Claim for damages against Carillion dismissed

13/06/17

On 13 June 2017, following a trial in the Commercial Court, Knowles J handed down judgment in the matter of IPM Energy Trading Ltd v Carillion Energy Services Ltd [2017] EWHC 1399 (Comm). 

The Claimant (“IPM”) was part of one of UK’s main electricity generation companies. The Defendant (“Carillion”) was part of the well-known international construction conglomerate. Their dispute related to a contract for the supply by Carillion to IPM of qualifying measures under the Community Energy Saving Programme (“CESP”), known as ‘CESP points’. The CESP scheme required generators of electricity to achieve specified energy-saving measures for the benefit of low-income housing. 

Carillion fell short of delivering the required number of CESP points under the contract. It admitted it had thereby breached the contract. However, Carillion contended that its breach had caused no recoverable loss to IPM.

IPM, for its part, contended that Carillion’s breach had caused it to suffer recoverable damages falling into two main categories. First, it claimed losses from payments made under an alleged agreement between IPM and an affiliated company, GDF Suez Teesside Limited (“Teesside”), for the transfer of CESP points. Secondly, IPM claimed losses from payments made under an agreement with Acrobat Carbon Services Limited (“Acrobat”) for the supply of equivalent energy saving measures.

Knowles J found that the claim in relation to the Teesside agreement failed on the facts.  In light of the evidence, the Court rejected IPM’s allegation that it agreed to pay for CESP Points at their market rate to Teesside.  Rather, IPM had, in reality, agreed to pay only the cost price that Teesside had itself paid (which was less than the rate which IPM would have been paid to Carillion under the contract). 

As regards the claim relating to the payments made under the agreement with Acrobat, the Court held that the Acrobat measures were not capable of generating CESP Points under the contract.  Instead, as was common ground, the measures were designed to mitigate a potential fine from Ofgem for IPM’s failure to obtain sufficient CESP Points.  There were clauses in the contract which excluded any liability on the part of Carillion for such an Ofgem fine.  The Court held that these exclusion clauses also excluded measures to mitigate the fine (save for measures that involved purchasing the very thing that was supplied under the Contract i.e. CESP Points, which the Acrobat measures did not provide). Accordingly, the Court held that the cost of the Acrobat contract was an excluded loss.  

The Court also rejected IPM’s attempt to circumvent the exclusion clauses by means of relying on an exception to one of the exclusion clauses for a “deliberate refusal to perform” the contract.  Knowles J held that ‘deliberate refusal’ “contemplates a deliberate decision to refuse to perform in circumstances of full appreciation that performance is required. The allegation of such conduct is a serious allegation.”  In light of the evidence, the Judge concluded that there were inherent deficiencies with CESP and that, although Carillion did not ‘throw money at the problem’, Carillion had used various tactics to seek to comply with its contractual obligations.  In consequence, notwithstanding its admitted breach, there was no deliberate refusal to perform the contract on the part of Carillion.

Carillion therefore succeeded in establishing that IPM had no claim for any recoverable loss and the Court dismissed the claim for damages against it. 

The judgment is here.