Business Days give written notice to the [claimant] of its proposal for the replacement of the Asset and/or making good of the Pre-Completion Damage including so as to protect the [claimant] against any associated risks to its reasonable satisfaction together with all supporting information that the [claimant] may reasonably require (the Repair Proposal).
8.5 If the Parties are unable to agree the Repair Proposal, the matter shall be referred to an expert appointed by agreement of the parties (or in the absence of agreement by the President of Institution of Engineering and Technology), which appointment shall be within ten (10) Business Days of either Party serving such written notice on the other (the Expert). The Expert shall determine a reasonable Repair Proposal. A determination of the Expert under this Clause 8.5 shall, in the absence of fraud or manifest error, be final and binding on the Parties. Each Party shall bear its own costs associated with the Expert's determination.
"10.8 The Vendors shall promptly (and in any event before Completion) give notice to the [claimant] of any matter or circumstance:
10.8.1 which becomes known to it after the date of this Agreement and before Completion; or
10.8.2 which arises after the date of this Agreement and before Completion,
which results, or is likely to result, in any of the Warranties being untrue, inaccurate or misleading as at the date of this Agreement or as at Completion. …"
"1.4 No defect or damage has been discovered in relation to any Part A Asset [which included the cables] or part B Asset that is reasonably likely to cause material disruption to the Offshore Transmission System
….
12.2 In respect of the Policies [all policies of insurance relating to the Assets for the current insurance year]:
12.2.1 all premiums have been paid to date; and
12.2.2 all policies of insurance are in full force and effect…."
"4.1 The total liability of the Vendors in respect of
4.1.1 all Claims for breaches of:
(A) the Warranties other than the Warranties [in relation to title to assets, insolvency and title to sue] …
(B) Clause 8.2; and
(C) Paragraph 1.4 of Schedule 14 (Outstanding Activities),
shall not exceed an amount equal to 20% of the Purchase Price; and
4.1.2 all Claims shall not, when aggregated with the Claims referred to in paragraph 4.1.1, exceed an amount equal to 100% of the Purchase Price.
4.2 The Vendors shall have no liability in respect of any Warranty Claim unless the amount of the liability of the Vendors in respect of all Warranty Claims exceeds £1,000,000…..
4.3 The Vendors shall have no liability in respect of any Warranty Claim unless the Warranty Claim (or the aggregate of a series of connected Warranty Claims or Warranty Claims arising out of similar facts or circumstances…) exceeds £250,000 in which case the Vendors shall be liable for the full amount of such Warranty Claim and not merely the excess over £250,000."
"11.5 The [claimant] acknowledges and agrees that, subject to Clauses 11.6, 11.7 and 11.8, with effect from the Completion Date any insurance cover which the [defendants] maintain will cease to apply to the Assets… and responsibility for procuring insurance cover in relation to the Assets… will be borne by the [claimant].
11.6 The [defendants] shall for the period commencing on the date of this Agreement and ending at 11.59 p.m. on the Completion Date, continue to maintain all insurance cover which it maintains with respect to the Assets… immediately prior to the date of this Agreement ("Transitional Insurance Cover") and procure that the [claimant] is added as an additional insured to that Transitional Insurance Cover.
11.7 Without prejudice to Clauses 8.2 to 8.5, any insurance monies received in respect of Pre-Completion Damage shall be applied to reinstatement of the Assets.
11.8 The [defendants] shall continue to maintain the CAR Insurances for the period until occurrence of [outstanding activities] and shall procure that the [claimant] is added as an additional insured to the CAR Insurances. The [defendants] shall procure that the insurance monies (if any) recoverable under the CAR Insurances in respect of the Assets shall, except to the extent applied by the [defendants] in performing [outstanding activities], be paid to the [claimant]…
11.9. Notwithstanding the foregoing, any amounts received under any policy of insurance in respect of the following claims (whether made before or after the date of this Agreement) shall be retained and: (a) in respect of Clauses 11.9.1 and 11.9.2 be entirely for the benefit of the Vendors; and (b) in respect of Clause 11.9.3 be applied to reinstate the Assets by the Vendors:
11.9.1 a claim against the Vendors' Construction All Risks policy… arising out of damage caused to the export cable for the Offshore Transmission System which occurred in September 2012;
11.9.2 a claim against the Vendors' Construction All Risks policy… arising out of a failure of the export cable for the Offshore Transmission System which occurred in December 2013; and
11.9.3 any claim capable being made at any time by the Vendors under any insurance policy of the Vendors in respect of the [outstanding activities] unless and until the [claimant] has exercised its rights [to complete works], in which case any amounts received shall be paid to the [claimant]."
The repair of the cables and diagnosis of the faults
i) the start of the problem in each cable was damage to the PE sheath surrounding one of the FOC cables. It was most likely in each case that the PE sheath was punctured by an external object during the process of manufacture and assembly of the cable;
ii) once the defective cable was installed on the seabed and electrified, seawater penetrated through the puncture to the aluminium armour wires. In combination with the AC voltage on the FOCs, this caused the wires to corrode and swell, in turn causing the PE sheath to split longitudinally. This process took at least 4 months;
iii) over the following days or weeks, the aluminium armour wires and the stainless-steel tube became very hot;
iv) within hours or days of that occurring, the aluminium wires melted;
v) within hours, the melting resulted in arcing and currents flowing between the FOC and the adjacent power core, causing the lead sheath of the power core to melt in places;
vi) minutes later the insulation of the adjacent power core broke down and the cable failed as the power core ceased to function.
The claim for an Indemnity
Interpretation and application of the terms of the SPA
The relevant principles
"10. The court's task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. It has long been accepted that this is not a literalist exercise focused solely on parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of the drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning.
11…. Interpretation is… a unitary exercise; where there are rival meanings, the court can give weight to the implications of rival constructions by reaching a view as to which construction is more consistent with business common sense. But, in striking a balance between the indications given by the language and the implications of the competing constructions the court must consider the quality of the drafting of the clause…; and it must also be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest … Similarly the court must not lose sight of the possibility that a provision may be a negotiated compromise or that the negotiators were not able to agree more precise terms.
12. This unitary exercise involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated… To my mind once one has read the language in dispute and the relevant parts of the contract that provide its context, it does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each.
13. Textualism and contextualism are not conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation. Rather, the lawyer and the judge, when interpreting any contract, can use them as tools to ascertain the objective meaning of the language which the parties have chosen to express their agreement. The extent to which each tool will assist the court in its task will vary according to the circumstances of the particular agreement or agreements. Some agreements may be successfully interpreted principally by textual analysis, for example because of their sophistication and complexity and because they have been negotiated and prepared with the assistance of skilled professionals. The correct interpretation of other contracts may be achieved by a greater emphasis on the factual matrix, for example because of their informality, brevity or the absence of skilled professional assistance. But negotiators of complex formal contracts may often not achieve a logical and coherent text because of, for example, the conflicting aims of the parties, failures of communication, differing drafting practices, or deadlines which require the parties to compromise in order to reach agreement. There may often therefore be provisions in a detailed professionally drawn contract which lack clarity and the lawyer or judge in interpreting such provisions may be particularly helped by considering the factual matrix and the purpose of similar provisions in contracts of the same type …"
The textual analysis of clause 8.2
The timing issue: the period encompassed by "prior to Completion"
i) if clause 11.7 was intended to limit the obligation to apply insurance monies received for reinstatement of the Assets to those received in respect of damage during the period between execution of the SPA and Completion, it would surely have mirrored the provisions in clause 11.6, which imposes an obligation on the defendants to insure the Assets during that period. Yet clause 11.7 neither adopts the temporal formula in clause 11.6, nor does it deploy the definition of Transitional Insurance Cover;
ii) further, the subsequent provisions in clause 11.9 "carve out" certain specified insurance claims, including claims made before the execution of the SPA, indicating that insurance monies received from claims made before the SPA (and therefore in relation to damage suffered before the SPA) are included within clause 11.7;
iii) in any event, it makes commercial sense that the insurance monies received in respect of damage to the Assets suffered at any time prior to Completion should be used for their reinstatement (rather than retained by the defendants);
iv) it follows from the above that Pre-Completion Damage in clause 11.7 includes damage suffered prior to the execution of the SPA: as that term must have the same meaning in clause 8.2 (where it is defined), the Indemnity must also apply to damage suffered before execution of the SPA.
i) the Vendors warranted the matters set out in Schedule 6 as at the date of the Agreement, so the requirement in clause 10.8 that the Vendors subsequently notify the claimant of any matter or circumstances rendering the warranties inaccurate (becoming known or arising "after the date of this Agreement and before Completion") had to refer to the period after the date of the SPA so as to distinguish the obligation from the warranties given on execution of the SPA. I do not consider that the wording of this provision significantly affects the interpretation of clause 8.2;
ii) in the same way, the defendants warranted that insurance was in force as at the date of the SPA: clause 11.6 imposed an obligation to maintain that insurance for the transitional period between execution of the SPA and Completion. It was again necessary to refer to that period starting "on the date of this Agreement" in order for it to make sense. Again, I do not consider that this provision significantly impacts on the interpretation of clause 8.2;
iii) whilst it is correct to say that the Completion Date was the watershed point, after which the claimant assumed title, risk, rights and responsibilities, that is hardly surprising or unusual. It does not greatly assist with the question of which party should bear the consequences of damage to the Assets which had occurred but was not known about at the date of the contract. In this case the Vendors provided the Warranty as at the date of the SPA and an Indemnity between that date and Completion: there is no a priori reason why the defendants should also be liable to indemnify the claimant for damages outside the Warranty prior to the SPA and, indeed, the opposite is the obvious commercial likelihood;
iv) the use of the expressions "prior to the Completion Date" and "before the Completion Date" in clauses 4 and 5 plainly include the period before execution of the SPA, but in contrast the phrase "until Completion …" is used repeatedly in Schedule 9, providing for pre-Completion covenants from the Vendors such as to give access to the Assets and to operate and maintain them. That phrase plainly speaks to the period from signing to Completion and so does not include the period before. It is clear that expressions in the SPA referring to the period prior to or before Completion have no common (let alone defined) meaning and each much be considered in proper context to determine whether or not the period prior to signing is or is not included;
v) contrary to the claimant's contentions, I consider it to be relatively clear that clause 11.9 does not "carve out" certain claims from the obligation in clause 11.7 in relation to insurance monies received in respect of Pre-Completion Damage, but rather from the obligation in clause 11.8. Clause 11.8 provides that the defendants would pay insurance monies recoverable under the defendants' CAR Insurances to the claimant (save in relation to Outstanding Activities), and clause 11.9 provides exceptions to that obligation, specifically in relation to claims under the CAR Insurances in respect of which the defendants would already have incurred repair costs. The fact that clause 11.9.3 provides for insurance monies to be applied to re-instatement of the Assets demonstrates that that provision is not related to clause 11.7 as that clause provides for such application in any event.
vi) again contrary to the claimant's submissions, clause 11.8 provides an obligation on the defendants to pay insurance proceeds in respect of the Assets (under the CAR Insurances) to the claimant, without limitation as to the period (subject to clause 11.9);
vii) it follows that, whilst clause 11.7 is indeed closely connected with clause 8.2, I do not consider that the use of the term "Pre-Completion Damage" in that clause must be read as including damage suffered before the execution of the SPA. As I read clause 11.7 in context, it appears to be a stand-alone provision within clause 11, dealing specifically with the insurance monies in respect of Pre-Completion Damage, no doubt to protect the defendants by ensuring that insurance proceeds received were applied to reinstatement, thereby reducing their liability under the Indemnity. As such, it does not assist in interpreting the scope of the Indemnity in clause 8.2.
The damage issue: the meaning of "are destroyed or damaged"
"The basic definition of 'damage'. Damage is an adverse change in physical condition. There are three elements to this. First, damage is concerned with the physical condition of the subject matter. Secondly, damage requires a change to that physical condition occurring within the period of cover. This aspect is crucial to understanding the distinction between damage and a latent defect. Thirdly, the change must, obviously, be for the worse - it must impair the use or worth of the item…"
"In the Oxford English Dictionary the word "damage" is defined as – "injury, harm; esp. physical injury to a thing, such as impairs its value or usefulness."
Although useful, I do not feel able to adopt that definition without qualification because the use of the word "injury" largely begs the question which I have to determine.
In my view, the ordinary meaning, and therefore the meaning which I should prima facie give to the phrase "damage to" when used in relation to goods, is a physical alteration or change, not necessarily permanent or irrepairable, which impairs the value of [sic] usefulness of the things said to have been damaged. It follows that not every physical change to goods would amount to damage. What amounts to damage will depend upon the nature of the goods."
"If a latent defect has existed at the commencement of the period and all that has happened is that the assured has discovered the existence of that latent defect then there has been no loss under the policy. The vessel is in the same condition as it was at the commencement of the period. Therefore, in any claim under the … clause or any similar clause, the assured has to prove some change in the physical state of the vessel. If he cannot do so, he cannot show any loss under a policy… If, however, damage has occurred, that does involve a physical change in the condition of the vessel and can be the subject of a claim under the policy."
"If one is considering whether there is damage to the hull and whether such damage is caused by a latent defect in the hull, it follows that the damage must be something different from, something over and above and incrementally greater than the latent defect itself. Where the line is to be drawn is a matter of fact and degree. It requires a factual assessment of, on the one hand, the nature of the latent defect and all that is inherent in it, and, on the other hand, the nature of the damage to the hull."
"…. generally speaking, damage requires some altered state, the relevant alteration being harmful in the commercial context. This plainly covers a situation where there is a poisoning or contaminating effect upon the property of a third party as a result of the introduction or intermixture of the product supplied… However, it will not extend to a position where the commodity supplied is installed in or juxtaposed with the property of the third party in circumstances where it does no physical harm and the harmful effect of any later defect or deterioration is contained within it…"
i) the word "damaged" is coupled with and follows "destroyed", indicating that either destruction or damage short of destruction is contemplated: the phrase is inapposite to encompass the slow process of continuing corrosion;
ii) that view is reinforced by contrasting the wording of the Warranty, which refers to "defect or damage", the Vendors being under a continuing duty to notify the claimant of such matters between signing and Completion pursuant to clause 10.8. The Indemnity noticeably did not cover either defects or damage flowing from defects, again no doubt because it was not intended to impose liability where it did not arise under the Warranty, except in the case of a significant event of destruction or damage;
iii) if unobservable corrosion or other process (of any duration or extent) was included within the Indemnity, and resulted in liability for reinstatement when the Asset in question eventually failed, it could result in the defendants being so liable for failures occurring many years in the future, including where most of the corrosion occurred post-Completion. That would seem to be commercially absurd and would, in reality, be rendering the defendants liable for a latent defect;
iv) that would be all the more absurd if (as I have found to be the case on a textual analysis) the Indemnity is limited to the period between signing and Completion, limited to four Business Days (in the event six days). It would be a nonsense if the Indemnity gave rise to liability for the consequences of long-term corrosion just because it was continuing during that short period: the term: "destroyed or damaged" cannot sensibly be read to include such damage, to the extent it can be regarded as such.
The contextual analysis of clause 8.2
i) An independent report commissioned by Ofgem from KPMG dated December 2012, which recognised that an OFTO was exposed to the risk of unexpected asset failure due to technical reasons, which it can mitigate through maintenance contracts, insurance and pre-contract due diligence. However, the report did not purport to consider the terms that might be negotiated between the developer/vendor and the OFTO, such as the warranties and/or indemnities that might be sought or provided. It provides no evidence of a market practice in that regard;
ii) Ofgem's response dated 22 December 2016 to the claimant's contention that the cable failures constituted Income Adjusting Events ("IAE"s) , in which Ofgem stressed that the failure of a cable arising from a latent defect is the type of risk that is reasonably foreseeable to a licensee and that, similar to any other transaction involving the purchase of assets, a licensee should enter into such transactions with the awareness that it is assuming any risks arising from damage or defects that it has not been able to discover through its due diligence. In my judgment, that response was no more than the regulator's view of why a licensee should not be entitled to claim that such a failure was an IAE, not a commentary on the allocation of risk as between the developer/vendor and an OFTO.
iii) Ofgem's Consultation on Income Adjusting Event Policy dated 6 February 2018, which stated:
"… an OFTO licensee should enter into the transaction of acquiring OFTO assets with the awareness that it is assuming any risks arising from damage or defects that it has not been able to discover through its due diligence. The offshore regime was not designed to insulate OFTO licensees from all such risks. We consider that latent defects are foreseeable types of risk, and OFTO licensees should put in place appropriate commercial arrangements to manage or absorb these risks…"
Again, this approach reveals the regulator's view as to whether an OFTO can claim that a cable failure is an IAE, not whether an OFTO can or should make a commercial arrangement with its counterparty to be indemnified against that eventuality.
The effect of clauses 8.3 to 8.5
"249. […] Whilst it is clear that, for performance of a provision in a contract to be a condition precedent to the performance of another provision, it is not necessary for the relevant provision to use the express words 'condition precedent' or something similar, nonetheless the court has to consider whether on the proper construction of the contract that is the effect of the provisions: see DRC Distribution Ltd v Ulva Ltd [2007] EWHC 1716 (QB) paragraph 39.
250. …in the absence of an express term, performance of one obligation will only be a condition precedent to another obligation where either the first obligation must for practical reasons clearly be performed before the second obligation can arise or the second obligation is the direct quid pro quo of the first, in the sense that only performance of the first earns entitlement to the second."
Conclusion on whether clause 8.2 was engaged by the cable failures
Rectification
The legal principles
"The party seeking rectification must show that (1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified; (2) there was an outward expression of accord; (3) the intention continued at the time of the execution of the instrument sought to be rectified; (4) by mistake, the instrument did not reflect that common intention."
"Now that it has been established that rectification is also available when there was no binding antecedent agreement but the parties had a common continuing intention in respect of a particular matter in the instrument to be rectified, it would be anomalous if the "common continuing intention" were to be an objective fact if it amounted to an enforceable contract but a subjective belief if it did not. On the contrary, the authorities suggest that in both cases the question is what an objective observer would have thought the intentions of the parties to be."
"… it is necessary to show either (1) that the document fails to give effect to a prior concluded contract or (2) that, when they executed the document, the parties had a common intention in respect of a particular matter which, by mistake, the document did not accurately record. In the latter case it is necessary to show not only that each party to the contract had the same actual intention with regard to the relevant matter, but also that there was an "outward expression of accord" - meaning that, as a result of communication between them, the parties understood each other to share that intention."
The witnesses
i) Mauro Mattiuzzo, an experienced corporate partner at Norton Rose Fulbright LLP at the relevant time who had the conduct of the negotiations and drafting of the SPA on behalf of the defendants;
ii) Wojciech Wiechowski, the defendants' OFTO Portfolio Investment Manager at the relevant time, responsible for negotiating the SPA.
The negotiation of the SPA
i) a split between signing and Completion (which was immediately accepted by the defendants);
ii) an amended draft of the Warranty (which was limited to what has been discovered and would cause material disruption) so that the Vendors would warrant that "There is no material defect or damage to any … Asset";
iii) insurance provisions (in what was then clause 12), including a requirement that the Vendors maintain insurance between signing and Completion (clause 12.6, which became 11.6 in the SPA) and, at clause 12.8, the following:
"If any of the Assets are lost, destroyed or damaged prior to Completion, then, following Completion, the Purchaser at its option may require that the insurance monies (if any) recoverable in respect thereof shall be paid to it… "
"If any of the Assets are destroyed or damaged prior to Completion, then, following Completion, the Vendors shall indemnify the Purchaser against the full cost of reinstatement of those Assets (whether or not an insurance claim is made and whether or not there is an insurance deductible), and any insurance monies received by the Vendors and the Operating company shall, pending payment to the Purchaser, be held by it on trust for the Purchaser absolutely."
"The OFTO requires [the defendants] to bear the full cost of reinstating the assets if damaged/lost between exchange and completion regardless of [the defendants'] insurance position. The OFTO cannot be expected to bear the risk of [the defendants'] deductible or management of the asset prior to risk transfer on completion."
"[Norton Rose] advising [the defendants] that risk in the assets should pass to OFTO at exchange. OFTO only willing to take risk in the assets from completion (when it takes ownership of the assets). Issue is who bears cost of reinstating assets if they are lost/damaged between exchange/completion.
[Norton Rose/the defendants] to consider the matter further – OFTO believes this is a reasonable position in line with market practice."
"[Defendants]: If assets are damaged between signing and completion then [the defendants] will only pay to the OFTO moneys recovered from insurance/third parties
[BBE]: OFTO should be held harmless from any damage as risk in the assets does not pass until completion and it is not in control of the assets until completion. The OFTO should also not be expected to bear the deductible on the GYM insurance policy"
"We agree to indemnify the OFTO against any damage during the period from signing to completion, subject to:
- The liability being included under the existing 20% Purchase price liability cap in the SPA,
- [the defendants] always [have] the conduct in relation to resolving any issues,
- In the case of a dispute 3rd party expert would assess solution proposed by GYM and if necessary also its resolution. 3rd party expert opinion would be binding."
"Claims for damage to assets between signing and completion capped at 20% of the purchase price (but amounts recovered by [the defendants] from insurers or third parties would not count towards the 20% cap)…."
Analysis of the contemporaneous documents
The witness evidence
Subsequent conduct
Finding on rectification
Conclusion
Note 1 SSEC1and SSEC2 had been installed in May and July 2013 respectively. [Back]
Note 2 The Office of Gas and Electricity Markets, acting on behalf of the Gas and Electricity Market Authority. [Back]
Note 3 The transfer was intended to be financially neutral for the parties. The tender process was not concerned with the terms on which the Assets would be sold and purchased, but with the conduct of the Business by the OFTO once it had acquired the Assets. As explained by May J in R (Gywnt-y-Môr Offshore wind Farm Limited) v The Gas and Electricity Markets Authority [2019] EWHC 654 (Admin): “Bidding to become an OFTO is on the basis of the amount of the required revenue stream for the 20-year period, based on each tenderer's required return on investment, the cost of financing its investment in acquiring the assets and the ongoing cost of financing, operating and managing the assets. For the 20-year period after purchasing the assets, the OFTO receives the revenue stream set out in its licence, which reflects the amount of its bid subject to various adjustments.” [Back]
Note 4 The defendants were permitted to transmit electricity over the Assets for a commissioning period of 18 months: after that period it would have been a criminal offence to continue to do so under the Electricity Act 1989. Further, if the parties had failed to reach a commercial agreement, Ofgem had the power under schedule 2A of that Act to impose a Property Transfer Scheme, and could have done so on the application of the claimant. [Back]
Note 5 The defendants referred to an earlier decision of the Court of Appeal in James Longley v Forest Giles Limited [2002] EWCA Civ 1242 in which an insurance claim for repairs to a vinyl floor failed. The problem resulted from the floor having been laid prematurely. As there was no damage to adjacent or underlying works, there was no “damage to property”: the works and the product supplied were simply defective. [Back]