Shining a light on solar power disputes

Completion delays are a common source of disputes for power projects; however, solar power projects can present important nuances:

• They sometimes adopt procurement methods less common on other types of power projects and may not be constructed on a 'single point EPC' basis. If the project owner takes on the responsibility of delivering part of the facility, this can lead to significant interface risks and affect the evidence required to show that the contractor delayed completion.
• Losses due to delay can also be less straightforward to establish. Solar plant owners often enter into virtual power purchase agreements (VPPA) with offtakers as a price hedge mechanism for the renewable energy produced. If a plant owner wishes to claim losses incurred under a VPPA, it will need to carefully align the completion and delay damages regimes in the main construction contract and the VPPA.

The Singapore High Court analysed these issues in the recent decision in Terrenus Energy SL2 Pte Ltd v Attika Interior + MEP Pte Ltd [2023] SGHC 333, which provides three helpful lessons for solar project disputes.

Facts

Terrenus Energy SL2 Pte Ltd (Terrenus) engaged Attika Interior + MEP Pte Ltd (Attika) as the main contractor for the construction of a solar farm in Singapore. Terrenus was to supply the solar panels and its supporting structures and install two power grid substations. In turn, Attika was responsible for installing, testing, and commissioning the solar panels.

The parties' contract required the solar plant to achieve partial completion, and begin generating 13.4 MW, by 30 June 2021, failing which Attika was liable for delay liquidated damages. Under a separate VPPA – entered into between Terrenus and tech giant Meta – it was a requirement that the solar plant generate its 'nameplate' capacity of 18 MW by the same date. Failing this, Terrenus would be required to pay delay liquidated damages to Meta.

Attika failed to achieve the required capacity under its contract with Terrenus by 30 June 2021. In turn, Terrenus failed to meet its obligations under its contract with Meta.

Terrenus commenced a claim against Attika in the Singapore High Court for: (i) delay liquidated damages under its contract with Attika; and (ii) general damages, which included the liquidated damages owed to Meta.

Lesson 1: Evidence required to prove critical delay 

Terrenus and Attika disputed what had caused the delay to completion, part of which Terrenus argued was due to Attika's slow progress in installing the mounting structure for the solar panels. Attika attributed the delay to Terrenus' delayed delivery of the solar panels. While Terrenus accepted that the said delivery had been delayed, it blamed the delay in delivery on Attika.

The Court rejected this part of Terrenus' case for lack of evidence. A notable finding by the Court was that there was no contemporaneous evidence that Terrenus had slowed down delivery of the solar panels on account of Attika’s slow progress as Terrenus did not inform Attika of this interface-related delay.

The Court's finding on this issue serves as a cautionary tale for renewable project owners who retain responsibility for delivering part of their facility. Where a single point EPC arrangement is not used, the contractor also does not take on full responsibility for managing the various works packages. It is therefore incumbent on the owner to carefully manage and record the interfaces between its works and the contractor's works, and to promptly notify the contractor of any delays to its (i.e. the owner's) work which may have been caused by contractor delays.

In the context of Terrenus Energy, the Court also provided the following evidential checklist that it expected Terrenus to have produced:

• the owner's delayed delivery was due to the contractor's slow progress;
• the owner regarded the contractor's installation progress as being slow;
• the owner's correspondence with the contractor stating that it was slowing down its delivery on account of the contractor's slow progress; and
• the owner's instructions for the solar panel supplier to delay delivery.

This provides useful guidance to owners on the approach to take when managing interfaces across various works packages and mitigating associated risks.

Lesson 2: Delay liquidated damages under main contract generally the sole remedy for delay

Clause 17.1.4 of the contract between Terrenus and Attika stated that:

"If [Terrenus] suffers other losses and damages which cannot be covered by such liquidated damages, such losses and damages incurred by [Terrenus] shall be deemed as its losses and damages resulting from [Attika’s] default and shall be reimbursed by [Attika] to [Terrenus]."

Terrenus argued that this provision entitled it to recover general damages due to delay (being Terrenus' liability to Meta) as these sums fell outside of the liquidated damages provision in its contract with Attika. The Court disagreed and observed that:

• generally, one cannot claim general damages in addition to liquidated damages for losses incurred from delay (Chan Ah Beng v Liang and Sons Holdings (S) Pte Ltd [2012] 3 SLR 1088), because delay liquidated damages will usually be the sole remedy for the delay; and
• the phrase "other losses" as opposed to "additional" losses in Clause 17.1.4 suggests that only non-delay damages could be claimed in addition to liquidated damages under the contract between Terrenus and Attika.

This reflects the tendency of the Singapore courts to construe general damages provisions strictly and reject delay damages beyond delay liquidated damages. This generally aligns with the positions under English, Hong Kong, and Australian law, and raises two important takeaways:

• Parties should carefully consider the quantum of delay liquidated damages provisions to be included in their construction contracts at the drafting stage as any claim for delay losses will likely be limited to those amounts.
• If parties wish to retain the ability to claim delay-related losses as general damages, in addition to delay liquidated damages, they may consider including widely drafted indemnity provisions which cover, for example, "any loss or damage suffered or incurred" as a result of the delay. The Singapore Court of Appeal recognised this possibility in Multiplex Constructions Pty Ltd v Sintal Enterprise Pte Ltd [2005] SGCA 10) and JDC Corporation v Lightweight Concrete Pte Ltd [1999] 1 SLR 615. However, such provisions will need to be drafted carefully and their interpretation will invariably be fact dependent.

Lesson 3: Losses incurred too remote and not caused by Attika

Even if Terrenus could claim general damages, it could not claim against Attika for sums owed to Meta:

• Terrenus could not demonstrate that Attika triggered Terrenus's liability for delay liquidated damages payable to Meta under the VPPA. Even if Attika had achieved partial completion under its contract, Terrenus would still have been unable to provide Meta the "nameplate" capacity under the VPPA. Terrenus would have breached the VPPA and been liable to Meta for liquidated damages in any event.
• The Court also found that liquidated damages under the VPPA were too remote to be recoverable against Attika. The Court noted that as Attika was not shown a copy of the VPPA, the delay damages under the VPPA were not within Attika's reasonable contemplation (i.e. the second limb of Hadley v Baxendale). Importantly, the Court regarded the VPPA as a financial arrangement for price hedging, which would ordinarily have fallen outside of the contractor's reasonable contemplation. This was contrasted with a typical construction scenario involving several tiers of construction contracts, where it would be apparent that delays to completion may cause an upstream contractor to owe liquidated damages to another upstream contractor or to the developer or employer (Crescendas Bionics Pte Ltd v Jurong Primewide Pte Ltd and other appeals [2023] SGHC(A) 9).

The latter finding may be of particular concern for developers and emphasises the importance of taking care to ensure that the risk of delay under offtake arrangements is appropriately 'passed through'.

Conclusion

Terrenus Energy highlights a number of important lessons for solar power plant disputes:

• If a project is not procured on an EPC basis, interface issues between the contractor and owner need to be comprehensively monitored and managed. Owners must also promptly notify the contractor of any delays caused to the owner's works, particularly if there is likely to be a knock-on effect on the contractor's scope. Courts and arbitrators will expect such evidence where delay remedies (e.g., extensions of time and delay damages) are contested.
• Completion obligations under the construction contract and other project agreements, such as a VPPA, should be aligned at the contract drafting stage. Drafters should take care to ensure that the completion risks which an owner is exposed to under such agreements are appropriately passed through to contractors. Owners, in particular, should consider whether the completion obligations to be achieved are of a similar nature and whether the liquidated damages rate under the relevant construction contract adequately captures its liabilities under upstream contracts if a completion delay occurs.
• If owners wish to retain the ability to raise claims against contractors for sums under VPPAs (or equivalent offtake arrangements), they may wish to consider bringing these agreements (or at least their key terms) to the contractor's attention. This is particularly the case where the owner has concluded a more unusual arrangement under which its obligations and liabilities are closely tied to the contractor's completion obligations under the construction contract. Disclosure of any project agreements with the contractor will also need to be aligned with any confidentiality provisions under the relevant agreements.
• Owners could require contractors to indemnify them against any losses they incur under other project agreements as a result of contractor-caused delay to project completion. The effectiveness of such an indemnity would, however, depend on the language of the provision and the choice of governing law. Common law jurisdictions, for example, may interpret such provisions restrictively in favour of treating delay liquidated damages as an exhaustive relief for delay. So clear and careful drafting would be required to achieve this outcome.

For further information, please contact Daniel Waldek, Tse Wei Lim, Wei Qi Ng or your usual Herbert Smith Freehills contact.