LIQUIDATED DAMAGES PROVISIONS AND CERTAINTY
In Buckingham Group Contracting Ltd v Peel L&P Investments and Property Ltd [2022] EWHC 1842 (TCC), the England and Wales Technology and Construction Court considered, among others, an application for a declaration that certain liquidated damages provision are void and unenforceable.
Salient facts. The claimant, Buckingham Group Contracting Ltd (“Buckingham”), was contracted by the defendant, Peel L&P Investments and Property Ltd (“Peel”), to develop a project for the construction of a new plant at Ellesmere Port in Merseyside pursuant to a written agreement dated 29 January 2018 (the “Contract”).
The Contract’s basic structure was the JCT Design and Build Contract 2016, but it contained a schedule of bespoke amendments.
For brevity, we will not set out all the relevant contract provisions, which can be found in [7] – [23] of the judgment.
We will focus instead on some of the key submissions made by Buckingham on why the liquidated damages provisions should be void and unenforceable, as well as some of the key holdings made by the court.
Two different dates of practical completion? Buckingham submitted that as there were two completion dates set out in the Contract, both of which were equally plausible, the clause on how liquidated damages accrue “… cannot be considered clear and certain” (at [41]).
Peel accepted that there was “a modest inconsistency within the documents”, but submitted that they could be reconciled (at [42]).
After observing that the Parties’ competing positions “…threw up a wider question of construction, namely the extent to which the parties intended the regime for liquidated damage in clause 2.29 to apply” (at [43]), and that “[n]one of the contractual hierarchy tools assist the court… since both clauses appear within the conditions of contract and one of its schedule, all of which have the same status” (at [44]), the Court accepted Peel’s submissions and held that the bespoke regime prevails (at [47]).
The result is that “… it is questionable whether the Date for Completion of the Works set out in the Contract Particulars for clause 1.1 serves the function for which the JCT originally intended it. Even if it does, it has no impact on the liability for liquidated damages set out in Schedule 10. … Liability arises pursuant to clause 2.29A.1 for not meeting the Milestone Dates, not for failing to meet the Date for Completion of the Works.”
Two sets of rates for liquidated damages? The second of Buckingham’s submissions is that Schedule 10 of the Contract contained two sets of rates for liquidated damages, and “… it is impossible to discern which, if either, the parties intended should apply” (at [52]).
Buckingham emphasised that Schedule 10 was identified as a “LADs Proposal”, submitting that these words “… were indicative that the parties may not in fact have reached agreement on any of the rates in Schedule 10.”
Peel submitted that while there was “… a mild ambiguity as to which set of rates applied”, applying a “process of conventional construction, it was possible to conclude… that their agreement was reflected by the right hand set of columns…” (at [53]).
It is important to note that the court allowed Peel to rely on the evidence of a witness to explain the background to Schedule 10, even though Buckingham had objected to it on the grounds that it was evidence of negotiations (at [54] – [55]).
“54. … Peel had adduced evidence in these proceedings in the form of a witness statement from Rositsa Chavdarova dated 9 May 2022 in which she explains some of the background to Schedule 10. Ms Chavdarova is employed by RPS, the Employer’s Agent under the Contract. For Buckingham, Mr Hanna objected to Peel’s entitlement to rely on this evidence on the grounds that it was evidence of negotiations designed to draw inferences of what the Contract meant, contrary to the exclusionary rule ….
55. I am satisfied that it is appropriate to have regard to this evidence as factual background because it sheds light on why the parties included within their executed agreement a table described as “LADs Proposal”. It also explains why there are two sets of columns. The evidence is not being relied on to demonstrate the substantive position of one party in negotiations. Nor is it being relied on to show the subjective intention of a party. Instead, it is relevant to explain why the parties chose to include within their executed Contract a document which had plainly been used as a mere proposal before that.”
The court then found that “… it is plain that the parties had (perhaps unwisely) 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 …” (at [56]) and held at [57] – [58] that, on the face of the documents, it is possible to conclude that the parties had intended for the right-hand set of columns as being the relevant one. Further, as set out at [59], the court found that factual evidence “reinforces those conclusions“.
Hence, there was no uncertainty and “… [b]eyond the fact that the parties took a short cut by copying and pasting a proposal document into the finally concluded document, there is no error, as such, which arises from the fact that the proposal document included a now redundant set of LAD rates in the left hand set of columns.” (at [63]).
Uncertain contract sum? Buckingham submitted that while the Contract Sum was £26,164,049.28, the “Proposed CSA” used in Schedule 10 was £25,710,050.28, and this was the figure used to compute the weekly rate for liquidated damages (at [64]).
Hence, 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.” (at [65]).
Peel submitted that there was no error to correct and the Parties had simply agreed to use the weekly lump sums as set out in the table in Schedule 10 (at [66]).
The Court accepted Peel’s submissions (at [67]).
The Court held that the table at Schedule 10 was drawn up as a proposal, but if the Parties had intended the lump sums to change, “… they would doubtless have done so…”. As set out at [69], “… [i]t is the weekly lump sums set out in the table which apply. That is irrespective of the fact that, mathematically, they may have been computed by reference to an earlier proposal in respect of the Contract Sum and were not updated to reflect the Contract Sum subsequently agreed.”
Partial possession? The court also rejected Buckingham’s submissions on how Schedule 10 was unenforceable for its failure to provide a workable scheme in respect of partial possession. See Buckingham’s arguments as summarised at [78], which we set out below:
“78. On behalf of Buckingham, Mr Hanna 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. He pointed out that these clauses envisaged partial possession of all of the Works or, in a contract which provides for sectional completion, for partial possession of a Section. In this case, he 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 result was that the provisions must fall entirely, as they did in Taylor Woodrow Holdings. Mr Hanna made the point that some items, such as testing and commissioning, fell into more than one milestone. He gave further examples of difficulties that would arise in calculating the reduction by reference to the milestones. In sum, he argued that there was a drafting error or omission in that the parties failed to provide a formula that gives effect to their common intention that partial possession of a Section could be taken in return for a proportional reduction in liquidated damages.”
What is relevant to note is that the argument by Buckingham was not that the provision was penal. Rather, the issue was “… whether the formula for such reduction [of liquidated damages for the part taken into possession] is capable of implementation” (at [80]).
The court found that (on the facts of the case and the contract provisions in question) the Contract did not provide for sectional completion (at [81]), and that the reference to “Sections” within clause 2.30 and clause 2.34 is “irrelevant” (at [83]).
“81. I agree with Mr Mort that this Contract did not provide for sectional completion. In my view, the parties well understood this. On multiple occasions within the Contract Particulars they stated “Sections do not apply”. Moreover, no Sections are identified or described in the Fifth Recital which is key for the application of the defined term of “Sections”. By contrast, the parties did provide a regime for the achievement of Milestone Dates as expressly set out in clause 2.29A. Milestone Dates, rather than Sectional Milestones, are referred to throughout the Conditions. Conventionally the achievement of a Milestone is a step along the way but involves no transfer of possession of the works comprised within that Milestone in the way that completion of a defined Section would do. There is provision for early access which could be put to use in respect of a completed Milestone [4]. In my judgment, the descriptions within the table of “sectional milestones” does not turn them into Sections. At most, it is perhaps an inelegant expression.
82. If Mr Hanna is right that some work (such as drainage) cuts across different Milestones that makes it less, not more, likely that each Milestone was to be regarded as a separate Section capable of independent completion.
83. It follows from this that clause 2.34 could only ever be engaged when part (or parts) of the whole of the Works is taken consensually pursuant to clause 2.30. The reference to Sections within these clauses is irrelevant.”
Further, the court held that as the court had earlier concluded that the parties did not intend the liquidate damages regime in clause 2.29 to have any legal effect, the same conclusion was reached in respect of clause 2.34 as it was “…only ever intended to apply to the single rate of liquidated damages payable pursuant to clause 2.29…” (at [86]).
Takeaway. While the JCT form of contract is not commonly encountered in the domestic construction industry in Singapore, this decision is an example of why when parties introduce bespoke amendments to a standard form of contract, it is important to review the amendments carefully. Ambiguities over how the amendments interact with the standard form provisions can often become fertile sources of disputes in the future. This is especially critical in relation to key provisions for a construction contract, such as those pertaining to liquidated damages.
Hence, before making amendments to liquidated damages provision in a standard form contract, it is prudent to:
Be clear when liquidated damages accrue.
Be clear what are the applicable rates for liquidated damages.
Check for inconsistencies in the provisions.
Avoid copy and pasting tender proposals / tender documents into the final contract without checking.
Carefully consider if the liquidated damages regime has dealt with partial possession appropriately.
Carefully consider if the liquidated damages regime has dealt with phasal / sectional completion (if relevant) appropriately.
Maintain contemporaneous notes of why the amendments are made, and what the parties intend them to mean.
This publication is not intended to be, nor should it be taken as, legal advice; it is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking, actions based on this publication. Chancery Law Corporation is not responsible for, and does not accept any responsibility for, any loss or damage that may arise from any reliance based on this publication.