Liquidated Damages And Partial Possession

• Published date: 01 November 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Real Estate and Construction, Contracts and Commercial Law, Trials & Appeals & Compensation, Construction & Planning
• Law Firm: Shepherd and Wedderburn LLP
• Author: Mr Iain Drummond

The Technology and Construction Court (TCC) in Eco World - Ballymore Embassy Gardens Company Ltd v Dobler UK Ltd [2021] EWHC 2207 (TCC) enforced a liquidated damages (LDs) clause that did not allow for a proportionate reduction following partial possession of sections of a development. The TCC rejected that the clause was a penalty, and considered the argument that an invalid liquidated damages clause could still operate as a valid cap of liability.

Background

Eco World (Eco) employed Dobler (UK) Ltd (Dobler) to design, supply and install façade and glazing works at Nine Elms, London (the Contract). The Contract was based on the JCT 2011 Construction Management Trade Contract (with amendments). Dobler was engaged on three "blocks" of the residential development (Blocks A, B and C), together referred to as Building A04. The revised completion date was 30 April 2018. There was no sectional completion in the Contract, but there was a provision regarding take-over or possession prior to Practical Completion (PC). During the week ending 15 June 2018, Eco took over Blocks B and C, but Block A was outstanding. Eco took over the remainder of the works on 20 December 2018, and PC was certified.

Following PC, a dispute arose as to the level of applicable LDs

LDs mechanism

The Contract provided for LDs in the event of Dobler's delay (clause 2.32.1). It allowed an initial grace period of four weeks, and thereafter a weekly sum with a cap: "Liquidated damages will apply thereafter at the rate of '25,000 per week (or pro rata for part of a week) up to an aggregate maximum of 7% of the final Trade Contract Sum..."

The relevant contractual notice to be issued for LDs to be levied was to specify whether LDs were to be paid at the contract rate, or a "lesser rate stated in the notice".

Technology and Construction Court (TCC) action

Three adjudications took place between the parties. These included arguments over extension of time, valuation and LDs.

Following the third adjudication, Eco commenced Part 8 proceedings in the TCC to determine the following questions:

• Are the LDs provisions void and/or unenforceable?
• If so, is Eco entitled to claim general damages for delay and if so, are these limited by the LDs cap in the void and/or unenforceable LDs provisions?

Parties' positions

Eco argued:

• The LDs clause was void and/or unenforceable, as the Contract did not provide for a mechanism to reduce the level of LDs following partial or early possession.
• As a result, Eco was...