In a recent case, a claimant contractor has failed in its claim for a declaration that the liquidated damages provisions contained in the building contract were void and unenforceable and that any remedy in respect of general damages was capped.
Buckingham Group Contracting Ltd, the claimant was engaged by Peel L&P Investments and Property Ltd, the defendant under an amended JCT D&B 2016 for the design and build of a new manufacturing facility and associated external works. The contract sum was £26,164,049.28 and the completion date was 1 October 2018.
Clause 2.29 of the conditions provided for payment of LADs at the rate stated in the contract particulars (or any lesser rate stated by Peel). The contract particulars 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 £25,710,050.28, two sets of daily rates for LADs, two sets of weekly rates for LADs and a LADs cap of £1,928,253.77.
The works were significantly delayed and the parties disputed the financial liability of those delays.
The claimant commenced a Part 8 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.
The claimant argued that the LADs provisions were uncertain due to:
- the contract particulars specifying a date of completion of 1 October 2018, but Schedule 10 referred to a practical completion date of 30 November 2018
- Schedule 10 contained two different sets of rates
- there were two sums contained in the contract, the contract sum of £26,164,049.28 and the proposed contract sum in Schedule 10 of £25,710.050.28 which was used to compute the weekly rates,
- Schedule 10 did not provide a scheme in respect of sectional completion/partial possession
On the question of whether the liquidated damages provisions were void for uncertainty and therefore unenforceable, the court cited a number of cases and confirmed that the court is reluctant to hold a provision in a contract is 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 only if the court cannot reach any conclusion as to what was in the minds of the parties or where it is unsafe to prefer one possible meaning to other equally possible meanings that the provision would be void.
Whilst it was submitted that the two competing dates for completion caused uncertainty, the court found in favour of the defendant’s position. It concluded that by including a bespoke milestone date regime in Schedule 10, which actually included a date for practical completion of the whole of the works and liquidated damages in respect thereof, the parties must have intended for that clause to operate as the sole regime in this respect.
Secondly, the claimant argued that due to Schedule 10 containing two sets of rates for liquidated damages, it was impossible to discern which, if either, the parties intended should apply. It also relied on the fact that Schedule 10 was labelled as a "LADs Proposal". The court took into consideration witness evidence from an individual employed by the employer’s agent under the contract, in which she explained some of the background to Schedule 10. This is interesting, as the usual position is that negotiations pre-contract are considered irrelevant to the determination of how a contract is to be construed. While the defendant objected to the relevance of this evidence, the court found that it was appropriate to have regard to the factual background as to how and why the parties included within their executed agreement a table described as “LADs Proposal”. Accordingly, the court found that it was plain that the parties had taken a short cut by copying and pasting the entire table into Schedule 10 without removing those parts of it which described it as a proposal and therefore the parties must have intended the table to have had legal effect. In respect of the two sets of rates, the judge found that the left hand set of columns represented the tender schedule and the right hand column labelled "BGCL LAD Proposal ref BAO Ltr 13.09.17" represented the claimant’s best and final offer letter which were the rates intended to be applicable.
Turning to the conflicting contract sums, the judge accepted the defendant’s submissions. The court found that it was obvious that the liquidated damages table within Schedule 10 was drawn up initially as a proposal and at that time, the proposed contract sum was different to the one ultimately agreed. Despite the contract sum changing from when the table was prepared, the parties nonetheless included the table in that form and the parties clearly intended to adopt the weekly LADs rates as calculated in Schedule 10.
Lastly, in respect of the argument relating to the alleged unenforceability of Schedule 10 by reason of its failure to provide a workable scheme in respect of partial possession, it was held that there was no provision for sectional completion in the contract and as such, clause 2.34 did not apply to reduce liquidated damages.
In conclusion, it was held that the provisions were therefore certain and enforceable.
Given the fact that the provisions were enforceable, the court said that it may be unnecessary to consider the argument that any liability for general damages was capped at the amount stated in Schedule 10, however, it thought appropriate to address the issue briefly.
It was held that the language of the provision was quite clear, the cap is “on maximum LADs” and that there was nothing within the clause which suggests that any alternative liability for any general damages would be capped. Given the clarity of the words used, the judge found no basis for concluding that the clause should serve the additional function of operating as a cap on overall liability for delay.
This decision reminds us that the court remains reluctant to hold that liquidated damages provisions are void for uncertainty in circumstances where a clear interpretation can be deduced. It is vital that parties ensure their contract terms are checked for inconsistencies and ambiguities to mitigate the likelihood of disputes of this nature.