Waste of energy? Are financing charges recoverable where an exclusion of liability clause applies?

01 February 2023

Given the uptick of interest rates, the cost of capital is increasing to levels not seen since before 2008. For those financing or refinancing projects, such costs may significantly eat into margins. However, where such costs are incurred due to a breach of contract, they are potentially recoverable. This is particularly important as, where a project is delayed as a result of a breach, compounding financing charges can be substantial.

In Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd and Others [2022] EWHC 3275 (TCC), amongst other things, Mr Justice Pepperall was asked to consider whether financing charges are recoverable when a typical exclusion of liability clause applies.

As a starting point, and as my colleagues Doug Wass and George Dew noted in their article on the decision in Soteria Insurance Ltd v IBM United Kingdom Ltd, what is recoverable will depend on the precise wording of the relevant exclusion clause, and the particular loss a party is looking to recover. The Judge also considered how the principles governing recoverability of damages apply to claims for finance charges.


Energy Works (Hull) Ltd (“EWH”) appointed MW High Tech Projects UK Ltd (“MW”) under an IChemE Red Book, as amended by the parties, to design and construct an energy from waste plant in Hull.

MW was required to complete the project by 9 April 2018. However, completion was delayed, leading to:

  • the levying of liquidated damages for delay;
  • the contractual cap on liquidated damages being reached;
  • MW’s employment being terminated on 4 March 2019; and
  • following termination, and after reaching the cap on liquidated damages, EWH incurring further financing charges up until 31 March 2021, when it was assumed that the plant would be operational.

EWH launched proceedings against MW, with a claim in excess of £131 million, which included £53 million for additional financing costs (c. 40% of the total figure).

The exclusion clause

MW denied that the financing costs were recoverable by EWH, and in doing so sought to rely on sub-clause 45.1(b) of the IChemE Red Book:

“Notwithstanding any other provision of the Contract and subject to Sub-Clause 45.1A neither the Contractor nor the Purchaser shall be liable to the other for: …

(b)        loss or deferment of anticipated or actual profit, loss of revenue, loss of use, loss of production, business interruption or any similar damage or for any consequential or indirect losses of any kind resulting from or arising out of or in connection with the Works or the performance of them or any act or omission relating to them howsoever caused…”

MW argued that the claim for financing costs was a claim for loss of revenue, which would be excluded by sub-clause 45.1.

What did the court decide?

The Judge (agreeing with the accountants’ evidence in the case) identified that there was an obvious correlation between “…lost revenue suffered by reason of the delayed completion…and the additional financing costs which EWH had to pay during the extended period of works”.

However, the Judge drew a distinction between revenue and financing costs given that:

  • they fall on different sides of any profit and loss account; and
  • in ordinary language, a claim for additional financing costs is not the same as a claim for lost revenue.

The Judge noted that clear words would be required to exclude a claim for the additional financing costs incurred by reason of the delayed completion.

What else did the court consider?

This Judgment provides a good assessment of how project financing typically works:

  • the investors in EWH loaned the capital to EWH to fund the construction of the plant;
  • EWH’s ability to repay the loan (and the consequential effects on financing charges) were dependent on its ability to receive revenue from the plant; and
  • following the plant becoming operational, it would be refinanced at (presumably) a lower rate of interest.

MW highlighted that, at the rate of interest it was paying, EWH’s revenue would never have been sufficient to repay the investors. While this was accepted on the face of the evidence, the Judge noted (reflecting commercial reality) that EWH always intended to refinance the project once it was operational and the risks were, therefore, lower.  The Judge stated that speculation about the possible refinancing of the project after the plant had become operational was irrelevant in this case in any event because the claim was for additional finance costs incurred during the delayed period to completion.

Final thoughts

As a matter of contractual certainty, it is encouraging that the courts are continuing to take a realistic approach to exclusion of liability clauses – and are allowing themselves to be led by the words used rather than other more abstract considerations.

However, interest rates are raising the stakes for developers and they should carefully consider the wording of any proposed exclusion clauses. 

Get in touch