Liquidated and Ascertained Damages
We look at a decision from earlier this year about the enforceability of liquidated damages provisions in building contracts.
Constructor Buckingham Group Contracting Ltd (Buckingham) were engaged by Peel L&P Investments & Property Ltd (Peel) to design and construct a manufacturing facility under an amended JCT Design and Build Contract. The contract provided that liquidated and ascertained damages (or LADs) would be payable by Buckingham at the rate stated in the contract particulars (or a lesser rate if stated by Peel), should Peel issue a non-completion order for the works. These were explicitly referenced in Schedule 10.
Schedule 10 included the following:
- A table with a list of key dates leading up to the completion
- A proposed contract sum of £25.7 million
- Two sets of daily rates for LADs
- Two sets of weekly rates for LADs
- A LADs cap of £1.9 million.
The building works became delayed, but Buckingham sought a declaration from the court that the LAD provisions in the contract were void because the bespoke amendments the parties had made to the standard JCT conditions had created uncertainty. They also argued that the cap on the LADs also operated as a cap on their liability for general damages.
The courts tend to be reluctant to hold that provisions in a contract are void for uncertainty and in this situation, the court stated that they would only rule that the contract was uncertain if they were unable to reach any conclusion as to what was intended, or if there were several possible meanings.
In fact, the court found that although the contract contained two different dates for completion and Schedule 10 contained two sets of rates of LADs, it was still possible to conclude what the parties had agreed as to (a) when the works would be complete and (b) what rates of LADs would be applicable if the works were not completed on time.
The case highlights the dangers of introducing bespoke LAD provisions into a contract when the JCT standard wording already includes clauses to address the issue of delay. In this particular case the parties had copied a proposal document into the contract as schedule 10 which seems to have introduced unnecessary uncertainty. It is a sober reminder of the care which needs to be taken when amending standard JCT documents.
Buckingham also argued that any remedy for general damages for delay was capped at the amount of £1.9 million, as stated in Schedule 10. However, the court took the view that because the cap was included in Schedule 10 it applied only to the LADs and did not operate as a more general limitation of Buckingham’s liability.
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