On 8 April 2020, the Commercial Court handed down judgment in Gwynt y Môr OFTO Plc v Gywnt y Môr Offshore Wind Farm Limited and ors  EWHC 850 (Comm), a dispute concerning the proper interpretation of an indemnity in a Sale & Purchase Agreement (“SPA”) for one of the UK’s largest offshore wind farms, Gywnt-y-Môr. The case may be of general interest to the offshore wind generation industry and those involved in drafting such contracts. The case is also the first published judgment following a full trial to discuss the test for rectification as restated in FSHC Group Holdings Ltd v GLAS Trust Corporation Ltd  EWCA Civ 1361.
Under the SPA dated 11 February 2015, the Defendants agreed to sell and the Claimant agreed to buy the business of owning, maintaining and operating the electrical transmission link between Gywnt-y-Môr and the National Grid. This included four subsea export cables. The transaction completed on 17 February 2015.
The SPA contained an indemnity pursuant to which the Defendants agreed to indemnify the Claimant against the full cost of reinstatement of (among other things) the cables if they were “destroyed or damaged prior to Completion”.
On 2 March 2015, one of the cables (SSEC1) failed as a result of ongoing corrosion whilst it was submerged under the sea. A second cable (SSEC2) failed on 25 September 2015 for similar reasons. The Claimant undertook repairs of the damaged cables, the cost of which was agreed at £15 million. The Claimant claimed this sum under the indemnity clause, alleging that the cables failed as a result of damage sustained prior to Completion.
Lord Justice Phillips held that:
- Both the specific wording of the indemnity clause and the broader structure, provisions and commercial sense of the SPA supported the Defendants’ case that the indemnity related only to damage occurring between the execution of the SPA and completion. The Defendants had given a warranty in relation to the period up to signing of the SPA, the indemnity for the period between signing and completion, and a further indemnity in respect of ongoing works for the period thereafter.
- Had that not been the case, the Defendants would have been entitled to an order for rectification in light of the pre-contractual communications between the parties, and in particular the written communications between the parties. As the Judge commented at paragraph 120: “Whilst a finding that a contract should be rectified is unusual, and may be more so in the light of the decision in FSHC, it may be less surprising for a court to find, on an alternative basis, that the parties had an actual common intention which accords with the true interpretation of a contract”.
- The phrase “are destroyed or damaged” required damage to be patent, in the sense of being readily observable or discoverable (and so did not include undiscoverable corrosion which had not adversely affected performance of the cables). As a result, the corrosion of the cables which occurred in this case did not fall within the indemnity.
- Further, even if unobservable corrosion could in principle have constituted damage within the terms of the indemnity, it would only do so if it impaired the value or usefulness of the cables. There was no evidence or reason to believe that corrosion during the six days between signing and completion was in itself sufficient to impair the value or usefulness of either cable.
The judgment is here.