Tony Bingham tells of a subcontractor defending a liquidated damages claim that decided it did want to pay them after all, when the client changed tack
This case sounds good fun. The judge remarked: “Both parties have performed a volte face in that they are each arguing the case taken by the other side in the adjudications.” The developer’s barrister no longer wanted the liquidated damages clause to apply at all; unusual to say the least. The trade contractor’s barrister no longer wanted to boot out the liquidated damages clause; unusual to say the least. It was £25,000 per week and 7% cap.
Dobler UK Ltd was the trade contractor. Its £9m contract for developer Eco World Building (EWB) was to carry out the design, supply and installation of the facade and glazing at Embassy Gardens, Nine Elms, in central London. Not long ago Nine Elms qualified as one of London’s dirtiest and most unloved industrial wastelands. Ah, things change. Right now it has 42 building projects and improvements to local infrastructure under way. And if you fancy living there, a new penthouse is up for sale – a 13-bedroom home that could be yours for just £7m.
Seemingly, Dobler’s works were late. The original completion date was 21 August 2017, and some extensions of time were given. By June 2018, EWB decided to trigger its contractual right to take over the works. The date it did so thereby became the practical completion date for Dobler’s works under the amended JCT contract. Dobler sent in its final account for £10.6m. But EWB said: no, it should be £8.2m, allowing for liquidated and ascertained damages (LADs) of £574,000. Scene set.
The adjudicator declared that the final account was £9.9m. Also that LADs applied and Dobler would be liable for LADs up to the new completion date; but Dobler was entitled to an extension of time past that date – so no deduction for LADs after all. A second adjudication asked whether the LADs clause was void and/or unenforceable. The formal answer was: no, it was good.
EWB went to the High Court to argue about the correctness or otherwise of the LADs clause.
Let us pause here for a moment. The topic of LADs has been a great source of amusement for lawyers for over 100 years. Hamish Lal talked about a relevant case here recently (“Supreme clarity on damages”, page 69, Building, 13 August). He reminded us that the aim of LADs is that the employer/developer should not be put to the bother of having to quantify its actual loss, which may be difficult to do, and that the parties should be taken to know that the LADs would cease to accrue on termination. In other words, at the outset the contractor knows what money in damages it can be clobbered for per week (or day, for that matter).
There is a car crash when the employer can oust the contractor part-way through and still claim damages to the tune of £25,000 per week for the non‑completion of only a part OF THE WORKS
So, why did the employer/developer want to dump the £574,000 damages clause? Because EWB had a bigger glint in its eye – fathoming it could prove general damages instead. EWB would argue Dobler was late and thus was in for £2.3m in damages, four times the LADs cap. It would argue that a device to take over the work and hoof the contractor out before the due end date was a penalty. An LADs sum, which is not a pre-estimate of loss, is, according to case law, penal; the law will not allow penalties for contractual breach.
More accurately, the LADs figure related to completion of the contract as a whole on time. There is a car crash when the employer can oust the contractor part-way through and still claim damages to the tune of £25,000 per week for the non‑completion of only a part of the works.
So the developer wanting to hold up its hands and announce that its LADs clause doesn’t work is unfair on the contractor. Put another way, if the LADs clause has a mechanism for adjusting the damages clause once taken over, then there is room to keep the LADs clause alive. That glint is all about asking what’s to be done when the LADs clause is torpedoed. That’s when general damages apply – which is about proving the actual loss arising. Seemingly, it would be big money.
In opposition, Dobler argued that the LADs clause did not end when the work was taken over part-done. The contract had no such provision. Dobler’s duties as to the completed works continued. Defects still had to be attended to by Dobler. Taking over by EWB did not bring the contract to an end – it’s a subtle point, but the taking-over was merely a change in contractual status. Dobler said that nothing therefore impacted on LADs. It was an advantage to the developer to take over part or all of Dobler’s works. It would put the management of the completion of dwellings into EWB’s hands and enable it to sell them so as to generate revenue.
As to whether the continuing presence of Dobler to carry out correction of defects still attracted fair compensation of £25,000 per week in LADs, the court said yes. It was important that all of the block of dwellings was completed and that included defects. So the LADs would still bite. The sum was not extravagant or disproportionate to the likely losses. In any event, the £25,000 per week was very much less than general damages. The developer could not claim the sum that was glinting in its eye.
All clever stuff – easily understood from the wording of the amended JCT contract by the average building industry intellectual polymath.
Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple