IPM Energy Trading Ltd v Carillion Energy Services Ltd

A contract allocating responsibility for regulatory compliance must be construed as a whole. Where the contractor is responsible for delivering compliance credits, but the customer bears the risk of regulatory fines, an express right to procure replacement credits does not ordinarily extend to expenditure incurred merely to mitigate a fine. Post-deadline measures incapable of satisfying the regulatory obligation fall outside that right where their purpose is mitigation. A contractual exception for deliberate refusal to perform requires a deliberate decision not to perform, made with appreciation that performance is required. A breach, inadequate strategy or failure to achieve the contractual result is not, without more, a deliberate refusal.

The claimant engaged the defendant to provide services enabling it to meet obligations under the Electricity and Gas (Community Energy Saving Programme) Order 2009. The defendant admitted that it had failed to perform its contractual obligations. The claimant sought damages for sums paid to Teesside and Acrobat to obtain or deliver further carbon-saving measures.

The central issues were whether those sums were recoverable under the contractual provisions allowing replacement trading or contracting, whether the contractual exclusions for fines applied, and whether the defendant’s conduct amounted to a deliberate refusal to perform so as to engage an unlimited-liability exception.

1. Claim dismissed. The claimant failed to establish that the sums claimed were losses recoverable by reason of the defendant’s admitted breach.
2. The contract, read as a whole, allocated the risk of delivering CESP Points to the defendant, while leaving the claimant responsible for any fine or penalty. Clauses 5.1 and 5.2 gave the claimant an opportunity to protect itself by purchasing CESP Points, with the reasonable cost of doing so payable by the defendant.
3. The Teesside payment was not recoverable on the facts. The transaction was intended to be made at Teesside’s cost price, not at the alleged market price, and the evidence did not establish the claimed agreement or loss.
4. The Acrobat expenditure was incurred for measures delivered after the regulatory deadline. Those measures could not satisfy the claimant’s carbon emissions reduction obligation and were obtained to mitigate the risk or amount of an Ofgem fine. On the proper construction of the contract, such mitigation costs were the claimant’s responsibility. Otherwise, the exclusions in clauses 25.5.3 and 25.8 would be undermined.
5. Clause 25.8 was not subject to the exceptions in clause 25.2. Even if the apparent cross-reference was intended to refer to clause 5.3, that would not alter the conclusion. The contractual allocation of fines remained effective.
6. “Deliberate refusal” contemplated a deliberate decision to refuse performance in circumstances where the contractor fully appreciated that performance was required. The defendant’s failure to perform, its bidding strategy and its unsuccessful attempts to obtain qualifying schemes did not establish that state of mind. The allegation was therefore not made out.

Not stated in the judgment.