Gwynt Y Môr Ofto Plc v Gwynt Y Môr Offshore Wind Farm Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Phillips |
| Judgment Date | 08 April 2020 |
| Neutral Citation | [2020] EWHC 850 (Comm) |
| Date | 08 April 2020 |
| Docket Number | Case No: CL-2017-000677 |
| Court | Queen's Bench Division (Commercial Court) |
[2020] EWHC 850 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Royal Courts of Justice
Rolls Building, Fetter Lane
London, EC4A 1NL
Lord Justice Phillips
Case No: CL-2017-000677
Richard Handyside QC and Max Evans (instructed by Jenner & Block London LLP 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
Approved Judgment
By a sale and purchase agreement dated 11 February 2015 (“the SPA”) the defendants agreed to sell and the claimant agreed to buy the business of owning, maintaining and operating the electrical transmission link between the Gwynt y Môr wind farm situated off the North Wales coast (“the Wind farm”) and the National Grid (“the Business”). The Business' assets (“the Assets”) included four subsea export cables. The transaction completed on 17 February 2015 (“Completion”), at which point title to the Assets passed to the claimant.
On 2 March 2015 one of the cables (SSEC1) failed. A second cable (SSEC2) failed on 25 September 2015. In each case the claimant undertook urgent repairs. The cost of that reinstatement exercise has been agreed at £15 million.
On examination, the excised section of each cable could be seen to have suffered from severe corrosion, dating back months or years 1. The unchallenged evidence was that the most likely cause was damage to part of a polyethylene (PE) sheath during the process of manufacture, permitting seawater to penetrate and start the process of corrosion.
The claimant now claims the reinstatement costs from the defendants, relying upon an indemnity in clause 8.2 of the SPA (“the Indemnity”) which reads as follows:
“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.”
The defendants deny that the Indemnity, properly construed, covers the costs of reinstating the cables, contending:
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.
The defendants also object to the claim on the grounds that the claimant seeks the full cost of reimbursement despite at least some of the damage having been suffered post-completion and, as a related point, that the claim is improper because it is a “global
claim”, failing to distinguish between causes of damage for which the defendants are and are not said to be liableThe defendants further contend (by way of counterclaim) that, if the Indemnity as drafted does extend to damage to the cables prior to execution of the SPA, it should be rectified to read as follows:
“If any of the Assets are destroyed or damaged between the date of this Agreement and Completion (Pre-Completion Damage)….”.
The claimant refutes the defendants' arguments as to the interpretation of clauses 8.2 and 8.3 of the SPA and denies that the Indemnity should be rectified, maintaining that it is entitled to recover the costs of reinstating the cables under the Indemnity.
The background facts
The Wind Farm
The Wind Farm, comprising 160 wind turbines, was developed by the defendants and is owned and operated by the first defendant (defined as “the Operating Company” in the SPA) as trustee and agent for the second to ninth defendants (defined as “the Vendors”). The Vendors are participants in an unincorporated joint venture, holding their interests through their respective shareholdings in the first defendant. Companies ultimately owned by RWE Innogy GmbH (“RWE”) hold the largest shareholding.
The cables, installed by the defendants as part of the development of the Wind Farm, each has three “power cores” along which electrical power is transmitted. Each cable also contains two fibre optic cables (“FOCs”) designed to transmit control and monitoring data. The FOCs each contain 48 optical fibres within a stainless-steel tube, protected by seven aluminium armour wires. Around these wires is extruded a black semi conductive PE sheath.
The tender process
The applicable offshore electricity regulatory regime did not (and still does not) permit persons in control of a wind farm also to control the transmission system or its operator. The defendants were therefore required to sell the transmission system to a third party licenced by the relevant regulator, Ofgem 2, to be the Offshore Transmission Owner, or OFTO.
Ofgem operated a competitive tender process under the Electricity (Competitive Tenders for Offshore Transmission Licences) Regulations 2010 for the grant of the licence, commencing on 17 November 2010. Drafts of the SPA were provided to bidders in October 2012 and in July 2013 a consortium comprising Balfour Beatty OFTO Holding Limited and Equitix Limited (“BBE”) was confirmed as the preferred bidder. The claimant, wholly owned by BBE, was to be the OFTO and therefore the Purchaser under the SPA.
Negotiation of the SPA
Thereafter negotiations as to the terms of the SPA continued between BBE and the defendants. The purchase price of the Assets was pre-determined to be just under £352m (“the Purchase Price”), being their value as determined by Ofgem 3, but other terms were a matter for commercial negotiation: Ofgem's publication “Guidance on the Transfer Agreement” issued in November 2010 provided that drafting the terms of the SPA was “a matter for the parties to commercially agree” and that “most of the issues arising in the process to close will be for resolution on a commercial basis through direct discussions between the Developer, the Preferred Bidder and any other relevant parties”.
The process of negotiation involved the usual circulation of drafts and comments between the parties and between their respective solicitors, Allen & Overy LLP (acting for BBE) and Norton Rose Fulbright LLP (acting for the defendants). It will be necessary to consider that process in detail below when addressing the issue of rectification.
On 23 January 2015, when the drafting of the SPA (by then on the eighteenth draft) was nearly finalised, Ofgem announced that it had determined to grant the licence to the claimant. The licence was granted on 11 February 2015, upon execution of the SPA. It permitted the claimant to operate the Business for 20 years.
The terms of the SPA
The SPA, as executed, extended to 157 pages, including 11 pages of definitions and 15 Schedules. Not surprisingly, it contained numerous “boiler-plate” provisions, including at clause 15.4, a comprehensive “entire agreement” clause.
Clause 2.1 provided that the Vendors would sell the Business and Assets as at and with effect from the Completion Date and clause 2.2 provided that title to the Assets would pass at Completion. Clause 2.4 provided that (save as otherwise expressly provided) risk would pass to the claimant at Completion.
The full terms of the Indemnity and the notice provisions (in so far as material) were as follows:
“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,...
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