21.3.2.1 If the Contract terminates for Force Majeure, the Authority should pay compensation to the Contractor reflecting the principle that Force Majeure is neither party's fault and the financial consequences should to some extent be shared. There is, however, no equitable reason for "full" compensation (i.e. repayment of debt plus equity service and equity with profits) as this would involve the Authority in bearing all the pain.
21.3.2.2 The Contract should in addition provide the Authority with the option to retain or walk away from the Assets. Whatever the Authority decides, only the payment outlined in Clause 21.3.2 (Compensation on Termination for Force Majeure) should be made (see also Section 21.1.3.9 above for explanation where there has been Additional Permitted Borrowing).
Required drafting is as follows:
21.3.2 Compensation on Termination for Force Majeure
(a) On termination of the Contract under Clause 21.3 (Termination on Force Majeure), the Authority shall pay364 to the Contractor the "Force Majeure Termination Sum" in accordance with [Section 22 (Calculation and Payment of Early Termination Payments)].
Subject to paragraphs (c) to (e) below the Force Majeure Termination Sum shall be the amount equal to the aggregate of:
(i) the Base Senior Debt Termination Amount;
(ii) the Junior Debt less an amount equal to the aggregate of payments of interest made by the Contractor under the Subordinated Financing Agreements;365
(iii) all amounts paid to the Contractor by way of subscription for shares in the capital of the Contractor less dividends and other distributions paid to the shareholders of the Contractor (save to the extent deducted under (ii) above);366 and
(iv) redundancy payments for employees of the Contractor that have been or will be reasonably incurred by the Contractor as a direct result of termination of the Contract and any Sub-Contractor Breakage Costs.
(b) If the amounts referred to in paragraphs (a)(ii) and/or (iii) are less than zero, then, for the purposes of the calculation in paragraph (a) they shall be deemed to be zero.
(c) If the aggregate of the amounts referred to in paragraphs (a)(i), (a)(ii) and (a)(iii) is less than the Revised Senior Debt Termination Amount, then the Force Majeure Termination Sum shall be increased so that it is equal to the aggregate of the Revised Senior Debt Termination Amount and the amount referred to in paragraph (a)(iv) provided always that:
(i) the amount referred to in paragraph (a)(iv) shall only be paid to the extent that the Contractor has demonstrated to the reasonable satisfaction of the Authority that the amount will not be paid in payment (in whole or in part) of any Distribution and
(ii) if, at the time of termination, there are any Additional Permitted Borrowings outstanding, no Sub-Contractor Breakage Costs shall be paid in respect of any Sub-Contract in circumstances where there is an event of default under such Sub-Contract which would entitle the Contractor to terminate such Sub-Contract.
(d) If a Distribution is made whilst any Additional Permitted Borrowing is outstanding and the Contractor has wilfully, or through gross negligence, failed to comply with its obligations under Clause 11(d)(iv)(a) of the Direct Agreement then in addition to the deduction of the Distribution referred to in paragraph (v) of the definition of Revised Senior Debt Termination Amount, the Authority shall be entitled to set off the value of that Distribution a second time against the Force Majeure Termination Sum, provided that the amount of the Force Majeure Termination Sum will never be less than the Revised Senior Debt Termination Amount.
(e) If the Contractor has wilfully or through gross negligence failed to comply with its obligations under Clause 11(d)(iv)(b) of the Direct Agreement and there has been an overstatement of the cash balances by the Contractor as at that date which has caused the Authority to reasonably believe that it would be required to pay a lesser sum at the Termination Date than it actually is required to pay under the terms of this Clause 21.3.2, then the Force Majeure Termination Sum, shall be reduced by the amount of such overstatement (to the extent such overstatement is still applicable at the Termination Date), provided that the amount of the Force Majeure Termination Sum will never be less than the Revised Senior Debt Termination Amount.
(f) Such amount shall be determined and paid in accordance with [Section 22 (Calculation and Payment of Early Termination Payments)].
(g) On termination, the Authority shall have the option to require the Contractor to transfer to the Authority all of its right, title and interest in and to the Assets.
Required drafting is as follows:
21.3.3 Retention from the Force Majeure Termination Sum367
(a) Where:
(i) a Force Majeure Event occurs that comprises an event of terrorism covered by the Compensation Order; and
(ii) the Contract is subsequently terminated pursuant to clause 21.3 (Termination of Force Majeure),
the Authority may (at its discretion) set aside a retention, calculated in accordance with paragraph (b) below (the "Retention"), from the Force Majeure Termination Sum payable pursuant to clause 21.3.2 (Compensation on Termination for Force Majeure), until such times as the conditions of paragraph (c) are met.
(b) The Retention shall be a sum equal to [♦% of] the aggregate of the amounts referred to at [clause 21.3.2(a)(ii) and] clause 21.3.2(a)(iii) above.368
(c) Subject to paragraph (e), the Retention may be withheld by the Authority until it has been demonstrated to the reasonable satisfaction of the Authority that the Contractor has:
(i) made all appropriate claims in its own name under the Compensation Order and/or its own commercial insurance; and
(ii) (where specifically requested by the Authority) assisted the Authority with its application for statutory compensation under the Compensation Order, at its own expense, in a diligent manner and until such matters have reached a final solution (being a decision by the Compensation Agency to award or not award compensation under the Compensation Order.
(d) When the Authority is satisfied that the Contractor has met its obligation under paragraph (c), or such earlier time as the Authority shall deem appropriate, the Retention shall be repaid to the Contractor together with interest payable at the Senior Debt rate369 and calculated from the date upon which the Authority had paid the Force Majeure Termination Sum (less Retention) until the actual date of payment.
(e) [In the event that the Contractor fails to meet its obligations under paragraph (c), the Retention will be forfeited and the Contractor will have no rights in respect thereof.]370
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364 See Section 22 (Calculation and Payment of Early Termination Payment) for the rights of set-off against such payments.
365 The Junior Debt documentation should be checked to ensure that interest accrued, but not paid, will not come within the definition of Junior Debt. If it does, paragraph (ii) should be amended, to provide for its deduction.
366 The effect of this paragraph is to ensure that there are no circumstances in which a refund to the Authority is required.
367 The new clause 21.3.3 deals with a situation where a Force Majeure Event has occurred which leads to the termination of the Contract and subsequent payment by the Authority to the Contractor of the Force Majeure Termination Sum ("FMTS"). The clause permits the Authority to retain a proportion of the FMTS as an incentive to the Contractor to continue to work with and co-operate with the Authority in its application for statutory compensation under the Criminal Damage (Compensation) (Northern Ireland) Order 1977.
368 The Authority should determine on a project specific basis what proportion of the FMTS is to be retained. It is not appropriate to retain monies that relate to the amounts set out in clauses 21.3.2(a)(i) or (iv) as these do not ultimately belong to the Contractor but will be payable to third parties i.e. the Funder and employees. The Retention should therefore only apply to the amounts set out at clauses 21.3.2(a)(ii) and (iii). These amounts relate to sums that generally belong to the shareholders of the project company although in circumstances where the Junior Debt (which, largely speaking, makes up the amounts in clause 21.3.2(a)(ii) is provided by a third party funder rather than the shareholders, it may not be possible or commercially viable to retain such sums in which case the Retention would have to be limited solely to the amounts referred to at clause 21.3.2(a)(iii). Finally, depending on the particular circumstances and the amounts involved, it may be appropriate to retain only a percentage of (ii) and (iii) as opposed to the entirety.
369 The Senior Debt rate is the non default interest rate payable under the Senior Financing Agreement.
370 The Authority should decide in what circumstances it would be appropriate not to repay the Retention to the Contractor and tailor this paragraph (e) appropriately.