Gwynt Y Mor Ofto Plc v Gwynt Y Mor Offshore Wind Farm Ltd & Ors

A contractual indemnity for assets damaged before completion is construed from the contract as a whole, with the wording receiving particular weight in a detailed, professionally negotiated agreement. The phrase “destroyed or damaged prior to Completion” referred to damage occurring between signing and completion, not damage which had already occurred when the agreement was made. In this context, damage had to be patent and readily observable or discoverable. Unobservable corrosion which had not impaired the asset’s use or value did not qualify. Notice and repair provisions were not conditions precedent to the indemnity where the indemnity was expressed unconditionally and urgent repair could be required before the cause of failure was known.

The claimant acquired an offshore electricity transmission business and its assets from the defendants under a sale and purchase agreement. Two subsea export cables failed after completion. Investigation showed that latent manufacturing defects had allowed corrosion to develop before and after completion.

The claimant sought approximately £15 million in reinstatement costs under clause 8.2, which indemnified it against the cost of assets destroyed or damaged prior to completion. The defendants disputed the temporal scope of the indemnity, whether corrosion constituted damage, and whether compliance with related notice and repair provisions was a condition of recovery. They also sought rectification of clause 8.2 if the court accepted the claimant’s interpretation.

1. Claim dismissed. The indemnity in clause 8.2 was not engaged by the cable failures.
2. The court applied the unitary approach to contractual interpretation stated in Rainy Sky SA v Kookmin Bank [2011] UKSC 50, Arnold v Britton [2015] UKSC 36 and Wood v Capita Insurance Services Ltd [2017] UKSC 24. The contract was considered as a whole, with the text given particular weight because the agreement was lengthy, detailed and professionally negotiated. There was no general presumption that provisions imposing liability should be construed restrictively.
3. On the proper construction of clause 8.2, “prior to Completion” referred to the period between execution of the agreement and completion. The warranty structure dealt with the position at signing, while the indemnity dealt with damage arising during the interim period. The contractual scheme and liability caps supported that chronological allocation of risk.
4. “Destroyed or damaged” was not confined to new damage or damage caused by an external event. However, the damage had to be patent, in the sense of being readily observable or discoverable. Slow, unobservable corrosion which had not adversely affected the cables’ performance, value or usefulness was outside the clause. In any event, there was no evidence that the corrosion occurring during the short interim period had itself impaired the cables.
5. Clauses 8.3 to 8.5 were not conditions precedent to the indemnity and were not interdependent with it. The indemnity was expressed unconditionally. Urgent repair might be necessary before the cause of failure and the existence of qualifying damage could be identified.
6. The court additionally considered rectification. Following FSHC Group Holdings Ltd v Glas Trust Corporation Ltd [2019] EWCA Civ 1361, rectification required either a prior concluded contract or a common actual intention, outwardly expressed so that the parties understood themselves to share it, together with a mistake in the document. The contemporaneous correspondence established that common intention. Rectification would therefore have been ordered if necessary, but the issue did not arise on the construction adopted.