Equitix Eeef Biomass 2 Ltd v Michael Fox
| Jurisdiction | England & Wales |
| Judge | Mr Justice Kerr |
| Judgment Date | 27 September 2021 |
| Neutral Citation | [2021] EWHC 2531 (TCC) |
| Docket Number | Case No: HT-2018-000335 |
| Year | 2021 |
| Court | Queen's Bench Division (Technology and Construction Court) |
[2021] EWHC 2531 (TCC)
Mr Justice Kerr
Case No: HT-2018-000335
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
7 Rolls Buildings, Holborn, London EC4A 1NL
Mr Richard Coplin and Mr Tom Coulson (instructed by Addleshaw Goddard LLP) for the Claimant
Mr Simon Hargreaves QC and Mr Charlie Thompson (instructed by Bracewell (UK) LLP) for the Defendants
Hearing dates: 15–18, 22–25 and 29–31 March and 7 May 2021
Approved Judgment
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 10:00am on Monday, 27 September 2021.
Introduction
In August 2016, the claimant ( Equitix) purchased from the defendants the entire issued share capital of a company called Gaia Heat Limited ( Gaia). The terms of the purchase were set out in a written share sale agreement and a later deed of variation (together, the SSA). Gaia was a supplier of steam generated by two biomass boilers to a sole customer, Greenergy Biofuels Limited ( Greenergy). Gaia's contract with Greenergy was terminated by Greenergy in 2017.
Equitix claims damages for breaches of certain warranties in the SSA given by the defendants. Equitix asserts that these warranties were false and that it has suffered loss and damage as a result. The claim is for up to £11 million, which is the amount of a liability cap in the SSA. Equitix contends that its actual loss is greater but accepts that liability is capped at that amount.
The defendants counterclaim for certain sums they say are due as deferred consideration under the terms of the SSA. Alternatively, they claim damages for loss of the chance of becoming entitled to certain deferred consideration. They also claim certain declaratory relief in respect of possible future dealings or claims as between Gaia and Greenergy.
The nine issues for decision in this case (together with several sub-issues) were agreed between the parties and appended to an order made by Fraser J at the pre-trial review on 15 February 2021. The trial took place before me in March 2021, with closing submissions on 7 May 2021. In this judgment, I will first address the facts and then each of the nine issues as defined in Fraser J's order.
The Facts
On 21 December 2012, Gaia entered into a written contract with Greenergy for the supply of heat energy, i.e. steam, from biomass ( the Greenergy contract). Greenergy is a supplier of biofuels based at Immingham, on the Humber estuary. Gaia's premises are next door. The contract was for up to 10 years unless terminated earlier, with two optional five year extension periods.
Greenergy agreed to purchase, at a fixed price starting at £49.90 per MWh (megawatt hour) subject to later indexation, the “Agreed Heat Demand” of 76,000 MWh per year (the AHD). For each contract year, Greenergy had to purchase or pay for at least the “Guaranteed Minimum Offtake” (the GMO), set at 45 per cent of the AHD.
There were conditions precedent: planning permissions, environmental permits and accreditation under the government's Renewable Heat Incentive ( RHI) scheme. Gaia expected income from the RHI scheme as well as from Greenergy. The contract would not start until “the Effective Date”, i.e. the date the conditions precedent were fulfilled. Gaia had to provide “the Boiler”. It turned out to be two boilers, later called boilers 1 and 2 or “B1” and “B2”.
If the boilers were unavailable for a continuous period of more than 48 hours due to “unplanned maintenance” not due to a force majeure event, the GMO and AHD would reduce by 1/365 for each complete day of unavailability (clause 5.2). Subject to that, Greenergy had to pay for any shortfall if it took less steam than the GMO in any contract year.
Greenergy was responsible for providing “make-up water”, also called feedwater, required for the operation of the boiler. The feedwater was required not to be too “hard”; its “direct conductivity” was required to meet certain technical specifications set out in a schedule. Greenergy was required to make any necessary management changes to give “priority” to Gaia's supply of steam from its boiler “as a first provider of heat”.
There were termination clauses of the usual kind if an “Event of Default” should occur. If Greenergy should terminate the contract following a “Gaia Event of Default”, Greenergy had an option to purchase “the Boiler” at a fixed price determined by a table in a schedule, that price reducing year on year (e.g. £7.551 million in year 5, £5.368 million in year 10, £3.184 million in year 15 and £1 million in year 20).
On 31 May 2013, Gaia contracted in writing with Eco Link Power Limited ( Eco Link) for the design, construction, commissioning and testing of a biomass boiler for a contract price of just over £3.368 million. In fact, the specification provided for two boilers collectively called “the Biomass Boiler”, using recycled wood and able to supply “nominally 15 tonnes (15,000 kg) per hour of [10 Bar (g) dry saturated] steam”.
The Biomass Boiler had “to fully comply with the WID [Waste Incineration Directive] and NOx [nitrogen oxide] legislation limits”. The installation had to incorporate “[a]ll emissions monitoring required by legislation”. The boilers would be made by an Italian company, Uniconfort srl ( Uniconfort). There was a programme of works for commissioning and testing once the construction phase was complete.
In October 2013, Gaia applied for an environmental permit to operate the boilers, which (Gaia explained in its written application) would use “an automated system to monitor the operational conditions … and adjust the supply of fuel / air as required … . Supplementary oil-firing can be brought on-line … as necessary to maintain residence conditions, via an automatic temperature control system”.
If that did not work, “further protection systems will trip out the waste feed as necessary.” It was anticipated that oil-firing (except at start up) would be “very infrequent”. The plant was expected normally to operate continuously, with a start up temperature of 850 degrees C, achieved by using oil-firing (kerosene). Once that temperature was reached, the oil feed would cease and “100% biomass load” would take over.
There was an explanation of “[p]articulate control”, i.e. a mechanical system for removing dust particles from flue gas, using stainless steel bags (bag filters) with a chamber below them for collecting ash and an automatic pneumatic system for cleaning out the bags.
Gaia did not expect burning recycled wood fuel would mean exceeding WID emissions limits, it explained. Excess emissions would be prevented by “fuel specification”, i.e. burning the right kinds of recycled wood, and “source control”, i.e. combustion. The “injection of lime or activated carbon to abate emissions of acid gases, metals and dioxins/furans” was therefore “not considered to represent BAT [best available technology] in this case”.
Gaia explained that a continuous emissions monitoring system ( CEMS) would be in place, satisfying regulatory requirements and capable of measuring emissions of the various gases denoted by the abbreviations NO, NO2, NOx, SO2, CO2, N2O, NH3, HCl and HF. Monitoring data would be tabulated as “a range of averages”, with “warning beacons to alert site operators as limits are being approached”.
By March 2014, the boilers were in place. Uniconfort issued three documents to go with them: a boiler maintenance plan, a use and maintenance manual and an instructions booklet. In the first of these, Uniconfort explained that based on 8,000 hours of operation per year, the boiler should be shut down for cold maintenance in two annual “short stops” of 100 hours each, one “intermediate stop” of about 140 hours and one “long stop” of about 400 hours.
Maintenance activities for each stop were described, including cleaning during the short stops and photographing the internal condition of the boiler to compare the condition of the refractory and ash accumulation. The bag filters should be cleaned once a year, during the long stop, and replaced if necessary. Various normal “hot boiler” maintenance tasks were advised for each shift. During the second year, among other things the combustion chamber width and “cracking refractory” would need to be checked, according to the maintenance plan.
The use and maintenance manual then set out in more detail the technical specifications and diagnostic techniques for troubleshooting, in a manner not unlike a manual for an ordinary domestic appliance, but more sophisticated and complicated. In the accompanying instructions booklet, more information was provided about how to operate and maintain the boiler.
For “draining and checking”, the manual explained that every day the boiler draining system should be opened “to remove the newly formed mud”; “[t]he quantity of water per hour (kg/h) to be drained depends on the quantity of TDS (total dissolved solids) in the fed [sic] water and boiler”, illustrated by a formula comparing the TDS in the feedwater with the TDS in the boiler water.
The manual included boiler water specifications including a limit of 3,500 milligrams total dissolved solids per litre of water, also the limit set by a British Standard specification going back to 1997. The draining procedure to avoid a build up of total dissolved solids ( TDS) is also known as “blowing down” or performing a...
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Equitix Eeef Biomass 2 Ltd v Michael Fox
...supplemental judgment should be read together with my main judgment, handed down on 27 September 2021, which is publicly available: see [2021] EWHC 2531 (TCC). I gave judgment for Equitix for £11 million on its claim and I dismissed the 2 On handing down my main judgment remotely, I adjourn......