Liquidated damages
Buckingham Contracting v Peel (High Court) [2022]
The inclusion of a liquidated damages regime for delays in completion can be helpful in providing certainty and clarity of remedy but only where the drafting is precise and accurate. This case also reconsidered the issue of the circumstances in which a cap on LDs can also operate as a general cap on liability for delays.
Facts:
This dispute arose out of a contract to design and build a manufacturing facility which included a bespoke liquidated damages (LDs) regime in respect of delays. Buckingham was engaged by Peel to design and construct the building. The works were significantly delayed and in November 2018, Peel issued a ‘pay less’ notice of its intention to deduct from sums otherwise due to Buckingham an amount of c£1.9m by way of capped liquidated damages pursuant to clause 2.29A. of the Contract.
Clause 2.29A was a bespoke clause concerning liquidated damages for failure to achieve “Milestone Dates”. However, the Contract also contained Clause 2.29 and Schedule 10 dealing with liquidated damages. This raised the possibility of there being two parallel liquidated damages regimes. Schedule 10 itself provided that “if there is any conflict or inconsistency between the wording of Schedule 10 and clause 2.29 the wording of Schedule 10 shall take precedence.”
Buckingham argued that there were two different and therefore conflicting dates specified in the Contract for completion. As a result they argued that the liquidated damages provisions were void for uncertainty and therefore unenforceable. Somewhat strangely, perhaps with ‘straw clutching’ in mind, Buckingham also argued that any remedy in respect of general damages was capped at £1.9m. Buckingham sought declarations to this effect. The wording in question said simply ““Cap on Maximum LDs 7.5% £1,928,253.77”.
Decision:
The judge held the LDs provisions were certain and enforceable. The judge reiterated the reluctance of the courts to hold provisions void for uncertainty, particularly in contracts that have already been performed.
Whilst accepting that there was apparent inconsistency, the court said it was possible to find an interpretation which gave effect to what was perceived to be the parties’ [clear] intention. The different dates for completion served different functions. Buckingham was contractually obligated to complete the works by the earlier completion date but no liquidated damages attached to compliance with that date. The date from which liquidated damages ran was the later completion date identified in Schedule 10. The parties were also held to have intended for the bespoke LDs regime to apply exclusively.
The court dismissed arguments based on the LDs regime merely being described as a ‘Proposal’. There was no evidence that the parties regarded the LD regime as requiring further negotiation and agreement. Included in the final contract, it was intended to be binding but the parties had simply taken the shortcut of cutting and pasting from an earlier document without deleting the ‘proposal’ references.
The judge considered whether the cap on LDs in Schedule 10 also operated as a limitation of liability clause, capping any liability to general damages. In Eco World-Ballymore Embassy Gardens v Dobler [2021] the judge had said it was a question of construction whether a cap on LDs could still operate as an enforceable, general limitation of liability provision even if the LDs regime was held to be void and unenforceable. In Dobler, the court held it could (see earlier case report http://www.trglaw.com/news326.html ). Here, the court accepted that the liability cap applied to liquidated damages only and not anything else. The fundamental question is whether the language of the provision is broad enough to encompass any liability that could arise in respect of general damages. The court said the language of the provision was quite clear. The cap did not apply to anything other than LDs. As a result the court in this case held that there was no cap on liability for general damages for delay.
Points to Note:
- The case featured a debate about admissible evidence. Peel had adduced evidence from one witness involved in the negotiations. Buckingham objected on the grounds that such evidence was contrary to the so called ‘exclusionary rule’ which precludes evidence of pre-contract negotiations being adduced. Here, the court said the evidence was admissible as it was not being adduced to demonstrate the subjective intention of either party in the negotiations, rather it provided part of the factual background to explain why the parties had incorporated what was described as being an ‘LDs Proposal’ into the final, agreed contract. Care should be taken when cutting and pasting provisions into a contract to ensure that the wording remains wholly appropriate for inclusion.
- The case emphasises that care must be taken to ensure that there is clarity over any LD regime which is to apply and that including details of offers made during negotiations but which have been superseded can confuse matters.
- Take care to ensure that wording is clear as to whether an LD’s provision is also to operate as a separate cap on liability for general damages. It will be rare, but seemingly not impossible, for that to be the case but we would suggest that this case took a more common sense approach.