Citation: [2022] EWHC 1842 (TCC)
In a judgment handed down on 15 July, Alexander Nissen QC (sitting as a Deputy High Court Judge) rejected the Claimant’s arguments that the contractual provisions in respect of liquidated damages were so defectively drafted and/or incomplete that they were void for uncertainty and/or unenforceable. It was possible to find an interpretation of the provisions which gave clear effect to the parties’ intentions. Additionally, the Court considered Eco World-Ballymore Embassy Gardens Company Ltd v Dobler UK Ltd [2021] EWHC 2207 (TCC) and found that the particular clause in question did not operate as a general limitation of liability provision. The judge also touched on the issue of whether a party can waive its right to challenge the validity of a liquidated damages provision.
Background
Peel L&P Investments and Property Ltd (“the Defendant”) was engaged by Prowell Ltd to develop a project for the construction of a new plant for the manufacture of corrugated cardboard at Ellesmere Port in Merseyside. Peel engaged Buckingham Group Contracting Ltd (“the Claimant”) as its contractor to design and construct the production building and certain external works pursuant to an amended JCT Design and Build 2016 contract dated 29 January 2018 (“the Contract”).
The works were significantly delayed and in November 2018, a Pay Less Notice was issued by RPS, on behalf of the Defendant, notifying the Claimant of its intention to deduct from a sum that would otherwise have been due to it an amount of £1,928,253.77 by way of capped liquidated damages pursuant to clause 2.29A.1.2 of the Contract. Clause 2.29A was a bespoke clause inserted by the Schedule of Amendments and concerned liquidated damages for failure to achieve “Milestone Dates”. Schedule 10, on which the proceedings turned, provided that “If there is any conflict or inconsistency between the wording of this schedule and clause 2.29 the wording of this schedule shall take precedence.”
The alleged errors
The Claimant submitted that the liquidated damages provisions were void and/or unenforceable due to alleged errors concerning the date of practical completion, the rates, the Contract Sum, and partial possession.
1) Date of practical completion
According to the Contract Particulars in respect of clause 1.1, the Date for Completion of the Works was 1 October 2018 whereas, according to Schedule 10, the seventh Milestone Date for Practical Completion was identified as 30 November 2018. The Claimant submitted that a clause which provided for liquidated damages to accrue if works were not completed by a certain date could not be considered clear and certain when the Contract contained two competing dates for completion, with no other terms to assist in resolving the question of which date applied.
The Defendant accepted that this was a modest inconsistency within the documents. However, the two dates could be reconciled; if the Claimant failed to achieve the seventh Milestone Date by 30 November 2018, it would become liable for liquidated damages as shown in Schedule 10. Whilst the Claimant had an obligation to complete the Works by 1 October 2018, no liquidated damages attached to such breach.
The Court accepted the Defendant’s submission and found that the Date for Completion of the Works had no impact on the liability for liquidated damages set out in Schedule 10. Under this regime, pursuant to clause 2.29A.1, the Claimant was liable for not achieving practical completion by 30 November 2018, whatever the Date for Completion of the Works may be for the purposes of clause 1.1.
2) The two sets of rates for liquidated damages
The Claimant argued that Schedule 10 contained two sets of rates and it was impossible to discern which, if either, the parties intended should apply. The Claimant also submitted that Schedule 10 identified as a “LADs Proposal” and that these words indicated that the parties may not have agreed any of rates in Schedule 10.
The judge accepted the Defendant’s submission that by a process of conventional construction, it was possible to conclude not only that the parties had reached agreement on the content of Schedule 10 but also that their agreement was reflected by the right hand set of columns under the heading “BGCL LAD Proposal ref BAO Ltr 13.09.17”. Understanding that at the time of its preparation, the document was a proposal, shed light on which set of columns was to prevail, namely the subsequent offer which was made last in time. The tender schedule, represented by the left hand set of columns, would have come first, followed by the Claimant’s BAFO (best and final offer) dated 13 September 2017.
3) The Contract Sum
The Contract Sum was £26,164,049.28 but the proposed CSA described in the table within Schedule 10 was £25,710,050.28. The Claimant argued that it was unclear whether the liquidated damages should be based on the % rates in the daily column applied to the actual Contract Sum or based on the lump sums contained in the weekly rate column even though they had been calculated on a CSA that was different from the one ultimately agreed.
The judge accepted the Defendant’s submission that there was no error to correct and that, on a proper construction of the Contract, the parties simply agreed the weekly lump sums contained in the table within Schedule 10. If the parties had intended the lump sums to change to reflect the new CSA, they would have done so. Further, if the intention had been to set the applicable LADs at a daily rate, there would have been no need to compute the weekly rate.
4) Partial possession
The Claimant also alleged that Schedule 10 was unenforceable by reason of its failure to provide a workable scheme in respect of partial possession. It submitted that the parties must have intended to allow partial possession to be taken since that was provided for in clauses 2.30 to 2.34 of the Contract. It contended that Sectional Milestones (as the parties described them in Schedule 10) were intended to equate to “Sections” but that, contrary to clause 2.34, the parties had failed to provide any means of calculating the value that the Relevant Part bears to the relevant Section Sum as shown in the Contract Particulars.
The judge agreed with the Defendant that clauses 2.30 to 2.34 did not refer to Milestone Dates and did not need to. The Contract did not provide for completion by Sections and the parties understood this; on multiple occasions within the Contract Particulars, they stated “Sections do not apply”. Moreover, no Sections were identified or described in the Fifth Recital which was key for the application of the defined term of “Sections”.
The waiver clause
The Contract also contained a waiver clause, appearing immediately below the table in Schedule 10 under the heading: “GENUINE PRE-ESTIMATE OF LOSS”, which provided that the Claimant waived absolutely any entitlement to challenge the enforceability of the liquidated damages provisions. The Court did not consider this clause as the Claimant did not contend that the provisions were a penalty but rather that they were void for uncertainty. Accordingly, a waiver clause could not rescue that which was too uncertain to have legal effect. There is currently no English authority on whether a party can waive its right to challenge the validity of a liquidated damages provision but in principle, any right can be waived as long the waiver is voluntary, informed, and unequivocal and does not run counter to some important public interest.
The cap on general damages
Relying on Eco World-Ballymore Embassy Gardens Company Ltd v Dobler UK Ltd [2021] EWHC 2207 (TCC), the Claimant argued that any liability it had for general damages for delay was capped at the amount stated in Schedule 10, namely £1,928,253.77.
The Defendant submitted that it was impossible to separate the cap provision from the liquidated damages regime as the cap was on “maximum LADs” which meant that was not only its literal but its only meaning; both the liquidated damages and the cap were calculations based on a percentage of the Contract Sum, meaning they were both part of a single regime. General damages would never be calculated as a proportion of the Contract Sum.
The judge accepted the Defendant’s submission and held that at best, Eco World demonstrates that it is possible in principle for a clause to operate as a general limitation of liability provision even though it is literally expressed as applicable only to liquidated damages. The key question was whether the language of the provision was broad enough to encompass any alternative liability that could arise in respect of general damages. That question was to be determined by reviewing the particular clause in question on traditional construction principles, Arnold v Britton [2015] UKSC 36 followed. There was nothing within clause 2.29A (the key provision which triggered the application of Schedule 10) which suggested that any alternative liability for any general damages would be capped. Further, both the individual rates for liquidated damages and the cap were expressed as percentages of the Contract Sum and, to that extent, formed part of a single scheme.
Justin Mort QC (instructed by Hill Dickinson LLP) appeared for the successful Defendant.
