Liberty Insurance Limited and Anor v EirGrid PLC

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 2 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 3 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”. 4 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 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 6 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. 1 Contrary to the name of the second plaintiff, this was to be a conventional, not a renewable energy, generator. 7 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. 8 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. 9 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 10 (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. 11 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. 12 (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. 13 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. 14 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 15 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; 16 (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, non- discriminatory, 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 17 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, 18 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 19 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 20 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 21 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) 22 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 23 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. 24 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. 25 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: 26 • 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. 27 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.” 28 101. 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. 29 107. 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”. 30 115. 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 31 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: 32 “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 33 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) 34 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. 35 (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. 36 134. 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 37 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 38 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 39 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. 40 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. 41 160. 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. 42 164. 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 43 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 44 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