Offshore Wind Farms ' How To Properly Interpret An Indemnity?

• Published date: 06 October 2020
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Energy and Natural Resources, Contracts and Commercial Law, Energy Law, Trials & Appeals & Compensation
• Law Firm: Charles Russell Speechlys LLP
• Author: Ms Amelia Hamilton

The recent judgment of Gwynt y M'r OFTO Plc v Gywnt y M'r Offshore Wind Farm Limited and ors [2020] EWHC 850 (Comm) concerned the proper interpretation of an indemnity in a sale and purchase agreement for the offshore transmission assets of one of the UK's largest offshore wind farms. This case is an interesting example of how the courts will interpret indemnities, which are commonly included in contracts regarding offshore wind farms.

The SPA and repair of the cables

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 Gwynt y M'r wind farm and the National Grid. The assets covered by the SPA included four subsea export cables. The transaction completed on 17 February 2015.

On 2 March 2015, one of the export cables (SSEC1) failed, with a second export cable (SSEC2) subsequently failing on 25 September 2015. As a result, the Claimant had to undertake substantial emergency repairs. The cost of reinstatement was agreed between the parties at '15 million.

Following examination of the faulty sections of cable, it was discovered that the cables had suffered from severe corrosion. It was undisputed that the most likely cause of damage was to part of the polyethylene (PE) sheath during the process of manufacture, permitting seawater to penetrate and starting the process of corrosion.

The Claimant claimed the reinstatement costs from the Defendants and relied upon an indemnity in clause 8.2 of the SPA (the Indemnity), which stated 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 the Pre-Completion Damage."

In addition, the Vendors (comprising the 2nd to 9th Defendants) gave a specific warranty (the Warranty) as to the absence of damage to the assets as at the date of the SPA (save as disclosed). The Warranty was limited to what had been (a) discovered and (b) was reasonably likely to cause material disruption to the offshore transmission system.

The period encompassed by "prior to Completion"

The dispute centred on what was meant by the phrase "prior to Completion" in the Indemnity. The Claimant contended that the natural and ordinary meaning of the Indemnity was that it applied if any of the assets were...