Lal Lal Wind Farms Nom Co Pty Ltd v Vestas — Australian Wind Technology Pty Ltd
[2020] VSC 875
•18 December 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TECHNOLOGY, ENGINEERING AND CONSTRUCTION LIST
S ECI 2020 03894
| LAL LAL WIND FARMS NOM CO PTY LTD (ACN 625 768 774) AS AGENT FOR THE LAL LAL WIND FARMS PARTNERSHIP | Plaintiff |
| v | |
| VESTAS — AUSTRALIAN WIND TECHNOLOGY PTY LTD (ACN 089 653 878) | First Defendant |
| ZENVIRON PTY LTD (ACN 612 344 313) | Second Defendant |
| VESTAS WIND SYSTEMS A/S | Third Defendant |
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JUDGE: | Stynes J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 16 December 2020 |
DATE OF JUDGMENT: | 18 December 2020 |
CASE MAY BE CITED AS: | Lal Lal Wind Farms Nom Co Pty Ltd v Vestas — Australian Wind Technology Pty Ltd & Anor |
MEDIUM NEUTRAL CITATION: | [2020] VSC 875 |
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INJUNCTION — Whether continued operation of wind farm generators interferes with defendant’s ability to comply with its contractual obligations — Whether defendant entitled to constrain wind farm operation — Whether there is a serious issue to be tried — Whether damages are an adequate remedy — Whether balance of convenience favours granting injunction — Bradto Pty Ltd v State of Victoria (2006) 15 VR 65, applied — Patrick Stevedores (No 2) Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1, applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | D Batt QC with B Mason | Herbert Smith Freehills |
| For the Defendants | N Pane QC with F Cameron | Pinsent Masons |
HER HONOUR:
A Introduction
On 2 December 2020, the Court enjoined, on an interim basis, the first and second defendants (together, the Contractor) from constraining in any way the operation of the wind turbine generators (WTGs) at the Lal Lal Wind Farm sites located on land at Elaine and Yendon, within Moorabool Shire in the state of Victoria (the Project), and from putting such WTGs into pause mode.
A further order was made that the restraint would not apply to the extent permitted by cl 14(a) of the contract for the engineering, procurement and construction of the Lal Lal Wind Farms, which was novated to the plaintiff by way of the Novation and Amended Deed — EPC Contract dated 15 June 2018. This provided that the first defendant and/or second defendant first consult with the plaintiff, to the extent possible, and provide the plaintiff with reasonable particulars of such interference as soon as reasonably possible.
The plaintiff seeks an order that the injunction remain in place pending trial or further order.
The plaintiff relies on the following ten affidavits in support of its application:
(a)Thomas William Hugh Irvine affirmed 8 and 15 December 2020;
(b)Tomas Vincent Keraitis affirmed 8 and 15 December 2020;
(c)Owen Clive Kelp affirmed 8 and 15 December 2020;
(d)Mathew Allan Shelley sworn 8, 9 and 15 December 2020; and
(e)Mr Robert Pey-Hock Ng sworn on 16 December 2020.
The plaintiff no longer seeks to rely on the affidavit of Clare Louise Smethurst sworn 3 December 2020.
In response the defendant relies on the following six affidavits:
(a)Clay Anthony Douglas affirmed 14 December 2020;
(b)Christopher James Williams affirmed 14 December 2020;
(c)Neil Alexander Dodds affirmed 14 December 2020;
(d)Neville Russell Gall affirmed 14 December 2020;
(e)Peter Tait Cowling affirmed 14 December 2002;
(f)Ragu Balanathan affirmed 14 December 2002.
Both parties provided a short written outline of submissions.
For the reasons that follow, I will grant an injunction restraining the Contractor from implementing a 0MW constraint on the Lal Lal Wind Farms and putting the WTGs into pause mode in reliance on the matters of interference identified by the Contractor in this proceeding.
B Background
B.1 Contractual relationship
On around 27 April 2018, the Contractor was engaged to engineer, procure and construct 60 WTGs at the Lal Lal Wind Farm sites at Elaine and Yendon in Victoria having a maximum generation capacity of 228MW (Contract).
Also on around 27 April 2018, the first defendant entered into an operation and maintenance agreement in relation to the Lal Lal Wind Farms (O&M Agreement).
The Contract and O&M Agreement were amended by novation and amendment deeds dated 15 June 2018.
The Principal under the EPC Contract and O&M Agreement is the plaintiff.
B.2 Status of works under the Contract
The Contract specified 2 dates for practical completion of the works:
(a)Practical Completion Date — Elaine, 19 September 2019;
(b)Practical Completion Date — Yendon, 24 July 2019.
Neither date has been achieved and the works remain on foot.
The Contractor has made a number of extension of time claims under the Contract and the Principal’s Representative has determined that the Contractor is not entitled to any extensions of time to the relevant dates for practical completion.
Clause 14(a) of the Contract provides:
To the extent that it does not interfere with, or limit, the Contractor’s ability to comply with its obligations under this Agreement, the Contractor must, in consultation with the Principal and to the extent permitted by, and in accordance with, the Contractor’s obligations under this Agreement, maximise ‘sent out’ generation and Green Benefits from the Works prior to the Practical Completion Date — Elaine or the Practical Completion Date — Yendon (as applicable) so as to maximise Early Generation Revenue.
The revenue flowing from the operation of the WTGs prior to practical completion, is to be shared between the parties in accordance with clauses 14(b) and (c).
The Lal Lal Wind Farms have generated electricity since mid-2019.
B.3 Obligations under the O&M Agreement
Works under the O&M Agreement commenced on around 27 May 2019. The services required include:
(a)scheduled maintenance activities;
(b)unscheduled maintenance activities; and
(c)planned upgrade works as necessary for existing plant, equipment and software. Where possible these are performed at times consistent with scheduled maintenance activities.
Mr Douglas for the Contractor deposes that from time to time it is necessary for the Contractor to pause the WTGs to rectify defects or to carry out upgrade works. Pausing the WTGs means placing a 0MW constraint on the turbines or on a temporary basis manually preventing the WTGs from generating electricity. However, they remain connected and powered up.
Alternatively the WTGs may be stopped where a technician is undertaking work in or around it.
If all or some of the WTGs are paused:
(a)the scheduled maintenance activities and upgrade works are required to continue;
(b)unscheduled maintenance would also need to continue although Mr Douglas deposes that it would not generally be required immediately during any period in which the WTGs are paused;
(c)the mechanical and electrical forces impacting the various components of the turbines are significantly reduced, which reduces the extent of wear and tear of components, although it has not been possible to quantify the extent of that reduction; and
(d)Mr Douglas deposes that they could manually recommence generation without fault in a matter of minutes.
Works commenced under the O&M agreement on around 27 May 2019. In June 2020, the first defendant issued an invoice to the Principal in the sum of $1,048,262.92 in relation to those works. This invoice has not been paid. There is a dispute between the parties about the first defendant’s entitlement to payment for those works.
B.4 These proceedings
In October 2020, the plaintiff commenced these proceedings alleging that the Contractor has failed to reach practical completion of the works by the dates for practical completion under the Contract and that therefore the Contractor is liable to pay liquidated damages. The plaintiff claims liquidated damages in the sum of $15,456,850.27.
At 6.34pm on 1 December 2020, the Contractor notified the plaintiff:
(a)that it considered ‘the continued operation of the [WTGs] is interfering with the Contractor’s ability to comply with its obligations under the EPC Contract’; and
(b)of its intention to place a 0MW constraint on the Lal Lal Wind Farms’ WTGs from 9:00am the next morning and to put the WTGs into pause mode from that time.
The Contractor did not at that time provide any further details of the alleged interference.
The practical effect of the course proposed by the Contractor is that the WTGs will not generate any electricity for the duration of the period in which the Contractor’s constraint remains in place.
The Contractor has not identified the duration of the period in which it proposes to constrain the generation of electricity.
Early in the morning on 2 December 2020, the matter came before Nichols J who enjoined the defendant as described above.
C The alleged interference relied on by the Contractor in support of the 0MW constraint
By the evidence filed and by its counsel’s submissions, the Contractor asserts that the ongoing operation of the WTGs interferes with or limits the Contractor’s ability to comply with its obligations under the Contract[1] as follows:
(a)it increases the likelihood of failures to the WTGs’ components and thereby interferes with or limits the Contractor’s ability to achieve Practical Completion due to the increased risk that issues and defects will arise;[2]
(b)it increases the risk that the serrated trailing edges of the blades on the WTGs may separate from the blades. If enough of the serrated edges on the blades fall off a turbine located in close proximity to a receptor (house), the acoustic performance of the turbine will be impacted and the serrated edge would likely need to be replaced before the Contractor is able to comply with the required Noise Compliance Guarantee;[3]
(c)it may adversely impact the performance of the WTGs over time (at a rate of around 0.1% per year) and thereby interfere with or limit the Contractor’s ability to achieve the required Power Curve Guarantee;[4]
(d)it may propagate chordwise delamination in a limited number of blades (87) that the Contractor has identified are susceptible to such a defect.
[1]Affidavit of C Williams dated 14 December 2020 at [43].
[2]Ibid [44]–[51].
[3]Ibid [44(b)], [52]–[57].
[4]Ibid [44(c)], [58]–[63].
In relation to the issue of chordwise delamination, Mr Dodds, Vestas’ Blade Coordinator, deposes that:
(a)chordwise delamination is an issue that primarily affects the internal layer of a blade and gradually increases in severity while the blade is under load. This issue has arisen at the Lal Lal Wind Farms and has been assigned a Continuous Improvement Management number — CIM4814;
(b)since CIM4814 has been logged a team (the details of which are not specified) have been developing a response to it. Mr Dodds was not aware of the current status of the precise response but was aware that it has been in development since around March 2020 when irregularities were visually observed;
(c)in around March 2020, 22 of 180 blades were affected across 21 WTGs (the First Set);
(d)it seems that CIM4814 only affects a particular type of blade (V136) at a particular location of the blade (known as R700);
(e)investigation into CIM4814 has determined that damage starts with the delamination of the blade on the internal layer and that over time and under load creates strain on the delamination, which becomes white, weakens and becomes larger;
(f)it is likely caused by an error in one of the blade moulds used during manufacturing;
(g)continued operation of the WTGs increases the likelihood that existing delamination will develop into cracks which will expand over time with the potential to cause a blade failure. However, Mr Dodds is unable to estimate how long it will take for a crack to develop to the point of failure or any other rate of degeneration;
(h)the First Set of blades was repaired between February and November 2020;
(i)there are 87 blades across 54 of the WTGs at the Lal Lal Wind Farms which were manufactured using the affected mould and require upgrade works. Some of these were repaired as a part of the First Set and now require additional reinforcement;
(j)between March and October 2020, physical inspections were undertaken of the 87 blades and none of them have been identified as being affected by chordwise cracking or delamination. However, they are considered to be at higher risk of being affected by CIM4814 even if there are no visible signs on those blades when they were inspected;
(k)the first defendant plans to undertake upgrade works in 2021 to reinforce the area on 87 blades in the Second Set which may ultimately become affected. It is expected there will be up to 5 crews working on different blades and will take around 3 days per blade, or possibly 4 days if there is minor damage.
D Potential consequences to the plaintiff if a 0MW constraint is implemented
By evidence filed by the plaintiff it asserts that it would suffer the following consequences if a 0MW constraint was implemented.
D.1 Loss of revenue
The plaintiff generates revenue in two ways:
(a)by selling electricity on the spot market on a merchant (or non-contracted) basis when available or to third parties under contracts for difference known as proxy revenue swap (PRS) arrangements; and
(b)by selling LGCs (large scale generation certificates) through offtake agreements or on the spot market where available.
A PRS is a hedging contract with an insurer to hedge against the risk of price fluctuations on the NEM spot market and variability in actual wind conditions. There are two PRS arrangements in place each with the same insurer counterparty but with different underlying customers (both are large commercial packaging manufacturers) to whom the plaintiff effectively supplies electricity generated by the Lal Lal Wind Farms.
The PRS provides that the insurer is to pay the plaintiff a pre-agreed fixed amount each month. The plaintiff must then pay to the insurer the revenue the plaintiff would have expected to earn on the NEM based on the wind farms’ actual operational availability and the NEM spot price during that period. Significantly, the plaintiff must pay the insurer the expected revenue regardless of whether it actually earned that revenue.
To offset this liability the plaintiff sells the electricity actually generated by the Project in the NEM. If the Lal Lal Wind Farms are generating electricity without constraint then the plaintiff can meet its liabilities under the PRS.
The plaintiff also earns revenue from selling LGCs (large-scale generation certificates) through offtake agreements with third parties. It is currently party to four such agreements. If it has surplus LGCs it can sell them on the spot market. If it does not have sufficient LGCs to meets its commitments under its offtake agreements it must purchase LGCs on the spot market to on-supply to its counterparties to meet its obligations.
If the Project is not generating electricity then the Plaintiff will not earn any revenue from the supply of electricity to the NEM or generate any LGCs.
The plaintiff conservatively estimates that imposing the constraint from 16 December 2020 to 31 March 2021 would cause its revenue to decrease by $13.59M.
The estimate of the decrease in revenue is addressed in the first affidavit of Mr Irvine dated 8 December 2020.
D.2 Financing arrangements
If there is a reduction in revenue over a sufficient period of time then the plaintiff may not be able to pay amounts due to third parties under its various financing arrangements relating to the Project.
Mr Irvine for the plaintiff deposes to the project’s financing arrangements. In summary he says:
(a)the plaintiff is a party to various finance documents as a guarantor and security provider. These include an approximately $225M syndicated debt facility agreement dated 15 June 2018 (SFA);
(b)an entity related to the plaintiff (Lal Lal Wind Farms Finco Pty Ltd) is the named borrower under the SFA;
(c)other finance documents are also in effect in relation to the Project including a security trust deed, asset security arrangements and the interest rate hedging arrangements;
(d)the National Australia Bank Ltd has been appointed as agent, security trustee and account bank for the secured project financing;
(e)the borrower, plaintiff and each of the guarantors under the SFA are the ‘Transaction Parties’ under the finance documents. Each Transaction Party provides an unconditional and irrevocable cross guarantee and indemnity in favour of the finance parties in respect of each Transaction Party’s payment and other obligations under the finance documents;
(f)an all asset security has been granted by each Transaction Party in favour of the security trustee;
(g)National Australia Bank Ltd, as the security trustee holds all of the security on trust for the benefit of the beneficiaries including the lenders, hedging counterparties, security trustee, agent and account bank under the finance documents;
(h)under the SFA, the principal debt amount is required to be repaid on a quarterly amortising basis. The next principal debt repayment is approximately $4.2M due on 1 January 2021;
(i)interest accrues on the principal debt outstanding on a daily basis. It is currently required to be paid on a quarterly basis; and
(j)a default by the plaintiff to meet its obligations under its various financing arrangements is said by the plaintiff to constitute an event of default under the SFA conferring various rights on its financiers including to declare the full amount of the facility then outstanding to be immediately due and payable, and directing the security trustee to enforce the all asset security. The full amount outstanding is presently around $207,682,89.
In short, the plaintiff says that if generation of electricity was curtailed and an event of default occurred under the SFA, there would be a material risk of the security trustee exercising its rights to take possession of the secured property and sell the project assets to a third party.
Mr Dodds for the Contractor refers in his affidavit to chordwise cracking defect rectification works being completed by approximately September 2021.
By his reply affidavit Mr Irvine states that if it is the case that the Contractor is proposing to constrain generation of all turbines at the Lal Lal Wind Farms to 0MW until completion of rectification works in September 2021, it would almost certainly place the plaintiff in default under the PRS and LGC offtake arrangements and under the SFA.
D.3 Reputational damage
The plaintiff submits that the reputation of the plaintiff and its shareholders as project sponsors and parties is likely to be compromised if it defaults under the Project’s financing arrangements.
Such a loss of reputation is expected to follow:
(a)any failure by the plaintiff to meet its supply obligations under the PRS and LGC offtake arrangements which will impact its credibility as a renewable energy generator and as a counterparty to current and potential future off-takers; and
(b)any default by the plaintiff in its obligations to make contracted PRS payments to off-takers.
The plaintiff says that such a loss of reputation may compromise the plaintiff’s ability and the ability of its shareholders to conduct business within the renewable electricity generation market in the future, specifically:
(a)as project sponsors;
(b)in relation to their capacity to successfully develop a project through to the construction phase and into operations; and
(c)in relation to their capacity to procure finance in the future.
D.4 Diminution of value of the Lal Lal Wind Farms
By his reply affidavit, Mr Irvine states that a substantial part of the value of the Lal Lal Wind Farm asset is tied to the fact that the PRS and LGC offtake agreements are in place. Those agreements are said to assure the Project of a level of revenue, and the termination of those agreements will have a significant impact on the overall value of the asset. The potential diminution in value will be particularly significant if the lenders are in a position of seeking to enforce their security in the event of a default by the plaintiff.
D.5 Effect on wholesale prices
The plaintiff submits, supported by modelling, that the Contractor’s proposed constraint will result in an increase in the wholesale electricity price in Victoria. On the basis of modelling the plaintiff says that a constraint would see aggregate wholesale prices increase by $31.4M over the period from 1 December 2020 to 30 June 2021. It is further submitted that such an increase would be likely to have implications over the longer term as increased wholesale spot prices can be expected to influence the pricing benchmarks for future pricing arrangements and that higher future spot prices would, most likely, be borne by consumers.
This submission is based on the affidavit of Mr Kelp, an expert in electricity price forecasting.
Against this evidence the Contractor says that it is unlikely the loss of 228MW of potential wind generation at the Lal Lal Wind Farms will have such consequences for the wholesale electricity price in Victoria because:
(a)there are innumerable factors affecting supply and demand in the energy market which can affect the wholesale electricity price. It is the Contractor’s position that the modelling relied on by the plaintiff is meaningless;
(b)it would be difficult to identify any consequences of the Lal Lal Wind Farms withdrawing 228MW on the wholesale electricity price having regard to the fact that a number of other wind farms have been or are shortly to be commissioned. Mr Cowling for the Contractor says that the commissioning of these projects is likely to continue to suppress the wholesale electricity price in Victoria; and
(c)an increase of 3.7% in the average wholesale prices (as estimated by the plaintiff) is not material in any event.
D.6 Effect on grid security
Finally, the plaintiff submits that curtailing electricity generation also has the potential to affect electricity supply in Victoria in the 2020/21 summer in this way:
(a)electricity demand in Australia peaks in summer;
(b)circumstances may arise such that the Australian Energy Market Operator (AEMO) needs to take steps to reduce the demand for electricity in Victoria which may include:
(i)activating the Reliability and Emergency Reserve Trader (RERT) contracts it has agreed with major electricity consumers. These contracts require that the counterparties cease drawing electricity from the grid at the times, and for the durations, AEMO designates in exchange for compensation;
(ii)involuntary load shedding. This involves switching off the electricity supplied to groups of consumers in an effort to protect the electricity grid’s security;
(c)subject to the Lal Lal Wind Farms’ operational availability, the electricity it would generate, but for the Contractor’s proposed actions, may mean that AEMO is not required to take steps to reduce electricity demand. Or it might assist in reducing the extent of the steps required such as:
(i)reducing the extent AEMO requires major electricity consumers to modify the power they draw from the grid in exchange for compensation; and
(ii)shutting off supply to groups of consumers in an effort to protect the electricity grid’s security.
That is because, but for curtailing generation, and subject to the Lal Lal Wind Farms’ operational availability and fuel supply, there would be up to another 228MW of electricity being generated at that time.
The plaintiff says that AEMO has estimated that the cost of engaging the RERT contracts in Victoria in 2019/20 at $15,881.59 per MWh. If the Lal Lal Wind Farms were not operating then the estimated hourly cost of engaging the RERT contracts to ameliorate the absence of generation from the Lal Lal Wind Farms would be $1,267,350.88.
Against this the Contractor gives evidence that the Lal Lal Wind Farms are an intermittent generator, which means that the energy generation fluctuates significantly depending on wind conditions. Due to the intermittent nature of wind, the Lal Lal Wind Farms will only operate at its rated power (ie maximum generation) capacity for brief periods of time.
Further, Mr Gall of the Contractor deposes that it would take the Contractor approximately five minutes to return the wind farm to operating mode from pause mode and that the wind farm would commence generating energy immediately upon being put into operating mode (assuming adequate wind conditions and no residual turbine faults).
E Applicable legal principles
The legal principles are not in dispute.
Granting interlocutory relief is a discretionary matter.
In the exercise of the Court’s discretion the Court must be satisfied that:[5]
(a)there is a serious question to be tried as to the plaintiff’s entitlement to relief;
(b)the plaintiff is likely to suffer injury for which damages will not be an adequate remedy; and
(c)that the balance of convenience favours the granting of an injunction.
[5]Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, 68 [19] (Gleeson CJ and Crennan J); Bradto Pty Ltd v State of Victoria (2006) 15 VR 65, 74 [39], 82 [84] (Maxwell P and Charles JA).
These are the organising principles to be applied having regard to the nature and circumstances of the case. They are derived from the fundamental principle ‘that the court should take whichever course appears to carry the lower risk of injustice’ under which issues of justice and convenience are addressed’.[6]
[6]Films Rover International Ltd v Cannon Film Sales Ltd [1986] 3 All ER 772, 780–1 (Hoffmann J) cited with approval in Businessworld Computers Pty Ltd v Australian Telecommunications Commission (1988) 82 ALR 499, 502 (Gummow J); see also Bradto Pty Ltd v State of Victoria (2006) 15 VR 65, 89 [32] (Maxwell P and Charles JA).
Regardless of whether it is prohibitory or mandatory, the Victorian Court of Appeal in Bradto Pty Ltd v State of Victoria held (per Maxwell P and Charles JA) that the Court ‘should take whichever course appears to carry the lower risk of injustice if it should turn out to have been “wrong”, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial’.[7]
[7](2006) 15 VR 65, 73 [35] (Maxwell P and Charles JA).
In determining where the balance of convenience lies, the rights of the plaintiff and the defendant are not the only rights considered. The impact of an interlocutory injunction on the rights of third persons who are not parties may be a relevant factor.[8]
[8]Miller v Jackson [1977] QB 966, 988 (Cumming-Bruce LJ); Silktone Pty Ltd v Devreal Capital Pty Ltd (1990) 21 NSWLR 317, 324 (Kirby P); Patrick Stevedores (No 2) Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1, 41–3 [65]–[66] (Brennan CJ, McHugh, Gummow, Kirby and Hayne JJ).
F Is there a serious issue to be tried as to the plaintiff’s entitlement to relief?
The question is not whether final relief ought to be granted. It is whether the plaintiff has made out that there is a serious question to be tried or to put it another way, a prima facie case for the grant of such relief. It is not necessary for the plaintiff to show that it is more probable than not that at trial the plaintiff will succeed. Rather it is enough that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial.[9]
[9]Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618, 625 (Kitto, Taylor, Menzies and Owen JJ).
There was no dispute that there is a serious issue to be tried, specifically, whether or not the Contractor’s proposed action to implement a constraint of 0MW would constitute a breach of cl 14(a) of the Contract.
However, there was a dispute about the strength of the plaintiff’s prima facie case. This issue was the subject of lengthy and persuasive submissions by the plaintiff’s counsel. In summary it was submitted that:
(a)cl 14(a) of the Contract compels the Contractor to maximise ‘sent out’ generation and Green Benefits from the Works prior to practical completion;
(b)there is a carve out from that obligation but only to the extent that it interferes with, or limits, the Contractor’s ability to comply with its obligations under the Contract;
(c)the interference described by the Contractor (apart from the alleged interference relating to chordwise delamination) flows from wear and tear naturally occurring as a result of the obligation to operate the WTGs and thereby maximise output;
(d)such wear and tear is a risk allocated to the Contractor by operation of cl 14(a) and is not interference justifying the implementation of a 0MW constraint for an indeterminate time; and
(e)chordwise delamination is a consequence of a defect for which the Contractor is responsible and is not interference permitting the implementation of a 0MW constraint for an indeterminate time. Further, at this time, no delamination has been identified in any of the 87 potentially susceptible blades and it is not necessary to implement a 0MW constraint across all WTGs to undertake the required rectification works.
I am satisfied that there is a serious question to be tried and that it is strong.
G Is the plaintiff likely to suffer injury for which damages will not be an adequate remedy?
As described above, the plaintiff identifies the following consequences that may flow from the implementation of the 0MW constraint for an indeterminate time:
(a)loss of revenue to the plaintiff;
(b)potential default under the PRS arrangements, the offtake arrangements and the SFA, and the consequent risk to the asset under the all asset security;
(c)reputational damage;
(d)diminution of value of the Lal Lal Wind Farms;
(e)the effect on wholesale prices; and
(f)the effect on grid security.
It is the Contractor’s position that if the injunction is not granted and the Contractor turns out not to have been entitled to pause the WTGs, the injustice to the Principal is calculable in financial terms and that damages are an adequate remedy.
I accept that submission in relation to the loss of revenue and the diminution of value of the Lal Lal Wind Farms. However, it does not adequately address the nature of the other forms of potential injury.
In relation to the potential default under the PRS arrangements and the SFA, and the consequent risk to the secured under the all asset security, the Contractor says that I should not too readily accept the suggestion that the plaintiff may not be able to pay amounts due to third parties absent any evidence of the plaintiff’s financial position or ability to withstand a short-term reduction in Early Generation Revenue. I am not persuaded by the Contractor’s submission. The intended duration of the 0MW constraint has not been identified by the Contractor. Therefore, there is no reason for me to conclude that the reduction in Early Generation Revenue will be short-term. Further, contrary to the Contractor’s submission, Mr Irvine for the plaintiff has stated that if the constraint of 0MW was to continue until September 2021 it would almost certainly place the Principal in default under the PRS and LGC offtake arrangements under the SFA.
In relation to the potential for reputational damage, the Contractor submits that I should doubt whether ‘temporarily constrained output’ from a single project is truly likely to have so great an impact, particularly in light of the extent of the plaintiff’s shareholders’ activities. I reject that submission. Again, it is based on the proposition that the constraint will be temporary. Further, having regard to the grave financial consequences to the plaintiff that may flow from the proposed constraint, I have no difficulty accepting that the reputation of the plaintiff and its shareholders may be adversely affected.
On the basis of my conclusions in relation to the potential for default under its financial arrangements and the potential damage to its reputation, it is clear that if a constraint of 0MW was implemented across the Lal Lal Wind Farms for an indeterminate period, the plaintiff is likely to suffer an injury that is not compensable by damages. It is not necessary for me to go on to consider the potential for the effect on wholesale prices and grid security.
H Does the balance of convenience favour the grant of an injunction?
The plaintiff identified the following matters to be weighed in the balance in its favour:
(a)the strength of the serious question to be tried;
(b)the loss of revenue;
(c)the risk of default under its financing arrangements and the consequences flowing from such a default;
(d)the commercial and reputational risk; and
(e)the prejudice suffered by innocent third parties as a consequence of the increased wholesale price and the potential risk to grid security.
In favour of the defendant is
(a)the existence of the alleged interference; and
(b)the practical problems arising out of the injunction on the terms granted by Nichols J on 2 December 2020. Specifically, the Contractor submits that it runs the risk of breaching Court orders unless it first consults with the Principal each time it is required to take contractually permitted action and that the uncertainty on its part as to what it can do under the injunction is insurmountable.
I find that the lower risk of injustice lies in the grant of an injunction to maintain the status quo, specifically restraining the Contractor from implementing a 0MW constraint in reliance on the alleged interference. In reaching that conclusion I have had regard to the following factors:
(a)the matters identified in paragraph 73(a)–(d) above. These matters weigh heavily in favour of the plaintiff. While the evidence going to the matter identified in paragraph 73(e) above was a clear and detailed having regard to the very short period available for its preparation, I was not able to form a view about how material the asserted risk of injury was and so excluded it from my consideration;
(b)the nature of the alleged interference. As stated above, based on the information before me for the purpose of this application, I am persuaded that the plaintiff’s prima facie case is strong and that the alleged interference is unlikely to justify the Contractor implementing a 0MW constraint. This factor again weighs in favour of the plaintiff;
(c)the injustice to the Contractor arising from the potential chordwise delamination, and any related increase in rectification costs. In the absence of evidence of any existing delamination or of the rate such delamination could develop and worsen, this risk of injustice does not outweigh the real and significant risk of injury to the plaintiff if the proposed constraint is implemented; and
(d)the order made by Nichols J was made on an interim basis and as a matter of urgency. Any practical problems arising from the form of that order can be addressed in the new order, informed by the additional material now before the Court.
Orders
Accordingly, I shall order:
(a)Until further order and subject to the order below, the first and second defendants are each restrained from constraining in any way the operation of the WTGs and the Lal Lal Wind Farms and from putting such WTGs into pause mode in reliance on the matters identified.
(b)The above order shall not apply to the extent necessary for the first and/or second defendant to attend to the periodic inspection, rectification or the upgrade of blades suffering or identified by the Contractor as being at risk of chordwise delamination. That is, a WTG may be constrained as required during the period a blade on it is being inspected, rectified or upgraded.
(c)Paragraphs 1 and 2 of the orders made by the Honourable Justice Nichols on 2 December 2020 be vacated.
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