10  Authority Rights

10.1  Notwithstanding any provision in the Collateral Warranties to the contrary, and without prejudice to clause 10.9, the Authority agrees that it will not exercise or seek to exercise any of its step-in rights or other rights under or in respect of any Collateral Warranty prior to termination of the Project Agreement until the earlier of:

(a)  the Senior Debt Discharge Date; and

(b)  the date on which the Facility Agent has given its written consent to such exercise following a request from the Authority or otherwise.

10.2  The Authority shall not, prior to the Senior Debt Discharge Date:

(a)  do anything pursuant to the Collateral Warranties or the Works/Services Contracts following the Termination Date (including any act which gives rise to any cross claim, counterclaim, set off, variation or waiver) to prejudice the Accrued Rights relating to the Works/Services Contracts;

(b)  claim, recover, retain or receive (or seek to claim, recover, retain or receive) any amounts (including any costs, claims, damages, losses and liabilities) to which the Accrued Rights relate under, pursuant to or in connection with the Collateral Warranties and/or the Works/Services Contracts;

(c)  take any action to wind-up, dissolve, appoint an administrator, trustee, receiver (of any type), compulsory manager or similar officer, or sanction a voluntary arrangement or scheme of arrangement (or similar) in relation to the Contractor or take any other similar or analogous step relating to the insolvency of the Contractor;

(d)  take any action to wind-up, dissolve, appoint an administrator, trustee, receiver (of any type), compulsory manager or similar officer, or sanction a voluntary arrangement or scheme of arrangement (or similar) in relation to any Relevant Sub-Contractor or any of their respective guarantors or take any other similar or analogous step relating to the insolvency of any such person in each case on grounds (whether in whole or in part) relating to the Project;

(e)  save with the prior written consent of the Facility Agent, compete with the rights of the Secured Finance Parties on grounds (whether in whole or in part) relating to the Project (by virtue of a claim under any of the Collateral Warranties, the Project Agreement or any other Project Document or otherwise) on any formal insolvency of the Contractor, any Relevant Sub-Contractor or any of their respective guarantors, nor claim to be subrogated to any rights of any of the Secured Finance Parties.

10.3  The Parties agree that:

(a)  the request by the Authority that a Relevant Sub-Contractor accept the instructions of the Authority to the exclusion of the Contractor pursuant to and in accordance with the relevant Collateral Warranty; and

(b)  the exercise by the Authority of its rights pursuant to and in accordance with:

(i)  clauses 10.5(a) and 10.5(b) to make deductions, retention or set-off against the  Monthly FM Payment under and in accordance with the FM Agreement;

(ii)  clause 10.5(c) and [10.5(d)] to terminate and claim termination compensation under and in accordance with the FM Agreement;

(iii)  clauses 10.6(a), 10.6(b) and [10.6(d)] to make deductions or withholdings against an Interim Payment under and in accordance with the Building Contract; [or]

(iv)  clause 10.6(c) to terminate and claim compensation under and in accordance with the Building Contract;

(v)  [clauses 10.7(a) and 10.7(b) to make deductions, retention or set-off against the [Monthly] [Payment] under and in accordance with the [♦] Agreement; or]

(vi)  [clause 10.7(c) to terminate and claim termination compensation under and in accordance with the [♦] Agreement,]

shall not prejudice the Accrued Rights.

10.4  The Authority agrees and undertakes that if it claims, recovers, retains or receives any amount:

(a)  in contravention of the provisions of clauses 10.2, 10.5 and/or 10.6 [and/or 10.7]; or

(b)  pursuant to clause 10.5.(e)(ii) or 10.6(e)(ii) [or 10.7(d)(ii)] which the final determination of any Accrued Rights Value demonstrates is in excess of the relevant Authority Liability Cap,

it will promptly turn the same over to the Facility Agent and pending such payment, hold the same on trust for the Facility Agent and the Secured Finance Parties.

10.5  In addition to its rights under clause 10.1, and subject to clauses 10.2 and 10.3, where the Project Agreement has been terminated the Authority shall, from the Termination Date, be entitled to exercise any of its step-in rights or other rights under or in respect of the Authority FM Collateral Warranty, provided that:

(a)  the Authority may not claim, recover, retain or receive (or seek to claim, recover, retain or receive) an amount under, pursuant to or in connection with the Authority FM Collateral Warranty and/or the FM Agreement other than the making of deductions, retention, or set-off against (and only up to the amount of) each Monthly FM Payment under and in accordance with clause [♦] and Schedule [♦] of the FM Agreement in respect of services provided following the Termination Date18;    

(b)  if and to the extent that realisation of the Accrued Rights would count against the Services Provider Liability Cap in the Relevant Year, the Authority shall only be entitled to make deductions, retention or set-off in the Relevant Year pursuant to Clause 10.5.1 to the extent such deductions, retention or set-off do not exceed the Authority FM Liability Cap19;

(c)  if and to the extent that realisation of the Accrued Rights would count against the Services Provider Termination Cap, the Authority shall only be entitled to exercise its rights to terminate the FM Agreement (pursuant to clause [♦] thereof) and to claim termination compensation (pursuant to clause [♦] thereof) up to the maximum limit of the aggregate of the Monthly FM Payment in respect of Services following the Termination Date, less deductions, retentions or set-off referred to in Clause 10.5(a) to the extent that such compensation does not exceed the Authority FM Termination Cap20;  

(d)   [if and to the extent that realisation of the Accrued Rights would count against the [Life Cycle Works Cap], the Authority shall only be entitled to claim any termination compensation which relates to the [Life Cycle Works Cap] to the extent that it does not exceed the [Authority FM Life Cycle Works Cap], subject always to the maximum limit referred to in clause 10.5(c);21]

(e)  if the Authority and the Facility Agent do not agree the FM Accrued Rights Value:

(i)  either of the Authority or the Facility Agent may refer the dispute for resolution in accordance with clause 20 (Dispute Resolution); and

(ii)  pending agreement or determination of the FM Accrued Rights Value, the Authority shall be entitled to exercise its rights under the Authority FM Collateral Warranty subject always to clause 10.4; and

(iii)  unless permitted by clause 10.13, the Authority shall not be entitled to exercise its rights under the Authority FM Collateral Warranty where the event giving rise to termination of the Project Agreement is an event of Services Provider Default.

10.6  In addition to its rights under clause 10.1, and subject to clauses 10.2 and 10.3, where the Project Agreement has been terminated, the Authority shall, from the Termination Date, be entitled to exercise any of its step-in rights or other rights under or in respect of the Authority Construction Collateral Warranty, provided that:

(a)  the Authority may not claim, recover, retain or receive (or seek to claim recover, retain or receive) an amount under, pursuant to or in connection with the Authority Construction Collateral Warranty and/or the Building Contract other than the making of deductions or withholdings against (and only up to the amount of) each [Interim Payment and/or Final Statement22] under and in accordance with clause [♦] and clause [♦] of the Building Contract in respect of works carried out following the Termination Date;

(b)  if and to the extent that realisation of the Accrued Rights would count against the Building Contractor's Liability Cap the Authority shall only be entitled to make deductions or withholdings pursuant to clause 10.6(a) to the extent that such deductions or withholdings, when aggregated with any termination compensation claimed pursuant to clause 10.6(c), do not exceed the Authority Construction Liability Cap23;

(c)  if and to the extent that realisation of the Accrued Rights would count against the Building Contractor's Liability Cap, the Authority shall only be entitled to exercise its rights to terminate the Building Contract (pursuant to clause [♦] thereof) and to claim termination compensation (pursuant to clause [♦] thereof), up to the maximum limit of the aggregate of the Monthly FM Payment in respect of the Works following the Termination Date, less deductions, retentions and set-off referred to in clause 10.6(a) to the extent that such compensation does not exceed the Authority Construction Liability Cap24;  

(d)  [if and to the extent that realisation of the Accrued Rights would count against the Building Contractor's Liquidated Damages Cap, the Authority shall only be entitled to make deductions or withholdings pursuant to clause 10.6(a) which relate to the Building Contractor's Liquidated Damages Cap to the extent that such deductions or withholdings do not exceed the Authority Construction Liquidated Damages Cap;25]

(e)  if the Authority and the Facility Agent do not agree the Construction Accrued Rights Value:

(i)  either of the Authority or the Facility Agent may refer the dispute for resolution in accordance with clause 20 (Dispute Resolution); and

(ii)  pending agreement or determination of the Construction Accrued Rights Value, the Authority shall be entitled to exercise its rights under the Authority Construction Collateral Warranty subject always to Clause 10.4; and

(f)  unless permitted by clause 10.13, the Authority shall not be able to exercise any of its step-in rights or other rights under or in respect of the Authority Construction Collateral Warranty where the event giving rise to termination of the Project Agreement is an event of Building Contractor Default.

10.7  26In addition to its rights under clause 10.1, and subject to clauses 10.2 and 10.3, where the Project Agreement has been terminated, the Authority shall, from the Termination Date, be entitled to exercise any of its step-in rights or other rights under or in respect of the [♦] Collateral Warranty, provided that:

(a)  the Authority may not claim, recover, retain or receive (or seek to claim, recover, retain or receive) an amount under, pursuant to or in connection with the [♦] Collateral Warranty and or [♦] Contract other than the making of deductions or withholdings against (and only to the amount of) each [monthly payment and/or final statement] under and in accordance with clause [♦] and [♦] of the [♦]  Contract in respect of [Services] carried out following the Termination Date;

(b)  if and to the extent that realisation of the Accrued Rights would count against the [♦] Contractor's Liability Cap the Authority shall only be entitled to make deductions or withholdings pursuant to clause 10.7(a), to the extent that such deductions or withholdings, [when aggregated with any termination compensation claimed pursuant to clause 10.7(c)] do not exceed the Authority [♦] Liability Cap27;

(c)  if and to the extent that realisation of the Accrued Rights would count against the [♦] Contractor's Liability Cap, the Authority shall only be entitled to exercise its rights to terminate the [♦] Contract (pursuant to clause [♦] thereof) and to claim termination compensation (pursuant to clause [♦] thereof), up to the maximum limit of the aggregate of the Monthly FM Payment in respect of Services following the Termination Date, less deductions, retentions or set-off referred to in Clause 10.7(a) to the extent that such compensation does not exceed the Authority [♦] Liability Cap;

(d)  if the Authority and the Facility Agent do not agree the [♦] Accrued Rights Value:

(i)  either of the Authority or the Facility Agent may refer the dispute for resolution in accordance with clause 20 (Dispute Resolution); and

(ii)  pending agreement or determination of the [♦] Accrued Rights Value, the Authority shall be entitled to exercise its rights under the Authority [♦] Collateral Warranty subject always to clause 10.4; and

(iii)  unless permitted by clause 10.13, the Authority shall not be able to exercise any of its step-in rights or other rights under or in respect of the Authority [♦]  Collateral Warranty where the event giving rise to termination of the Project Agreement is an event of [♦]  Contractor Default.

10.8  Notwithstanding the terms of the Collateral Warranties or any other provisions of this clause 10, each of the Relevant Sub-Contractors, together with any guarantors thereof, shall remain responsible, and be liable, to the Contractor and the Secured Finance Parties in respect of all costs, claims, damages, losses and liabilities which have arisen out of or in connection with the Works/Services Contracts, or the Security Documents and Direct Agreements relating thereto, in respect of the period prior to and including the Termination Date and the Contractor and the Secured Finance Parties (and the Facility Agent and/or the Security Trustee acting on behalf of the Contractor and/or the Secured Finance Parties) shall retain the benefit of all their respective rights to all such costs, claims, damages, losses and liabilities (the Accrued Rights).

10.9  In addition to its other rights under this clause 10, where following service of a Termination Notice but before expiry of the Required Period  a Relevant Sub-Contractor has served a notice of termination, discontinuance or suspension on its contracting counterparty (whether the Contractor or otherwise) in accordance with the terms of the relevant Works/Services Contract, the Authority may pay directly, or undertake to make a payment directly, to the Relevant Sub-Contractor, amounts properly due, payable and undisputed (whether as a result of a counterclaim, set off or otherwise) under or pursuant to the relevant Works/Services Contract and may set off such sums after they have been paid against any amounts payable by the Authority to the Contractor under the Project Agreement, so as to satisfy them pro tanto, provided that the Authority shall not be able to exercise its rights pursuant to this clause 10.9 in circumstances where the Secured Finance Parties:

(a)  have stepped-in to, or otherwise, directly or indirectly, taken control over the relevant Works/Services Contract and not stepped out of it or otherwise relinquished control; or

(b)  are seeking to preserve continuity of the service or build obligation (as relevant) under the relevant Works/Services Contract or otherwise with reasonable diligence.

10.10  To the extent that the Authority makes a payment under clause 10.9 above, the Authority shall not be entitled to make double recovery by making a deduction from the Unitary Charge under the Project Agreement in respect of performance failure by the Relevant Sub-Contractor without making an equivalent deduction against the payment made direct by the Authority to the Relevant Sub-Contractor.

10.11  On early termination of the Project Agreement for any reason the Authority shall be entitled to set-off any payments made to sub-contractors under clause 10.9 (to the extent not previously set-off in accordance with that clause) against any payments made under the Project Agreement (subject to clause 11.7 of this Agreement and clause 48.2 (Set-Off on Termination) of the Project Agreement).

10.12  Where, following the Termination Date:

(a)  the Secured Finance Parties do not have any Accrued Rights in respect of the Relevant Sub-Contractor;

(b)  all claims which may arise from any Accrued Rights in respect of the Relevant Sub-Contractor have been settled or written off by the Senior Finance Parties or become exhausted; or

(c)  the Facility Agent fails to comply with clause 10.14,

the Authority may exercise its rights under the relevant Collateral Warranty without restriction. The Facility Agent shall notify the Authority as soon as reasonably practicable, but in any event within 2 Business Days after claims arising from the Accrued Rights are settled or written off by the Senior Finance Parties, or become exhausted.

10.13  On and after the earlier of:

(a)  the Senior Debt Discharge Date; and

(b)  the date on which the Facility Agent has given its written consent,

the Authority shall be entitled to exercise its rights under the Collateral Warranties in connection with the Building Contract, FM Agreement, or other Works/Services Contract in accordance with the Collateral Warranties without restriction.

10.14  Following termination of the Project Agreement, the Facility Agent shall, within ten (10) Business Days of receipt of a written request from the Authority, provide to the Authority written details of all Accrued Rights of which it is aware, having made enquiry of the Contractor and the Secured Finance Parties:

(a)  that the Contractor may claim against the Relevant Sub-Contractor; and

(b)  that any Secured Finance Party may claim against the Relevant Sub-Contractor,

together with an indicative non-binding assessment of the FM Accrued Rights Value, the FM Accrued Rights Termination Value, [the FM Accrued Rights Life Cycle Works Value], the Construction Accrued Rights Value and the [Construction Accrued Rights Liquidated Damages Value]28.

10.15  Prior to the Senior Debt Discharge Date but following termination of the Project Agreement, where the [Lenders] have enforced their security and a receiver appointed by or on behalf of the [Lenders] has made a prescribed part of the Contractor's net property available for the satisfaction of unsecured debts (under section 176A of the Insolvency Act 1986) the Authority may claim as an unsecured creditor against the Contractor for a share of such prescribed part.

10.16  Notwithstanding the terms of the Project Agreement and Security Documents, the Facility Agent and the Security Trustee agree that the Authority may exercise its rights to have transferred any Unrestricted Assets to the Authority or its nominee following the Expiry Date or Termination Date (as the case may be) and neither the Facility Agent nor the Security Trustee shall exercise or seek to exercise any enforcement rights and shall, on or before the date any Unrestricted Assets are transferred to the Authority or its nominee, as the case may be, each release its security over them.

10.17  Notwithstanding the terms of the Project Agreement, and subject to clause 10.18, the Authority agrees that it will not exercise or seek to exercise any of its rights to require a transfer of any revenues or cash balances or rights accrued as at the Termination Date under or pursuant to or in connection with any of the Relevant Required Insurances, any Works/Services Contract or any Project Document comprised in the Assets to the Authority or its nominee on or following the Termination Date until the Senior Debt Discharge Date.

10.18  The Authority may, at its option, and subject to agreement of the value of any such revenues, cash balances, or claims by the Facility Agent in its absolute discretion, and payment of such sum to the Facility Agent, require a transfer of any revenues or cash balances or rights accrued as at the Termination Date under or pursuant to or in connection with any Works/Services Contract comprised in the Assets to the Authority or its nominee on or following the Termination Date.

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18  The payment regime under the FM Agreement will need to be reviewed to ensure it is consistent with this provision.

19  FM Agreements usually contain a cap on the liability of the Responsive Repairs and Cyclical Maintenance and Renewal Contractor in any given year.  To the extent that realisation of Accrued Rights would count against that annual cap then the rights of the Authority under the relevant collateral warranty to claim against the Responsive Repairs and Cyclical Maintenance and Renewal Contractor should be subordinated to those Accrued Rights.

20  FM Agreements usually contain a cap on the liability of the Responsive Repairs and Cyclical Maintenance and Renewal Contractor on termination of the FM Agreement.  To the extent that realisation of Accrued Rights would count against that cap on termination then the rights of the Authority under the relevant collateral warranty to claim on termination should be subordinated to those Accrued Rights.

21  FM Agreements may also contain other caps on liability e.g. a Life Cycle Works Cap.  Again, any rights of the Authority to make a claim should be subordinated to Accrued Rights. Note: if this clause is deleted the definitions of 'Authority FM Life Cycle Works Cap' and FM Accrued Rights Life Cycle Works Value' should also be deleted.

22  This should reflect the payment regime under the Building Contract.

23  See clause 10.5(b) above.  The same position applies here in relation to the Building Contract prior to termination.  Liability caps in construction contracts will not usually distinguish between pre- and  post-termination liabilities.

24  See clause 10.5(c) above. The same position applies here in relation to the Building Contract on termination.  Liability caps in construction contracts will not usually distinguish between pre and  post termination liabilities.

25  Construction contracts may also contain other caps on liability e.g. a liquidated damages cap.  Again, any rights of the Authority to make a claim should be subordinated to Accrued Rights.

26  There may be other key sub-contracts in respect of which the Authority has a collateral warranty (e.g. a the Housing Management Contractor, any [Building] [Refurbishment] Sub–Contractor, the Professional Team).  The same principles should apply here as they do to the Building and FM Contracts i.e. from the Termination Date the Authority can step-in subject to protection of Accrued Rights.

27  The liability cap under the relevant sub-contract should be reviewed to confirm whether there is a pre and post termination liability cap.

28  To the extent that the Authority has rights in respect of other Collateral Warranties (see clause 10.7), the Facility Agent should provide the same information in relation to the corresponding sub-contracts.