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Liquidated damages provisions in building contracts – Buckingham Group contracting Ltd v Peel L&P Investments and Property Ltd

Posted: 26/10/2022


The Technology and Construction Court (TCC) has handed down another judgment on the enforceability of liquidated damages provisions in building contracts. This was the second time in the space of a year where this issue was considered, following the case of Eco World v Dobler UK Ltd [2021] EWHC 2207, and the court again emphasised the fundamental importance of certainty in drafting contracts.

The case

Buckingham Group Contracting Ltd (BGC), the claimant, was engaged by Peel L&P Investments and Property Ltd (Peel), the defendant, under an amended JCT Design and Build Contract 2016 (JCT) for the design and build of a new manufacturing facility and associated external works. The contract sum was c£26m and the completion date was 1 October 2018.

Clause 2.29 of the JCT conditions provided for the payment of liquidated damages (LADs) at the rate stated in the contract particulars (or any lesser rate stated by Peel) if Peel issued a non-completion notice for the works. The contract particulars, however, expressly referred to a bespoke liquidated damages schedule (Schedule 10).

Schedule 10 contained a table setting out a list of milestone dates up to a practical completion date of 30 November 2018; a proposed contract sum of c£25.7m; two sets of daily rates for LADs; two sets of weekly rates for LADs; and a LADs cap of c£1.9m.

The works were significantly delayed and the parties disputed the financial liability for those delays. BGC then commenced a claim seeking declarations that the LADs provisions were void for uncertainty and that the cap on the LADs also operated as a cap on their liability for general damages.

Certainty in contracts

The judge began his judgment by citing a number of cases which confirmed that the court is reluctant to hold a provision in a contract void for uncertainty. If it is open to the court to find an interpretation which gives effect to the parties’ intentions, then it will do so. It was held that the provision would only be void if the court cannot reach any conclusion as to what was intended or where it is unsafe to prefer one possible meaning to other equally possible meanings.

Decision

The judge held that the LADs provisions in this contract were enforceable and BGC was not entitled to the declarations sought. The judge used the fact that Schedule 10 was an unedited copy of a tender document to ascertain a clear contractual intention between the parties.

The judge also decided that the second column in Schedule 10 (with a particular set of LAD rates) was to prevail and was sufficiently certain as it represented BGC’s best and final offer (BAFO) which came after its tender offer. The practical completion date on the schedule could be used for the accrual of liquidated damages while the different date for completion could remain operative for other purposes.

The contract sum differences were of no great consequence and meant only that the parties had agreed on liquidated damages amounts based on a contract sum which had not been updated to reflect the finally agreed contract sum.

Cap on general damages

BGC also submitted that, in the event the LADs were unenforceable, any remedy for general damages for delay was capped in the amount of c£1.9m as this figure appeared as a cap in Schedule 10. BGC relied on last year’s TCC decision in Eco World which determined whether a liquidated damages provision, if not void or penal, would operate as a general limitation of liability clause.

In the court’s judgment, this question was one of interpretation and whether “the language of the provision was broad enough to encompass any alternative liability that could arise in respect of general damages.

The judge held that the cap in the present case was expressed as ‘Maximum LADs’ and not on anything else and that it sat within Schedule 10 which was specifically to do with LADs. Accordingly, there was no basis for concluding that the cap would have operated to cap BGC‘s liability for general damages. This is in contrast with the decision in Eco World, where the judge concluded that the LADs cap should not be read too literally and was sufficient to limit a contractor’s overall liability for late completion in the light of the ‘commercial context of the contract’.

Comment

This decision reminds us that the courts remain reluctant to hold that liquidated damages provisions are void for uncertainty in circumstances where a clear interpretation can be deduced. It is therefore vital that parties ensure their contract terms are checked for inconsistencies and ambiguities to mitigate the likelihood of disputes of this nature.

In particular, this case provides an example of the potential risks of appending correspondence or pre-contractual documentation to a construction contract by way of appendices or schedules, especially when such documents may allow future arguments about the final agreement reached. Although the validity of Schedule 10 was ultimately upheld in this case, its contents clearly allowed BGC to challenge the validity of LADs and required the court to determine the issue.

Finally, the case also emphasises that whether a delay cap in a contract will apply to general damages will very much depend on the exact words used by the parties and how the courts construe those words in the context of the contract overall.


This article was written by Kawsar Ahmed, a trainee solicitor in our construction and infrastructure team.


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