High Court dismisses claim that Eirgrid's bond drawdown was discriminatory, ultra vires, or unjust enrichment. Plaintiffs failed to prove loss or trust. Bond remains valid.

THE HIGH COURT

COMMERICAL

[2026] IEHC 210

RECORD NO. 2017/7333P

BETWEEN

LIBERTY INSURANCE LIMITED

AND

SNUGBOROUGH WINDFARM (ROI) LIMITED (IN LIQUIDATION)

PLAINTIFFS

AND

EIRGRID PLC

DEFENDANT

JUDGMENT of Mr. Justice Michael Quinn delivered on the 2nd day of April 2026 Table of Contents PART ONE: INTRODUCTION ............................................................................................ 3 Background .................................................................................................................... 4 PART TWO: THE BALLAKELLY FACILITY ................................................................... 5 Termination of Connection Agreement and draw down of the bond ............................ 7 PART THREE: THESE PROCEEDINGS ............................................................................. 9 PART FOUR: THE ACT, REGULATIONS, AND LICENCE OF THE DEFENDANT...... 14 Electricity Regulation Act 1999................................................................................... 14 European Communities (Internal Market in Electricity) Regulations, 2000 ............... 15 Memorandum of Association of the defendant ............................................................ 16

29 June 2006: Eirgrid Transmission System Operator Licence................................... 17 PART FIVE: COMMISSION DECISIONS ........................................................................ 18

19 December 2003 CER/03/298: Regulator Consultation on Structure of Tariffs ...... 18

25 August 2009 CER/09/138, Decision Paper on Electricity Network Connection Policy ........................................................................................................................... 19

12 October 2016: CER/16/284: Connection Policy Transitional Arrangements (“the Amnesty”) .................................................................................................................... 22 PART SIX: CHRONOLOGY ............................................................................................. 23

17 July 2008 Offer Letter ............................................................................................. 23

29 October 2009, Transmission Connection Agreement ............................................. 27 July 2013: General Conditions..................................................................................... 29

9 September 2008: The MEC bond ............................................................................. 34 Events after the Connection Agreement ...................................................................... 35 Termination of the Connection Agreement ................................................................. 38 Demand on the bond .................................................................................................... 39 PART SEVEN: THE PRELIMINARY OBJECTIONS ....................................................... 40 First Objection:

Locus Standi....................................................................................... 40 Subrogation .................................................................................................................. 40 Assignment dated 10 August 2016 .............................................................................. 44 Second Objection: Statute of Limitations 1957 ........................................................... 46 Third Objection: Laches .............................................................................................. 47 Fourth Objection:

Connection Agreement validly terminated: Clause 3.2.................. 50 Fifth Objection: Estoppel by Deed .............................................................................. 52 Sixth Objection: Alternative Dispute Resolution ........................................................ 54 Seventh Objection: Collateral Attack/Abuse of Process ............................................. 56 PART EIGHT: THE PENALTY CLAIM ........................................................................... 61 Discussion .................................................................................................................... 63 Nature of the Bond ....................................................................................................... 65 Penalty Clauses Generally ........................................................................................... 69 The bond as a deterrent ................................................................................................ 73 The Purpose of the Bond.............................................................................................. 76 The Secondary Purpose................................................................................................ 78 CER/09/138 25 August 2009:

Decision on Electricity Network Connection Policy . 83 Evidence of Mr. Mullan ............................................................................................... 85 Evidence of Mr. Thompson ......................................................................................... 87 Deep Reinforcement Works ......................................................................................... 90 Energy supply .............................................................................................................. 94

Conclusion on the Penalty Claim................................................................................. 98 PART NINE: THE DISCRIMINATION CLAIM ................................................................ 98

12 October 2016: The Amnesty CER/16/284 ............................................................ 100 Cuilleen and Suir........................................................................................................ 106 Ballakelly ................................................................................................................... 108 The first plaintiff ........................................................................................................ 113

Conclusion as regards discrimination ........................................................................ 115 PART TEN: CONCLUSION ............................................................................................ 116 PART ONE: INTRODUCTION

1. The Electricity Supply Board (ESB) is the owner of the electricity transmission and distribution network in the State. The grid infrastructure of the network is operated by the defendant, which is known as the transmission systems operator (“TSO”). The defendant is owned by the State and is responsible for the operation and development of the grid. It is regulated pursuant to the Electricity Regulation Act 1999 (“the Act”) as amended, and by the European Communities (Internal Market in Electricity) Regulations 2000 (SI 445/2000) as amended, the “Regulations”.

2. On 29 October 2009, the second named plaintiff entered a Connection Agreement with the defendant, committing that it would construct an electricity generating facility at Ballakelly, County Louth, which would connect to the national grid. As security for this commitment, it procured that the predecessor of the first plaintiff, Quinn Insurance Limited, issue a bond in favour of the defendant. When the second plaintiff failed to construct the facility and connect to the grid, the defendant drew down the bond in its full amount of €4.45m, which the first plaintiff paid. In these proceedings the plaintiffs claim that the contractual requirement for the bond and the amount of the bond amounted to a penalty which is unenforceable. They also claim that in drawing down the bond the defendant discriminated against them in breach of the Electricity Regulation Act 1999 and the European Communities (Internal Market in Electricity) Regulations 2000 (SI 445/2000). They claim for recoupment of the bond amount paid over.

3. The defendant denies that the law relating to penalties applies to the requirement for the bond, and denies that it discriminated unlawfully against the plaintiffs. It advances a number of preliminary objections to the proceedings, including the Statute of Limitations, laches, estoppel, and claim that if the bond requirement and its quantum were to be challenged the proper procedure was judicial review of relevant decisions and directions of its regulator, then the Commission for Energy Regulation and that these proceedings are a collateral attack to those decisions and distinctions.

Background

4. The defendant is licensed by the Commission for Regulation of Utilities, formerly the Commission for Energy Regulation, to which I refer as the Commission. The Commission issues directions, decisions and authorisations to the defendant pursuant to the Act and the Regulations.

5. A key function of the defendant is to manage the network of connections to the national grid, both from generators of power and from users and distributors. A central feature of this function is to receive applications for connections, to offer connection terms, and where offers are made and accepted, to enter into agreements, known as Connection Agreements for parties to connect to and use the transmission system. Connection Agreements govern the terms and conditions, including pricing, on which generators and others may connect.

6. Each connection absorbs transmission capacity in the grid which is limited. Therefore, in determining the allocation of connections and the conditions of connections one of the important policies is to ensure that capacity in the network is not utilised or committed to parties whose applications are speculative or who ultimately are unable or fail to complete their projects and fail to deliver energy through their committed connection, thereby “hoarding” capacity that could have been availed of by other generators. To discourage such hoarding of network capacity one of the typical preconditions of Connection Agreements is that the applicant provide security for its commitment to proceed. The typical form of such security is the provision of a bond referred to as a Maximum Export Capacity Bond, an “MEC Bond”.

7. The primary purpose of these bonds is to discourage or deter hoarding of capacity on the transmission system.

8. A secondary purpose of the bond is to recover cost to the system incurred as a consequence of a contracted connector failing to complete and connect. The precise definition and scope of this secondary purpose is disputed by the parties and is relevant to the determination of a central issue in this case.

PART TWO: THE BALLAKELLY FACILITY

9. The second named plaintiff was a company in the Quinn Group of companies, an industrial group based at Derrylin, County Fermanagh. On 5 July 2007 it applied to the defendant for a connection to the transmission system of a 445 MW facility which it proposed to build at Ballakelly, County Louth. The facility was to be a combined cycle combustion turbine facility (“CCCT”)1.

10. On 17 July 2008 the defendant issued an offer letter to the second plaintiff. If accepted and implemented the connection would run for a period of 20 years. The offer letter identified the key features of the proposed facility and connection, describing the method of connection, works to be undertaken by the second plaintiff and by the defendant respectively, charges to be levied and security required, being the provision of an MEC Bond. It recorded a number of assumptions applying, provisions relating to ownership of works to be done by the respective parties and conditions precedent to offer acceptance. It identified in Appendix 1 certain critical dates for the construction and commissioning of the connection. The critical dates include a Scheduled Consents Issue Date (“CID”), which is typically a period of nine months after the entry into the Connection Agreement, a Scheduled Works Completion Date, typically twelve months after the scheduled Consents Issue Date and a Scheduled Operational Date (“SOD”), intended to be 30 months after the date of execution of the Connection Agreement.

11. The offer was open for a period of 70 business days from its issue, i.e. up until 24 October 2008. That date was later extended to 29 October 2009.

12. The conditions precedent identified in the offer were threefold:

(1) The signing and returning of the Connection Agreement;

(2) A first stage payment of €473,000;

(3) The provision of an MEC Bond in required form, in an amount of €4.45 million.

13. Paragraph 2.10 provided that “failure to achieve the reserved capacity will entitle the Company [the defendant] to draw down on the security of this bond up to the MEC Capacity Bond Amount”, stated to be €4.45 million.

Contrary to the name of the second plaintiff, this was to be a conventional, not a renewable energy, generator.

14. On 9 September 2008 Quinn Insurance Limited issued the bond in the prescribed form and amount.

15. It was not unusual that certain of the milestone dates identified in Appendix 1 to the offer would be extended, including the date for acceptance of the offer. In this case the date for acceptance was extended and the Connection Agreement was signed and became effective as of 29 October 2009. By later amendments the all-important Scheduled Operational Date was extended more than once, and the Scheduled Operational Date Longstop Date, which originally was 12 November 2012 was extended to 12 November 2014.

16. On 30 March 2010 Quinn Insurance Limited was placed in administration by order of this court.

17. On 6 October 2011, pursuant to an order of the High Court, a transfer of certain of the assets and undertaking of Quinn Insurance Limited was effected to the first named plaintiff, including this MEC bond.

18. On 16 January 2012 a receiver was appointed to the second plaintiff.

19. On 2 August 2012 the first plaintiff confirmed to the defendant its assumption of the obligations of Quinn Insurance under the MEC bond.

20. The facility was never completed.

Termination of Connection Agreement and draw down of the bond

21. On 12 November 2014, being the Scheduled Operational Date Longstop Date, the defendant served Notice of Termination of the Connection Agreement effective 10 December 2014.

22. On 26 November 2014 the defendant served a demand on the first plaintiff pursuant to the MEC bond.

23. The first named plaintiff responded to the demand stating that it did not accept that the demand was valid or enforceable in the circumstances which had occurred. It appointed Clyde & Co. Solicitors and extensive correspondence ensued between Clyde and the defendant. In its letter of 5 December 2014, the first plaintiff stated that it intended to make the case that:

(1) The Connection Agreement was ultra vires the defendant and unlawful and/or ineffective.

(2) That the Connection Agreement failed to incept due to contractual preconditions to inception which had not been satisfied.

(3) That the defendant had failed to mitigate its loss or suffered no loss.

(4) That any contractual entitlement to call on the bond to its full value “as an end in itself (which contractual entitlement was denied) is penal and unenforceable”

24. Clyde & Co. stated that they had instructions, strictly without prejudice to the contents of this letter, that the first plaintiff would make the requested payment of €4.45 million. They stated that this did not constitute acceptance as to the validity or enforceability of the demand.

25. Clyde & Co. stated also that the first named plaintiff reserved all rights to challenge the demand and to recoup the payment in light of the terms of the transaction documents.

26. On 11 December 2014 the first plaintiff paid to the defendant the full amount of €4,45m demanded, reserving its rights as to the validity of the demand.

27. On 18 June 2015 a liquidator was appointed to the second plaintiff.

28. During the year 2015 nothing material occurred between the parties.

29. On 19 May 2016 Clyde & Co wrote to the defendant referring to the previous correspondence and to the payment which had been made under reservation of rights. Clyde & Co. informed the defendant that the reservation of rights remained and it had been consulting in relation to the matter with senior and junior counsel and an expert for the purpose of assessing the legitimacy of the demand.

30. Clyde & Co. informed the defendant that they had been in contact with the liquidator of the second plaintiff for the purpose of securing an assignment to the first plaintiff of all of the second plaintiff's rights in connection with the bond payment, and that a finalised deed of assignment was being prepared.

31. There then ensued extensive correspondence between the parties in which the first plaintiff sought further information and documents in relation to the bond, the Connection Agreement and related documents. The correspondence continued for a prolonged period of time and included requests further to the Freedom of Information Act. Ultimately a number of items were referred to the Office of the Information Commissioner resulting in directions and decisions regarding information requested.

32. On 10 August 2016 the liquidator executed an assignment in favour of the first plaintiff of all “existing and future claims or counterclaims that the [second plaintiff] may have against the [defendant] arising directly or indirectly out of or in connection with under or in relation to the Connection Agreement including but not limited to the MEC bond, the demand and/or the payment of the MEC bond amount by the [first plaintiff].”

PART THREE: THESE PROCEEDINGS

33. On 10 August 2017 the plenary summons was issued.

34. On 26 July 2018 the plenary summons was served on the defendant, together with a Statement of Claim.

35. The plaintiffs claim that they are entitled to “recoup” from the defendant the MEC bond amount on two grounds.

36. Firstly, the plaintiffs claim that the defendant, in making the demand on the bond was guilty of discrimination as between the plaintiffs and comparator transmission system users. They cite three facilities, all operated by a company known as Greener Ideas Limited (GIL), which did not meet their reserved capacity by the relevant long stop dates stipulated in their contracts and in respect of which the defendant did not draw down their bonds. They say that instead GIL was granted a series of extensions which ultimately resulted in GIL being in a position to avail of an amnesty, announced by the Commission on 12 October 2016, whereby non-viable projects could release their capacity before the termination of their connection agreements without penalty and receive partial refunds of the first stage payments, and without any call on the bond in each case.

37. The plaintiffs go further and claim that the bond was not drawn down in respect of any other contracted facility which had not reached capacity by its relevant long stop dates.

38. Secondly the plaintiffs claim that the purpose of the requirement to provide a bond and the contractual term relating to the calculation of the amount of the bond were a penalty and therefore void and/or unenforceable.

39. The plaintiffs claim that the amount of the bond was extravagant and/or exorbitant and unconscionable in relation to any possible demand and in relation to any possible damages which could have been in the contemplation of the parties at the time when the contract was made.

40. The plaintiffs claim that in the events which occurred the defendant has obtained a windfall and is obliged to account for the full amount paid over.

41. The plaintiffs claim that the amount of the bond was not a genuine pre-estimate of loss but was instead generic and disproportionate to the purpose of deterring a breach of the Connection Agreement and/or the hoarding of available grid capacity.

42. The first plaintiff claims that having paid the MEC bond amount it acquired by subrogation all of the second plaintiff's contractual rights and causes of action under the contract with the defendant.

43. Without prejudice to the claimed rights of subrogation the first plaintiff relies on the assignment to it of all of the second named defendant's rights and entitlements arising from the contract.

44. The plaintiffs seek the following declarations:

(1) A declaration that the first plaintiff has the legal and/or beneficial benefit of the contract between the second plaintiff and the defendant reflected in the Offer Letter, the Connection Agreement and related documents.

(2) A declaration that the first plaintiff has the legal or equitable benefit of the second plaintiff's cause of action against the defendant on foot of the assignment dated 10 August 2016.

(3) A declaration that the first plaintiff, having paid the amount demanded, is subrogated to the second plaintiff in relation to the contract and the second plaintiffs’ cause of action.

(4) A declaration that the demand on the bond was discriminatory and in breach of the non-discrimination provisions of the Act and the Regulations.

(5) A declaration that the demand was ultra vires the defendant and/or the corporate and statutory objects of the defendant and void and unenforceable.

(6) A declaration that the terms of the Offer Letter and of the Connection Agreement, insofar as they provide for the requirement to pay and/or drawdown and the calculation of the “Specified Amount” and the “MEC Capacity Bond Amount” are unenforceable on the ground that they amount to a penalty.

(7) A declaration that the defendant has been unjustly enriched in the sum of €4.45 million, that the defendant holds the said sum of €4.45 million in trust for the benefit of the plaintiffs, and consequential relief.

(8) Damages for breach of contract, unjust enrichment, breach of trust and/or breach of statutory duty.

(9) Judgment in the sum of €4.45 million by way of a debt and/or liquidated demand in money arising from the contract.

45. The defendant denies all of these claims.

46. The defendant pleads that the GIL projects are not valid comparators for the discrimination claim. It submits that the only features which they had in common with the second plaintiff is the fact that they had been granted similar and almost identical connection agreements. It is said that the level of engagement between those parties and the defendant was significantly different to the engagement by the second plaintiff. They say that GIL became entitled to avail of the amnesty because it complied with the stipulated conditions for doing so, most notably that the connection agreements were extant at the time when the amnesty became available, by contrast to the position of the second plaintiff, whose connection agreement had been terminated long before the amnesty became available.

47. The defendant denies that the bond and the requirement for the bond amount constitute a penalty. It pleads that the amount of the bond was consistent with the purpose of the requirement, as approved by the Commission, for such bonds, namely to discourage the hoarding of scarce capacity, as recited in consultation papers and decisions of the Commission issued from time to time.

48. The defendant admits that the provisions of the Connection Agreement stipulating the specified bond amount were generic and not a pre-estimate of losses. It pleads that in the context of regulated and supervised connection agreements the legal concept of a penalty does not apply to a performance bond.

49. The defendant pleads that even on an application of the proper test relating to penalties, the amount of the bond was, on the facts of the case, commercially justifiable.

50. The defendant pleaded a number of preliminary objections which can shortly be summarised as follows:

(a) That a clause (3.2) in the Connection Agreement excluding liability for claims arising from termination of the agreement precludes this claim.

(b) That the first plaintiff has no locus standi. It is not a party to the Connection Agreement. It denies that the first plaintiff is entitled to assert rights of subrogation or assignment.

(c) Estoppel by deed: it is said that the second named plaintiff was a party to the contract and at no point, either in the negotiation of the contract or subsequently did it raise any issue as to the enforceability of the requirement for the bond.

(d) That the claim is a collateral attack and/or abuse of process. It pleads that the proceedings are a disguised challenge to the defendant’s decision to draw down the bond which was taken in the exercise of its statutory functions and can only be challenged by a judicial review in accordance with O. 84 of the Rules of the Superior Courts, such proceedings being subject to the time limits for judicial review, which had long expired by the time these proceedings were commenced.

(e) It pleads that this is a disguised challenge to the regulated provisions for MEC security laid down in the Commission’s decision CER/03/298 of 19 December 2003 and that this can only be challenged by judicial review.

(f) That the plaintiffs failed to avail of the dispute resolution procedure for such matters provided for under section 34 of the Act of 1999 and in the contract itself.

(g) That the plaintiffs have been guilty of laches in the commencement and pursuit of these proceedings.

(h) That these proceedings are barred by section 11 of the Statute of Limitations 1957.

51. I shall consider the preliminary objections before turning to the substantive grounds advanced by the plaintiffs. Before doing so it is necessary next to describe the statutory and regulatory regime and the documents and chronology of events in more detail.

PART FOUR: THE ACT, REGULATIONS, AND LICENCE OF THE DEFENDANT

Electricity Regulation Act 1999

52. The purpose of the Act was to give effect to EU Directive No. 96/92/EC and to establish a body, which became the Commission, whose function is to grant licences to parties to generate and supply electricity and to grant authorisations to provide for access to the transmission and distribution system.

53. The Electricity Supply Board remained the owner of the network. The Commission was established for the purpose of regulating and licensing generators and parties utilising the transmission system. The function of operating the network, under license from the Commission, was transferred to the defendant.

54. Part V of the Act governs “access to transmission and distribution systems”. Section

34 prescribes the respective obligations of the ESB, since transferred to the defendant as the transmissions system operator, and others in relation to the terms for connection to and use of transmission or distribution systems.

55. Section 34 (1) contains the core obligation of the Board (now the defendant) to offer connection agreements to parties who apply for them “subject to terms and conditions specified in accordance with directions given to the Board by the Commission [for Energy Regulation] under this section from time to time”.

56. Section 34 (2) provides that the Commission may give directions from time to time in relation to a range of matters regarding connection agreements, including the terms on which offers for connection can be made and “the methods for determining the proportion of the costs” to be borne by applicants and by the defendant respectively, and other matters.

57. Section 34 (6) provides that any dispute between the transmission system operator, being the defendant, and any person to whom the operator is obliged to make an offer for connection to the transmission system “whether as to the terms and conditions (including proposed charges) or otherwise shall, upon the application of such person, be determined by the Commission”.

58. Section 34 (8) provides as follows: “Where providing for use of the transmission or distribution system or where offering terms for the carrying out of works for the purpose of connection to the transmission or distribution system of the Board, the Board shall not discriminate unfairly as between any person or classes of persons”.

European Communities (Internal Market in Electricity) Regulations, 2000

59. The prohibition on discrimination was repeated in Regulation 11 of SI No. 445/2000 as amended by Regulation 8 of SI No. 60/2005 – European Communities (Internal Market in Electricity) Regulations, 2005. The amended obligation provided as follows: “11. (1) In carrying out its functions, the transmission system operator shall not discriminate unfairly between persons or classes of persons, or between system users or classes of system users, particularly in favour of its subsidiaries, associated or affiliated undertakings joint ventures or shareholders.

(2) The transmission system operator shall –

(a) establish a compliance program, which shall set out –

(i) the measures taken to ensure that discriminatory conduct by it or its employees is prevented;

(ii) the specific obligations imposed on employees to ensure that discriminatory conduct is prevented

(b) report to the Commission on the level of compliance at intervals of not more than one year, in such form as the Commission determines specifying the measures taken and the level of compliance.”

Memorandum of Association of the defendant

60. Article 3 of the defendant’s memorandum of association provides as follows: “All of the clauses of this memorandum of association are subject to and should be read in conjunction with the provisions of the European Communities (Internal Market in Electricity) Regulations 2000 and the Electricity Regulation Act 1999.”

61. Article 4 describes the objects of the defendant which include the following: “(a) To operate and ensure the maintenance of and, if necessary, develop a safe, secure, reliable, economical and efficient electricity transmission system.

(aa) To establish operate and ensure the maintenance and development of the Single Electricity (Wholesale) Market in the island of Ireland in accordance with the relevant statutory requirements, licence conditions, SEM Trading and Settlement Code and the Commission requirements (as applicable) from time to time and to do all things necessary in its role of Single Market Operator.

(d) To operate a system of dispatch and use of interconnectors on objective, nondiscriminatory, economical and technical criteria, without prejudice to the supply of electricity on the basis of existing contractual obligations, and in accordance with the conditions in the license granted under section 14(e) of the Electricity Regulation Act 1999, the Grid Code prepared under section 33 of the Electricity Regulation Act 1999 and any Regulations made by the Commission for Energy Regulation (including any requirements which the Commission for energy regulation may impose on the transmission system operator in relation to the role of System Settlement Administrator) under section 9(1)(d) of the Electricity Regulation Act 1999.

(h) To charge for the connection to and use of the transmission system in accordance with section 35 of the Electricity Regulation Act 1999 and the European Communities (Internal Market in Electricity) Regulations 2000.

(i) To offer terms and enter into agreements, where appropriate, for connection to and use of the transmission system with all those using and seeking to use the transmission system.”

29 June 2006: Eirgrid Transmission System Operator Licence

62. On 29 June 2006 the Commission granted to the defendant a licence to operate the transmission system to transmit electricity in the State. The licence came into force on 1 July 2006.

63. The licence provided that the defendant discharge the functions of transmission system operator as provided for in regulation 8 of the Regulations, as amended.

64. The licence contained detailed conditions describing the functions and duties of the defendant as to the operation and development of the transmission system, the obligation to comply with provisions of the Act and Regulations regarding terms to be applied in connection agreements, and the obligation to comply with the directions or determinations given to it from time to time by the Commission. Detailed conditions govern such matters as financing, planning, forecasting, the updating of a development plan, engagement with interconnectors, conditions regarding the economic procurement of assets and services, maintenance of assets, use of assets, detection and prevention of theft of electricity, transmission systems security and planning standards, operating standards, the duty of non-discrimination (stated in condition 16), provisions relating to the performance of its business, access to land or premises, restrictions on the use of certain information and prohibited activities and the preparation of a code of conduct and other such requirements.

PART FIVE: COMMISSION DECISIONS

65. From time to time the Commission issued consultation papers, reports and Decisions. The following are relevant to the issues in this case.

19 December 2003 CER/03/298: Regulator Consultation on Structure of Tariffs

66. By this Paper the Commission announced that it was undertaking a review of the charges and tariffs to be applied for connections to the transmission system. The stated purpose of the paper was to set out the Commission's plan for managing the review of the tariff structures and to provide background information on current tariff structures.

67. In paragraph 3.3.2 an explanation was given of the “recovery policy”. “The conventional method applied by network utilities to recover total costs is through upfront connection charges (capital contributions) from first time connections and ongoing TUOS charges from all network users.”

68. The text explains that connection charges recover the costs (or a portion of the costs) of connection assets that are specifically installed to provide access to a single user.

69. Transmission Use of System (“TUOS”) tariffs are different to connection charges. They cover the costs of the shared network used for the bulk transportation of electricity, and ongoing costs of operating and maintaining them.

70. Section 3.4 concerned transmission connection policy. In paragraph 3.4.6 the report addressed the purpose of bonds under the following heading:

“3.4.6 Capacity Reservation

The Commission has authorised the provision of a bond in the Connection Agreement to incentivise the generator or demand customer to commit to installing the Maximum Export Capacity (MEC) or Maximum Import Capacity (MIC) cited in the application for connection to the system and not seek to reserve capacity additional to that which is legitimately required. The generator bond amounts to €10,000 per MW of MEC and demand customers provide a bond with a value of 18 month’s worth of Network Capacity Charge per MW of MIC. The bond remains in place until the applicant's generation plant has passed all capacity tests and for 18 months following their operational date with respect to demand customers.” (emphasis added)

25 August 2009 CER/09/138, Decision Paper on Electricity Network Connection Policy

71. This decision was published to address a number of issues of concern related to connection charges, and with a view to updating the charging regime referable to renewable generators. It made no changes to the capacity bond requirements for non-renewable generators connecting to the transmission system.

72. The background section at paragraph 5.3 describes the “purpose of the capacity bond” as follows: “The purpose of the capacity bond is twofold with the primary purpose being to prevent parties from hoarding transmission capacity, which is a limited and valuable resource. The rationale is that the level of the financial commitment that the bond entails will dissuade a party from spuriously reserving transmission capacity to the detriment of other parties wishing to connect. The secondary purpose is to cover some of the costs incurred by the transmission system operator for the provision of deep transmission connection assets in the event that a generating project does not proceed at the capacity applied for, that is, to limit the risk of there being stranded transmission assets. The transmission and distribution collection policy provides for costs of the deep transmission assets to be collected from all customers. In the event of a connecting party failing to produce the level of generation that meets the MEC that it applied for (this could be due to the party not continuing with its connection offer or reserving more capacity than it required) the bond will be drawn down and set against the cost of transmission assets.” (Emphasis added).

73. Section 5.7.4 addresses the Commission's response to submissions which had been made by a number of parties as to the justification for rates of increase and modifications being made to capacity bonds.

74. The description of the two purposes is relevant to the plaintiffs’ claim that the bond and its quantum was a penalty. Therefore, it is appropriate to quote further descriptions given in section 5.7.4 relating to the purposes of the bond where it states as follows: “As stated in section 5.3, the primary purpose of the capacity bond is to prevent parties from hoarding transmission capacity which is a limited and valuable resource. The rationale is that the level of the financial commitment that the bond entails will dissuade a body from spuriously reserving transmission capacity to the detriment of other parties wishing to connect.

The secondary purpose is to cover some of the costs incurred by the transmission system operator for the provision of deep transmission connection assets in the event that a generating project does not proceed at the capacity applied for, that is, to limit the risk of there being stranded transmission assets. The transmission and distribution connection policy provides for the costs of the deep transmission assets to be collected from all customers. The costs to the industry and the final customer of hoarding capacity are difficult to calculate.

The cost may arise from less competition in the market, increased cost of production of electricity, increased cost of development to those windfarms project left in the queue or increased connection costs and timelines to those projects in the same subgroup as a spurious applicant. While it would be onerous to estimate the cost of this for each connection offer it is reasonable to state that there is a cost. Similarly it would be difficult to determine the exact cost of stranded assets that would be caused by each MW of unutilised MEC. The Commission believe that the current level of €10K per MW would not, on average, come close to meeting that cost.

It is likely that the level proposed within the previous consultation paper (€100K) would still not cover the cost of these costs. Given that some developers had previously stated that the €10K bond did not provide an adequate deterrent regarding the hoarding of capacity the Commission proposed to increase the bond to a level that would provide more of a contribution to stranded costs and reduce the amount that will be covered by the Use of System Customer and more particularly to a level that would provide more of a deterrent regarding the hoarding of capacity.

However while a larger bond would ensure that genuine developers will be provided with the earliest possible opportunity to connect to the network (by increasing the level of deterrent for hoarding capacity) it is accepted that there must be a balance between setting the bond at a level that would act as a deterrent and also ensuring that the bond did not act as a barrier to entry. In this respect it is noted that respondents to the consultation paper have stated that the €100K level would pose a problem for both smaller and larger projects. Thus the Commission reduced the proposed level of the bond as detailed within section

5.8 of the proposed decision paper. Note that it is not anticipated that this level (or indeed the 100K level that was previously proposed) would provide a contribution that would cover in full the cost of hoarding and stranded assets due to unused MEC. This reduction is also reflected within this decision paper.”(emphasis added)

75. The paper also records, at paragraph 2.2.26, a response which had been made to a consultation paper by the defendant: “The TSO responded to state that the purpose of the MEC Capacity Bond is twofold. Firstly, to act as a deterrent for parties to hoard capacity in the system and secondly to offset the risk (partly at least) of stranded (transmission deep) assets. A balance needs to be obtained between ensuring parties are discouraged from hoarding the limited system capacity, to the detriment of others, and limiting the risk of there being stranded transmission assets.” (emphasis added)

76. This description of the MEC Capacity Bond is repeated in a Connection Offer Policy and Process paper published by ESB Networks and by the defendant, and approved by the Commission in May 2011. In paragraph 16.1 an outline is given of the MEC Capacity Bond and where it states: “As per CER09/138, the MEC capacity bond is designed to prevent the hoarding of transmission capacity and also, in the event that a capacity bond is drawn down, contribute towards the cost of transmission deep reinforcements which may have commenced. The requirements with regard to this bond are set out in CER/09/138.”

12 October 2016: CER/16/284: Connection Policy Transitional Arrangements (“the Amnesty”)

77. The Commission had observed that the volume of renewable generation connected or anticipated to be connected to the system in the State had almost reached the current total electricity requirement for the market. Under the prevailing processing rules system operators had found that the volume of wind and solar applications was not manageable. Comments had been sought from the industry on the development of a new policy for connection to the grid which would become known as “the enduring connection policy”. This decision announced certain transitional arrangements to support transition to a new grid generator regime. The transitional arrangements included what was described as a “capacity release”. Capacity release entailed the refunding of first stage payments to projects which were proving unviable or which for any other good reasons would not progress, in return for release of their allocated and committed capacity.

78. In section 6 the Commission announced it had decided that eligible projects wishing to terminate their connection agreement and release their full contracted capacity could submit a formal application to the system operator. If the party was eligible and provided certain conditions were fulfilled the operator, being the defendant, would agree an orderly termination of the relevant connection agreement, refund a substantial portion (80%) of the first stage payment and would return any security held in respect of the Connection Agreement to the applicant, including MEC capacity bonds.

79. This decision was announced on 12 October 2016 and becomes relevant in this case to the discrimination claim (see Part Nine).

PART SIX: CHRONOLOGY

80. On 5 July 2007 the second plaintiff applied to the defendant for a connection to its proposed generating plant at Ballakelly. This was referred to the Commission and on 14 December 2007 the Commission issued a direction to the defendant, pursuant to section 34 (1) of the Act of 1999 to issue a connection offer.

17 July 2008 Offer Letter

81. By this letter the defendant made its offer to the second plaintiff for connection of the Ballakelly facility with a maximum export capacity of 445MW to the Network of an existing Louth station.

82. The offer letter states that the customer, being the second plaintiff, must comply with conditions precedent to offer acceptance no later than 70 business days from the date of the letter, i.e. by 24 October 2008. The conditions precedent to offer acceptance were threefold:

• The defendant to receive two copies of the Connection Agreement signed by the customer

• Payment of €473,000 (exclusive of VAT)

• Provision of the MEC Capacity Bond in the required form.

83. Section 1 describes the “method of connection”. It provides the following: “The method of connection will be a 220 KV tail connection from Louth 220 KV station to a new 220 KV station at the facility requiring the provision and installation of the following.”

84. The works are then described under three headings namely “site related connection equipment”, “allocated equipment” and “deep reinforcement works”.

85. The site -related connection equipment is site specific works comprising the following:

(a) The Ballakelly 220 KV Station, namely a new single bay 220 KV station at the facility, using an air insulated switchgear. Specific ordnance survey coordinates were stipulated for its location.

(b) Ballakelly to Louth 220 KV Underground Cable, being the construction of 1.25 km of new 220 KV single circuit underground cable connecting the Ballakelly facility to the existing Louth 220 KV station.

(c) The Ballakelly 220 KV Cable Bay in Louth 220 KV station, being the construction of a new 220 KV cable bay in the existing Louth 220 KV station, using air insulated switchgear.

86. The next item described as “allocated equipment” was the Louth 220 KV station itself.

87. The next category of works described are the Deep Reinforcement Works. These in turn are divided between what are referred to as “Short-Circuit Driven Deep Reinforcement Works” and “Load Flow Deep Reinforcement Works”.

88. Deep Reinforcement Works are works which are required to be performed on the main transmission network itself. Some, being the ‘Short Circuit Driven Deep Reinforcement Works’, are specific to this project and directly associated with the physical connection. Others, being the ‘Load Flow Deep Reinforcement Works’ are works to the network generally, although specific to the region, and which are necessary to enable the network as a whole to absorb the additional capacity flowing into it from the new connected generator.

89. The “Short-Circuit Driven Reinforcement Works” in this case comprised sixteen specific installations being four replacement circuit breakers, two 110 KV busbars, and nine replacement transformers at different locations and directly associated with the physical connection.

90. The Load Flow Deep Reinforcement Works comprised the following:

(1) Gorman to Meath Hill 110 KV line, being the construction of a new Gorman to Meath Hill line.

(2) Arva to Navan 110 KV line, comprising the uprating of an existing Arva to Navan line.

(3) Drybridge to Louth 110 KV line, comprising the uprating of an existing Drybridge to Louth line.

(4) Louth to Meath Hill 10 KV line, being the uprating of an existing Louth to Meath Hill line.

91. Section 2 of the Offer Letter governs “Charges and Security” and comprised the following parts:

• Part 1: Connection Charge and Connection Charge Bond, being monetary payments to be made at different phases of the project leading ultimately to its activation.

• Part 2: “Pass Through Charges and Related Issues”.

• Part 3: “Other charges”. Ongoing Service Charges, Decommissioning and Reinstatement Charges.”

• Part 4: “Other Security” as follows:

2.10 Maximum Export Capacity Bond (“MEC Capacity Bond”) Once the Customer accepts the Offer Letter and the Connection Agreement becomes effective the MEC is reserved to that Customer. You are required to provide the MEC Capacity Bond partly to secure capacity reserved to you. A failure to achieve the reserved capacity will entitle the Company to draw down on the security of this bond up to the MEC Capacity Bond Amount in accordance with the Connection Agreement. The amount of the bond required is set out below and calculated in accordance with the Connection Agreement. Further details of the bonding arrangements are contained in the Connection Agreement and are deemed incorporated into the Offer Letter. The MEC Capacity Bond Amount is €4,450,000. The customer is obliged to provide the MEC Capacity Bond prior to execution of the Connection Agreement. This requirement is a Condition Precedent to offer acceptance.” (emphasis added)

92. Section 3 of the offer letter contains 32 assumptions. These cover such formal matters as due execution of the Connection Agreement, provisions for alterations to the system, delivery dates, weather conditions, changes in construction access, decommissioning dates and periods, land rights, rights of way, wayleaves and numerous others.

93. The term of the agreement is stated to be 20 years from the Operational Date.

94. Appendix 1 contains a series of dates for Connection, Access and Commissioning, running from a Scheduled Consents Issue Date through to the final Scheduled Deep Operational Date.

95. Appendix 2 identifies the works which the defendant will perform.

96. Appendix 3 identifies the connection works to be performed by the second plaintiff in accordance with the requirements of the defendant.

29 October 2009, Transmission Connection Agreement

97. The Connection Agreement recites that the parties agree that the terms and conditions set out in General Conditions as amended by the defendant and approved by the Commission from time to time are incorporated into the Connection Agreement. The agreement provides in Clause 1.1 that the parties agree that “the latest version of the General Conditions of Connection (and Use of System) as amended from time to time are incorporated into this Connection Agreement.”

98. Clause 2.2 identifies the conditions precedent to acceptance. Clause 2.3 identifies the conditions precedent to carrying out the works.

99. Clause 2.4 identifies the conditions precedent to connection and Clause 2.5 identifies the conditions precedent to the implementation of the commissioning instructions.

100. Clause 2.6 provides as follows:

“Confirmations

When the Conditions Precedent specified in this clause 2 have been either met or waived (by the Party for whose benefit they have been inserted) the Party for whose benefit they have been inserted shall immediately notify the other Party in writing that they have been so satisfied.”

101. Clause 3 governs Term and Termination. It provides that the term of the agreement shall be that set out in the offer letter, namely 20 years from the Operational Date.

102. Clause 3.2 was invoked is this case by the defendant. It provides as follows:

“Termination

If

3.2.1 The confirmation under clause 2.6 has not been notified by the CID Longstop Date (Consents Issue Date Longstop Date); or

3.2.2 The confirmation under clause 2.6 has not been notified by the Scheduled Operational Date Longstop Date, then the Party for whose benefit the Conditions Precedent have been inserted as the case may be, may terminate the Connection Agreement by notice in writing to the other Party at any time prior to such confirmation being notified. In the event that the Connection Agreement is terminated in accordance with the terms of this Clause, then the Customer shall immediately pay to the Company the amounts calculated in accordance with the General Conditions. Without prejudice to the foregoing provision the Party terminating the Connection Agreement shall have no liability to the other Party arising from such termination”. (emphasis added)

103. The exclusion of liability clause quoted above is relied on by the defendant, which pleads that no claim has ever made by the plaintiffs to the effect that this clause was invalid or ineffective. The plaintiffs submit that such a clause cannot negate or undermine the operation of rules of law such as the rule against penalties.

104. Clause 4 is the operative provision by which the defendant agrees to the facility being connected to the ESB Transmission System at the Connection Point.

105. Clause 5 governs the payment of charges and costs.

106. Clause 6 provides that the offer letter forms part of the Connection Agreement.

107. Clause 7 relates to insurances.

108. Clause 8 provides that “the customer shall provide Security in accordance with the Offer Letter and the General Conditions in a form set out in (stated schedules).” This is a cross reference to clause 2.10 of the Offer Letter which provided for the provision of the MEC Capacity Bond in an amount of €4.45 million.

July 2013: General Conditions

109. The General Conditions were published and updated from time to time by the defendant. It is common case that the version of the conditions prevailing at the time of the events giving rise to these proceedings was the July 2013 version.

110. Clause 1 provides that the General Conditions form part of every transmission connection agreement entered into between the defendant and customers.

111. The provisions relevant to the issues that arise in this case are as follows.

112. Clause 3 defines the term “Deep Reinforcement Equipment” to mean “plant and/or apparatus provided and installed, or to be provided and installed by the company on the transmission system relating to or which could affect the facility.”

113. The term “Deep Reinforcement Works” is defined to mean “the provision and installation of the deep reinforcement equipment by the Company” (the defendant).

114. The term “Maximum Export Capacity Bond” or “MEC bond” is defined to mean: “the bond to be provided to the Company by a bank or financial institution with an Approved Credit Rating in the form set out in the Connection Agreement in relation to Maximum Export Capacity or any replacement or substitute thereof approved and received by the Company which has not expired or been cancelled or released by the Company. For the avoidance of doubt, the customer is not required to provide such a bond where the MEC is less than or equal to 5 MH”.

115. The term “Transmission Use of System Charges” or “TUOS charges” is defined to mean “the charges payable in respect of Transmission Use of System in accordance with the company's published Transmission Use of System Tariff Schedules and Statement of Charges, as amended from time to time and approved by the CER, in respect of demand and/or generation utilisation of the Transmission System”.

116. In clause 7, the term “Events of Default” is stated to include the appointment of a receiver of the whole or any material part of the assets of a customer.

117. Clause 9.3 provides for the service of notice of termination in the following circumstances “once an event of default has occurred the Company may give notice of termination to the customer whereupon the agreement shall terminate with effect from the date specified in the notice. The Company shall have no liability to the customer by reason of exercising such right of termination”.

118. Clause 9.4 provides as follows:

“Referral to the CER

The company shall advise the Customer in writing of the Customer’s right to refer the proposed termination to the CER for determination in accordance with the Act. If the Customer exercises its right to refer a proposed termination of the Connection Agreement by the Company to the CER then the Company will not proceed with, or proceed further with any action or claim either relating to or arising out of its right to terminate the Connection Agreement until such time as the CER has issued its determination in respect of such referral.”

119. One of the contentious issues in the case is a claim by the plaintiffs that when the defendant served notice of termination of the Connection Agreement it did not, as required by clause 9.4 advise the second plaintiff in writing of its right to refer the proposed termination to the CER. The defendant says that this requirement did not apply in circumstances where the termination was not an exercise of a right of termination pursuant to clause 9 of the General Conditions but a termination pursuant to clause 3.2 of the Connection Agreement itself, which contains no equivalent obligation to inform a customer of a right to refer to the Commission.

120. Clause 12 contains a procedure for dispute resolution, to apply “where there is a dispute relating to the variation of the agreement”. The procedure set out in clause 12 provides for the appointment of company representatives on each side to attempt in good faith to satisfactorily resolve the dispute, failing which the matter would be referred to arbitration.

121. Clause 12 was never invoked in this case.

122. Clause 14 contains restrictions on assignment or subcontracting, including the following:

“Clause 14.1 Assignment by Customer

Subject to clauses 14.2 and 14.4 (which relate to assignments to affiliates) the Customer may not assign or transfer any of its rights or obligations under the agreement without the prior written consent of the Company, who in considering whether or not to give that consent may take into account the creditworthiness, relevant experience and any other relevant matters having regard to the obligations of the Customer under the agreement, but such consent shall nevertheless not be unreasonably withheld delayed or made subject to unreasonable conditions”.

123. This clause is invoked by the defendant as part of its objection to the validity of the assignment of claims under the Connection Agreement by the liquidator of the second named defendant to the first plaintiff.

124. Clause 24 governs security for Connection Agreements generally.

125. Clause 24.3 is specific to MEC bonds and its provisions relevant to this case are as follows:

“24.3.1 The Customer acknowledges that there are constraints on the Network that require that the Customer seeks an offer solely for its Maximum Export Capacity in relation to the Facility contracted to be delivered by the Scheduled Operational Date and that it does not seek to reserve additional capacity on the Network for later developments of the Facility or otherwise. Where the Customer fails to pass the Capacity Tests in accordance with the Connection Agreement and/or fails to obtain an Operational Certificate, as appropriate, within the timeframes outlined hereafter, the Company shall be entitled to draw down the Specified Amount under the MEC Bond.

24.3.3. The Customer further acknowledges that the offer made by the Company in the Offer Letter once accepted will have a direct impact on the Company and that termination of the Connection Agreement by the Customer in the circumstances detailed in Clause 20 herein will necessitate a draw down of the MEC Bond Agreement under the MEC Bond.

24.3.3 As security therefore for the commitment of the Customer to complete certain obligations under the Connection Agreement, the Customer shall procure that the Company receives a bond or bonds (from a financial institution of not less than the Approved Credit Rating) being in all material respects in the same form as is set out in the applicable Schedule to the Connection Agreement”.

126. Clauses 24.3.7 and 24.3.8 govern the amount of the MEC bond and the amount of money recoverable by the defendant from a customer as a result of a failure to pass capacity tests. The formula contained in these clauses is directly relevant to the plaintiff’s claim that the amount for the bond is a penalty. Clause 24.3.7 provides: “The MEC Bond Amount is determined by the company in accordance with the following formula:

A x C, Where A = €10,000/MW

C = the larger of either the First Quoted Maximum Export Capacity or the Maximum Export Capacity, as applicable The Company shall recalculate the MEC Bond Amount every March and September (or at such other times as the Company may notify the Customer) and shall advise the Customer in writing of any change in bond coverage required arising from such recalculation.”

127. A dispute emerges in the submissions as to whether this formula for calculation of the bond amount is proportionate in all the circumstances of the contract.

128. Clause 24.3.8 provides as follows: “The amount of money that is recoverable by the company from the Customer as a result of the failure of the Customer to pass Capacity Tests A and/or B within the required timeframe shall be the difference between A x C and A x X Where X = the maximum export capacity of the Generation Units as determined by the results of the Capacity Tests A and B or if none then zero. The difference between A x C and/or A x X shall be the Specified Amount. In the event that the Customer fails to achieve the Operational Date by the Scheduled Operational Date Longstop Date, the Company will be entitled to draw down on the MEC Bond.”

129. Clause 24.8 governs the position in relation to a demand provides as follows: “In the event that the Customer fails to comply with the relevant provisions of this agreement with respect to the Capacity Tests and/or noncompletion of the Connection, the Company can make a demand for payment under any MEC Bond in the amount of the Specified Amount and/or the MEC Bond Amount as appropriate”. (emphasis added)

9 September 2008: The MEC bond

130. The bond was issued by Quinn Insurance Limited on 9 September 2008. It is in the form prescribed in an appendix to the Connection Agreement.

131. The bond recites the Connection Agreement and the obligation of the customer (the second plaintiff) to procure the issue of an MEC capacity bond in favour of the defendant in the form of this document. The relevant paragraphs provide as follows: “Quinn Insurance Limited (the “Issuer”) issues this MEC Capacity Bond, No. 2139, and irrevocably and unconditionally agrees as follows:

(1) In this MEC capacity bond (and every demand) unless the context otherwise requires ‘Demand’ means a written notice of demand served by the Company (the defendant) on the Issuer in the form set out in the Appendix to this MEC Capacity Bond.

‘Expiry Date’

means the date falling six months after the Operational Date or 12 months after the Scheduled Operational Date Longstop Date.

‘Specified Amount’

means in relation to any demand the sum specified in that Demand.

(2) The Issuer irrevocably and unconditionally agrees that it will, on service of a Demand before the Expiry Date, and within three Business Days pay to the Company the Specified Amount, unless in so doing the aggregate limit set out in paragraph 3 of this MEC Capacity Bond would be exceeded, in which case the Issuer shall pay to the Company so much of the Specified Amount as may be paid without exceeding such limit.

(3) The Company may make one or more Demands under this MEC Capacity Bond provided that the aggregate amount of all Demands and the aggregate liability of the Issuer under this MEC Capacity Bond shall not exceed €4.45 million.

(4) Any payment under this MEC Capacity Bond shall be made without set off or counterclaim and free from any deduction or withholding in euro in immediately available, fully transferable, cleared funds by transfer to an account in the Company’s name at (bank and account details stipulated).

(5) (References to the expiry date which are not applicable).

(6) The liability of the Issuer shall not in any way be affected by:

6.1 any time, indulgence or relief being given to or by the Company or the Customer

6.2 any amendment or extension of or supplement to the Connection Agreement

6.3 any invalidity in, or irregularity or unenforceability of the obligations of any person under the Connection Agreement or

6.4 anything done or omitted which but for this provision might constitute a legal or equitable discharge or release of, or defence for, the Issuer.” (emphasis added)

132. Further provisions were in standard form governing such matters as the service of notices (paragraph 7) governing law and application of ICC rules (paragraph 9) and an express permission for the defendant to assign the bond to any person to whom it would assign rights and obligations under the Connection Agreement. (paragraph 10)

Events after the Connection Agreement

133. On 12 August 2010 the parties agreed the first amendment to the Connection Agreement, which had the effect of varying certain of the amounts to be paid by the plaintiff, but not affecting the initial payment of €473,000 paid on signing of the Connection Agreement.

134. On 30 March 2010 the High Court appointed Joint Provisional Administrators of Quinn Insurance Limited.

135. On 15 April 2010 the Court ordered that Quinn Insurance Limited be placed in administration and appointed Joint Administrators.

136. By Order of the Court made on 6 October 2011 the Court sanctioned a scheme for the transfer by Quinn Insurance Limited to Liberty Mutual Direct Insurance Company Limited of certain property and business of Quinn Insurance Limited, which included the bond in this case.

137. On 16 January 2012 a receiver was appointed to the second plaintiff.

138. On 18 June 2015 a liquidator was appointed to the second named plaintiff.

139. On 8 May 2014 the defendant wrote to the second plaintiff and its receiver. By this letter the defendant noted that pursuant to General Condition 9.3 the defendant had the option of terminating the Connection Agreement by reason of the appointment of a receiver. This ground for termination was not invoked at this or any later time as a reason for the termination of the Connection Agreement.

140. The letter continued: “Without prejudice to the Company’s above right of termination, the Company hereby issues notice to the Customer of its intention to terminate the Connection Agreement in accordance with clause 3.2 of the Connection Agreement which provides that “the confirmation under Clause 2.6 has not been notified by the Scheduled Operational Date Longstop Date. then the Party for whose benefit the Conditions Precedent have been inserted, as the case may be, may terminate the Connection Agreement by notice in writing to the other Party at any time prior to such confirmation being notified”.

141. The letter continued “given that no Works (as defined in the Connection Agreement) have commenced in regards to the Facility, the Company is of the view that it is not feasible for the confirmation under Clause 2.6 of the Connection Agreement to be furnished by the Customer prior to the Scheduled Operational Date Longstop Date (as defined in the Connection Agreement) of 12 November 2014. Therefore the Company intends to terminate the Connection Agreement on the Scheduled Operational Date Longstop Date and this letter should be regarded as the notice in writing referred to in Clause 3.2 of the Connection Agreement”. “Furthermore I refer to section 2.10 of the Company’s Offer Letter to the Customer dated 17 July 2008 which forms part of the Connection Agreement and which provides that: ‘A failure to achieve the reserved capacity will entitle the Company to draw down on the security of this bond up to the MEC Capacity Bond Amount in accordance with the Connection Agreement’. and to General Condition 24.3.8 of the Connection Agreement which provides that: ‘In the event that the Customer fails to achieve the Operational Date by the Scheduled Operational Date Longstop Date, the Company will be entitled to draw down on the MEC Bond’. In addition, therefore, the Company hereby issues notice to the Customer that upon termination of the Connection Agreement on the Scheduled Operation Date Longstop Date, the Company will draw down the MEC Capacity Bond of €4.45 million due to the Customer's failure to achieve the capacity reserved to the Customer and its failure to achieve the Operational Date for the Facility by the Scheduled Operational Date Longstop Date.” (emphasis added)

142. The second plaintiff never replied to this letter.

143. On 9 May 2014 the defendant wrote to the first named plaintiff enclosing a copy of the letter which it had sent on 8 May 2014 to the second plaintiff and drawing to its attention the fact that notice had been given that the defendant intended to draw down the MEC Capacity Bond of €4.45 million due to the second plaintiff's failure to achieve the capacity reserved.

144. On 1 July 2014 the first plaintiff acknowledged this correspondence, reserving all of its rights. It stated that it would be contacting the second plaintiff regarding the defendant’s stated bases for terminating the Connection Agreement and it anticipated demand in the bond.

145. On 16 October 2014 Messrs Clyde & Co. Solicitors wrote to the defendant, referring to the recent correspondence and raising a number of queries and requesting certain documents.

146. On 30 October 2014 Clyde & Co. wrote again to the defendant requesting further information and stating its objection to the defendant’s intention to demand on the bond. They asserted, inter alia, that the defendant had taken no immediate or timely steps to mitigate its loss arising out of the contractual breach comprising the appointment of the receiver to the second named plaintiff on 16 January 2012. It asserted also that the defendant had not incurred the costs of the deep transmission connection assets the mitigation of which was one of the stated purposes of the bond.

147. The defendant replied on 10 November 2014 stating that the bond is an on demand bond and that in circumstances where the second plaintiff had failed to perform its obligations in relation to the maximum export capacity of the Facility the defendant was entitled to draw down the bond in the amount of €4.45 million.

Termination of the Connection Agreement

148. On 12 November 2014 the defendant wrote to the first plaintiff and its receiver notifying it of its intention to terminate the Connection Agreement in accordance with clause

3.2. It stated that “termination would take effect on 10 December 2014 and this letter should be regarded of this notice in writing of termination as referred to in clause 3.2 of the Connection Agreement.

149. The defendant also notified the second plaintiff of its intention to draw down the MEC bond amount of €4.45 million, unless that amount was discharged in a cash payment before 26 November 2014. The second plaintiff never replied to this letter.

Demand on the bond

150. On 26 November 2014 the defendant made a demand on the first named plaintiff in the sum of €4.45 million, accompanied by a schedule described as a “Statement Supporting the Demand” identifying the second defendant as being “in breach of its obligations under the Connection Agreement having failed entirely to achieve the capacity reserved to the Customer and having failed to achieve the Operational Date for the Facility by the Scheduled Operational Date Longstop Date of 12 November 2014”.

151. On the same day 26 November 2014 Clyde & Co. replied to the plaintiff’s previous letter of 10 November 2014 stating its objections to the intended demand on the bond and reserving its position.

152. After further exchanges and correspondence Clyde & Co. confirmed on 5 December 2014 that the first plaintiff would make the requested payment strictly subject to its objections and reservation of rights and notifying the defendant that the payment would be challenged and of its intention to seek recoupment of the payment both directly and in exercise of its right of subrogation.

153. On 11 December 2014 the first plaintiff made the payment of €4.45 million under the bond, restating its reservation of rights.

PART SEVEN: THE PRELIMINARY OBJECTIONS

154. The defendant pleaded a number of preliminary objections. None of them were a bar to the two substantive claims pursued at the trial.

First Objection: Locus Standi

155. The substantive claims in these proceedings are twofold. Firstly, it is claimed that the contractual requirement for the MEC Capacity Bond and the calculation of its amount were a penalty and unenforceable. Secondly it is claimed that in making the demand the defendant was guilty of discrimination as between the second plaintiff and comparator generators, in breach of the Act, the Regulations and the defendant’s own Memorandum of Association.

156. These claims are rooted in the relationship between the second plaintiff and the defendant. The first plaintiff was not a party to the Connection Agreement. Nor was it a contracting generator for the purpose of any discrimination claim. Thus the defendant pleads that the first plaintiff has no standing to pursue these claims.

157. The first plaintiff claims firstly that having paid the bond amount it is subrogated to the rights of the second plaintiff and therefore entitled to pursue the same remedies. Secondly it states that on 18 August 2016 it took an assignment from the liquidator of the second plaintiff of all of the second plaintiff's rights and claims against the defendant.

158. The plaintiffs also submit, correctly, that there can be no objection to the standing of the second plaintiff to pursue these proceedings.

Subrogation

159. The first plaintiff submits that it is entitled to subrogate to the rights of the second plaintiff “under the rules of performance bonds”. No rule or other authority to that effect was cited.

160. The plaintiff relies on the judgment of the Court of Appeal (EW) in IIG Capital LLC v. Van Der Merwe and Another [2008] EWCA Civ 542.

161. In IIG Capital, the defendants executed a guarantee of loans granted to a company of which they were directors. When the plaintiff pursued the guarantors for summary judgment the defendants had sought to rely on defences which they claimed were available to the company as a matter of New York law, of which evidence was adduced at the hearing. They claimed that as guarantors they were putatively entitled to subrogate to the company and therefore that the defence available to the company could be invoked to resist summary judgment. The court concluded that on a proper construction of the loan documents, and relevant debentures and the guarantee itself, the plaintiff creditor was entitled to summary judgment. This was upheld by the Court of Appeal. The court was satisfied that the guarantors had, on a proper construction of the relevant documents bound themselves to pay on demand as a primary obligor the amount stated in a certificate of the creditor.

162. In considering the subrogation argument, the court had the following to say: “I am inclined to the view that even if there is no express contract negotiated between the Van der Merwe’s and the company it is strongly arguable that the Van der Merwe’s will have a remedy against the company and in my view if the company refuse to seek return of the overpayment [a claim against the creditor], the guarantors would have a right of subrogation by which they could force IIG to pay back sums found to have been overpaid”. (paragraph 27)

163. On a proper analysis of this judgment this observation regarding a potential right of subrogation was obiter. The court’s decision was to grant summary judgment against the guarantors, based on the creditor’s certificate of the debt, and leave for another day any final examination of the extent of their right of subrogation.

164. The case concerned guarantees of loans, and not a performance bond such as arose in this case. The language of paragraph 27 of the judgment relied on by the plaintiffs here cannot be described as a “ringing endorsement” of the proposition that a right of subrogation would extend to a bond issuer.

165. The decision in IIG Capital v Van Der Merwe was considered by the authors of The Modern Contract of Guarantee, English Edition – Third Edition (Courtney Phillips and O'Donovan) (Sweet and Maxwell) where they had the following to say: “It is not clear what role (if any) subrogation has for the paying obligor. In IIG Capital LLC v Van Der Merwe Walker LJ tentatively suggested that the obligor could be subrogated to the principal’s right to recover the overpayment from the beneficiary. This appears to assume a contract of indemnity between obligor and principal. It also implies that the nature of subrogation is more analogous to that of insurance than for guarantees. On the latter approach, the obligor (like a guarantor) would be subrogated to the beneficiary (creditors) rights against the principal contractor (debtor). The latter form of subrogation makes no sense in the case of an overpayment because the beneficiary (creditor) has no right against the principal debtor to be paid more than is due.”

166. The authors of Andrews and Millett on Law of Guarantees (Seventh Edition, Sweet and Maxwell) put the matter differently: “…in all cases in which a liability to repay or account for the excess has been established or judicially acknowledged, the beneficiary has been held liable to the account party (i.e., the principal) rather than the issuer of the performance bond (the surety). Indeed, if the performance bond requires payment of a specified form to be made against defendants, in a particular form, it is difficult to see how one could imply a term in the bond itself to the effect that if there turned out to be an overpayment there will be a duty on the part of the beneficiary to account for the surplus to the issuer of the bond. The alleged implied term would be incompatible with the xpress terms of the bond.”

167. Considering IIG, Andrew and Millett continued: “Walker LJ dismissed the notion that the person liable under the bond would have a remedy directly against the overpaid payee, but was amenable to the idea that there would be an implied right of indemnity against the principle for the full amount. He also said that it was strongly arguable that the sureties in that case, who had undertaken obligations, akin to those under a performance bond would have a right of subrogation by which they could force the payee to pay back any funds found to have been overpaid. However, he made it clear that the precise mechanism that there might be for repayment was not the most relevant question when considering what the guarantee or bond itself required the surety to protect himself against in the eventuality of overpayment.”

168. IIG is not a conclusive authority either way on the question of subrogation for this case.

169. In this case Clause 1.6 of the bond precludes the first plaintiff from resisting payment on receipt of the demand. But it contains nothing which would override any right of subrogation to the second plaintiff’s claims against the defendant. The more difficult question is whether such claims are sustainable, and the first plaintiff can, of course, have no stronger claim than the second plaintiff.

170. The doctrine of subrogation is rooted in the willingness of the court to afford a remedy in equity to a party who discharges the obligation of another. The remedy is to permit the paying party to step into the shoes of the principal obligor. The common manifestation of this remedy is to permit the paying party to exercise against the principal obligor, or debtor, the rights and remedies of the beneficiary of the payment, in this case the defendant. But there is no reason in principle why, in the converse situation, as arises here, the paying party would not enjoy the benefit of the principal obligor’s potential claims against the beneficiary. Such claims include a counterclaim or a claim to account for an overpayment or a windfall.

Assignment dated 10 August 2016

171. The assignment from the liquidator of the second plaintiff to the first plaintiff recites the Connection Agreement, the Notice of Termination, the MEC Capacity Bond, the demand and the fact that the first plaintiff paid the amount demanded. It continues in 1 as follows:

“1. Assignment

1.1 The assignor hereby confirms that:

1.1.1 The Assignee, as issuer of the MEC Bond, is entitled to an indemnity from the Assignor, as principal under the MEC Bond, for the MEC Bond Amount paid to Eirgrid by the Assignee; and

1.1.2 Any damages paid by Eirgrid to the Assignor or other recovery from Eirgrid by the Assignor that might be received by the Assignor which arise directly or indirectly out of, or in connection with, or under or in relation to the Contract and/or the MEC Bond and/or the Demand and/or the payment of the MEC Bond Amount are at all times held, and will be held, by the Assignor in trust for the Assignee subject to deduction of all reasonable costs and expenses incurred by the Assignor.

1.2 The Assignor hereby absolutely and irrevocably agrees to assign, and hereby assigns, to the Assignee any and all existing or future claims or counterclaims, actions, demands, disputes, causes or rights of action, suits or proceedings whether at law or in equity and whether intimated, actual, prospective or contingent in respect of any act, payment of monies, damages, losses, liabilities, interest or costs of whatever nature, whether known or unknown, that the Assignor (or any of its representatives, principles or agents) had, has or may have at any time in the future against Eirgrid (or any of its parents, subsidiaries, assigns, transferees, representatives, principals, agents, shareholders, officers or directors) arising directly or indirectly out of, in connection with, under or in relation to the Contract, including (but not limited to) the MEC Bond, the Demand and/or the payment of the MEC Bond Amount by the assignee to Eirgrid”.

172. Clause 14.1 of the General Conditions of the Connection Agreement provides as follows:

“ 14.1 Assignment by customer

Subject to Clauses 14.2 and 14.4 (which relate to affiliates) the Customer may not assign or transfer any of its rights or obligations under the Agreement without the prior written consent of the Company [the defendant] who, in considering whether or not to give that consent, may take into account the creditworthiness, relevant experience (and in respect of Connection Agreement, the technical capabilities of the intended assignee and whether this Customer is also assigning the Project and the Facility to the Assignee) and any other relevant matters having regard to the obligations of the Customer under the Agreement, but such consent shall nevertheless (taking into account those factors) not be unreasonably withheld, delayed or made subject to unreasonable conditions.” (emphasis added)

173. No request was ever made to the defendant for consent to an assignment.

174. It is clear that the purpose of the restriction on assignment in Clause 14.1 was to protect the defendant from having forced upon it an unsuitable counterparty to a Connection Agreement. The words underlined by me above demonstrate that the purpose of this protection is in the context of a live connection agreement, where the reliability and technical capabilities of an assignee would be all important.

175. The plaintiffs submit that because the Connection Agreement had terminated long before the assignment was executed it is not the ‘live’ contract which is assigned but claims “arising directly or indirectly out of or in connection with the Contract”. They submit that the prohibition on assignment does not apply to the claims made in these proceedings.

176. If one accepts the veracity of the recital that the first plaintiff is entitled to an indemnity from the second plaintiff, which for this purpose I do, the first plaintiff has a legitimate and unobjectionable interest in the proceeds of the second plaintiff’s claims against the defendant. That being the case I do not regard Clause 14 as a bar to the efficacy of the assignment.

Second Objection: Statute of Limitations 1957

177. The defendant pleads that the claim for damages is based on an alleged infirmity in the Connection Agreement which was executed on 29 October 2009, more than six years prior to the commencement of these proceedings on 10 August 2017. They plead that is the date which is relevant and not the date on which the bond was drawn down, namely 26 November 2014.

178. Self-evidently this plea does not apply to the discrimination claim which relies on events which occurred in 2014.

179. The plaintiffs submit the following.

180. Firstly that no loss or damage occurred, before 26 November 2014 when the bond was drawn down, and therefore the cause of action did not accrue until that date.

181. Secondly that in so far as their claim is in substance not for damages but for a declaration that clause 2.10 of the offer letter is a penalty, that the defendant has been unjustly enriched by the payment of the Bond Amount, and seeks a declaration that the amount paid over is held in trust for the plaintiffs, it is a claim in equity, to which the Statute of Limitations does not apply.

182. Section 11.9(a) of the Act of 1957 provides “this section shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief”.

183. The defendant relies on the proposition, which is not in dispute, that the analysis of whether a clause is penal must be performed as of the time when the agreement was entered into, namely 29 October 2009.

184. This principle was clearly stated by the Court of Appeal (Finlay Geoghegan J.) in Sheehan v. Breccia [2018] IECA 286 and by Charleton J. in Durkan New Homes v. Minister for the Environment Heritage Local Government [2012] IEHC 265.

185. In neither of those cases was the Statute of Limitations pleaded. The proposition that the contract should be assessed or tested for “penalty” at the time when it was entered into is an entirely different proposition from the question of when a cause of action accrued.

186. Whichever way this matter is approached, the cause of action did not accrue until the occurrence of the events of 2014, being the termination the Connection Agreement and the drawdown of the bond.

187. The claim is not statute barred.

Third Objection: Laches

188. The defendant pleads that the plaintiffs are dis-entitled to any relief by reason of their own delay in bringing these proceedings. They plead that the plaintiffs could have made the claims in relation to the alleged penalty clause in the Connection Agreement prior to October 2009.

189. They object that the plaintiffs did not raise any challenge to the validity of the clause until 2014 after the defendant had notified the plaintiffs of its intention to terminate the Connection Agreement and to draw down the bond.

190. In submissions the defendant pursued this argument only by reference to the period from 2014 onwards. They say that the plaintiffs first raised their objections during 2014 and yet only commenced these proceedings by issuing the plenary summons on 10 August 2017, and then delaying serving the plenary summons, together with the statement of claim for 11 months until on 26 July 2018.

191. The plaintiffs respond as follows.

192. Firstly any delay is explained by the following:

(i) The complexity of the contractual documentation

(ii) The complexity of all the evidence concerning the purpose of the bond, including relevant regulations and decisions of the Commission

(iii) The receivership of the second plaintiff, which occurred on 16 January 2012

(iv) The liquidation of the second plaintiff, which occurred on 18 June 2015

(v) Extensive efforts made over a long period of time to obtain documents pursuant to the Freedom of Information Act 2014, including numerous applications to the defendant itself, appeals to its information officers, and ultimately references to the Office of the Information Commissioner.

193. Secondly the plaintiffs plead that the defendant has not suffered any prejudice or hardship as a result of the delay.

194. In terms of the explanation for delay, it does not seem to me that the complexity of the contractual documentation or of the decisions or documents of the Commission, all of which were publicly available would in and of itself justify delay. There has been no suggestion that the first plaintiff lacked the resources to examine the available information, conduct necessary research, and take professional advice on its remedies.

195. It is, however, clear from the voluminous correspondence that requests for documents and information pursuant to the Freedom of Information Act took a number of years. That course had not been fully exhausted by the time the proceedings were issued on 10 August 2017.

196. There is a remarkable gap in that there was no correspondence during 2015. After the initial exchanges of correspondence in 2014 it was not until May 2016 that Clyde & Co. “resurfaced” and persisted with the first plaintiff’s requests for further information.

197. The defendant says that the long delay firstly in the commencement of these proceedings and secondly in service of the proceedings was a cause of uncertainty for it and prevented it from performing its public functions, of acting on foot of the otherwise lawfully drawdown bond.

198. It does not assist the defendant that in the first round of correspondence during 2014 it adopted the position that it should not engage with the first plaintiff because the first plaintiff was not a party to the Connection Agreement and had no basis for enquiring into matters which had transpired between the second plaintiff and the defendant. It was not long before matters moved on from this but undoubtedly the plaintiffs were put to extensive further research and correspondence including numerous rounds of applications, appeals and references to the Office of the Information Commissioner during 2016 and 2017.

199. No evidence was adduced of any prejudice to the defendant in terms of its ability to meet the claims on the merits and defend these proceedings.

200. I am not persuaded that the conduct of the plaintiff constituted laches such as would warrant denial of any relief.

Fourth Objection: Connection Agreement validly terminated: Clause 3.2

201. Clause 3.2 of the Connection Agreement, which was the clause invoked by the defendant for the termination of the agreement contains the following subparagraph: “in the event that the Connection Agreement is terminated in accordance with the terms of this clause, then the Customer shall immediately pay to the Company the amounts calculated in accordance with the General Conditions. Without prejudice to the foregoing provision, the party terminating the Connection Agreement shall have no liability to the other party arising from such termination”. (emphasis added)

202. This clause says nothing about the consequences for the drawdown of the bond.

203. The defendant pleads that for all the other complaints made by the plaintiffs in these proceedings, it is not contended that the Connection Agreement was not validly and effectively terminated in accordance with Clause 3.2.

204. The plaintiffs say that the claims in these proceedings do not derive from the act of termination of the Connection Agreement and are therefore not precluded by Clause 3.2. They say that the penalty claim is a challenge to the enforceability of Clause 2.10 of the Offer Letter, which requires the provision of the bond in an amount of €4.45 million, and to Clause 24.3.8 of the General Conditions which provides that “in the event that the customer fails to achieve the Operational Date by the Scheduled Operational Date Longstop Date the Company will be entitled to drawdown the Bond.”

205. Relevant to this question are the precise terms of the Notice of Termination of the Connection Agreement served on 12 November 2014 and the demand made on the bond on 26 November 2014.

206. The Notice of Termination contains the following critical point “Confirmation under clause 2.6 of the Connection Agreement has not been furnished by the Customer by the Scheduled Operational Date Longstop Date (as defined in the Connection Agreement) of 12 November 2014. Please take note that termination of the Connection Agreement will take effect on 10 December 2014 and this letter should be regarded as the notice in writing of termination as referred to in clause 3.2 of the Connection Agreement”.

207. The termination of the Connection Agreement is not cited as the basis for the proposed demand under the bond. Nonetheless, in its terms the same letter gave notice to the second plaintiff that on 26 November 2014, it intended to draw down the bond.

208. The demand on the bond was served on 26 November 2014, prior to the date on which the termination of the Connection Agreement came into effect. The schedule to the demand letter recites the basis on which the demand is made as follows: “the Customer is in breach of its obligations under the Connection Agreement having failed entirely to achieve the capacity reserved to the Customer and having failed to achieve the Operational Date for the Facility by the Scheduled Operational Date Longstop Date of 12 November 2014 and accordingly the Company is entitled to drawdown the MEC Capacity Bond in the amount of €4.45 million”.

209. There is a distinction between the Notice of Termination and the Demand. The Notice of Termination is specifically referable to clause 3.2 of the Connection Agreement, which contains the exclusion of liability relied on by the defendants. By contrast the demand is carefully phrased to invoke different provisions, namely Paragraph 2.10 of the Offer Letter and General Condition 24.3.8, which entitles the defendant to call on the bond.

210. Clause 3.2 of the Connection Agreement does not provide that the bond will be called by reason of the termination of the Connection Agreement. The warrant for the calling of the bond derives not from that Clause 3.2 but from Clauses 24.3.8 and 24.8 of the General Conditions.

211. The fact that the Termination Notice of 12 November 2014, refers to both the termination of the Connection Agreement and the intended draw down of the bond, illustrates the close nexus between the two events. They both flow ultimately from the failure of the second plaintiff to develop the Facility and meet the capacity test. Therefore the distinction relied on by the first plaintiff, to eliminate the application of the exclusionary clause in Clause

3.2 of the Connection Agreement which applies to claims “deriving from such termination” to its claims deriving from the drawdown of the bond, is somewhat artificial. Nonetheless, I accept that the claim of an unenforceable penalty does not arise “from the termination” and is therefore not excluded by that clause.

212. The same may not be said of the discrimination claim, but it is not necessary to explore that question further having regard to my findings in Part Nine below.

Fifth Objection: Estoppel by Deed

213. The defendants plead that by the act of entering into the Connection Agreement and meeting the precondition of providing an MEC Capacity Bond the plaintiffs are estopped from making the claims in these proceedings. They say that the second plaintiff, when entering into the Connection Agreement and when procuring the bond fully understood, or ought to have understood, the nature of the MEC Bond as an on demand bond.

214. This plea does not extend to the discrimination claim, which relates to events long postdating the Agreement.

215. The defendants rely also on Paragraph 4 of the Bond: “The liability of the issuer shall not in any way be affected by

6.1. Any time, indulgence or belief being given to or by the Company or the Customer

6.2. Any amendment or extension of or supplement to the Connection Agreement

6.3. Any invalidity in, or irregularity or unenforceability of the obligations of any person under the Connection Agreement or

6.4. anything done or omitted which but for this provision might constitute a legal or equitable discharge or release of, or defence for, the Issuer”.

216. The first plaintiff’s Head of Bonds, Mr. Graham Lacey, gave evidence. He confirmed that when the first plaintiff acquired sections of the business of Quinn Insurance Limited from the Joint Administrators that the transaction included certain bonds including this MEC Capacity Bond. He initially confirmed that due diligence had been undertaken on such bonds. When asked under cross-examination if those performing the due diligence ‘would have paid particular attention to the handful of on demand bonds because they could be called on demand’ Mr. Lacey said that this bond was “one of a handful of ‘on demand’ bonds, and that the mechanism of bonds would not have been a skillset of the people who were there…” No suggestion was made either in Mr. Lacey’s evidence or in submissions that, whatever about the due diligence or the first plaintiff’s understanding of the bond, the first plaintiff had not acceded to and assumed all the obligations by the issuer of the Bond.

217. On 2 August 2012 the first plaintiff confirmed to the defendant that it was assuming the rights and obligations of Quinn Insurance Limited in respect of the bond. It never at that point protested the validity or enforceability of the bond. Its first reservation of rights was in 2014 after the defendant moved to call the bond.

218. The fundamental of the claim relating to the penalty is exactly the type of “unenforceability of the obligations of any person under the Connection Agreement” which is precluded by Paragraph 6.3 of the bond itself.

219. The first plaintiff resists the estoppel plea, stating that when it received the demand and made the payment, it reserved its rights. It says that the fundamental of the claim, or at least relating to the claim of a penalty arises form the Connection Agreement and is not a complaint about the terms or efficacy of the bond. That submission is correct as far it goes, but is of no relevance to the application of Paragraph 6 of the bond itself. It seems to me that the subrogated or assigned rights, and obligations, of the first named plaintiff, which are governed by the Connection Agreement, do not override the direct rights, and obligations, of the first named plaintiff, which are prescribed by Paragraphs 4 and 6 of the bond.

220. The plaintiffs’ case is that the bond is ‘temporal’ in its effect. Although not articulated in this way, the consequence of its submission is that clause 6 of the bond does not preclude a later determination of the respective rights of all the parties and potential “correction” by recoupment of the bond amount paid. I examine this further in Part Eight

221. The same objection cannot be made by the second plaintiff, whose claims arise pursuant to the Connection Agreement and from the actions of the defendant in 2014.

222. No precedent was cited to me for a proposition that by entering into a contract, whether that be a loan agreement or any other of the types of contract considered in all of the “penalty” cases a party is estopped from asserting the “penalty” claim by virtue of having executed the agreement in the first place. If the signing of an agreement and performance of its terms in this case including the procurement of the bond itself, were to preclude any analysis by a court of the terms of the contract by reference to the doctrine of penalties, then none of the cases in which clauses have been found to be penalties (see Part Eight) would ever have been decided. I am not persuaded that the second plaintiff is estopped from making its claims by signing the relevant agreement, or by any of its actions.

Sixth Objection: Alternative Dispute Resolution

223. The defendant pleads that the plaintiffs failed to avail of and exhaust the procedures for alternative dispute resolution stipulated in Clause 12 of the General Conditions or section 34 of the Act.

224. Clause 12.1 provides for notification of a dispute and stipulates that “either party may notify the other party of any occurrence or discovery of any item or event which the notifying party acting in good faith considers to be a dispute under or in connection with the agreement”.

225. In the event of a notification pursuant to Clause 12.1 the provisions of 12.2 and 12.3 which relate to the appointment of company representatives to attempt to resolve the dispute, and reference to an expert or an arbitrator, apply after a notification has been served pursuant to clause 12.1. Clause 12.1 is itself optional, using the word “may”.

226. Clause 12.4 provides “in the event of dispute between the Company and the Customer… concerning the interpretation of any provision of the agreement or the performance of any of the terms of the agreement such matter or matters in dispute shall be finally settled under the rules of conciliation and arbitration of the International Chamber of Commerce by one arbitrator …”

227. On any view of the matter there is no dispute as to the fact that the second plaintiff failed to meet capacity tests by the relevant long stop dates provided for in the Connection Agreement or at all.

228. As to whether the requirement for the MEC Capacity Bond at the level of €4.45 million provided in Paragraph 2.10 of the Offer Letter was a penalty, no submissions were made as to whether an arbitrator appointed pursuant to Clause 12 of the General Conditions would have jurisdiction to grant the equitable relief of declaring the bond requirement to be a penalty.

229. There is little doubt but that the discrimination claim could be characterised as a dispute regarding the performance of the agreement.

230. Although the plea of failure to exhaust alternative dispute mechanisms was made the defendant entered an unconditional appearance in these proceedings and participated in full exchanges of pleadings, particulars, discovery and interrogatories. It never applied to stay these proceedings.

231. It was surprising that the defendant persisted with this objection at the trial, having taken no steps to stay the proceedings or refer them to arbitration themselves. There was therefore no reason for the court to refrain from hearing and determining the substantive issues in the case.

232. Section 34 (6)(a) of the Act provides: “Any dispute between the transmission system operator or the distribution system operator and any person who is, or claims to be, a person to whom the transmission system operator or the distribution system operator, as the case may be, is obliged to make an offer for connection to and use of the transmission system or distribution system, as the case may be, whether as to the terms and conditions (including proposed charges) or otherwise, shall, upon the application of such person, be determined by the Commission and the Commission shall issue a direction regarding its determination and the transmission system operator or the distribution system operator, as the case may be shall comply with and be bound by any such direction.”

233. This procedure is only available to “such person” being a person who claims to be a person to whom the TSO was obliged to make an offer for connection, being in this case the second plaintiff. Even though that was the second plaintiff’s course to follow, neither party applied to have the matters in issue in this case determined by the Commission and these proceedings stayed pending such a determination. If the defendant considered that this was an appropriate course then it could and should have applied for a stay to enable that to be done.

234. I do not regard this as a bar to this Court hearing and determining the issues in the case.

Seventh Objection: Collateral Attack/Abuse of Process

235. The defendants make the following pleas in relation to the form of these proceedings.

236. Firstly that the decision of the defendant to draw down the bond was made in the exercise of its statutory functions and is amenable to challenge only by judicial review pursuant to O. 84 of the Rules of the Superior Courts in accordance with the time limits applicable for such proceedings, which had long expired before these proceedings were commenced.

237. Secondly that the claim is a disguised challenge to the regulatory provisions concerning the requirements for MEC security bonds as set out in CER03/298 and all of the decisions of the Commission which govern requirements for security and govern the calculation of the amounts of such bonds. The defendants submit that these decisions can only be challenged by judicial review and that the proper defendant or respondent in any such challenge would be the Commission itself.

238. No case is pleaded expressly against the Commission.

239. The plaintiffs say that the decision to terminate the Connection Agreement and to draw down the bond was an act of its contract counterparty and not the exercise of a public function which can only be challenged by judicial review. The say that there is no provision in the Act or the Regulations or otherwise which stipulates that judicial review is the exclusive means by which to make the claims made in these proceedings.

240. The plaintiffs deny that this case is a disguised challenge to decisions of the Commission or that they are challenging any decisions of the Commission. They must make this case because any challenge to the decisions of the Commission, which is not a party to these proceedings, is a public law matter amenable to challenge only by judicial review. Those decisions include such items as the following:

(a) the Commission's decision to authorise the provision of bonds in connection agreements, and setting the bond amounts at €10,000 per MW of maximum export capacity (CER/03/98)

(b) The Amnesty, which authorised capacity releases, refunds of first stage payments and release of securities (CER/16/284).

(c) The direction of 14 December 2007 issued by the Commission to the defendant to issue a connection offer to the second plaintiff.

241. None of those decisions are directly challenged or could be challenged in these proceedings.

242. The matters which are challenged in these proceedings are: (a) the provisions of Paragraph 2.10 of the Offer Letter and Clause 24 of the General Conditions on the grounds that they are a penalty and therefore unenforceable (paragraph 44.7 of the Statement of Claim); and

(b) the making of a demand which is claimed to be discriminatory (paragraphs 44.4 to 44.6 of the Statement of Claim).

243. The level of the capacity bond as a general matter was stipulated not only in CER/03/98 but also in CER04/319 (6 October 2004) which states that “generators seeking connection to the distribution system shall also be required to post a capacity bond of €10,000 per MW as a condition precedent to offer acceptance” (clause 5.2).

244. By its Direction to system operators on 6 April 2005 CER/05/049 the Commission directed (paragraph 4.1) that “all transmission and distribution renewable applicants will be required to post a capacity bond of €10,000 per MW of the MEC (Maximum Export Capacity) on connection offer acceptance”.

245. These are all decisions and directions of the Commission which are not and could not be challenged in these proceedings.

246. Paragraph 44.7 of the statement of claim seeks “a declaration that clause 2.10 of the offer letter and/or clauses 2 and 24 of the terms and conditions (insofar as they provide for the requirement to pay and/or drawdown and/or for the calculation of the ‘specified amount’ and the ‘MEC capacity bond amount’ for the purposes of the contract) are unenforceable on the ground that the amount to a penalty”.

247. When prescribing the amount of this bond the defendant was implementing the decisions and directives of the Commission.

248. The question of which laws apply to the interpretation and construction of contracts entered into between public bodies and others in the context of a regulatory framework was considered by the Court (Clarke J.) in Rosborough v. Cork County Council [2008] IEHC 94.

249. In that case the claimant had paid for waste collection for the year 2006 at a rate set and charged by the respondent. The respondent later made a change to the level of waste collection service being provided. The claimant argued that this was a breach of contract and sought a refund of the charge.

250. The court found that the relationship between the claimant, who was a householder, receiving the service under the Waste Management Act 1996 was prima facie governed by statute and public law. In the absence of any clear documentation to establish the intention of the respondent to be bound by contractual relationships with the individual householder no contract could be reasonably inferred.

251. The court observed that there will be instances in which a public body will enter into private contracts with third parties in the course of the performance of its functions. However, this was not such a case: “It should also be emphasised that the mere fact that a public authority is carrying out a statutory function does not, of itself, necessarily mean that the manner in which that function is carried out cannot involve the public authority concerned entering into contractual relations with third parties. ….where a public authority on foot of a statutory power, enters into a contract with a third party, then the ordinary principles of contract will apply to their relations thereafter, save to the possible extent that the statutory framework within which the contract was entered into might, in certain circumstances, have an effect on the proper interpretation of the contract or the legitimacy of same or some of its provisions. Thus for example in Irish Pharmaceutical Union v. Minister for Health [2007] IEHC 222 I made clear that the relevant Minister, on the facts of that case, having entered into a contract with pharmacists for the provision of services to patients (on foot of a statutory obligation on the Minister to make such provision) was not entitled unilaterally to change the terms of the contract entered into. There was not, of course, on the facts of that case any doubt but that there was a contract between, in the events that had happened, the Health Service Executive and the relevant pharmacists. The fact that such contracts arose within a statutory context did not prevent them from being construed in accordance, by and large, with the ordinary principles applicable to contract law”. (emphasis added)

252. Two features of the passage quoted above are relevant to this case.

253. Firstly, Clarke J. envisages that the statutory framework might inform the interpretation of the contract “or the legitimacy of same or some of its provisions".

254. Secondly, the court envisaged that contracts entered into within a statutory context are still contracts which should generally be construed “in accordance with ordinary principles applicable to contract law”. This clearly includes the potential for scrutiny by reference to such principles as the rule against penalties.

255. The passage quoted above was obiter, since the court in that case found that there was not in fact a contract between the claimant and the respondent. Nonetheless it is a useful and informative description of the approach to be adopted to the construction of contracts entered into by public bodies.

256. Insofar as these proceedings relate to the particular actions of the defendant they are not an abuse of process. But insofar as they amount to a challenge to the decisions of the Commission, which are of central importance to this case, they are a collateral attack. Therefore, when it comes to the analysis of the substantive claims in the case, the decisions and directions made by the Commission and imposed on the defendant are not susceptible to challenge in these proceedings.

257. This has a fundamental effect on my conclusions on the penalty claim, as described in the next Part.

PART EIGHT: THE PENALTY CLAIM

258. It is common case that the primary purpose of the requirement to provide an MEC capacity bond and of the calculation of the amount of the bond were to prevent applicants from hoarding transmission capacity and to dissuade parties from spuriously reserving transmission capacity to the detriment of other parties wishing to connect.

259. The plaintiffs plead that the contractual terms comprising the calculation of the specified amount, the requirement for the MEC Bond and the calculation of the MEC Bond amount were extravagant and/or exorbitant and/or unconscionable in relation to any possible demand in damages that could have been made within the contemplation of the parties on 29 October 2009, when the Connection Agreement was entered into and/or 12 August 2010 when its critical dates were first extended.

260. The plaintiffs plead that the demand was based on contractual terms that were unenforceable because they amounted to a penalty, that the defendant has obtained a windfall from the demand which was then paid and that the amount paid over is held in trust for the first named plaintiff “on an application of the law relating to performance bonds”.

261. The plaintiffs claim that the provisions of the contract which stipulated the MEC bond amount with reference to €10,000 per megawatt did not constitute a genuine pre-estimate of the defendant’s probable loss should the second named plaintiff fail to provide its allocated 445 MW capacity by the Scheduled Operational Date Longstop Date. It is claimed that the formula for calculating the amount was generic and therefore could not be an estimate of possible and/or foreseeable loss.

262. Finally it is claimed that the purpose and/or the dominant purpose of the calculation of the amounts was to deter a breach of the Connection Agreement and/or “to punish the second named plaintiff for breach of the Connection Agreement”.

263. The defendant pleads that the purpose of the requirement to provide an MEC bond and the terms of the Connection Agreement were twofold. Firstly, to discourage the hoarding by contract generators of capacity on the transmission system. It pleads that there is an opportunity cost when the TSO contracts with a generator who ultimately does not connect as that transmission capacity could have been used by other generators.

264. The defendant says that the second purpose of the bond is to achieve partial cost recovery for TUOS (transmission use of system) customers arising from the loss of forecasted TUOS revenue from generators who do not connect.

265. The defendant denies that the bond or its amount is a penalty. It pleads that the bond is a performance bond which is required to ensure performance of connection obligations and is characterised as such both in the governing regulations and decisions of the Commission. The defendant says that the legal concept of a penalty clause does not apply to such a case.

266. The defendant pleads that there is a distinction to be drawn between the contractual rights as between the first named plaintiff as the issuer of the bond and the defendant, which are governed only by the terms of the MEC Bond itself, and the separate rights and obligations between the second named plaintiff and the defendant, which are governed by the Connection Agreement.

267. The defendant admits that the provisions of the Connection Agreement which stipulated the amount of the MEC bond were generic and did not concern pre-estimates of probable or foreseeable losses.

268. The defendant admits that a purpose of bond and its amount was to deter breach of the Connection Agreement, but it does not admit that the purpose was to punish the second plaintiff for any breach.

269. The defendant pleads that insofar as there is any requirement to show that the relevant contractual provisions requiring the bond were “commercially justifiable”, which it does not admit, the relevant requirements were in any event commercially justifiable and not disproportionate.

Discussion

270. The first plaintiff's rights and obligations as regards the bond and the payment thereof must be examined from two perspectives. Firstly, the direct relationship, leaving aside any rights of subrogation or rights pursuant to an assignment, was governed by the terms of the bond itself. This relationship is governed by the express terms of the bond the key relevant provisions of which are as follows: “2. The Issuer irrevocably and unconditionally agrees that it will, on service of a demand before the expiry date and within three business days pay to the Company the specified amount, unless in so doing the aggregate limit set out at paragraph 3 of this MEC capacity bond (€4.45 million) would be exceeded in which case the Issuer shall pay to the Company so much of the specified amount as may be paid without exceeding such limit”.

271. Paragraph 6 provides as follows: “6. The liability of the issuer shall not in any way be affected by

6.1 any time, indulgence or relief being given to or by the Company or the Customer;

6.2 any amendment or extension of or supplement to the Connection Agreement;

6.3 any validity in or irregularity or unenforceability of the obligations of any person under the Connection Agreement; or

6.4 anything done or omitted which but for this provision might constitute illegal or equitable discharge or release of, or defence for, the Issuer.”

272. Nowhere in all of the submissions was any challenge made to the efficacy of these clauses in their own right. Therefore the following emerges in relation to the terms of the direct relationship between the first plaintiff and the defendant.

A. The bond imposes a clear and unconditional legal obligation to pay the specified amount on service of the demand. It is not in dispute that the demand was duly served on the first plaintiff in the form set out in the appendix to the bond.

B. The liability to pay is not affected by any of the issues described in paragraph

6. These are all matters which relate to the terms and operation of the contractual relationship between the second plaintiff and the defendant. Most notably the penalty claim is made to support a claim of unenforceability of the obligations of the second plaintiff to the defendant. Clause 6.3 precludes the first plaintiff from pursuing that claim.

273. The discrimination claim derives from the manner in which the defendant treated the second plaintiff, not the first plaintiff, or its predecessor Quinn Insurance Limited which entered into a one-off transaction, namely the issue of the bond stated to be payable without condition on the service of a valid demand in the prescribed form.

274. Therefore the language of the bond precludes reliance by the first plaintiff on any dispute by reference to the enforceability of the Connection Agreement, the Offer Letter or the General Conditions or by reference to the actions of the defendant alleged to constitute discrimination as against the second plaintiff.

275. I have already considered the questions relating to subrogation and assignment (see part Seven). Whichever way the matter is approached, even if one recognises the validity of the subrogation and the assignment it is clear that on no account can the first plaintiff have any greater rights as against the defendant than the second plaintiff.

Nature of the Bond

276. The plaintiffs claim that the true nature of a bond is such that its commercial purpose is to affect the “tempo of the parties respective obligations”. This means that if a bond is demanded and paid this does not close out later scrutiny of whether a breach of contract has occurred and an ultimate determination of the substantive rights between the contract parties. They submit that where a bond obliges the issuer to make the payment without question, as its terms provide, the merits of the issues as between the second plaintiff in this case and the defendant can still be the subject of scrutiny and legal determination, potentially resulting in a final accounting between the parties and if necessary a return of any amounts recovered by the beneficiary of the bond, thereby avoiding a windfall.

277. In Cargill International SA v. Bangladesh Sugar and Food Industries Corporation [1996] Lloyds Law Reports Volume 2 page 524, the position was considered by Mr. Justice Morison as follows: “I start with the commercial purpose of a performance bond. There is a wealth of authority concerned with the question whether and in what circumstances an interlocutory injunction may be granted (1) against the bank which issued the bond to restrain it from paying in accordance with its terms and (2) against the beneficiary of the bond to prevent it from calling the bond. The court will not grant an injunction in either case unless there has been a lack of good faith. The justification for this lies in the commercial purpose of the bond. Such a bond is, effectively, as valuable as a promissory note and is intended to affect the “tempo” of parties obligations in the sense that where an allegation of breach of contract is made (in good faith) the beneficiary can call the bond and receive its value pending the resolution of the contractual disputes. He does not have to await the final determination of his rights before he receives such monies.… The concept that money must be paid without question, and the rights and wrongs argued about later, is a familiar one in international trade and substantial building contracts. A performance bond may assume the characteristics of a guarantee especially, if not exclusively, in building contracts where the beneficiary must show as a pre-requisite for calling in on the bond that by reason of the contractor’s non-performance he has sustained damage. However it seems to be implicit in the nature of bond and in the approach of the court to injunction applications that in the absence of some clear words to a different effect, when the bond is called there will at some stage in the future be an accounting between the parties in the sense that their rights and obligations would be finally determined at some future date. The bond is not intended to represent ‘estimate’ of the amount or damages to which the beneficiary may be entitled for the breach alleged to give rise to the right to call.2 The bond is a ‘guarantee’ of due performance.” (emphasis added)

278. Later Morison J. continued: “As a matter of general principle therefore in the light of the commercial purpose of such bonds, the authorities to which I have referred and the textbook comments, I take In this case it is common case that the bond amount is not an estimate of loss.

the view that if there has been a call on a bond which turns out to exceed the true loss sustained, then the party who provided the bond3 is entitled to recover the overpayment. It seems to me that the account party may hold the amount recovered in trust for the bank (where, for example, the bank had not been paid by him) but that does not affect his right to bring the claim in his own name.”

279. The rationale of that decision was to respect the importance of performance bonds and the ability of a beneficiary to call for immediate payment if the conditions giving rise to the demand have been satisfied.

280. Morison J. cited the following passage from Hudson’s Building and Engineering Contracts where it was stated: “It is generally assumed, and there is no real reason to doubt, that the courts will provide a remedy by way of repayment to the other contracting party if a beneficiary who has been paid under an unconditional bond is ultimately shown to have called on it without justification. I do not doubt that in such an event the money would be repayable, but it is not so certain it would be repayable with interest – per Donelson J. in General Surety and Guarantee Company Ltd [1977] 6 BLR 16 and 21”.

281. The Court of Appeal restated this proposition when it was stated by Potter LJ that “the very fact that such bonds are payable by bankers on demand and without proof of loss seems to me to require that, as between the parties, the circumstances said to justify such demand should remain open to subsequent challenge and to quantification of damage so that an ultimate balance may be struck between the parties”.

282. Staughton LJ had the following to say “it seems to me right to bear in mind that the parties very probably will have known that that is a general feature of performance bonds. Is there then wording in this contract which shows a different intention? In my judgment there is Being the principal obligor or contractor.

not. The references to forfeiture of the performance bond in clauses 13 and 16 of the sale contract are capable of being read as referring only to the position as between Bangladesh Sugar and Food Corporation and the bank, and not as between Bangladesh Sugar and Food Corporation [beneficiary of the bond] and Cargill. In other words the bond is to be forfeited when it is called upon in the circumstances described, the bank must pay, and the money must go to the Bangladesh Food and Sugar Corporation. But that does not affect the position which generally applies as between Bangladesh Sugar and Food Corporation and Cargill, that there must be an accounting”.

283. The defendant submits that these passages relate only to cases of breach of contract and potential claims for damages for breach of a contract. It distinguishes this case by identifying the fact that (a) the agreement is a regulated agreement approved by the Commission for specific purposes, those purposes not being compensatory damages; and (b) that the present case concerns the drawdown of a performance bond on the happening of a very specific particular event which the Offer Letter and Connection Agreement stipulate is the circumstance in which the bond can be drawn down.

284. The defendant submits that the bond in this case is not intended to cover any potential claim for damages but is a precondition of the Connection Agreement being accepted and its draw down is specifically and definitively provided for by the clear language of paragraph 2.10 of the Offer Letter, Clause 3.2 of the Connection Agreement, Clause 24 of the General Conditions and paragraphs 4 and 6 of the bond itself.

285. Throughout the Offer Letter, the Connection Agreement, and the General Conditions, the emphasis is on the provision of MEC security. There is force in the defendant’s submission that the structure of the bond in this case was such that it is not simply a ‘temporal’ remedy, but that there has been provided a particular form of security to which the defendant was entitled to have recourse and retain in the events which occurred. Nonetheless, the compelling logic of Cargill is that such a structure does not render the transaction as a whole immune from scrutiny, even by reference to the laws on penalties.

286. The defendant submits that the law on penalties has no application whatsoever to a performance bond. No authority was cited for such a broad proposition. The decision in Cargill would suggest that it is still open to a court to determine whether there has been a breach of contract or, as alleged in this case, an infirmity in the contract, and if so what is the appropriate remedy and if it should transpire that the beneficiary of the bond has enjoyed a windfall that there should then be an adjustment as between the beneficiary of the bond and the contracting party, in this case the second plaintiff. I am impressed by that logic, and it is therefore necessary to consider the penalty claim.

Penalty Clauses Generally

287. The core principles of this doctrine, and potentially relevant to this case, may be summarised as follows.

288. Firstly, the starting point is that the court will respect the autonomy of the parties. A court must be reluctant to interfere with the terms agreed. Only on an exceptional basis will a court depart from the principle of freedom of contract. (Sheehan v. Breccia [2018] IECA 286 (Finlay Geoghegan J). Although a fundamental point, this principle has limited application where the clause concerned is inserted to comply with binding directions imposed by a regulator, as occurred in this case. Both parties knew that the policy, and directions of the Commission mandated the inclusion of this requirement and the formula for determining the amount of the bond.

289. Secondly, the principle of freedom of contract extends to agreeing to make a genuine pre-estimate of the loss which will occur in the event of a breach of contract. The benefit of such a provision is that it can eliminate any question of quantification which would arise in a future dispute as to the effect of a breach. In Durkan New Homes v. Minister for the Environment [2012] IEHC 265, Charleton J. neatly described the purpose of the rule: “Parties entering onto a contract are always aware that it may be broken. Since parties are free to contract on the basis of any consideration and for any purpose, other than what is illegal, it is also within their rights to genuinely pre-estimate what loss would occur in the event of a breach. A damages clause within a contract is to be upheld by the courts as having equal validity to any other term of the contract as thereby the parties are shown to contemplate and agree on their future losses. The difficult question of quantification is therefore removed from any future dispute as to the effect of a breach. What parties are not allowed to do however is to terrorise against a breach of contract through a clause disguised as a damages clause but which considerably overloads the party in breach with a liability to pay that is unrelated to what the contemplation of the parties genuinely would be as to loss.”

290. In this case, the parties all agree that the bond amount is not a pre estimate of losses.

291. Thirdly the essence of a penalty is the payment of an amount of money stipulated as in terrorem of the offending party. By contrast the essence of liquidated damages is a genuine pre-estimate of loss or damage. See Pat O'Donnell & Company Ltd. v. Truck and Machinery Sales Ltd. [1998] 4 IR 191, adopting the opinion of Lord Dunedin in Dunlop Pneumatic Tyre Company Ltd. v. New Garage and Motor Company Ltd. [1915] AC 179.

292. Fourthly the question of whether a sum stipulated is a penalty or liquidated damages is a question of construction to be decided upon (a) the terms of the agreement and (b) the inherent circumstances of each contract as at the time of making the contract and not as at the time of the breach. (Pat O'Donnell and Dunlop).

293. This principle requires an analysis which is not limited to the text of the contract documents but extends to all of the circumstances surrounding the making of the contract, in this case including, critically, the regulatory regime governing it.

294. Fifthly an agreed sum will be held to be a penalty if it is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach (Pat O'Donnell and Dunlop).

295. Sixthly, the onus of establishing that a stated charge is a penalty and therefore deviating from the express terms of the contract, rests on the party who makes such a claim. See ACC Bank plc v. Friends First Managed Pension Funds Ltd. and Others [2012] IEHC 435 (Finlay Geoghegan J.) and Launceston Property Finance Ltd. v. Burke [2017] IESC 62 (per McKechnie J.)

296. In Launceston, addressing the frequently invoked reference to a “deterrent” McKechnie

J. quoted with approval a passage from Clark, Contract Law in Ireland (8th Ed., Round Hall Dublin 2016) as follows: “A clause will be valid if it is a genuine pre-estimate of the damage which will probably result from a breach of contract. Such a clause is called a liquidated damages clause. If the clause is designed to deter one party from breaking the contract by stipulating that breach will result in the payment of a fixed amount the courts will refuse to enforce the clause by holding it to be a penalty. The burden of showing that the sum is a penalty rather than liquidated damages is upon the proferens.”

297. Seventhly, a stipulation of a payment which is generic will generally not be a genuine pre-estimate of probable loss (per Haughton J. in Sheehan v. Breccia).

298. Eighthly, in examining a contract the court will generally be concerned to identify the dominant purpose of the provision under scrutiny (Lordsvale Finance plc v. Bank of Zambia [1996] QB 753).

299. The test was revisited by the UK Supreme Court in Cavendish Square Holding BV v. Makdessi [2016] AC 1172. The Supreme Court decided that determining this issue was no longer a binary question of whether or not the provision is a genuine pre-estimate of probable loss. The Court said that the “real question is whether it is penal, not whether it is a preestimate of loss”. The court took a view that these were not mutually exclusive categories.

300. A number of the principles identified by the court in Cavendish were as follows:

(a) That the correct classification of a clause depends on the substance of its contents and not on the use of such labels as a “deterrent”.

(b) That the issue should not be determined as a binary question between on the one hand a penalty and on the other a genuine pre-estimate of probable loss. If a provision is not a genuine estimate of probable loss it will not necessarily be a penalty and therefore unenforceable.

301. In Cavendish the Supreme Court had the following to say: “The real question when a contractual provision is challenged as a penalty is whether it is penal, not whether it is a pre-estimate of loss. These are not natural opposites or mutually exclusive categories. A damages clause maybe neither or both. The fact that the clause is not a pre-estimate of loss does not therefore, at any rate without more, mean that is penal. To describe it as a deterrent (or to use the Latin equivalent, in terrorem) does not add anything. A deterrent provision in a contract is simply one species of provision designed to influence the conduct of the party potentially affected. It is no different in this respect from a contractual inducement. Neither is it inherently penal or contrary to the policy of the law. The question whether it is enforceable should depend on whether the means by which the contracting parties conduct is to be influenced are ‘unconscionable’ or (which will usually amount to the same thing) ‘extravagant’ by reference to some norm.”

302. The court continued: “The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation. The innocent party can have no proper interest in simply punishing the defaulter. His interest is in performance or in some appropriate alternative to performance”.

303. The plaintiffs submit that even if one were to apply the Cavendish test the requirement for and quantum of the MEC capacity bond fails that test and is therefore unenforceable.

304. In Sheehan v. Breccia Haughton J. adopted the view, upheld by the Court of Appeal, that he should follow the well-established approach in the Irish decided cases (in accordance with the principle in Worldport Ireland Ltd. (In Liquidation) [2005] IEHC 189), that the case should be determined by establishing whether the surcharge in that case was a genuine preestimate of loss in the event of a default.

305. In Launceston McKechnie J. took the view that it was not necessary for the court to decide in that case whether to deviate from the traditional Pat O'Donnell and Dunlop test and adopt the wider test endorsed by the Supreme Court in Cavendish.

306. The passages I have quoted from the Cavendish judgment are of some interest but I should follow the approach adopted by Haughton J., upheld by the Court of Appeal, in Sheehan. In that judgment Haughton J. described Cavendish as a departure from the law as it applies in Ireland and considered himself bound by the decisions in ACC Bank v. Friends First and Pat O'Donnell and Dunlop. I respectfully agree with that approach.

The bond as a deterrent

307. The defendant objects to the use of the phrase ‘deterrent’, submitting that it is no more than a convenient label deployed by the plaintiffs to bring the bond requirement within the penalty rule. In truth, a deterrent is the direct corollary of an incentive, or an ‘encouragement’, which is the phrase used in the various decisions of the Commission. I shall use the phrase deterrent, but in doing so must emphasise that it is no more than a shorthand for the primary purpose of the bond, stated variously by the Commission, as to “dissuade a party from spuriously receiving transmission capacity” and as a “deterrent regarding the hoarding of capacity”. Therefore the label ‘deterrent’ is not conclusive. It is clear (and I return to the evidence later) that the dominant purpose of the provision in this case is not to penalise individual customers who fail, for whatever reason, to meet the capacity test, but to protect the transmission system as a whole against hoarding. The purpose is to avoid parties entering into connection agreements who may later become unwilling or, more importantly, become unable for any reason to deliver the committed capacity.

308. The structure of the agreement is to provide for the forfeiture of the bond on the occurrence of certain stipulated events, notably a failure to achieve capacity by the stated long stop dates. This is akin, not to a damages remedy, which might otherwise be capable of a genuine pre-estimate, but to the forfeiture of any asset granted by way of security and the seizure of which is triggered on the occurrence of events stipulated in the governing contract, in this case Clause 28 of the General Conditions.

309. It is common case that by definition the amount of the bond is not a pre-estimate of probable loss such as would be relevant to individual connection agreements negotiated on foot of requests for such agreements. It is calculated by observing a formula contained in the decisions of the Commission which bind the parties. At first pass this would appear to give the appearance of a penalty. If that were the only consideration and the absence of a genuine preestimate of loss were dispositive of the case then the requirement would fall foul of the traditional rule as applied in the Irish cases. But in this case there is a fundamentally different factor which informs the contract, namely the regulatory regime. Clarke J. said in Rosborough v. Cork County Council [2008] IEHC 94, [2008] 4 IR 572 at [6.4] that “the statutory framework within which the contract is entered into might, in certain circumstances have an effect on the proper interpretation of the contract or the legitimacy of same or some of its provisions”. The statutory framework in this case and decisions made by the regulator as to the formula for calculating the amount of the bond must inform my consideration of the legitimacy of the provisions requiring a bond and of its amount.

310. The purpose and structure of the Connection Agreement is that the defendant is protected against the hoarding of capacity by customers generally. The facility to draw down the bond is not to compensate directly for losses which flow from a breach of the contract such as might sound in damages. The contract does not include failure to deliver capacity as an event of default in Clause 9 which can trigger a termination pursuant to Clause 9.3. The event of failure to deliver the required capacity by the Scheduled Operational Longstop Operational Date is met by the very specific different provisions in Clause 24.3.8 and 24.8 namely the right to draw down the bond and demand payment. This is entirely distinct from any claim which might otherwise arise under the contract for damages.

311. The defendant was not free to dispense with the requirement for a bond or deviate, except possibly without specific authorisation from the Commission, from the prescribed formula for the quantum of the bond. If the decisions and directions of the Commission were to have been challenged this could only have been done by judicial review in which the Commission would be a respondent, if not the principal or only respondent.

312. In the absence of a judicial review any attempt to challenge the regulatory regime is, as the defendant pleaded, a disguised attack on the regulations and the decisions of the Commission, all of which prescribe the parameters within which the defendant is permitted to enter into connection agreements. As such it must fail.

313. The plaintiffs submit that even in the context of the regulatory regime and the decisions of the Commission, it is appropriate to look behind the stated purpose of the bond and see whether that purpose was achieved by the requirement for a bond in this and similar cases. I have misgivings as to whether this issue can affect the result of this case, but in deference to extensive submissions and evidence adduced by the parties in relation to the purpose of the bond it is necessary to consider the question.

The Purpose of the Bond

314. There is no dispute about the stated primary purpose of the bond. It was first stated in CER/03/238 of 19 December 2003 as follows: “The Commission has authorised the provision of a bond in the Connection Agreement to incentivise the generator or demand customer to commit to installing the maximum export capacity (MEC)… cited in the application for connection to the system and not seek to reserve capacity conditional to that which is legitimately required”.

315. The level of the bond is then stated to be in an amount of €10,000 per MW of MEC.

316. The purpose as stated in CER/09/138 (25 August 2009) as follows: “The purpose of the capacity bond is twofold with the primary purpose being to prevent parties from hoarding transmission capacity which is a limited and valuable resource. The rationale is that the level of the financial commitment that the bond entails will dissuade a party from spuriously reserving transmission capacity to the detriment of other parties wishing to connect. The secondary purpose is to cover some of the costs incurred by the transmission system operator for the provision of deep transmission connection assets in the event that a generating project does not proceed at the capacity applied for, that is, to limit the risk of there being stranded transmission assets. The transmission and distribution connection policy provides for costs of the deep transmission assets to be collected from all customers. In the event of a connecting party failing to produce a level of generation that meets the MEC that it applied for (this could be due to the party not continuing with its connection offer or reserving more capacity than it required) the bond would be drawn down and set against the cost of transmission assets”. (emphasis added)

317. The purpose is recited also in the General Conditions at condition 24.3.1 which states: “The customer acknowledges that there are constraints on the network that require the customer seeks an offer solely for its maximum export capacity in relation to the facility contracted to be delivered by the scheduled operational date and that it does not seek to reserve additional capacity on the network for later developments of the facility or otherwise. Where the customer fails to pass the capacity tests in accordance with the Connection Agreement and/or fails to obtain an operational certificate, as appropriate, within the timeframes outlined hereafter, the company shall be entitled to draw down the specified amount under the MEC bond.” (emphasis added)

318. There is no controversy about the stated primary purpose of the bond. It is nonetheless interesting that it uses the phrase such as “to prevent parties from hoarding transmission” and that the rationale is that the level of the bond “will dissuade a party from spuriously reserving transmission capacity”.

319. In their plain meaning these phrases all connote a deterrent. Any phrase which is expressed as encouraging parties to do one thing has as its corollary that the purpose is to deter certain conduct.

320. In submissions the defendant objects to the use of the label “deterrent” in describing even the first purpose. It says that this is nothing other than a shortcut deployed by the plaintiffs invoking the application of the doctrine against penalties. There is nothing offensive in the label “deterrent”, for that clearly is the converse of a provision requiring parties to be dissuaded from a different course or being “discouraged”.

The Secondary Purpose

321. Where a connection offer is made and the customer accepts, the effect is to allocate the assigned capacity to that customer for the duration of the Connection Agreement. The period between offer letter to acceptance and ultimately down to the delivery of the operational capacity is of necessity prolonged into several years, allowing as it does for the necessary planning and other consents to be obtained and the construction of the generating facility. It is understandable that there will be cases where the project ultimately fails to meet the capacity, either in part or totally, as occurred in this case. Whether that failure is a consequence of planning delays or refusals, or funding complications or for any other cause, the effect is that if the project fails the effect is threefold.

322. Firstly, the transmission network is at the loss of the cost of any deep reinforcement works undertaken by it at its own cost.

323. Secondly, revenues from the ongoing and future tariffs which would have been paid by that customer are lost. These are the “transition use of service” (TUOS) tariffs.

324. Thirdly, because the capacity of the network to accommodate new connections is limited, the defendant has been constrained from offering that same capacity to other generators, and that capacity is either lost entirely or delayed.

325. The entitlement to drawdown the bond is not dependent on whether the customer carries any blame for the failure. It is a direct consequence simply of the failure to achieve the delivery of capacity.

326. The extent of progress made by a customer, or reasons for any delay, have a bearing on the exercise of the defendant's discretion to extend time for acceptance of offers, and to extend critical dates such as the Consents Issue Date or the Scheduled Operational Date. From 12 October 2016 onwards individual circumstances became relevant to any decision to permit consensual terminations of connection agreements and capacity releases pursuant to the Amnesty under the Commission's decision CER/16/284. But once a connection agreement has come into force, absent or after the expiry of any extensions granted, the right of the defendant to draw down the bond was clearly stipulated by paragraph 2.10 of the Offer Letter, and Clause

24.3 of the General Conditions.

327. Since the provision for drawdown of the bond is unrelated to blame or conduct on the part of a customer, it is something of a misnomer to describe the requirement for the bond as a deterrent. This ‘deterrent’ is not against any breach in the ongoing performance of the contract. It is a deterrent only against applicants applying for and committing to connections when they may ultimately become unable to deliver. This therefore cannot be said to be “in terrorem” of individual operational breaches of contract. Nor is the quantum of the bond, being generic, calculated by reference to direct or indirect cost to the defendant of failure by individual contracting parties.

328. The formula for calculating the quantum of the bond is set by the Commission and not by the defendant. This is why the defendant did not seek to, or in my view need to, justify its quantum. It is a generic formula set by the regulator and cannot be justified on a case-by-case basis as an “estimate of probable loss”. Nor does it need to be so justified. Although the shorthand term “deterrent against hoarding” has been used, this does not mean that the bond requirement is a penalty within the meaning of all of cases which establish and apply that rule.

329. The parties disagree as to the true description of the second purpose of the bond. Before I examine this dispute, it is said by the defendant that since the primary purpose of the bond is not in dispute, it stands on its own as a valid justification for the bond and that is the end of the matter as far as concerns the legitimacy of the requirement for a bond. I agree with that submission. However, again in deference to extensive submissions and evidence by both parties as to the secondary purpose of the bond, and lest I am wrong in relation to the consequence of or impact of the primary purpose, I consider this aspect further.

330. Before doing so, I should add that the evidence is still relevant to one particular aspect of the so-called penalty rule. That is the emphasis in some of the judgments which I referred to earlier on the principle that, if a clause provides for a charge which is “extravagant” or “unconscionable”, it will be held to be a penalty and therefore unenforceable. The plaintiffs have sought to demonstrate that the defendant has not incurred costs or losses as a result of the failure of the Ballakelly facility and that the payment of the bond amount is, in the hands of the defendant, a “windfall”. As far as concerns the question of whether the requirement of the amount of the bond is “extravagant” or “unconscionable”, it is necessary to analyse the position at the time when the Connection Agreement came into force, which in this case was 29 October 2009. The plaintiff seeks to make the case that, as of that date; (a) the defendant had not incurred the cost the deep reinforcement works on the Facility; and (b) that demand for electricity in the State had declined such that the requirement was extravagant and unconscionable.

331. In paragraph 38(l) of the Statement of Claim the plaintiffs claim that the calculation of the Specified Amount and the MEC Bond Amount at €10,000 per megawatt “was disproportionate to the purpose of and/or interest in, deterring breach of the Connection Agreement and/or the hoarding of available transmission grid capacity”.

332. In paragraph 38(m) the claim continues “the demand of the full MEC Bond Amount of €10,000 per megawatt was disproportionate in circumstances where only one of the two purposes for same applied, in theory, in the case of the second named plaintiff (viz hoarding capacity) and did not, in any event apply in practice due to the oversupply referred to above”.

333. The “oversupply” is a reference to a claim by the plaintiffs that in or around November 2009 the defendant itself had predicted a minimum average electrical supply surplus of 700 MW relative to projected domestic demand for the period 2010 to 2016 even without including the capacity reserved for the 445 MW Facility planed by the second named plaintiff. This is the basis for the plaintiff’s claim that even the primary purpose of this bond, to deter hoarding of capacity, was not served by the bond and its amount in this case.

334. The plaintiffs claim that the secondary purpose is as follows: “to cover the costs incurred by the defendant for the provision of deep transmission connection assets in the event that a generating project does not proceed at the capacity applied for”. (emphasis added)

335. The plaintiffs claim that this purpose is confined to the recovery of the cost associated with deep transmission connection assets associated directly and only with the project not completed.

336. The defendant states that the secondary purpose of the bond is “to achieve partial cost recovery for the electricity users of Ireland for the loss of forecasted revenue from generators who do not connect and who would have, had they connected as contracted, paid a charge to use the transmission system (TUOS charges) from the date of connection to the transmission system.”

337. The defendant says that TUOS charges are levied on all users of the transmission system calculated on the basis of recovering the total cost of investing, operating and maintaining the transmission system. It says that the TUOS charges to be collected in any year are apportioned to all connected customers and approved by the Commission.

338. The defendant says that where a contracted generation project does not connect to the transmission system the consequence is that all other users of the transmission system experience an increase in their TUOS charges. The TUOS charges which it would have earned from the Ballakelly project had it connected would have been in excess of €3 million per annum. Over the period of capacity reserved, this was significantly in excess of the value of the MEC bond.

339. To determine the scope of the secondary purpose of the bond two principal documents are relied on, namely CER/03/298 of 8 December 2023, being the Commission's consultation paper on its Review of the Existing Structure of Tariffs, and secondly CER/09/138 of 25 August 2009, being the Commission's decision on Connection Policy and Bonds.

340. The plaintiffs and the defendant each called witnesses to support their characterisation of the secondary purpose of the bond.

341. The plaintiff called Mr. Rory Mullan. Mr. Mullan is an engineer practising as Mullan Grid Consulting Limited. He is an electrical engineer with extensive experience on grid connection policy and related matters. He previously worked in Northern Ireland Electricity, in the Electricity Supply Board and in the defendant itself. He specialises in advising clients on connections for generators to both the distribution and transmission system in the State and in Northern Ireland. His experience includes ongoing interactions with both the defendant and the Commission.

342. For the defendant evidence was given by Mr. Bill Thompson. Mr. Thompson is the Group Head of Regulation for the defendant. He is the person with primary responsibility for the defendant’s regulatory dealings across each of its licensed businesses. Prior to his appointment to this position he managed regulatory affairs for the defendant from the time of its establishment in 2006. In his current and previous roles he has had responsibility for regulatory oversight of the operation of connection policy and the application of security arrangements for capacity. He previously held positions at the Department of the Taoiseach and was a senior analyst at the Commission, where he had responsibility for the regulation of the defendant and its connection policy.

343. Each of these witnesses has extensive experience of grid connections and the policy issues associated with them.

344. Mr. Mullan, being an independent professional, prepared a report as an expert.

345. Mr. Thompson's evidence was given in his capacity as Group Head of Regulation of the defendant. He was not held out as an independent expert. However it was clear from his witness evidence that he is experienced in relation to grid connection matters and had the authority to speak for the defendant on these matters, including issues relating to its policies and the purposes for which it required MEC capacity bonds.

346. The Commission's consultation paper CER03298, 19 December 2003, refers only to the primary purpose of the bond in paragraph 3.4.6 “Capacity Reservation”: “The Commission has authorised the provision of a bond in the Connection Agreement to incentivise the generator or demand customer to commit to installing the maximum export capacity (MEC) or maximum import capacity (MIC) cited in the application for connection to the system and not seek to reserve capacity additional to that which is legitimately required”. (emphasis added)

347. No reference is made to the second or other purpose of the bond in that document.

CER/09/138 25 August 2009: Decision on Electricity Network Connection Policy

348. In this Paper, published by the Commission on 25 August 2009 the Commission examined a number of issues related to the policy of ESB Networks and of the defendant for the connection of generators to the electricity network. It was published following a review which took account of consultation with and submissions from interested parties, including developers of generators.

349. Section 5.3 addresses the “purpose of the capacity bond”

“The purpose of the capacity bond is twofold with the primary purpose being to prevent parties from hoarding transmission capacity, which is a limited and valuable resource. The rationale is that the level of the financial commitment that the bond entails will dissuade a party from spuriously reserving transmission capacity to the detriment of other parties wishing to connect. The secondary purpose is to cover some of the costs incurred by the transmission system operator for the provision of deep transmission connection assets in the event that a generating project does not proceed at the capacity applied for, that is to limit the risk of there being stranded transmission assets. The transmission and distribution connection policy provides for costs of the deep transmission assets to be collected from all customers. In the event of a connecting party failing to produce a level of generation that meets the MEC that it applied for (this could be due to the party not continuing with its connection offer or reserving more capacity than it required) the bond would be drawn down and set against the cost of transmission assets”. (emphasis added)

350. This paragraph clearly says only that the cost of deep transmission assets. It does not refer to TUOS lost revenue.

351. Further reference is made to the purpose of the bond in section 5.7.4 of the paper. The contents of section 5.3 quoted above are repeated and the text continues: “The costs to the industry and the final customer of hoarding capacity are difficult to calculate. The costs may arise from less competition in the market, increased cost of production of electricity, increased cost of development to those windfarms project left in the queue or increased connection costs and timelines to those projects in the same subgroup as a spurious applicant. While it would onerous to estimate the cost for this each connection offer it is reasonable to state that there is a cost. Similarly it would be difficult to determine the exact cost of stranded assets that will be caused by each MW of unutilised MEC. The Commission believe that the current level of €10K per MW would not, on average, come close to meeting that cost. It is likely that the level proposed within the previous consultation paper (€100K) would still not cover the cost of those costs. Given that some developers had previously stated that the €10K bond did not provide an adequate deterrent regarding the hoarding of capacity the Commission proposed to increase the bond to a level that will provide more of a contribution to stranded costs and reduce the amount that will be covered by the use of system customer, and more importantly to a level that will provide more of a deterrent regarding the hoarding of capacity.”

352. Again, the focus is on lost or wasted cost of deep transmission assets “stranded”.

353. The paper continued by referring to a proposal for reduction in the level of the bond as detailed later in the paper and continued: “note that it is not anticipated that this level (or indeed the €100K level that was previously proposed) would provide a contribution that would cover in full the cost of hoarding and stranded assets due to unused MEC.”

Evidence of Mr. Mullan

354. Mr. Mullan referred to the Commission decisions quoted above and referred also to a document described as Connection Offer Policy and Process Paper issued by ESB Networks and by the defendant and approved by the Commission in May 2011. In that paper reference is made to the MEC Capacity Bond at section 16 where its purpose is outlined as follows: “As per CER/09/138, the MEC capacity bond is designed to prevent the hoarding of transition capacity and also, in the event that a capacity bond is drawn down, contribute towards the cost of transmission deep reinforcements which may have commenced”. (emphasis added)

355. Mr. Mullan stated that he could not recall ever encountering any attempt by any party to justify the existence of the MEC Bond by reference to the defendant’s pleaded secondary purpose namely “partial cost recovery for the electricity users of Ireland for the loss of forecasted revenue from generators who do not connect and to would have, had they connected as contracted, paid a charge to use the transmission system (“TUOS charges”) from the date of connection.”. Mr. Mullan states that he does not accept the defendant’s interpretation of this secondary purpose and says that the only authoritative description of the purpose is one which can be drawn from the directions and decisions of the Commission.

356. The fact that this justification may not have been articulated before is of little import. It appears that this case is the first occasion on which the second purpose of the bond has attracted judicial scrutiny.

357. Mr. Mullan said that in calculating TUOS charges in each year, only the generators that are connected and expected to connect to the following year are taken into account. Therefore, TUOS contributions from the Ballakelly facility would not have been included in any revenue forecasts of the defendant for the purpose of calculating annual TUOS charges to be passed on to other users of the system. He submitted that therefore there is no material impact on TUOS charging for other generator users or loss by the defendant for under recovery of those charges by virtue of the Ballakelly facility not connecting.

358. Mr. Mullan referred to other generators which had contracted to connect at the same time as or before the Ballakelly facility but which had not connected on a timely basis and whose anticipated TUOS tariff contributions, had not been taken into account in the calculation of annual TUOS charges.

Evidence of Mr. Thompson

359. Mr. Thompson stated that TUOS charges are calculated on the basis of recovering the costs of investing in, operating and maintaining the transmission system as a whole, less any contribution made by connecting parties in relation to site related connection equipment. He pointed out that the Commission approves the total amount of money to be recovered by the defendant through TUOS charges. In each year the TUOS revenue to be collected in the coming year is apportioned to all connected electricity users and those due to connect in that year by the defendant and approved by the Commission. When a contracted generating project does not connect to the system this results in an increase in the TUOS charges to all other users. His evidence was that the contribution which the Ballakelly project would have made to the overall TUOS charges of the defendant would have been in excess of €3 million per annum.

360. Mr. Thompson's proposition was that it does not matter whether the failed project has already been budgeted into the forthcoming year’s TUOS charges to the users of the system as a whole. The fact remains that the tariffs which would otherwise have been paid by the Ballakelly project are lost and have their own effect on the overall level of charges going forward.

361. As to the interpretation of the relevant Commission papers, the critical phrase on which the parties are in disagreement is that contained in CER/09/138 where it is stated, with reference to the secondary purpose, that in the event that a connecting party fails to produce the contracted level of generation, “the bond would be drawn down and set against the cost of transmission assets”. Mr. Mullan's interpretation of that phrase is that that is a reference only to the specific transmission assets of the failed project. Mr. Thompson's interpretation of this is that the phrase “the cost of transmission assets” is not limited to the cost of new or incremental transition assets associated only with the failed project.

362. Mr. Thompson was questioned closely in relation to the secondary purpose by reference again to the paragraph in decision 09/138 which states:- “The secondary purpose is to cover some of the costs incurred by the transmission system operator for the provision of deep transmission connection assets in the event that a generating project does not proceed at the capacity applied for to limit the risk of there being stranded transmission assets.”

363. Counsel for the plaintiffs put it to Mr. Thompson that this was specifically linked to stranded assets relevant to the project in question. Mr. Thompson said:- “A. Stranded assets, but those being assets that may have been developed in anticipation of the wider development of the system or been developed specifically in the context of any individual connecting party.

Q. I see, so you are saying that the stranded assets aren't necessarily linked to referable to the project in question?

A. Correct.

Q. And where is that in decision 09/138?

A. It's consistent with the assets that may cover some of the costs incurred by the transmission system operator for the provision of deep transmission connection assets and deep transmission connection assets or any assets that are not the shallow assets paid for by generators in the event that a generating project does not proceed to the capacity applied for. So, both marginal new assets that may be developed in the context of a generator seeking connection, or indeed assets already on the system that would have been potentially utilised by such generator.” (emphasis added)

364. Counsel pressed Mr. Thompson further on this and stated:-

“Q. So you disagree with the proposition that I have put to you that it’s clearly intended to refer to the assets which are referable to the project?

A. It clearly refers to those assets but not those assets alone. It refers to other assets that are deep transmission connection assets in the system that would potentially be stranded in the event that the generators do not proceed.”

365. Mr. Thompson, when pressed for the basis for that statement, stated:- “I simply think it is plain in how it states it ‘The secondary purpose is to cover some of the costs incurred by the transmission operator for the provision of deep transmission connection assets’. Those assets are not only the marginal new assets identified in respect of any individual project connecting, but also deep transmission connection assets developed in the context of other projects connecting in anticipation of future projects also being developed. That is the way the transition network is planned.”

366. The solution to this question is not to be found in the text of the Commission’s decisions themselves or in the differing views of these two witnesses as to the meaning of the words in those decisions. When one looks at the contractual documents, which comprise the Offer Letter, the Connection Agreement and the General Conditions, there is no express requirement for the amount of the bond to be set by reference to the specific components of the connection works applied for and contributed to. I return to the specifics of the connection works referred to in this case in the next section. The amount of the bond is set by reference to the formula applied by the Commission and, being generic, is not calculated with specific reference to the potentially lost cost of any of the site related connection equipment or any of the deep reinforcement works stipulated in the offer letter. To this extent the distinction between the primary and secondary purposes on which the two witnesses were so focused, is of limited significance. No evidence was adduced of any instances of a bond either being set or being drawn down in amounts which are referable to the works described in the offer letter or the Connection Agreement. The figure is entirely driven by the capacity of the proposed connection.

367. It was said that if a project delivered only part of the committed capacity, then only part of the bond amount would be drawn down. But the bond amount stipulated at the outset, which is the requirement under challenge, is referable to the entire capacity contracted for.

368. The plaintiffs say that the deep reinforcement works cost incurred in this case and lost to the defendant do not match and could not have been anticipated to correspond to the amount of the bond. Such an expectation would require that the bond in every case be calculated to match the projected cost of the DRW in every such case, which Mr. Thompson explained is not the case. That was never the basis upon which bond amounts were set and is of no assistance to the plaintiffs’ case.

Deep Reinforcement Works

369. The deep reinforcement works (DRW) provided for in the Offer Letter to the second plaintiff comprised two types. First were the “Short Circuit Driven Deep Reinforcement Works”. These were the individual items such as replacement of circuit breakers, installation of busbars, and replacement of transformers.

370. The second category of DRW is the “Load Flow Deep Reinforcement Works”. These were described as the following:

(1) Gorman to Meath Hill 110 KV line: construction of a new Gorman to Meath Hill line.

(2) Arva to Navan 110 KV line: uprating of the existing Arva to Navan line.

(3) Drybridge to Louth 110 KV line: uprating of the existing Drybridge to Louth line.

(4) Louth to Meath Hill 110 KV line: uprating of the existing Louth to Meath Hill line.

371. The Louth to Meath Hill line (4) never proceeded.

372. Mr. Mullan gave evidence that the Gorman to Meath Hill line (1) and the uprating of the Arva to Navan line (2) were required irrespective of the Ballakelly facility connecting.

373. In relation to the Drybridge to Louth line (3) uprating Mr. Mullan stated that at the same time the defendant was issuing a number of so called “Gate 3” connection offers to renewable projects also for capacity of 440 MW which would themselves feed into the Louth substation. He stated the following: “It is my professional opinion that on the balance of probabilities as regards the uprating of the Drybridge to Louth 110 KV line, it would not have been reasonable in October 2009 (when the Connection Agreement was executed) nor in November 2014 (when the offer was terminated) to have considered the uprated line a ‘stranded asset’ if and insofar as the Ballakelly facility did not connect.”

374. He expressed the same view in relation to a number of other aspects of the deep reinforcement works, stating that they were required generally for the purpose of increasing renewable generation and were entirely foreseeable for the regional requirements even if the Ballakelly facility did not proceed.

375. Mr. Mullan also expressed the opinion that increasing through-flows of renewable generation from the North West of Ireland and Northern Ireland to Dublin would have justified the uprating of the Drybridge Louth line and certain of the other deep reinforcement works referenced in the Offer Letter.

376. Finally Mr. Mullan stated that his view that even after the uprating of the Drybridge to Louth line renewable generation in the Louth area and through flows from West to East would still require in the future further reinforcements of the transmission system in that area. Therefore, the uprating of the Drybridge to Louth 110 KV line was never going to be and was not, in his opinion, a “stranded asset”.

377. Mr. Thompson emphasised again the distinction between site related connection equipment and deep reinforcement works. The deep reinforcement works are works which are required on the network to reinforce the transmission system. They are driven either directly by the connection applied for or are necessary in the context of the connecting of other generators.

378. Mr. Thomson explained that while the site related connection equipment enables the connection of the facility, it alone may not enable the transmission system to accommodate the full export of the new facility in accordance with the requisite security and planning standards. Deep reinforcement works are the works that are required on the network to reinforce the transmission system either directly driven by a specified application or are generally required.

379. Mr. Thomson distinguishes the MEC Bond from other charges and specific security which relate to the site related connection equipment which are calculated directly according to the cost of the works chargeable to the connecting party.

380. Mr. Thomson's evidence was that when an application is made for a connection the defendant undertakes a system analysis to determine what if any reinforcements, including local and wider system needs, are required to meet the security and safety levels required. He said that this is not limited to the specific generators applied for, but takes account also of all other factors influencing or expected to influence the transmission system.

381. He continued: “I would highlight that the nature of transmission works is that they are not infinitely divisible. As a result new generators may drive new works which may subsequently fulfil other purposes or facilitate other generators and equally new generators may make use of existing works which were either built in anticipation of their future connection or indeed which constitute part of the existing transmission system. Given both of the points above – the multiplicity of drivers of transmission works, both new transmission works and those developed at some stage in the past, and the fact that the assets as invested are not infinitely divisible but rather developed in discrete sizes

– this means that direct and specific translation of any individual generation project to specific works can be a complex undertaking and in many instances is not in fact possible”. (emphasis added)

382. Mr. Thomson went on to describe the deep reinforcement works associated with Ballakelly and stated that these works, although specified in the Ballakelly Offer Letter, comprised a combination of works driven exclusively by the intended connection of Ballakelly and works driven by other projects.

383. He pointed out that if Ballakelly had connected it would have made use of other transmission assets previously developed and not only of the deep reinforcement works recited in the Offer Letter.

384. Mr. Thompson said that the defendant had planned to undertake a refurbishment of the Drybridge to Louth line. When the second plaintiff applied for a connection, a decision was made to uprate the line, which is a bigger project than the originally planned refurbishment. The refurbishment had been estimated at a cost of €1.5 million, but the change in the project scope to operate the line was more than just a partial refurbishment but a full rebuild of that line, the revised costs of which were estimated then at €8.5 million.

385. Mr. Thompson said that although later certain connection offers were made at the direction of the Commission subsequent to the processing of the Ballakelly offer, there was a clear and demonstrable link between the need for the uprate of the line and the offer of connection to the Ballakelly facility.

386. Both witnesses referred to an Eirgrid “Nodal” report dated 25 November 2014. This was a report documenting the termination of the second plaintiff's Connection Agreement. It recorded that the Drybridge to Louth 110 KV line uprate did not have any drivers other than Ballakelly. The report records that the uprate of the line had proceeded and that this additional expenditure would not have been incurred if the second plaintiff had not signed its Connection Agreement.

387. This question is linked to the analysis of the second purpose of the bond. For the reasons I have explained earlier it seems to me that there is nothing contained in the Commission directions, in the Offer Letter, the Connection Agreement or the General Conditions which requires that in the calculation of the bond or the requirement for the bond and for that matter the calling in of the bond there be a direct association to the specific components of the deep reinforcement works attributable to the project. The bond and its amount were set by reference to the committed capacity.

388. I accept the evidence of Mr. Thompson to the effect that it was not always possible to subdivide all of the works required such that each and every item of deep transmission works must form part of the calculation of the amount of the bond. The objective of the scheme for capacity security and the requirement for such bonds as provided for in the decisions of the Commission which were never challenged do not require that there be a direct connection between these calculations.

389. It follows that the plaintiffs claim that the payment of the full bond amount amounts to a “windfall” or unjust enrichment of the defendant must fail.

Energy supply

390. Mr. Mullan gave evidence, referring to a number of reports as to transmission generation adequacy in the State published by the defendant from 2009 onwards, that at the time when the Connection Agreement in this case was entered into there had been a significant reduction in the demand levels for electricity in the State due to the financial crisis. Mr. Mullan referred to the defendants reports of July 2009 and of November 2009 concerning generation adequacy and projecting the demand over the following several years.

391. The July 2009 update recorded that due to a deterioration in the economic situation it was forecast that there would be a reduction in demand for electricity in that year between 4 and 5% and a further reduction of between 0 and 1% in 2010. It was anticipated that the demand would recover slowly by 2014.

392. The November 2009 report stated that the adequacy situation was “strongly positive for the next seven years” and cited potential surpluses of capacity. It reported that the position was eased even further by increased interconnection activity and availability between the Irish and British transmission systems and a second high-voltage transmission line between Ireland and Northern Ireland, due to be completed in 2013.

393. Mr. Mullan referred to substantial growth in renewable generation being planned to connect into the system, all of which was said to have had a negative impact on the development of new conventional (i.e. non-renewable) generation projects in Ireland, such as the Ballakelly project.

394. Mr. Thompson gave evidence that even during the period when these reports were available concerning the adequacy of generation supply, a significant number of new generators were seeking to and ultimately did connect to the transmission system. Mr. Thompson said that each new generation project is a long-term investment in respect of which costs would be recovered not over a short period but potentially over 20 or 30 years. His evidence was that new non-renewable generation projects such as the Ballakelly facility would not be “marginal” in terms of displacement from the market in the event of reduced demand but would have the effect of displacing other older and less efficient plant had it proceeded. His evidence was that the bonding regime continued in place throughout this period when other generators, both conventional and renewable were continuing to seek connection agreements.

395. The plaintiffs submit that at the date of the Connection Agreement, 29 October 2009, the grid was oversupplied and would remain oversupplied for the next seven years. They submit that it was difficult to see how the imposition of the bond amount of €4.45 million for the purpose of “hoarding of capacity” could be regarded as proportionate in the circumstances of this case.

396. Under cross-examination, Mr. Mullan was asked by counsel for the defendant if he was not challenging the policy of the regulator. Mr. Mullan stated:- “I don't think it's a great policy. I think it's a very crude mechanism to avoid hoarding capacity."

397. Mr. Mullan expanded on his knowledge, experience and views of the policy and its development. But his reply revealed that in truth his view was rooted in his disapproval of the policy which prevailed when the Ballakelly offer was made.

398. Mr. Mullan acknowledged that the Commission engages in consultation with the industry and other stakeholders and including the taking of advice from both the ESB and the defendant.

399. Mr. Mullan was questioned in relation to the letter from the Commission to the defendant on 14 December 2007 directing it to issue the Connection Offer to the second plaintiff.

400. In that letter, reference is made to the wider context of the application for a connection and, under the heading “Security of supply”, the following is stated:- “The need to ensure that all reasonable demands for electricity are met is a statutory obligation of the Commission and is therefore a key consideration when deciding on whether Eirgrid should issue a connection offer to this CCGT applicant prior to the relevant interacting renewable applicants.”

401. Reference is made in the letter to the generation adequacy reports available at the time.

The Commission continued:-

“It is therefore necessary that an additional predictable plan, equivalent to about 400MWs in capacity, is connected to the network from 2011 if Ireland is to be confident of maintaining security of electricity supply. In some scenarios the security of supply situation is even more critical; for example, those based on the recent board plan availability levels and/or high demand growth. This proposed CCGT plant, which could be connected within about 30 months from the acceptance of a connection offer, would assist in providing the necessary capacity.”

402. Finally, the letter states:-

“On the basis of the planned security of supply and competition benefits and that it is not anticipated to have a disproportionate impact on renewables, the Commission hereby directs Eirgrid, pursuant to section 34 of the ESB Act of 1999 to issue a connection offer as soon as practicable to the applicant for the proposed 445MW CCGT plant at Ballakelly.”

403. Counsel for the defendant put it to Mr. Mullan that this letter was clearly issued in the context of continuing demand for supply of electricity and that the critical time for this was the date of the issue of the offer. Mr. Mullan agreed, although pointing to the context that this was during the era of the ‘Celtic Tiger’ when certain assumptions were being made about the future.

404. Lost in the debate was the overriding fact that it was the Commission which was determining the connection policy and capacity security levels to be provided generally. If, as the plaintiffs’ approach to this evidence suggests, the effect was that due to oversupply there was no legitimate necessity for such bonds, or for the level of the bond, that was a Commission

decision never challenged by the plaintiffs, and not a random or discretionary requirement introduced by the defendant. Nor does it mean that the bond amount was ‘extravagant’ or generated a windfall.

Conclusion on the Penalty Claim

405. The purpose of the bond was to deter hoarding of capacity on the grid. It was not to deter breaches of individual connection agreements, and was not an unenforceable penalty.

406. The quantum of the bond was determined by a formula set by the Commission, whose decisions and directions to the defendant were not challenged, and could not be challenged in these proceedings.

407. The quantum of the bond was not, and was not required to be, set by reference to the components of Deep Reinforcement Works undertaken on the project, but was a function of the contracted capacity. It was not disproportionate or extravagant and when paid, it was not a ‘windfall’ in the hands of the defendant.

PART NINE: THE DISCRIMINATION CLAIM

408. The plaintiffs claim that the defendant in making the demand on the bond was guilty of discrimination as between the plaintiffs on the one hand and comparator transmission system users on the other.

409. Section 34.8 of the Act of 1999 and Regulation 11 of the Regulations, as amended, provide that the transmission system operator, being the defendant shall not discriminate unfairly between persons or classes of persons or system users or classes of system users.

410. Clause 2 of the defendant’s Memorandum of Association provides that all of the clauses in the memorandum are subject to and should be read in conjunction with the provisions of the Act and the Regulations.

411. The plaintiffs identify three generator facilities which they say did not meet the reserved capacity by the long stop dates stipulated in their respective contracts and yet no demand for drawdown was made by the defendant either in respect of the MEC Bond or any alternative security provided by those users.

412. The three projects concerned were each contracted by Greener Ideas limited (“GIL”), a company which was a joint venture between Bord Gáis Eireann and a private commercial entity.

413. The plaintiffs claim also that the defendant did not draw down an MEC bond or other security in respect of any other facility which had not reached capacity by the long stop date stipulated in connection agreements. Reference is made to a submission by the defendant to the Commission in which it stated that it had identified 28 such parties. The focus of the plaintiffs’ submission and evidence in relation to the subject was on the three GIL projects.

414. The defendant denies the claim of discrimination. It pleads that the statutory obligation not to discriminate only arises in limited and circumscribed circumstances which it says do not arise in this case, namely where relevant persons or class of persons are directly comparable. It pleads also that different or discriminatory treatment can be objectively justified.

415. The essence of the plaintiffs’ claim is that in the case of the three GIL projects the relevant Scheduled Operational Date Longstop Date passed without the defendant having terminated the relevant connection agreements or making a demand on the bonds. Extension of key dates were approved and GIL later became entitled to avail of the Amnesty under CER/16/284, described below, and was granted a capacity release and the return of its bonds.

416. The defendant states that the GIL projects were not comparable when all of the circumstances of those projects and the conduct of the customer is taken into account and I shall return to the evidence on this subject later.

417. On 8 February 2017, being two years and two months after the termination of its connection agreement the second named plaintiff, through its liquidator Mr. Hamilton who had been appointed on 18 June 2015, made a request pursuant to the Amnesty for capacity releases, refunds of initial payments and return of the bond. The request was declined by the defendant because one of the conditions for such capacity releases and returns was that there be an extant connection agreement, which was not the case for the second plaintiff as its agreement had been terminated on 12 November 2014, effective 10 December 2014.

418. The defendant states that the GIL entities were granted their capacity releases, refunds and return of their bonds in circumstances where the Connection Agreements had not been terminated and accordingly they were entitled to avail of the amnesty.

419. This of itself is not sufficient to dispose of the matter. The fact that the GIL connection agreements were still extant by the time the Amnesty came into force in October 2016 was due to the fact that they had not been terminated by the defendant immediately when the relevant Longstop Dates passed, by contrast with the action of the defendant in terminating the second plaintiff's connection agreement the very day the Longstop Date was reached.

12 October 2016: The Amnesty CER/16/284

420. This decision arose in the context of a proposal for a new policy for connections to the grid. It identified transitional arrangements before moving to the new connection policy. These included the facility for capacity releases for contracted projects which were no longer viable.

421. Section 3.4 announced that eligible projects wishing to terminate their connection agreements and release their full contracted MEC could submit an application to the system operator (the defendant) within four months from the date of the announcement. The Commission directed the defendant to terminate the connection agreements for eligible applicants.

422. The eligibility criteria included the requirement that the applicant be a “contracted customer”. It stipulated that where a project had passed its Longstop Date by the date of the publication of the Amnesty and its connection agreement had not been terminated it could apply for a capacity release provided that it meets all of the eligibility criteria.

423. No evidence was led by the plaintiffs in relation to the comparators. The claim is made based on an extrapolation of dates and events by reference to correspondence put in evidence and discovered by the defendants.

424. Mr. Graham Lacey, Head of Bonds at the first named plaintiff, gave evidence describing the engagement of the first plaintiff in relation to this matter, the circumstances in which the bond was issued and transferred to the first plaintiff from Quinn Insurance. He described the events which occurred in 2014 when the defendant moved to terminate the Connection Agreement and drew down the bond.

425. Understandably Mr. Lacey was unable to proffer any evidence in relation to the history of the relationship between the second plaintiff and the defendant including the prior extensions of the Longstop Date which had been granted. Nor was Mr. Lacey in a position to give any evidence regarding the treatment by the defendant of GIL.

426. Evidence was given by Siobhan O'Shea, the Head of Customers and Connections for the defendant. Ms. O'Shea had, before becoming Head of Customers and Connections been the Contract Programme Manager of the defendant. She had also worked as principal regulation specialist in the regulation team of the defendant and had spent eight years in the connections and contracts team with responsibility for contract management and oversight of connection and transmission use of system TUOS contracts and the review of connection policy. Throughout her time she had responsibility for the management and oversight of the Connection Agreement for the Ballakelly facility.

427. Ms. O’Shea gave evidence of the defendant’s treatment of GIL.

428. GIL had connection agreements for three projects namely the Nore project, the Suir project and the Cuilleen project.

Nore

429. On 5 December 2007 the Commission authorised the defendant to issue a connection offer to GIL in respect of the Nore project. The provision of an MEC bond was a condition precedent of offer acceptance. The bond was provided and the Connection Agreement was executed and dated 30 April 2009.

430. The Scheduled Consents Issue Date was 30 January 2010 and the Scheduled Operational Date was 30 May 2011.

431. The Consents Issue Date Longstop Date (“CIDLD) became 30 January 2013 and the Scheduled Operational Date Longstop Date became 30 November 2013.

432. On 23 August 2013 the defendant wrote to GIL notifying it that the Scheduled Consents Issue Date had passed and that the Scheduled Operational Date Longstop Date of 30 November 2013 was not achievable. This letter is important because there is no evidence that a similar letter was ever issued to the second plaintiff. The letter continued: “In 2011 and 2012 the Company worked with ESB Networks Limited (as distribution system operator), the Commission for Energy Regulation and the industry as represented at the liaison group to develop a reasonable approach to enforcing long stop dates in the respective transmission and distribution connection agreements. An information memorandum was published by the Company and ESB Networks Limited outlining the process for enforcing longstop dates. The following extract refers: while the primary responsibility will be on the customer to ensure that their own long stop date are not exceeded and to make a case for extending these date if required, the SOs (system operator) also intend to undertake the following:

• six months prior to a customer’s long stop date the relevant SO will write to the IPP flagging the imminent long stop date, requesting a detailed update on the project and

• if it is decided not to terminate a connection agreement, the customer will be required to request a modified connection agreement wherein the new long stop date will be agreed and recorded contractually. As the Company did not contact the customer six months prior to the CIDLD the Company is willing, without prejudice, to defer a move to terminate the Connection Agreement under clause 20.8 for a period of six months from the date of this letter i.e.

23 January 2014. The Company requests that during this period of six months the customer provide the Company with an update on the project and set out any reasons or justifications it believes should be considered by the Company as a reasonable justification for extending the long stop dates in the Connection Agreement, in accordance with the above-mentioned information memorandum. In the event that the customer does not want the Connection Agreement to be terminated the Company would encourage the customer to make contact with the Company at the earliest opportunity to discuss the current status of the project and outline proposals for progressing the project in order to achieve CID without further delay and outlining what steps the customer can and will take to achieve the earliest possible operational date.”

433. The letter concluded, “finally the Company notes that in the event this project does not proceed, the Company intends to draw down on the Maximum Export Capacity bond lodged with the Company under clause 2.11 of the Connection Agreement.”

434. On 10 February 2014 GIL requested an extension of 36 months to its Scheduled Operational Date. In response the defendant proposed an extension of not 36 months but of 23 months.

435. The matter was referred to the Commission, which announced its decision on 9 May 2014.

436. The Commission decided that the extension proposed by the defendant was appropriate and reasonable and that the development of the plant at Nore would provide benefits to the wider system and may assist in underpinning the achievement of certain government targets. It therefore decided that an extension of 23 months to the Scheduled Operational Date Longstop Date was reasonable, and would allow GIL sufficient time to make substantial progress on developing the Nore plant.

437. The Commission stated that the extension is based on the following:

• “GIL is ready to call CID and make the associated second stage payment

• GIL is in a position to move without undue delay to the construction phase of the project

• The construction phase is not dependent on external factors and will progress regardless of other policy decisions under consideration or being determined

• GIL can achieve an operational date in line with the dates previously advised by Eirgrid i.e. 17 months post CID and will accept an SODLD of 23 months post CID 2016.”

438. On 27 May 2014 the defendant requested further information from GIL in relation to the Nore project.

439. Further correspondence was exchanged between the defendant and GIL in relation to the Nore project and on 8 September 2014 the defendant informed GIL that if it did not receive certain further documentation, being documents relating to planning, the programme for delivery of the project and the like, it would revoke its offer of an extension to the Scheduled Operational Date Longstop Date and would move to termination of the Connection Agreement. The defendant notified GIL that it had the right to draw down the bond, which in that case was €984,000.

440. On 19 September 2014 the defendant notified GIL that if the requested documentation was not received by 3 October 2014 it would revoke the proposed extension to the Scheduled Operational Date Longstop Date and would issue a Termination Agreement, which would include provision for drawing down of the MEC bond.

441. Reference was made in this correspondence to a potential disposal of the Nore project by GIL. Whilst acknowledging that a sale process may be under way the defendant insisted that the operational information which had been requested was not linked to the sale process and should be provided forthwith.

442. On 29 September 2014 GIL served, through its solicitor Arthur Cox, a Dispute Notice pursuant to section 34 (6) of the Act of 1999. The Dispute Notice was submitted to the Commission and a copy delivered to the defendant.

443. In the Dispute Notice GIL sought the following reliefs: (a) a direction to the defendant to modify the Connection Agreement to further extend the timelines; (b) a determination that the Connection Agreements are penal and unenforceable; and (c) a direction to the defendant not to terminate the Connection Agreement or take any action thereon prior to resolution of the disputes.

444. The grounds for dispute included an allegation that the defendant had discriminated against GIL and a claim that certain provisions of the Connection Agreements are penal and unenforceable.

445. In serving the Dispute Notice GIL sought confirmation that the defendant would not terminate any of the Connection Agreement's prior to resolution of the disputes.

446. On 30 September 2014 the Commission informed the parties that it had decided to accept the Dispute Notice as a section 34 dispute notification.

447. There followed further engagement between GIL and the Commission, culminating in the letter from the Commission to the parties inviting submissions on the dispute.

448. The engagement pursuant to the dispute became protracted over a number of years. Before it concluded, the Amnesty was announced by the Commission on 12 October 2016. No detail of the progression of the dispute was put before this court. Ultimately no determination was issued by the Commission because the Commission was informed on 17 October 2017 that Termination Agreements with respect to all three GIL projects had been executed by the parties. The Termination Agreements provide for consensual termination of the Connection Agreement, release of the contracted capacity obligation, return of part of the first stage payment and a facility to pay the bond amount in cash in lieu of a drawdown on the bond.

Cuilleen and Suir

449. For the Cuilleen project the Connection Agreement was first made on 21 September 2009 and an amended connection agreement on 8 January 2010. The Scheduled Consents Issue Date was 21 July 2010 and Scheduled Operational Date was 21 June 2011.

450. Following further amendments the Consents Issue Date Longstop Date became 21 July 2013 and the Scheduled Operational Date Longstop Date became 21 December 2013.

451. On 23 August 2013 the defendant wrote to GIL notifying it that the Consents Issue Date Longstop Date of 21 July 2013 had passed and that the Scheduled Operational Date Longstop Date of 21 December 2013 was not achievable. Again, it drew the attention of GIL to a previous information memorandum identifying the circumstances in which a case could be made for extending these dates. It noted that no such representations had been made. It stated that the Company was willing, without prejudice, to defer a move to terminate the Connection Agreement for a period of six months from the date of that letter i.e. to 23 January 2014 on the basis that during this period of six months the customer provide the defendant with an update on the project and set out any reasons or justifications it believes should be considered as a reasonable justification for extending the long stop dates in the Connection Agreement.

452. A similar letter was written to GIL in relation to the Suir project.

453. On 10 February 2014 GIL applied to the Commission to direct the defendant to extend the long stop dates in respect of Suir and Cuilleen.

454. On 9 May 2014 the Commission issued its decision declining to extend the longstop dates for Suir and Cuilleen, noting that evidence of reasonable steps on those projects was less than on the Nore project. It stated that it did not believe that sufficient progress had been demonstrated on the Suir and Cuilleen projects to warrant a relaxation of the requirement to commit to its obligations. It confirmed that since those long stop date had passed the defendant was entitled to terminate the Connection Agreement.

455. On 27 May 2014 the defendant notified GIL of its intention to terminate the Connection Agreements in respect of Suir and Cuilleen, and that the defendant would be entitled to make a call on the MEC capacity bond in each case, although the customer would have the option in each case to pay the bond amount in cash in lieu of drawing down the bond.

456. On 13 June 2014 the defendant issued to GIL Termination Agreements in respect of each of Suir and Cuilleen. It gave a deadline of 25 July 2014 to execute the Termination Agreement and pay the Bond Amount.

457. In further letters the deadline for executing the Termination Agreement was extended, firstly to 13 September 2014 and later to 3 October 2014. In this correspondence the defendant notified the customer of its intention that unless the Termination Agreement was duly executed it would terminate the Connection Agreement itself and draw down the MEC bond.

458. On 29 September 2014 GIL served the Dispute Notice referred to earlier through it solicitors Arthur Cox.

459. As in the case of the Nore project, once the Commission had decided on 30 September 2014, to treat the Dispute Notice as a section 34 notice, the defendant suspended the progression of its threatened termination of the connection agreements and drawdown of the bond.

460. The Amnesty came into force on 12 October 2016. GIL availed of the Amnesty and no determination of the Dispute was required to be issued by the Commission.

461. On 30 June 2017, a Termination Agreement was entered into between GIL and the defendant in respect of the Suir and Cuilleen connections. As occurred in respect of the Nore connection agreement, the agreement provided for an orderly termination and the facility to pay cash in lieu of drawdown of the bond.

Ballakelly

462. The offer of connection was first made to the second plaintiff on 17 July 2008. After an extension, the Connection Agreement was accepted and became effective on 29 October 2009.

463. An amendment of 12 August 2010 extended the Scheduled Operational Date to 12 May 2012. On 16 January 2012 a receiver was appointed to the second plaintiff.

464. There was no evidence of any immediate engagement in relation to this project following the appointment of the receiver and that the project never progressed.

465. On 25 November 2010 the second plaintiff made a request that the project be put on hold before it would have to pay the second part of the stage payment. It also requested that the lodging of an application for planning permission by the defendant for works at Ballakelly be suspended together with elements of the design and procurement processes associated with the connection.

466. On 21 May 2012 the defendant served notice of breach of the Connection Agreement on the second plaintiff and its receiver on the grounds that the bond was non-compliant in light of the administration of Quinn Insurance Limited. This matter was subsequently addressed in that Liberty confirmed on 18 June 2012 to the defendant that the rights and obligations of Quinn Insurance Limited on the bond had transferred.

467. In June 2013 contact was made with the defendant by a Mr. Stephen McQueenie of Golden Peaks Capital, a person apparently authorised by the receiver, and by the ‘Quinn Group’. Mr. McQueenie was investigating the status of the Connection Agreement. He emailed Ms. O'Shea on 19 June 2013 as follows “to put some context to all of this we are attempting to start up the project again.”

468. Mr. McQueenie raised a series of questions: “(1) Is the grid offer extant (minus commercials) and what would need to be done (commercial and technical) to get the grid connection in place?

(2) What are the timelines associated with having this grid connection in place?

(3) What is the (ballpark) cost for grid connection for the 445 MW today?

(4) If we were to go for a 520 MW CCGT (new technology) what are the implications to Eirgrid?

(5) Contractual – what is the current state of the contract/bond?

(6) Are there other variables from the grid perspective that need to be highlighted”.

469. A conference call was held on 27 June 2013 between the parties. Following that call Ms. O'Shea issued an email to Mr. McQueenie identifying key points arising from their discussion. She confirmed that the current key dates dates for the project were 12 November 2012 for the Consents Issue Date Longstop Date and 12 May 2013 for the Scheduled Operational Date Longstop Date. She pointed out that those dates had now expired. However the defendant had not acted on the expiry because of certain proposals which were currently with the Commission to align long stop date definitions between renewables and nonrenewable projects, which would have the effect of resulting in extended long stop date for the Ballakelly project.

470. Ms. O'Shea stated that the potential new dates for Ballakelly, if the Commission approved the review, would be 12 May 2014 for the Consents Issue Date Longstop Date and

12 November 2014 for the Scheduled Operational Date Longstop Date. Ms. O'Shea pointed out that if a request was to be made for extension of dates a case would have to be made demonstrating progress on the project and a proposed programme of works.

471. Ms. O'Shea stated that if these new long stop dates were approved by the Commission, it would be necessary for the project to be fully operational by the new Scheduled Operational Date Longstop Date of 12 November 2014. She stated that the defendant did not believe that it would be feasible to achieve such a deadline and pointed out that if a request was to be made for an extension the request would have to demonstrate progress to date on the project and a proposed programme of works. She continued: “in making its decision [the defendant] would assess, amongst other things, the project's progress since execution of the connection offer in October 2009 and the reasons for the delays.”.

472. Ms. O’Shea then quoted the Commission which had stated: “the period between the scheduled dates and long stop dates allows for contentious planning for construction issues. However in the event that the long stop dates were reached before connection and the developer wished to continue with the development and can demonstrate that all reasonable steps had been taken to progress the project and there was a reasonable possibility that the project could be connected in a reasonable timeframe the Commission would consider extending the long stop date for individual projects”.

473. Finally Ms. O'Shea stated: “as the Ballakelly CCGT grid connection agreement has not progressed since it was put on hold, at the customer's request, in November 2010 there are no grounds for Eirgrid to grant such an extension. For more detailed information about the administration of long stop updates please see the information memorandum published”.

474. Nothing further was heard from Mr. McQueenie or the receiver.

475. The evidence of Ms. O’Shea was that this level of “non-progression” continued and that no works in respect of the project were ever commenced. This led to the correspondence in 2014 which I have referred to earlier in this judgment, in particular the following key events. On 8 May 2014 the defendant notified the second plaintiff that since the works had not commenced the defendant did not consider that it would be feasible to achieve the Scheduled Operational Date Longstop Date of 12 November 2014 and that the defendant intended to terminate the Connection Agreement on the Scheduled Operational Date Longstop Date. This led ultimately to the service of the Notice of Termination of the Connection Agreement on 12 November 2014, effective 10 December 2014.

476. Ms. O'Shea also gave evidence that at no point did the second plaintiff ever make or notify a dispute to the Commission as it was entitled to do under the Act. Nor did any party on behalf of the second plaintiff advance any evidence of progression of the project or proffer any indication of a timetable for doing so. The most the defendant heard was the enquiries made by Mr. McQueenie in June 2013, which come to nothing.

477. Mr. McQueenie’s description of his enquiries in the context of exploring or “attempting to start up the project again” is particularly revealing of the fact that there was no live activity being performed on the Ballakelly facility, and no attempt made by the second plaintiff to demonstrate or even claim progress.

478. All of these features place the plaintiffs in a fundamentally different position to the position of GIL.

479. When the defendant first served notice on the second plaintiff in May 2014 of its intention to terminate the Connection Agreement, the second plaintiff did not reply. This was not surprising since the second named plaintiff had been in receivership for over two years. A solitary enquiry from Mr. McQueenie during 2013 regarding the possibility of ‘reviving’ the project had gone nowhere. No party suggested that reasonable efforts had been or were being made to achieve delivery of the capacity.

480. It was the first plaintiff which took an interest in the correspondence, understandably because it stood liable to honour the bond. But it had nothing to offer as to the status of the Ballakelly project itself.

481. If the Connection Agreement had been perceived by the receiver as an asset of value in the hands of the second plaintiff then no communication was received by the defendant from him seeking to extend or preserve the company's interest in such an asset.

482. In the correspondence from the first plaintiff and Clyde & Co. it identified claims it intended to make as to the circumstances in which the bond would be drawn down. But it was not a party to the Connection Agreement itself and had no standing to intervene in the termination thereof.

483. Apart from giving notice of its objections and reserving its position as to its liability to pay, the first plaintiff had no meaningful submissions to offer as to the status of the project itself.

484. It is remarkable that the dispute process formally notified to the Commission by GIL was so prolonged that it was still unresolved at the time when the Amnesty came into force in October 2016. Whether a dispute between the second plaintiff and the defendant would have taken as long if the second defendant had invoked section 34 to notify a dispute to the Commission is entirely a matter of speculation. No such dispute was ever notified and the termination of the Connection Agreement occurred without any challenge on the part of the second defendant, being the only party to it.

485. The defendant cannot be faulted for the fact that the dispute process for GIL was prolonged for such a period of time that events were overtaken by the Amnesty and that GIL was an eligible party for the purpose of availing of the Amnesty. By the time the Amnesty was announced, the second plaintiff's connection agreement had been terminated for almost two years.

486. There was nothing discriminatory about the approach taken by the defendant to the request for capacity release and return of the bond made by GIL at a time when the Commission had issued the Amnesty and had stipulated the conditions for availing of the Amnesty The first plaintiff

487. Section 34 of the Act and Regulation 11 of the Regulations prohibit unfair discrimination on the part of the defendant in relation to persons or classes of persons in connection with the offering of connection agreements and the performance of the defendants functions in relation to the transmission system. The first plaintiff is not a person using or connecting to the transmission system and who can therefore avail of the protection of nondiscrimination provided for in the Act or in the Regulations. Nor course can the first plaintiff be described in any sense as a comparator with GIL.

488. The first plaintiff has no standing to invoke the discriminatory claim in its own right. It is not a person to whom the provisions of section 34 apply. Its function, and that of its predecessor Quinn Insurance Limited, was the provision, being a financial services company, of a bond. It is not contended in these proceedings that the conditions for drawdown of the bond, found in Clause 2.10 of the Offer Letter and in Clause 24.3.8 and 24.8 of the General Conditions had not duly arisen.

489. There are comparisons between the second plaintiff and GIL in that each of them (a) received an Offer Letter and entered into a Connection Agreement with the defendant; (b) was required to and did provide an MEC bond; and (c) in each case reached Scheduled Operational Date Longstop Dates without it delivering the committed capacity.

490. There the comparisons end.

491. The different treatment complained of is that the defendant terminated the Connection Agreement of the second plaintiff on the day which was the Scheduled Operational Date Longstop Date and two weeks later drew down the MEC bond, steps which it never took in relation to GIL.

492. More is required to make out the discrimination claim. GIL engaged actively with both the defendant and the Commission, the latter having approved extensions of long stop dates from time to time.

493. GIL served a dispute notice invoking the statutory mechanism pursuant to section 34 of the Act for pursuing its complaints. It is relevant that the issues identified in its dispute notice correspond in part to the issues now pleaded by the plaintiffs in this case, yet the plaintiffs did not make a reference to the Commission.

494. It was the act of GIL giving a Dispute Notice which led to the pause by the defendant of terminating its Connection Agreement, and drawing down on its bonds.

495. There is no authority for the proposition that the defendant acted ultra vires otherwise than the claimed discrimination. The act of termination of the Connection Agreement and the act of drawing down the bond were clearly taken in pursuance of the very specific contractual provisions in the Offer Letter, the Connection Agreement and the General Conditions.

496. Nor was any authority advanced for the proposition that even if the defendant acted ultra vires it then became a trustee for either of the plaintiffs of the monies paid over by the first plaintiff.

497. The failure of the second plaintiff to deliver the committed capacity triggered the right of the defendant to drawdown the bond. It cannot be said in fact that the second defendant itself suffered a loss of the amount of the bond. The only evidence of any exposure of the second plaintiff to the amount demanded is the recital in the liquidators assignment deed of August 2016 to the effect that the first plaintiff “as issuer of an MEC bond, is entitled to an indemnity from the assignor”. That is a reference to no more than the obligation of the second plaintiff to indemnify the first plaintiff. There is no evidence that the second plaintiff paid this amount and the second plaintiff entered receivership in 2012 and liquidation in 2015.

Conclusion as regards discrimination

498. The comparators relied on by the plaintiffs were not in an identical position to the second plaintiff.

499. GIL had engaged with the defendant and with the Commission with a view to obtaining the extensions and concessions granted.

500. When the Dispute Notice was served it was proper for the defendant to have suspended any further steps regarding termination of the connection agreements or drawing down of the bonds.

501. No Dispute Notice was ever served by the plaintiffs.

502. The absence of engagement by the second plaintiff before and after the receiver’s appointment demonstrated that not only was no work done to progress the project, but no party had updated the defendant on its status, or plans, even when the defendant formally notified it of its intention to terminate the agreement and drawdown the bond.

503. The allegation of unlawful discrimination is not made out. The remedy sought in relation to discrimination namely a declaration that the demand on the bond was discriminatory and ultra vires must be refused. Similarly this cannot constitute a ground for any of the other declarations sought such as a declaration of unjust enrichment, a declaration that the sum of €4.45 million is held in trust for the benefit of the plaintiffs or that the plaintiffs are entitled to “an equitable charge over the assets of the defendant to the value of €4.45 million”.

PART TEN: CONCLUSION

504. For all these reasons I have concluded as follows: –

(1) The requirement for the provision of an MEC bond and the amount thereof was not a penalty.

(2) The defendant was entitled to terminate the Connection Agreement when it did and was entitled to draw down the MEC bond in full.

(3) The bond and its amount did not give rise to unjust enrichment or any windfall

(4) The claim of discrimination must fail.

(5) The defendant is entitled to retain the full amount demanded and paid pursuant to the bond.

505. The action will be dismissed.