Unenforceable penalties? Solar argued that the same rate of liquidated damages had been specified in each of the EPC contracts (£500 per day per MWp) despite the fact that the each of the plants had different outputs and that a variance of 30% in electricity revenue could be expected between them. The clause in question also referred to the amount as a “penalty”. The court rejected this argument applying the recent Supreme Court decision in Cavendish Square v Makdessi. The test was whether the clause was “out of all proportion to any legitimate interest of [GPP] in the enforcement of the primary obligation” and/or whether the sums stated were “extravagant, exorbitant or unconscionable”. Although there had been no specific negotiation around the £500 figure, a precise calculation of financial losses on a solar project was difficult to produce and the £500 figure was not beyond the maximum loss which might be sustained during a peak generation period. The reference to a “penalty” was not determinative, particularly as the term “Delay Damages” had been used elsewhere.
Liquidated damages post-termination? One of the EPC contracts was terminated by GPP prior to commissioning being achieved. In that case, GPP argued that the liquidated damages provision continued to apply until commissioning was achieved using alternative contractors. The court accepted this argument in reliance on comments made by the TCC in Hall v Van den Heiden (No 2). In that case, Coulson J (as he then was) noted that an interpretation which brought liquidated damages to an end upon termination would: “reward the [contractor] for his own default. Take the example of a contractor who has wholly failed to comply with the contract, is in considerable delay, and is facing a notice of termination. The defendant’s case would mean that such a contractor was only liable to pay liquidated damages for delay before the decision was taken to terminate, thereby penalising the employer for trying to get the works completed by another contractor, and rewarding the contractor for sitting on his hands and failing to carry out the works in accordance with the program.” The above comments have, however, been criticised by commentators and, prior to the present case, do not appear to have been followed in subsequent cases. The Commercial Court would not appear to have been referred a number of other decisions, and notable construction law textbooks, where the contrary position has been adopted. For a more detailed discussion of this topic, please see our earlier Law-Now’s here and here. Separate claim for loss of ROCs? GPP also claimed for losses arising from a reduction in ROCs in addition to liquidated damages for delay. It was common ground that delays in commissioning had led to one project being eligible for 1.6 ROCs/mWh instead of 2 ROCs/mWh and another being eligible for 1.4 ROCs/mWh instead of 1.6 ROCs/mWh. This in turn would reduce the income which could be generated from the plants over the course of the 20 year ROCs accreditation. Solar argued, among other things, that such a claim was limited by the liquidated damages provision.