Liquidated damages pt 2.

Hot on the heels of the Supreme Court's judgment in Triple Point Technology comes another important case on liquidated damages: Eco World - Ballymore Embassy Gardens Co Ltd v Dobler UK Ltd [2021] EWHC 2207 (TCC).

Dobler UK (Dobler) was employed by Eco World – Ballymore Embassy Gardens Company (EWB) to carry out façade and glazing works to three residential blocks. The contract was based on the terms of a JCT 2011 Trade Contract and provided for the contractor to pay LDs at the rate of £25,000 per week (capped at 7% of the contract sum) in the event of late completion.

Although EWB took over two of the blocks in June 2018, practical completion of all three blocks was not certified until December 2018. The parties were unable to agree the final account and fought a series of adjudications. EWB then issued Part 8 court proceedings, effectively seeking to overturn the adjudication decisions.

EWB asked the court to declare that the liquidated damages (LDs) clause was unenforceable because the contract did not provide for the rate of LDs to be reduced if the employer took early possession. Unusually it was the employer now seeking to argue that the LDs clause was invalid, having argued the opposite position in the adjudications! EWB claimed that, instead of LDs, it was entitled to recover the uncapped actual losses it had suffered as a result of the delay.

Andrew Keeley

Partner Construction T: +44 (0)1483 252581 andrew.keeley@crsblaw.com

The starting point for the court is to construe the relevant provisions. It is now well-established that, when interpreting a written contract, the court is concerned to ascertain the intention of the parties by reference to what a reasonable person, having all the background knowledge which would have been available to the parties, would have understood them to be using the language in the contract.

However, EWB's argument was rejected by the court. The relevant clauses were reasonably clear and certain. The rate of LDs were not so extravagant, exorbitant or unconscionable so to amount to an unenforceable penalty for the following reasons:

The LDs clause had been negotiated by the parties with the benefit of external legal advice.
The employer had a legitimate interest in enforcing the contractor's obligation to complete all the blocks by the completion date.
Agreeing the rate of LDs in advance avoided the difficulty of quantifying the employer's actual losses if the works were only partially completed on time.
The agreed rate of LDs was not disproportionate to the employer's likely losses in the event of late completion of any one or more of the blocks

Consequently the LDs clause was valid and enforceable.

The court also noted that:

There was no need to imply any term that an LDs clause must be exercised in a rational or reasonable manner. The employer had an absolute right to claim the full rate of LDs.
Even if the LDs had been unenforceable, the clause would still have capped the contractor's liability for general damages for delay at 7%.

This case illustrates the courts' increasing willingness to uphold LD clauses, as both employers and contractors stand to benefit commercially from a predictable and certain remedy for late completion.

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