A High Court dispute is pending over Saltend Power Station near Hull.
Entergy Power Development Corporation is suing BP International and BP Chemicals for a declaration as to the validity of a clause requiring the payment of £10m security for completion of works at the power station.
The clause was contained in an agreement concerning the sale of Entergy’s indirect shareholding in Saltend Cogeneration Co Ltd (SCCL), the company that had been set up to develop, own and run the power station.
It is alleged that BP’s consent had been an absolute requirement of the sale, and that BP was entitled to impose any conditions that it chose. The claim says that this resulted in Entergy not being in an equal negotiating position.
It is alleged that, as conditions to its consent, BP stipulated, among other things, a cash payment of £14m, together with extensive upgrade and improvement works to enhance the reliability of steam to its nearby chemical facility. Liquidated damages for delay were allegedly set at £5,000 per day, and Entergy paid £10m completion security into an escrow account.
By August 2002, it had become clear that although Entergy had spent £3.8m, the outstanding works could not be finished by the completion date. Entergy says that BP was unwilling to grant time extensions, and an amended agreement had to be reached.
The claim states that Entergy applied for sectional completion certificates in September 2003, by which time it had spent £9.2m, but that the BP companies declined these applications.
Entergy now contends that the requirement to pay the £10m completion security, as demanded by the agreement, is a penalty clause that is unenforceable, and it seeks a declaration to this effect.
References: EGi Legal News 2/3/04
