Construction Law Insights

White Oak Power Constructors v. Mitsubishi Hitachi Power Sys. Ams., Inc., 2020 U.S. Dist. LEXIS 109637, 2020 WL 3414682 (E.D. Va. June 22, 2020)

The Wildcat Point Generation Facility, a nominal 1,000 megawatt combined-cycle natural gas fired power plant in rural Maryland, includes two gas turbines, associated generators, and related components supplied by Mitsubishi Hitachi Power Systems Americas, Inc. (“Mitsubishi”). The Equipment Purchase Agreement (“EPA”) between Mitsubishi and the power plant owner was subsequently assigned to the engineer-procure-construct contractor, White Oak Power Constructors (“White Oak”), a joint venture between PCL Industrial Construction Company and engineering firm Sargent & Lundy LLC. The EPA included several liquidated damages provisions under which Mitsubishi would pay for delays in document deliveries, equipment deliveries, and substantial

completion. Throughout the course of the project, the parties encountered various delays. White Oak claimed that Mitsubishi owed over $16.7 million in liquidated damages, which Mitsubishi contested. To challenge these liquidated damages, Mitsubishi sought to introduce evidence that the amount of liquidated damages far exceeds White Oak’s actual damages resulting from project delays. White Oak moved for partial summary judgment on the enforceability of the EPA’s liquidated damages provisions.

The court noted that central to this issue is whether Virginia law requires courts to apply a prospective or retrospective approach – whether the liquidated damages should be compared to probable actual damages as contemplated by the parties at the time of contracting or the actual damages sustained by the complaining party after the alleged breach occurred.

The court held that Virginia law clearly requires the prospective approach. “Courts in Virginia will enforce liquidated damages provisions ‘[w]hen the actual damages contemplated at the time of the agreement are uncertain and difficult to determine with exactness and when the amount fixed is not out of all proportion to the probable loss.” Taylor v. Sanders, 233 Va. 73, 75 (1987). “[A] liquidated damages clause is invalid only when the actual damages contemplated at the time of the agreement are shown to be certain and not difficult to determine or the stipulated amount is out of all proportion to the actual damages.” Boots v. Singh, 274 Va. 513, 518 (2007). The Court also cited to Brooks v. Bankson, 248 Va. 197 (1994), which affirmed the trial court’s decision to enforce the liquidated damages provision based on the actual damages contemplated at the time of contracting.

The court held that Virginia law clearly requires the prospective approach. “Courts in Virginia will enforce liquidated damages provisions ‘[w]hen the actual damages contemplated at the time of the agreement are uncertain and difficult to determine with exactness and when the amount fixed is not out of all proportion to the probable loss.” Taylor v. Sanders, 233 Va. 73, 75 (1987). “[A] liquidated damages clause is invalid only when the actual damages contemplated at the time of the agreement are shown to be certain and not difficult to determine or the stipulated amount is out of all proportion to the actual damages.” Boots v. Singh, 274 Va. 513, 518 (2007). The Court also cited to Brooks v. Bankson, 248 Va. 197 (1994), which affirmed the trial court’s decision to enforce the liquidated damages provision based on the actual damages contemplated at the time of contracting.

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