Do unenforceable liquidated damages provisions operate as a cap on general damages for delay?

A recent TCC decision is the second in the space of a year to consider whether liquidated damages provisions which are held to be unenforceable may nonetheless still operate as a cap on the amount of general damages for delay recoverable by an employer. The court in this case also considered whether liquidated damages provisions were void for uncertainty due to significant ambiguities arising from the scheduling of a tender document to the contract.

Buckingham Group Contracting Ltd v Peel L&P Investments and Property Ltd

Peel engaged Buckingham to design and build parts of a plant for the manufacture of corrugated cardboard in Merseyside. The parties entered into an amended JCT Design and Build Contract 2016 with bespoke amendments. The Date for Completion stipulated in the contract was 1 October 2018 and a regime for the payment of liquidated damages for delay was set out in Schedule 10 to the contract.

The contract works were heavily delayed and Peel claimed liquidated damages from Buckingham under Schedule 10. The schedule set out dates for the completion of certain milestones, including for “Practical Completion”. The schedule stipulated a weekly amount of liquidated damages for delays to each of these milestone dates as well as an overall cap on liquidated damages. The schedule was not drafted specifically for the contract, but came from a tender document which had been included in the contract in an unedited form. This resulted in a number of ambiguities:

• The schedule had two columns setting out different liquidated damages amounts without any express indication of which was to apply. The first column was headed “LADs as Per Tender Schedule 10” and the second column was headed “[Buckingham] LADs Proposal ref BAFO Ltr 13.9.17”.
• The date in Schedule 10 for “Practical Completion” differed from the “Date for Completion” stated in the Contract Particulars by approximately 2 months.
• Schedule 10 showed weekly damages amounts as being calculated by reference to a percentage of the overall Contract Sum, however the Contract Sum used in Schedule 10 was different from that actually agreed and stipulated in the Articles of Agreement.

Birmingham relied on these matters among others to contend that the liquidated damages regime was void for uncertainty and unenforceable. It also claimed that the cap on liquidated damages nonetheless persisted to limit any claim Peel may make for general damages. Buckingham sought declarations from the Technology and Construction Court as to these matters.

Sufficiently certain

The Court noted the high bar which exists for striking down contractual provisions on grounds of uncertainty and found that Schedule 10 was sufficiently certain to be enforced. The Court took cognisance of the fact that Schedule 10 was an unedited copy of a tender document and used this to ascertain a clear contractual intention. The second column was to prevail as it represented Buckingham’s BAFO or “Best and Final Offer” which came after its tender offer. The Practical Completion date on the schedule could be used for the accrual of liquidated damages, whilst the (different) Date for Completion could remain operative for other purposes. The Contract Sum differences were of no great consequence and meant only that the parties had agreed on liquidated damages amounts which had not been updated to reflect the finally agreed Contract Sum.

Would the cap still have applied?

The Court also rejected Buckingham’s claim that, had the liquidated damages regime been void for uncertainty, the cap on liquidated damages would have operated as a cap on general delay damages. Buckingham relied on an earlier TCC decision in Eco World v Dobler where such a conclusion was reached on an obiter basis. In the Court’s judgment, the question was one of interpretation and whether “the language of the provision was broad enough to encompass any alternative liability that could arise in respect of general damages.” Schedule 10 expressed the cap as being “on Maximum LADs” and there was no warrant for reading this term more generally to cover general delay damages. This was supported by the fact that the cap was situated within a schedule to the contract dealing exclusively with liquidated damages.

Conclusion and implications

This case provides another example of the perils of appending correspondence or pre-contractual documentation to a construction contract by way of appendices or schedules. Whilst the validity of Schedule 10 was upheld in this case, the interpretation given to it by the Court was driven by the need to make the contract work if at all possible and may not have reflected how the parties would have expressed themselves had the schedule been freshly drafted. For an example of the dangers of scheduling pre-contractual material in the context of a dispute over work-scope please see our earlier Law-Now here.

The Court’s decision in relation to the applicability of the cap on liquidated damages provides an interesting counter-point to the Eco World decision. The cap in that case was contained in a section of the contract particulars dealing with liquidated damages and stated simply that liquidated damages were to apply “up to an aggregate maximum of 7%”. It is difficult, therefore, to see any great difference in substance to account for the different conclusion reached in that case as to the applicability of the cap to a general claim for damages were the liquidated damages provisions to have been found to be invalid.

Also of note is a decision of the Singaporean High Court in Crescendas Bionics v Jurong Primewide decided last year. That case concerned the invalidity of a liquidated damages regime due to an act of prevention by the employer which had set time at large. The court in that case held that the liquidated damages amounts would not continue to operate as a cap on general damages for delay, emphasising the general character of general damages as reflecting actual loss compared to liquidated damages which reflect likely losses.

References

Buckingham Group Contracting Ltd v Peel L&P Investments and Property Ltd [2022] EWHC 1842 (TCC)

Eco World - Ballymore Embassy Gardens Company Ltd v Dobler UK Ltd [2021] EWHC 2207 (TCC)

Crescendas Bionics Pte Ltd v Jurong Primewide Pte Ltd [2021] SGHC 189