Federal court ruling reinforces strict notice requirements under PPAs

How to avoid PPA pitfalls and uncommercial outcomes 5 min read

The Federal Court recently¹ awarded liquidated damages to the prospective buyer of electricity under two power purchase agreements (PPAs) with the owners of the relevant generators, a solar farm and a gas-fired power station. 

Both generators were delayed in achieving commercial operations. The owners claimed the delays resulted from grid connection issues caused by the transmission and distribution network owner under the relevant connection agreements.

In awarding liquidated damages, the court unequivocally rejected the extension of time notices issued by the owners, finding they failed to meet the strict contractual requirements of the PPAs. Specifically, the notices failed to explain why the delay was not caused by the EPC contractor or the owner—a requirement embedded within the definition of the specific 'Extension Event' on which each owner relied.

In this Insight, we summarise the decision and outline what you need to know to avoid PPA pitfalls and uncommercial outcomes. 

Key takeaways

• This judgment emphasises form over substance for contractual notices, including:
  • that 'if the particulars of [the] strongest case imaginable aren’t contained in the written notice, the notice is no good';
  • the need to provide particulars as to a negative (ie setting out details of something which ought not to have, and did not, occur); and
  • strict operation of time bars.
• This gives rise to the following practical implications:
  • When negotiating contracts, parties should consider whether their notice requirements are impractical or excessively burdensome, and whether this is beneficial to ether party or aligns with the commercial intent and risk allocation of the contract. While there is likely good reason to require certain particulars within a reasonable timeframe, it is less likely to be in the commercial interests of either party to insist upon numerous, lengthy and exhaustive notices to include largely irrelevant detail. This will not be efficient, nor lead to best-for-project outcomes.
  • In the meantime, parties making contractual claims must diligently work through all relevant clauses and definitions to identify the preconditions for the claim and adhere strictly to each. Failure to strictly follow all contractual requirements can render the notice, and therefore the claim, invalid.
  • This judgment also demonstrates the courts' willingness to strictly uphold time bars to contractual claims. Parties must be attentive to contractual notice deadlines.
• Finally, the facts underpinning this judgment demonstrate that parties to PPAs, as well as those to construction contracts,² face the consequences of delays arising in the grid connection process. These delays are often difficult to avoid, or manage, particularly when connection agreements commonly favour the network service provider and not the owner. Parties to PPAs should carefully consider their risk profile and appropriately allocate this risk. 

Background: delays and extension of time claims

Rimfire Energy Pty Ltd (Buyer), a licensed electricity provider in the Northern Territory, entered into PPAs with BSF Co Pty Ltd and HCPS Co Pty Ltd (Owners) for the purchase of electricity to be generated by combined 22 MW generators under development in Batchelor and Hudson Creek. Rimfire committed to purchasing all electricity, with commercial operation originally targeted for mid-2021.

By the time of judgment in 2025, neither project had reached commercial operation. In November 2022, Rimfire issued $1.4 million in liquidated damages invoices to each respondent for failing to meet the Target Commercial Operation Date. Following an earlier ruling,³ the respondents paid 50% of the invoices on an interim basis.

In this proceeding, Rimfire sought to retain that amount and recover the remaining 50% plus interest.

The respondents argued that delays were caused by the network service provider and brought extension of time claims under the PPAs arising from a Connection Works Delay. The PPAs included a number of preconditions for extension of time claims, including that the relevant Connection Works Delay ought not to have been caused by the Owners or the EPC Contractor. 

Decision: extension of time claims invalid

Justice O'Callaghan applied this requirement strictly, and held that any extension of time notice given by the Owners was to include a detailed explanation, supported by evidence, that the claimed delay was not caused by the Owner or the EPC Contractor in order to demonstrate compliance with the precondition.

Since the Owners did not provide any explanation or evidence that the delay was not their fault, the extension of time notices were invalid, no extension of time was awarded and the Owners were ordered to pay the remainder of the Buyer's liquidated damages invoice.

Justice O’Callaghan held the Owners out from their extension of time claims by strictly enforcing both:

• the precondition, which sat within the definition of the relevant Extension Event (and not explicitly within the operative clause); and
• a requirement that the notice itself must address the precondition (ie state with evidence that it is met), failing which the notice is invalid, and the claim is barred. 

Further, Justice O’Callaghan stated that, even if the notices had otherwise been valid, the court would have strictly upheld the time bar such that the owners were 'not entitled to the extension sought'.  The judgment included reference to an exchange with counsel for the respondents in which his Honour made a strong pronouncement:

'so you could have the strongest case for an extension imaginable, but, if you don’t do it within the 10 days of the owner making the relevant determination, and if the particulars of that strongest case imaginable aren’t contained in the written notice, the notice is no good. The underlying facts are neither here nor there'.⁵

Finally, in coming to these conclusions, Justice O'Callaghan reiterated the importance of clearly delineating responsibility for delays, particularly in complex construction projects:

'where the parties to an infrastructure project must coordinate between themselves to progress a significant number of iterative tasks in parallel, there is a clear need to identify precisely how or why a delay by one party is not ultimately attributable to, or caused by, the failures of another party'.⁶

What you need to know

• Contractual requirements for claims: this decision illustrates the importance of meticulously following all notice requirements and preconditions (including as to timing) when claiming an extension of time or other contractual claim. Preconditions can be included in the operative provisions, definitions referenced therein and other underlying definitions. When drafting notices, each precondition should be addressed precisely, even if it appears to be irrelevant in the circumstances. Failure to meet even one element can render the entire claim invalid, regardless of its substantive merit.
• Caution for negotiating parties: when negotiating contracts, parties should pay attention to notice requirements. Cumbersome and unwarranted preconditions and requirements of form can undermine the claiming parties' rights and broader risk allocation, lead to an avoidable administrative burden for both parties and limit sensible commercial outcomes.
• Risk allocation and liquidated damages caps in energy projects: this case also serves as an interesting reminder of how specific types of delay can arise in energy projects (particularly renewables), leading to disputes. In this case, the Buyer ultimately recovered the maximum liquidated damages of $1.4 million, but those damages were capped to cover only six months' delay. In reality, the projects remain non-operational and are now approximately four years behind schedule. Connection delays are not uncommon, and this outcome reinforces the importance of properly understanding and allocating connection-related risks (and contractual requirements) under PPAs and construction contracts from the outset.