The Anatomy of a Wind Farm Contract – Part 4

reduced property price

 

In this series on wind farm contracts, I have attempted to highlight certain scary consequences that might befall the landowner after entering into one of these contracts. This concluding segment is more of the same. In this final part, I intend to discuss what are referred to as “indemnity clauses”.

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Put simply, an indemnity is an undertaking to give protection against damage or loss. Insurance contracts, apart from life insurance (insurance of the person rather than property) are contracts of indemnity. In other words, the insurer undertakes to indemnify the insured’s actual loss, up to the sum insured. The insured person is not allowed to get more than the sum insured, as it is an important principle of insurance law that the insured is not supposed to profit from the policy.

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So it is with an indemnity clause in a contract. The one party promises to make good any damage that is caused to the other party through the operation of the contract. As this is a very wide-based liability, the parties will seek to write these clauses very carefully and in such a way that their liability is restricted or exempted as much as they are allowed to get away with.

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In the wind farm contract that I have, there appear to be three indemnity clauses, and they all appear in the Lease section of the contract (as opposed to the Option section). I say appear because they contain so much legal gobbledygook that sometimes I wonder if they are indemnity clauses at all.

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The first clause is in the section outlining the duties of the wind farm developer (“the Tenant”) to the landowner (“the Landlord”):

“To comply forthwith at the Tenant’s own expense with any nuisance, sanitary or other statutory notice lawfully served by any Local or Public Authority upon either the Landlord or the Tenant with respect to the Premises arising out of the permitted use thereof and similarly to comply with all requirements of any statute, regulation, order or notice relating to the Premises or the use thereof and to keep the Landlord fully and effectively indemnified against all proceedings, costs, expenses, claims and demands in respect thereof other than insofar as the Landlord agrees under the terms hereof to indemnify the Tenant and in any event such indemnity by the Tenant shall extend only insofar as proceedings, costs, expenses, claims, and demands that arise directly out of the use by the Tenant of the Premises for the Permitted Use or out of any negligent act, error or omission of the Tenant resulting in damage to the Premises and/or personal injury provided that the Landlord shall not compromise or settle any such proceedings, claims or demands without the consent of the Tenant and shall permit the Tenant to defend the same in the name of the Landlord at the cost of the Tenant.”

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This would seem to indemnify the landowner against any proceedings or extra costs that arise as a result of a local authority taking action of some kind against the landowner, ostensibly as a result of by-laws or such like.

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The phrase “any Local or Public Authority” is not defined in the contract and accordingly will need to be given its ordinary meaning. That is easier said than done, as the definition of “public authority” is the subject of many a prolonged legal battle. The definition varies widely and is usually determined according to a legislative context. In its simplest form, it means a government department or an institution in receipt of public funds. Quite a broad definition and if this is the case, the landowner is well covered.

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The extent of the indemnification is also reasonably broad: “… with any nuisance, sanitary or other statutory notice lawfully served by any Local or Public Authority upon either the Landlord or the Tenant with respect to the Premises arising out of the permitted use thereof…”.

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The landowner seems pretty well covered here. So far so good, although a cynic might point out that once planning permission is granted to build a wind farm, history shows us that the public authorities are hugely reluctant to interfere in any way with its operation. Have you ever tried to get the Health and Safety Authority to inspect a wind farm?

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On to the next clause, which is found in the section detailing the duties of the wind farm developer (“the Tenant”) to the landowner (“the Landlord”):

“To indemnify and keep indemnified the Landlord from and against all actions, proceedings, claims, demands, losses, expenses, damages and liability including those suffered by the Landlord in respect of any death of or injury to any person or damage to any property or land by reason of or arising out of the Accommodation Works or operation of the Tenant’s equipment (subject to compliance by the Landlord with its covenant) or the exercise of the rights granted to the Tenant by this Lease or the non-compliance by the Tenant with any of its obligations under this Lease. The Tenant shall be obliged to extract public liability insurance on the Premises on an annual basis during the entire of the term created and to furnish evidence thereof to the Landlord on being requested by the Landlord to do so within a period of four months of the end of the Tenant’s financial year.”

What needs to be examined here is the stated cause of the damage that the landowner is indemnified against: “…any death of or injury to any person or damage to any property or land…”.

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Again, this seems wide enough – death or injury to people, and damage to land. What worries me here is whether this indemnifies the landowner when his neighbours sue him for diminishing the use and enjoyment of their land and property? Does diminished use and enjoyment constitute damage to property? I doubt it. Again, ‘damage’ is not defined in the contract and therefore must be given its ordinary meaning, which is usually along the lines of physical damage. An action based on diminished use and enjoyment is not alleging damage to land, but rather that the neighbour-owner’s right to the use and enjoyment of that land has been diminished because of the noise and flicker, for example.

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The other item that might raise some difficult questions is whether livestock is covered by the word “property”. It should be, as livestock is clearly your property, but given that the vast majority of landowners entering into these contracts will be farmers or people owning agricultural land, I would have preferred livestock to be expressly mentioned rather than just assuming it is covered by “any property or land”.

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What if the surrounding landowners sued the landowner in the wind farm contract for allowing wind turbines on his land which had caused their homes and land (usually your prime investment) to become devalued? The London School of Economics conducted research which showed that properties within a 1.2 mile radius of a wind farm dropped in value by up to 12%.

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I do not like getting too technical on this blog as it is written for non-legal folk, as opposed to lawyers, but it is doubtful whether an action exists for pure economic loss unless it is founded in contract, and clearly there is no contract between the landowner and his neighbours promising not to allow a wind farm to be built on his land. The neighbours might be able to argue that the use and enjoyment of their land has been diminished by his decision to allow a wind farm to be built, but as mentione above, it is more likely that a use and enjoyment action would be aimed at the wind developer rather than the landowner.

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One often hears legal commentators talking about the lack of a class action in Ireland. We prefer to take a ‘test case’ and thereafter rely on the precedent created by that test case to resolve any other similar cases. Alternatively, it might be argued that there is theoretically no limit as to the number of plaintiffs or defendants allowed to litigate under the same action.

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In the area of planning law, however, we do have a sort of “class action” as illustrated in the case of Christian v Dublin City Council (No. 1) [2012] IEHC 163. The case involved a challenge to a particular zoning objective under the 2011 Dublin City development plan. The planning authority argued that the landowner did not have locus standi (the right to bring an action in court) to challenge the development plan. One of the grounds of challenge by the applicants was that a zoning objective in the development plan discriminated against religious orders. The planning authority argued that the applicants, who were all members of a single religious order, were not entitled to bring a class  action based on the rights of third parties, i.e. any other religious orders. The court rejected this argument, saying that if an applicant is a member of a particular class then he may be entitled to rely on an allegation of discrimination affecting that class:

“a party who claims that a measure is discriminatory against a class must necessarily be entitled, as a member of the class concerned, to point to the differential effect of the relevant measure on the class of which the plaintiff is a member compared with the population as a whole. Such a party is not, in my view, in those circumstances relying on the rights of others but rather is using the fact that the measure affects one class in a different way than the remainder of the population as evidence of the fact that the measure may be said to discriminate against the class in question.”

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I don’t think that’s enough to say we now have class actions in property law in Ireland, but it is an interesting development.

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In any event, should a community decide to take a “class action” against the landowner due to the drop in value of their property (or if individual neighbouring landowners bring separate claims against him, which is more likely), it is doubtful that he would be indemnified by the contract should the courts find against him. The wind farm developer would argue that the indemnity clause does not operate in this circumstance as it was the landowner’s decision to allow turbines on his land that caused the neighbouring land and property to devalue, rather than the actions of the wind farm developer or the operation of the wind farm itself. And this is correct, as we know that even when planning permission for a wind farm is granted, neighbouring properties become impossible to sell and therefore their market value is dramatically reduced even before the first massive cement foundation is built. (See also the LWIG site under the heading “Property Values”).

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Even if we conclude that these claims would not be good in law, and that the neighbours might eventually lose their claim, the landowner will need to litigate these claims without the assistance, financial or otherwise, of the wind farm developer.

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The same logic would apply should the landowner be sued by his neighbours for nuisance according to the principle in Rylands v Fletcher (if you bring something onto your land, which then has a detrimental impact on a neighbour’s land, then there is liability/damages owed to that neighbour). As it was the landowner who invited the turbines onto his land, the wind farm developer could argue that it was this action that caused the nuisance, as opposed to the physical impact of the turbines themselves, which were only a consequence of the landowner’s initial invitation. In other words, the landowner is liable in his capacity as neighbour, whereas there is no such relationship between the wind farm developer and the adjoining landowners.

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It might even be argued that the landowner is negligent in allowing the wind farm onto his land. He should have foreseen that it would cause damage to his neighbours, which means he owed his neighbours a duty of care. By going ahead anyway, it could be argued that the landowner does not live up to the standard of care that he owed his neighbours, thereby causing them damage which he could have avoided. Again, the liability is on the landowner’s head, as the wind farm developer can argue that there is no legal connection between it and the landowner’s neighbours.

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Again, even if these arguments are finally defeated through litigation, it is the landowner who will have to defend the action on his own time and expense, as the wind farm developer will point to the indemnity clause and wash its hands of the matter.

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What about the public liability insurance stipulation? Will this not cover anything that the indemnity clause does not?

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I am not an insurance lawyer but my very rough understanding of public liability insurance is that it protects the insured person if members of the public suffer personal injury or property damage because of your business. It generally covers the costs of subsequent legal expenses or compensation claims.

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I only have one concern here and that is that the wind developer is the client and not the landowner, who would not be personally covered by the wind developer’s insurance policy. Accordingly, if the landowner is sued for allowing the wind farm to be built on his land (as described above) the insurer will not cover his legal expenses as he is not the client. He would need to look to his own public liability insurance policy. The obvious danger is that the landowner might not think it necessary to take out his own policy as he will assume that the indemnity clause has that aspect covered.

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The message is clear. Before even thinking about allowing your land to be used for a wind farm (personally I hope you don’t, but it is your land, not mine); go and get independent legal advice from somebody who knows the law in this area. Do not rely on the lawyers speaking for the wind developer, you are not their client and they owe you nothing. Get your own independent legal advice and get your lawyer to go through the suggested contract with a ‘fine tooth comb’.

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The final indemnity clause is contained in the section outlining the duties of the landowner (“the Landlord”) to the wind farm developer (“the Tenant”):

“The Landlord shall fully and effectively indemnify the Tenant from and against any and all actions, costs, claims, expenses, proceedings, demands and liabilities arising directly or indirectly out of or attributable to any breach of any covenant or warranty on the part of the Landlord herein contained or any actual or alleged violation of any law pertaining to the Landlord or to the use made of the Premises by the Landlord insofar as such use of the Premises by the Landlord may be permitted hereby or to any transportation, migration or other movement of any hazardous substance to the Premises provided always that such indemnity shall not extend to such actions, costs, claims, expenses, proceedings, demands and liabilities as may arise by reason wholly of actions on the part of the Tenant.”

Good luck with that one. I only have one question in regard to this: If the noise of the wind turbines causes the landowner’s horse to bolt, causing damage and injury to firstly, the landowner himself; and secondly, the wind developer’s employees; and thirdly, to the property and/or person of the neighbours, whose indemnity clause do you think will come out on top?

About Neil van Dokkum

Neil van Dokkum (B. SocSc; LLB; LLM; PGC Con.Lit) Neil is a law lecturer and has been so since arriving in Ireland from South Africa in 2002. Prior to that Neil worked in a leading firm of solicitors from 1987-1992, before being admitted as an Advocate of the Supreme Court of South Africa (a barrister) in 1992. He published three books in South Africa on employment law and unfair dismissal, as well as being published in numerous national and international peer-reviewed journals. Neil currently specialises in employment law, medical negligence law, family law and child protection law. He dabbles in EU law (procurement and energy). Neil retired from practice in 2002 to take up a full-time lecturing post. He has published three books since then, “Nursing Law for Irish Students (2005); “Evidence” (2007); and “Nursing Law for Students in Ireland” (2011). He is an accredited and practising mediator and is busy writing a book, with Dr Sinead Conneely, on Mediation in Ireland. His current interest is Ireland’s energy policy and its impact on the people and the environment. He is also researching the area of disability as a politico-economic construct. Neil is very happily married to Fiona, and they have two sons, Rory and Ian.
This entry was posted in Irish Farmers Association; IFA; wind farm contracts, Wind Farm Contract and tagged , , , , , . Bookmark the permalink.

2 Responses to The Anatomy of a Wind Farm Contract – Part 4

  1. Pat Swords says:

    Had a shot three years ago in relation to raising some of the issues which could arise and potentially ‘haunt’ somebody who builds a wind farm on their land:

    http://www.turn180.ie/2013/03/18/operation-of-wind-turbines-and-legal-liability/

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