6th March 2018
In Equitix ESI CHP (Wrexham) Ltd v Bester Generacion UK Ltd the court considered a number of questions which arose out of an adjudication in relation to a biomass energy project. The Employer was awarded £9.8 million by an adjudicator on termination of the Project. The court held the adjudicator’s decision was enforceable. However, the Contractor was only required to pay £4.5 million to the Employer and a further £1 million into court.
The Employer, a Special Purchase Vehicle created solely for this project, employed the Contractor on a biomass energy project. The early milestones were all met. These related to the preparation of bonds and a business plan, placing an order for a steam turbine, completion of drawings, and completion of a site compound. The Employer paid the Contractor £8 million in respect of these milestones though the Project was in delay.
The Employer commenced an adjudication and obtained a decision that the Contractor was not entitled to an extension of time. The Contractor had consented to the adjudication, though had ‘reserved its position’ regarding jurisdiction on the basis that the Contractor considered that the adjudication was an ambush.
Following this adjudication, the Employer then terminated the Contract and notified the Contractor that it had elected not to continue with the Project. The Employer issued an interim account under a post-termination contractual clause and sought £11.6 million from the Contractor for its net losses.
In a second adjudication brought by the Employer over the validity of the termination and the basis of the interim account, the Contractor said nothing in respect of jurisdiction and expressly agreed to the adjudicator’s terms and conditions of appointment. The adjudicator ordered that the Contractor pay £9.8 million to the Employer plus interest.
Payment from the Contractor was not forthcoming and the Employer brought the enforcement proceedings before Coulson J in the Technology and Construction Court. In order to seek to resist enforcement, the Contractor argued that:
Coulson J noted that the milestone payments all related to preparatory works. The work that had been carried out did not include any excluded operations. Rather than look at the works to be performed under the Contract as a whole, he decided the correct approach was to look at what the dispute itself related to. No ‘excluded operations’ had been carried out at the time of termination. There was therefore no jurisdictional issue.
Coulson J concluded that the Contractor’s ‘general reservation of rights’ in the first adjudication did not assist the Contractor for the following reasons:
Coulson J held that the Contractor had no defence to the second adjudicator’s decision. The court did, however, exercise its discretion to grant a partial stay. In doing so, it considered the following:
Coulson J was sympathetic to the Contractor in that the Employer had ‘stonewalled’ the Contractor in respect of its financial situation and the Employer had failed to file its accounts with Companies House.
In considering Galliford Try v Estura, Coulson J noted that if the full sum was paid by the Contractor the Employer would have little motivation to provide a final calculation of its net losses having the effect that the final account would likely take longer to finalise.
Coulson J also considered the Employer to be an ‘SPV with no P’. He considered the SPV’s purpose had come to an end. It was not continuing with the Project and it was probable that the SPV would soon be wound up. This created a real risk that the Contractor might overpay and never be repaid.
To ‘do broad justice’ to the parties Coulson J considered that summary judgment should be given for the sum of £9.8 million plus interest, the Contractor was required to pay £4.5 million with a further £1 million to be paid into court, and that a general stay should be ordered in respect of the remaining sums.
The case highlights: