Bluewater Energy Services BV v Mercon Steel Structures BV and others
Citation:  EWHC 2132 (TCC); 155 Con. L.R. 85
This dispute was between a main contractor Bluewater and a sub-contractor Mercon for the fabrication of a mooring system for installation as part of the development of an oil-field in the Caspian Sea. The sub-contract works were delayed and disputes developed between the parties which led to Bluewater issuing a contractual notice of default followed by a notice of termination. Many issues are covered in the Judgment, which assessed the final account position between the parties, including whether Bluewater was correct to terminate the contract and was able to claim liquidated damages for delay (LDs).
The termination clause stated that following a notice of default Bluewater could terminate if the sub-contractor did not take “action satisfactory” to Bluewater. The Court held that the clause was not objective, but, following Socimer v Standard Bank London  EWCA Civ 116 there was an implied limitation by reference to concepts of honesty, good faith and the absence of arbitrariness. The Judge went on to hold that applying this test, or even objectively, Mercon had not taken sufficient action to remedy its breaches following the notice of default and therefore Bluewater was entitled to terminate the sub-contract.
On LDs, the Court upheld a “two-stage” LDs mechanism where LDs could be levied against failure to meet certain milestones, with a final assessment then being undertaken at the date of the final milestone. Mercon argued that the entire LDs mechanism fell away because the final milestone had not been achieved. However, the Judge held that the accrued rights to LDs for the interim milestones stood. The Judge also rejected Mercon’s claim for an extension of time.
The Judge held that the balance of the final account was in favour of Bluewater.