PBS Energo AS v Bester Generacion UK Ltd & Anor

In an amended FIDIC-style construction contract, responsibility for site and subsurface conditions remained with the contractor where the contract contained a clear site-risk clause. A clause addressing errors or delay in specified employer documents did not transfer the underlying ground risk. A rejected extension-of-time claim was not, without more, a material breach because the contractor could refer the dispute to adjudication under the statutory scheme. Contractual milestone payment rights depended on satisfying the agreed conditions, including documentary or marking requirements. A substantial-failure termination clause was not ordinarily triggered by a single late payment. The prevention principle required actual prevention and could not assist a party whose own conduct, abandonment or purported termination caused the relevant failure.

PBS Energo AS contracted with Bester Generacion UK Ltd for the engineering, procurement, construction and commissioning of a biomass energy plant. The project was not completed. PBS purported to terminate for non-payment of milestone 5, failure to determine extension-of-time claims and substantial contractual failures. Bester rejected the termination, later purported to terminate for delay, abandonment and failure to comply with a notice to correct, and counterclaimed for its losses. Bester Generacion S.L.U. was pursued under a parent company guarantee.

The principal issues were the allocation of ground-condition and permit risks, the effect of rejected extension-of-time claims, entitlement to milestone payments, the validity of both purported terminations, the prevention principle, damages and the guarantee.

1. Construction of the risk provisions. Clause 4.10 allocated responsibility for the condition of the Site, including subsurface conditions, to PBS. Clause 17.3(g) dealt with errors, incorrectness, incompleteness or delay in specified documents. It did not transfer the underlying risk of ground conditions to Bester. The competing construction would render clause 4.10 substantially ineffective, contrary to the approach in Dwr Cymru Cyfyngedig v Corus UK Ltd [2007] EWCA Civ 285.
2. PBS failed to establish common-mistake rectification. There was no sufficiently proved common intention or outward expression of accord.
3. A rejection of an extension-of-time claim was not a material breach capable of supporting termination merely because the rejection might be wrong. The claim remained capable of adjudication under Part II of the Housing Grants, Construction and Regeneration Act 1996. Treating such a rejection as immediately terminatory would undermine the statutory pay-now-argue-later scheme.
4. The asbestos, sewer and cable claims did not establish entitlement to extensions of time. The relevant conditions were known or reasonably inferable before contracting, and PBS failed to prove unforeseeability, contractual error or critical-path delay. An extension-of-time assessment had to be considered prospectively, consistently with Walter Lilly & Co Ltd v Mackay [2012] B.L.R. 503.
5. Milestones 3 and 4 had not been achieved. Their commercial or without-prejudice payment did not establish contractual completion. They were prerequisites to milestone 5. In any event, PBS had not satisfied the requirements of clause 14.5 for milestone 5, including marking all relevant plant and materials or providing the alternative documentary evidence.
6. PBS’s termination was ineffective. Clause 16.2(a) had not been engaged because the contractual payment timetable had not been established. A single unpaid instalment representing 5% of the contract price did not amount to substantially failing to perform contractual obligations under clause 16.2(b).
7. PBS had abandoned the physical works, failed to progress essential design and documentary obligations, and demonstrated an intention not to perform by its purported termination. Bester was therefore entitled to terminate under clause 15.2(c).
8. The prevention principle did not assist PBS or VB. The evidence showed that PBS had abandoned the works and had itself locked the Site. In any event, there was no actual prevention of the documentary obligations. The principle was narrow and required factual causation, as explained in North Midland Building Ltd v Cyden Homes Ltd [2018] EWCA Civ 1744.
9. Bester’s counterclaim succeeded, subject to the court’s conclusions on recoverability. Accrued delay liquidated damages and the First Spark Discount survived termination under clauses 8.7 and 21.9. A declaration was appropriate as to VB’s liability under the guarantee if PBS failed to satisfy the judgment within the specified period.