The High Court has provided guidance on a contractor’s general right to suspend works, the enforceability of liquidated damages upon termination, and the recoverability of financing costs as part of loss of revenue.

Background

Energy Works entered into a contract with MW High Tech Projects for the design and construction of an energy-from-waste plant in Hull. The project fell into significant delay and Energy Works gave notice to MW to terminate the contract, some 11 months after the scheduled completion date. Energy Works claimed over GBP131 million including liquidated damages for the delay, rectification and completion of the works.

Issue 1: Does a contractor have a general right to suspend works?

MW argued that it was entitled to an extension of time because of Energy Works’ alleged failure to deliver compliant refuse-derived fuel. However, the judge had “no hesitation” in finding that where a contract is silent, the non-breaching party cannot respond as they see fit, but should instead pursue the primary remedy of a claim for damages. Absent an express contractual or statutory provision, a party to a contract has no general right to withhold performance in response to the other’s breach.

Issue 2: Does contractual termination preclude liquidated damages?

Under the contract, MW was liable to pay liquidated damages in the event of delayed completion. This was to be calculated by reference to the difference between the actual and contractual completion dates. MW argued that no such damages should be payable since the contract had been terminated before completion. However, the Supreme Court’s decision in Triple Point Technology v PTT Public clarified that accrued rights to liquidated damages, unless the drafting clearly provides otherwise, are preserved on termination. The judge therefore simply construed the date of actual completion as the end point for liquidated damages.

Issue 3: Do financing costs fall within the loss of revenue exclusion?

MW contended that Energy Works’ claim for financing costs was in reality a claim for loss of revenue excluded by the contract. These costs would have been avoided had the project been completed on time and revenue started to flow. The judge did not agree, finding it “self-evident that revenue and costs fall on different sides of any profit and loss account”, such that “as a matter of ordinary language a claim for additional financing costs is not a claim for lost revenue”.

The court ultimately awarded Energy Works over GBP117 million made up of liquidated damages for delay and damages for termination of the contract.

This case provides helpful clarification on a number of issues which will be particularly relevant to disputes involving energy and infrastructure projects.

Judgment: Energy Works v MW High Tech Projects