In a landmark case involving heavy fuel oil supply contracts between the Electricity Authority of Cyprus (EAC) and SPCL, the District Court of Nicosia rejected the application of the UK Supreme Court’s decision in Cavendish Square Holding BV v. Talal El Makdessi within Cyprus. The Court reaffirmed the established principles of Cypriot Contract Law in determining whether retentions made by EAC from payments owed to SPCL constituted reasonable compensation for alleged breaches. Our client, the Liquidator of SPCL, was awarded a significant sum in return of unjustified retentions and additional compensation, though certain aspects of the case remain under appeal.
The main legal challenge centered on EAC’s claim that retentions made from payments to SPCL under two supply agreements were justified as compensation for breaches by SPCL. EAC relied on Cavendish Square, a UK legal precedent concerning penalties and liquidated damages, to support its argument. However, the Liquidator’s position was that these retentions were unreasonable under Cypriot law and unrelated to actual losses incurred by EAC. Another significant issue involved the unlawful withholding of €2.7 million by EAC, which was paid to Bank of Cyprus (BoC) under a factoring agreement not applicable to the invoices in question.
The District Court ruled in favour of the Liquidator of SPCL, dismissing EAC’s reliance on Cavendish Square and reaffirming the principles of Cypriot Contract Law. The Court found that the retentions made by EAC were not reasonable compensation and ordered the return of nearly $6 million. The Court also ordered EAC to return $6.8 million out of $10 million that EAC had forfeited under two bank guarantees. Additionally, the Court awarded against EAC a further €2.7 million, which EAC had wrongfully paid to BoC out of the invoiced amount of $16 million representing the value of the last shipment delivered by SPCL to EAC. In total, the sums awarded against EAC amount to approximately $24 million, including legal interest. EAC is appealing the decision. Also, the Liquidator is appealing certain aspects of the decision, seeking, inter alia, the return of the full amount $10 million under two bank guarantees.