Tag Archives: Energy

Industrial purposes in pylon compensation agreement included warehousing

Public utilities have compulsory purchase powers and can insist on acquiring rights they require, but usually prefer to proceed by negotiation and agreement.

On occasion the deed of easement may contain a clause to ensure that if a development opportunity emerges in future, the Grantor or his successors will be entitled to compensation for any reduction in value due to the existence of the pipes or wires.

There may be advantages to both parties in this:

– the Grantor won’t have to accept a speculative assessment as to the reduction in the value of his land at some unknown point in the future for a use which can only be guessed at and could easily be underestimated; and,

– at the time of the easement being granted, the Utility would not be required to make a payment to compensate for a loss which may never happen.

In the Upper Tribunal (Lands Chamber) case of G Park Skelmersdale Ltd v Electricity North West Ltd [2014] G Park Skelmersdale Limited (“the claimant”) sought compensation from Electricity North West Limited (“the respondent”), under a deed of grant (“Deed”) dated 12 May 1967 made between the Central Electricity Generating Board (“CEGB”) and Mr William Holland, (“the Grantor”) who owned Spa Farm, Lathom, Skelmersdale, Lancashire (“the Property”) prior to the claimant.

This said that if the Grantor obtained planning permission for the Property “for residential or industrial purposes” the Grantor could give CEGB 6 months’ notice to pay the Grantor compensation for any diminution in the value of the areas benefited by the planning permission due to the presence of the electric lines above the Property.

The writer was brought up in Lathom within sight of the pylons and remembers their first appearance on the skyline. Indeed the House depicted above is nearby Lathom House, designed by Giocomo Leoni in 1714 for East India Company Director Sir Thomas Bootle, and mainly demolished in 1925.

On 26 March 2008 the claimant gave the respondent notice of planning permission for warehousing and distribution and claimed compensation under clause 3(1) of the Easement.

The parties agreed to postpone the 6 month deadline to pay to allow for consideration of the feasibility of diverting the overhead line to allow the development to proceed but that did not happen.

The two preliminary issues the Tribunal had to decide were:

1. Whether the references to “development … for … industrial purposes” and “such purposes” in clause 3(1) of the Easement included development for primary storage/distribution uses under Class B8 of the Use Classes Order 1987; and

2. Whether the appropriate valuation date for the assessing compensation was the date of:

2.1 the grant of outline planning permission (20 December 2001); or

2.2 the variation of that planning permission (9 September 2004), or

2.3 the approval of reserved matters (15 May 2007), or

2.4 the notice of claim (26 March 2008).

The respondent said clause 3(1) was to restrict compensation to cases where the development prevented was a residential or industrial use. However:

– the Tribunal could think of no reason why CEGB would reasonably expect to pay compensation if the presence of its overhead lines restricted one valuable use of the land, but NOT if another use was restricted; nor

– could it think why the ability to develop the land for certain uses should be restricted without the Grantor having any compensation for the reduction in value due his inability to pursue those uses. Such an uncommercial arrangement was not likely to have been the parties’ intention.

the Tribunal found:

– on the first preliminary issue that the expression “industrial purposes” was not to be narrowly construed, and was wide enough to include the development of the Property for storage and distribution uses within Class B8.

Against the context of the Property’s then agricultural use, the use of the composite expression “residential or industrial purposes” suggested that what was intended “was a broad classification of alternative uses “representing the principal classes of profitable development”, rather than a narrow focus on manufacturing industry.”

Also development for “industrial purposes” had a wider connotation than “development for industry”, and would include ancillary uses. Land used for the storage of raw materials or components for use in manufacturing, or of manufactured goods awaiting distribution to customers, was used for “industrial purposes”.

On the second issue of the valuation date, the relevant planning permission was the outline planning permission obtained in 2001, renewed and then supplemented by the reserved matters approval obtained on appeal on 15 May 2007.

The parties must have intended that the relevant permission would include the details necessary to enable the property to be developed. The test was at what date did the development get the planning permission that could not be implemented because of the electric lines over the property? That date was 15 May 2007 when the final reserved matters approval was obtained. It was only at that date that development could have proceeded.

So the valuation date under clause 3(1) was 15 May 2007.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

DB Contractor’s absolute performance obligation not qualified by other reasonable care duties

Absolute obligations are obligations requiring full performance and only full performance will fulfil that obligation.

Professionals are generally expected to perform their obligations with reasonable skill and care – a lesser standard to comply with the terms of professional indemnity insurance (PII) policies.

Defects caused by an employer’s specification are not a contractor’s responsibility unless the contractor guarantees the construction to be fit for a specific purpose or otherwise expressly undertakes responsibility for those defects.

In MT Høgjaard A/S v E.ON Climate and Renewables UK Robin Rigg East Limited and others [2014] the employers, E.ON Climate and Renewables UK Robin Rigg East Limited (“E.On”), required MT Høgjaard A/S (“MTH”) to provide the design, fabrication and installation of the foundations for wind turbine generators for an offshore Scottish wind farm.

MTH’s basic contract obligation to E.On was to provide its services with the “due care and diligence expected of appropriately qualified and experienced designers, engineers and constructors.”

When MTH undertook the design, MTH did not know that an international standard for the design of offshore wind turbines and grouted connections contained an error.

One of the performance requirements in MTH’s contract with E.On was that “the design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement…”

The foundations were defective and the remedial work cost EUR 26.25 million.

Was MTH liable to E.On for those defects?

Although MTH had itself relied on an incorrect standard for the foundations’ designs, MTH had, in the contract, warranted to E.On that the foundations would have a service life of 20 years. Due to that fitness for purpose guarantee it gave, it was still contractually obliged to provide a design that met that guarantee despite there being an error made by someone else. This was not in any way qualified by the co-existence of reasonable skill and care obligations elsewhere in the same contract.

The court pointed out that construction contracts usually contain both reasonable skill and care and absolute obligations and here the different standards were not in conflict.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Local development plan did not exclude Planning Committee’s right to find benefits outweighed detriments

Plant, R (On the Application Of) v Pembrokeshire County Council & Anor [2014] concerned planning for a wind farm close to an iron age fort.

The Planning Committee found that the development proposal was contrary to Policies GN1 (landscape) and GN38 (historic environment) of the Local Development Plan (“LDP”) but concluded that the development was “environmentally acceptable” and thus in compliance with Policies GN4 (renewable energy) and SP1 (sustainable development).

The claimant submitted that a development which contravenes any environmental policy within Policies GN1 to GN4 and GN33 to GN38 could not, legally, be “environmentally acceptable”, and hence could not be in compliance with Policy GN4 or Policy SP1 or, indeed, with the LDP.

So any adverse effect of a proposed development on landscape character – or on any landscape of historical, cultural or archaeological importance, including setting, meant that development could not be in accordance with the LDP.

The claimant said it was a policy that was unlikely to be overridden by any other material considerations including benefits that might accrue from the project – however small the adverse impact of the landscape or however great the benefits-even where those might have been environmental benefits.

The High Court said Policy SP1 was concerned with “sustainable development”. It required only that proposals demonstrate how positive impacts would be got and negative effects minimised, so that an informed decision could be made on sustainability.

Anyway, a development did not become “unsustainable” simply because, in one respect, it had an adverse economic, social or environmental impact; or because it was contrary to one of the GN policies.

Whether a development is sustainable needs an assessment of whether overall the development achieves a positive economic, social and environmental impact; i.e. whether, on the basis of all the material factors, the proposed development is appropriate and acceptable in planning terms.

Nothing in the LDP entrenched the landscape character in the way in the claimant suggested. It would have been contrary to the overarching aim of the LDP.

Policy GN4, required the support of development which enabled the supply of renewable energy through environmentally acceptable solutions. That required judgment as to whether, based on all material considerations weighted as the planning authority considered appropriate, the development applied for was environmentally acceptable overall.

The policy could not exclude a development because a single aspect had some adverse environmental impact.

Here with other material considerations, the adverse environmental impact caused by the proximity of the scheduled ancient monuments, had to be balanced against the positive environmental impact of contributing to renewable energy resources.

It had been concluded by the report to the Committee that the adverse impact of the former was outweighed by the latter. In other words, that, overall, the development was environmentally beneficial. That was a planning judgment Committee had clearly, been entitled to make.

This blog is posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Compliance with later discredited employer’s specification put contractor in breach of contract’s performance requirement

In The Steel Company of Canada Ltd v Willand Management Ltd [1966] the Supreme Court of Canada held that when:

– a contractor expressly undertakes to carry out work which will perform a certain function in conformity with particular plans and specifications and

– it turns out that the work so constructed will not perform the function

the express obligation to construct work capable of carrying out the relevant function overrides the obligation to comply with plans and specifications.

So, the contractor’s payment claim failed even though it had carried the work out in accordance with plans and specifications provided by the employer which turned out to be defective.

In MT Højgaard A/s v E.ON Climate And Renewables & Ors [2014], in 2006 the Claimant contractor, MT Højgaard a/s (“MTH”) entered into an agreement with the Defendant employers, E.ON Climate and Renewables UK Robin Rigg East Ltd and E.ON Climate and Renewables UK Robin Rigg West Ltd (“E.ON”) for the design, fabrication and installation of the foundations for 60 wind turbine generators (“the turbines”) for the Robin Rigg offshore wind farm in the Solway Firth.

Section 3.2.2, General Design Conditions in the construction contract, contained the following provisions:

“3.2.2.2 Detailed Design Stage

The detailed design of the foundation structures shall be according to the method of design by direct simulation of the combined load effect of simultaneous load processes (ref: DNV-OS-J101). Such a method is referred to throughout this document as an ‘integrated analysis’

The design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement.”

In 2004 an independent classification and certification agency called Det Norske Veritas (“DNV”), had produced DNV-OS-J101 (“J101”) as an international standard for the design of offshore wind turbines and grouted connections in particular. However, the value attributed to a variable used in one of the standard’s equations was underestimated by a factor of about 10.

MTH’s designer, Rambøll Danmark A/S (“Rambøll”), like everyone else at the time, did not know of this error when it carried out the design.

In 2009 it was discovered that movement was taking place in grouted connections which had been designed using the standard. It was then that the mistake in the standard’s equation was exposed.

Following the Canadian case discussed above, the Court of Appeal concluded that the words of clause 3.2.2.2 were clear and were not inconsistent with the other terms of the contract or the intentions of the parties as reflected in the rest of the contract.

MTH had assumed full responsibility for design as stated in section 3.1, subject only to a qualification about the life of the coating.

MTH had warranted that the foundations would have a service life of 20 years and E.ON was entitled to rely on that warranty notwithstanding that other parts of the contract had required MTH to design the grouted connections in accordance with J101. Since those connections had failed within 2-3 years, MTH had breached that obligation.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Grid contributions would not exempt new power plant from adjudication under Construction Act

Where a contract does not contain any written provision for adjudication, the only way for adjudication to apply would be if the contract is a construction contract under the Housing Grants, Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009, (“the Act).

In such cases, under s.108(5) of the Act, the Scheme for Construction Contracts (“the Scheme”) would apply.

In Laker Vent Engineering Ltd (“Laker”) v Jacobs E&C Ltd (“Jacobs”) [2014], a sub-contract, dated 30 March 2012, (“the Sub-Contract”) provided for Laker to supply, fabricate and install pipe-work at Markinch Biomass Combined Heat and Power (CHP) Plant (“the Plant”) in Fife, Scotland.

Under the main contract (“the Main Contract”) with RWE Npower Renewables (Markinch) Limited (“RWE”), Jacobs had contracted for the design, manufacture, supply, construction, installation, testing and commissioning of the Plant.

As a preliminary point, Jacobs said the Sub-Contract did not contain an adjudication provision, so, the only way for adjudication to apply under the Act and the Scheme would be if the Sub-Contract was a “construction contract” under the Act.

Jacobs said that the Sub-Contract was not a construction contract because it was not an agreement for carrying out of construction operations under s.104(1). This was because the operations under the sub-contract were not construction operations. Instead, the work under the Sub-Contract comprised the assembly and installation of plant on a site where the primary activity was power generation. Such projects were expressly not “construction operations” under S105(2)(c) of the Act.

The High Court found that the whole site, including the land leased by Tullis Russell to RWE, and the whole paper mill complex, was the relevant “site”.

First, whilst part of the site shown on the plans was leased to RWE, Tullis Russell were owners of the entire freehold and, at the end of the lease, RWE’s leased part would revert to being part of the overall site.

Secondly, the aim of the power plant at that location was to provide steam and power to Tullis Russell. After 60 years their existing coal and gas burning plant was life expired. So the Plant was providing steam and electricity to serve the whole “site”.

Thirdly, the Plant occupied a mere 10% of the total paper mill site. And the Plant was generally described as being at the Tullis Russell paper mill, and, its postal address referred to the Tullis Russell paper mill.

Fourthly, the Plant was located where it was because it was to provide a power and steam facility for the Tullis Russell paper mill. That location defined the “site”. The fact that the Plant was increased to contribute to the national grid, 6% of Scotland’s renewable energy target, was merely incidental

Fifthly, the Plant did not have a continued existence after the limited period for which Tullis Russell had leased the relevant land to RWE. That demonstrated that this was not an independent power station but, rather, one which depended on its relationship with Tullis Russell.

So there was no way Jacobs could defend the proceedings on the basis that Laker’s work was carried out on a “site” where the primary activity was power generation, rather than paper making.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Court reconciles requirements of NEC3 based Civil Engineering Construction Contract

In RWE Npower Renewables Ltd v J N Bentley Ltd [2014] the Court of Appeal had to reconcile two apparently conflicting contractual requirements in a contract for civil engineering works.

Bentley agreed to carry out the works namely: (i) a power house, for the plant and machinery; (ii) the turbines and switchgear; (iii) a pipeline for water from the upper reaches of the river to go into the turbines (“penstock pipeline”); and (iv) a pipeline returning the water to the lower reaches of the river after it had gone through the turbines (“tailrace”).

The contract was on standard terms derived from the NEC3 Engineering and Construction Contract, June 2005 edition (with amendments June 2006).

Late in 2012 a dispute arose between RWE and Bentley as to the required date for completion of section 2 of the works.

The answer turned on whether Bentley’s obligation was governed by clause 6.2 of the Works Information or Option X5 in Part 1 of the Contract Data, and if the latter, what was the extent of its obligation?

The court said the contract documents should, as far as possible, be read as complementing each other, and, it was only in the case of a clear and irreconcilable discrepancy that it would be necessary to resort to the contractual order of precedence of obligations, that the contract had laid down, to resolve it.

In the present case both clauses had purported to define the content of section 2. Both had referred to the completion and testing of the penstock pipeline, which strongly suggested Bentley having to complete the whole pipe runs.

The result was that Bentley’s obligation had been to complete the pipelines by 27th May 2011.

If, in fact, there had been a genuine discrepancy between Option X5 and clause 6.2 of the contract, the contract document’s provisions for precedence would have come into play and the court would have had to interpret the language of Option X5 without regard to clause 6.2.

The court was reluctant take the order of precedence as forcing a choice between one entire clause and another if they could be construed harmoniously. Only to the extent that they could solely be interpreted as imposing different obligations in relation to the same subject matter was it necessary to apply the contract’s order of precedence.

Option X5 defined the scope of section 2 for the purpose of imposing an obligation to pay liquidated damages for delay, whereas the aims of clause 6.2 were rather less clear. But in each case, there was a single obligation, namely, to carry out the whole of the required work so as to complete section 2. So if there was a discrepancy between Option X5 and clause 6.2, the court thought it impossible to extract the part of Bentley’s obligation which related to the pipelines and treat it as a free-standing obligation that was subject to a different and less demanding timetable than the rest of the section 2 work.

Furthermore there were three strong pointers to the contracting parties having contemplated that the pipelines would be completed and tested in their entirety before the work of installing the hydro plant began.

1. Clause 3 of Part 1 of the Contract Data contained the primary terms for the period for performing the contract work.

Bentley’s work was limited to the civil engineering elements of the project i.e. construction of the power house, penstock pipelines and tailrace. Completion of the intake was due by 22nd November 2010 and completion of pipeline testing by 24th November 2010. This was a clear indication that the parties intended that the pipelines should be completed and tested by the end of November 2010, even before the powerhouse had been made weathertight.

Option X5, updated these dates and instead required the powerhouse to be weathertight by 14th February 2011, and the pipelines to completed by 27th May 2011, because, by the time the contract was signed, the date of delivery of the hydro plant had been put back.

Howerver this underlined, and was no way inconsistent with, the parties’ original intention which had been for the pipelines to be completed before the hydro plant was installed and there was no reason to think that their intentions had changed in that respect.

2. Bentley’s Tender Query response dated 12th March 2010 and its production of a revised programme for the works. It provided a good indication of what the parties had in mind at the time they entered into the contract. The response showed the pipelines being completed by the end of November 2010. The programmes therefore all tended to reinforce the conclusion that when entering into the contract the parties had contemplated completion of the pipelines well before the hydro plant was due to be delivered.

3. The language of Option X5 itself. Bentley had argued that section 2 should be read as requiring completion of the pipelines only so far as needed to enable the hydro plant to be installed. However, in section 1 the parties had been more explicit in distinguishing works where only partial completion was required by a specific milestone.

In contrast they had not found it necessary to talk about partial completion in Section 2 suggesting it had not been contemplated as being sufficient for the pipelines to be partially completed by the stated deadline date.

The court reached this conclusion even though only a very short length of each pipeline adjacent to the powerhouse had to be in place to enable the hydro plant to be installed. However the court insisted its interpretation was consistent with (and therefore supported by) indications to be found elsewhere in the contract.

So section 2 of the works had not been completed until the whole of the penstock pipeline had been completed and tested.

Therefore the court dismissed Bentley’s appeal.

This blog has been posted out of general intereest. It does not remove the need to get bespoke legal advice in individual cases.