Can a cap on liquidated damages act as a cap on general damages?

In the recent case of Buckingham Group Contracting Ltd v Peel L&P Investments and Property Ltd, the Technology and Construction Court (TCC) considered whether liquidated damages provisions were void and unenforceable as a result of uncertainty due to inconsistencies in drafting. The TCC also considered whether the cap on liquidated damages could also operate as a cap on general damages.

Background

Peel L&P Investments and Property Ltd (Peel) had engaged Buckingham Group Contracting Ltd (BGC) to design and build a new plant for the manufacture of corrugated cardboard in Merseyside, using a JCT Design and Build Contract 2016, with bespoke schedule of amendments (the Contract).

On 14 November 2018 Peel issued a Pay Less Notice due to significant delays, notifying BGC of its intention to deduct a sum of £1.9 million from the amount payable to BGC by way of capped liquidated damages, relying on clause 2.29A.1.2 of the Contract.

In response BGC contented that the liquidated damages provisions were void and unenforceable, and that any remedy in respect of general damages was also capped in the amount of £1.9 million. BGC sought declaratory relief from the courts to that effect, noting three key errors or inconsistencies in the drafting of the Contract; namely:

• The date for completion in the schedule of amendments differed from the date for completion stated in the Contract Particulars;
• There were different liquidated damages amounts set out in two columns in the schedule of amendments without any indication as to which would apply; and
• The schedule of amendments provided for weekly damages amounts being calculated by reference to the Contract Sum. Yet the Contract Sum in the schedule differed to that stated in the articles of agreement.

BGC argued that these errors and inconsistencies “could not be determined by the process of correction by construction in the absence of a clear solution and, as such, the entire provisions were uncertain and incapable of operation.”

Void for uncertainty?

It is well documented that the courts are reluctant to hold contractual provisions as being void for uncertainty, particularly where the contract has been performed.

In considering BGC’s application, the Judge referred to an earlier decision in the case of Anangel Atlas Campania Naviera SA v. Ishikawajima-Harima Heavy Industries Co (No.2) where Hirst J held that “… the Court will strive if possible not to find a contract or contractual provision uncertain; indeed such a conclusion has been graphically described as a “counsel of despair”.

However, if a court cannot reach a conclusion as to what the parties’ intentions were, or it is not possible for the court to prefer one possibility over another, then case law illustrates that the provision will be void for uncertainty.

Notwithstanding the arguments advanced by BGC in respect of the provisions for liquidated damages, the TCC held that the errors and inconsistencies identified by BGC were in fact capable of corrective construction. The provisions were therefore certain and enforceable.

Cap on general damages?

As to whether those same liquidated damages provisions could amount to a cap on general damages, BGC sought to rely on an earlier decision in Eco World-Ballymore Embassy Gardens Company Ltd v Dobler UK Ltd. In that case, even where the liquidated damages regime was found to be void and unenforceable as a penalty, O’Farrell J held that the courts would strive to give effect to the separate part of that provision, which established an overall limitation of liability at 7% of the Contract Sum.

However, the TCC distinguished BGC’s application from the situation in Eco World, noting that the courts must consider the wording of the specific clause in front of it.

In the present case, the Contract clearly stated that the limit on liability was focussed on “Maximum LADs”. As such, the TCC found that there was nothing within the liquidated damages regime which suggested it would operate as a cap on liability for anything other than liquidated damages for delay.

There was nothing in the Contract which operated as a cap on liability for general damages for delay.

Conclusion

The TCC’s decision in this case is a reminder of the courts’ approach to interpretation of contractual provisions and their preference to find interpretations which give effect to the parties’ intentions, where possible.

However, this case also serves as a reminder of the need to carefully and clearly draft contracts in order to avoid costly litigation.

The Birketts view

Whilst the schedule appended to the Contract was upheld in this case, this is an example of the difficulties created by attaching documents to a contract without appropriate amendments, and the need for careful drafting. If the parties had intended there to be a cap on liability for general damages, then as per the decision in Eco World, this could be created by clear and unambiguous language in the contract.

For more information or to discuss the issues raised in this article, please contact the Construction and Engineering Team.