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Home›Liquidation›Damages and partial possession

Damages and partial possession

By Loriann Hicks
November 1, 2021
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The Technology and Construction Tribunal (TCC) at Eco World – Ballymore Embassy Gardens Company Ltd v Dobler UK Ltd [2021] EWHC 2207 (TCC) applied a damages clause (DOD) which did not allow for a proportional reduction following partial possession of sections of a development. The TCC rejected the fact that the clause was a penalty and considered the argument that an invalid damages clause could still function as a valid limit of liability.

Background

Eco World (Eco) employee Dobler (UK) Ltd (Dobler) to design, supply and install facade and glazing works at Nine Elms, London (the contract). The contract was based on the JCT 2011 Commercial Construction Management Contract (with modifications). Dobler looked after three “blocks” of residential development (blocks A, B and C), together called Building A04. The revised completion date has been April 30, 2018. There was no partial completion in the contract, but there was a provision for takeover or possession prior to practical completion (PC). During the week ending June 15, 2018, Eco took over blocks B and C, but block A was exceptional. Eco has taken over the rest of the work on December 20, 2018, and PC has been certified.

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

Mechanism of LD

The Contract provided for LOs in the event of Dobler’s delay (clause 2.32.1). It provided for an initial grace period of four weeks, then a capped weekly amount: “Lump-sum damages will apply thereafter at the rate of 25,000 per week (or pro rata for part of the week) up to a global maximum of 7% of the final sum of the commercial contract …“

The relevant contractual notice to be issued for the DLs to be collected should specify whether the DLs were to be paid at the contractual rate, or at a “lower rate indicated in the notice“.

Action before the Technology and Construction Tribunal (TCC)

Three arbitrations took place between the parties. These included arguments on the extension of time, assessment and GLs.

Following the third decision, Eco initiated Part 8 proceedings before the TCC to resolve the following issues:

  • Are the provisions of the LDs null and / or unenforceable?
  • If so, is Eco entitled to claim general damages for delay and, if so, are these limited by the DL ceiling in the void and / or unenforceable provisions of the DLs? ?
  • Positions of parties

    Eco argued:

  • The LD clause was null and / or inapplicable, the Contract not providing for a mechanism to reduce the level of LD following partial or anticipated possession.
  • As a result, Eco was entitled to claim unpaid damages (general damages), including those exceeding the contractual limit of the LOs.
  • Dobler argued:

  • The LD clause was valid and applicable as it was drafted.
  • Alternatively, there was an effective mechanism for reducing LOI (via clause 2.32.1).
  • Even if the clause were null and / or unenforceable, the LD limit should also apply to all unliquidated damages.
  • Decision

    The CCT held:

  • To determine if LDs are criminal, one should refer to the test in Cavendish Square Holdings BC v Makdessi [2015].
  • The starting point for the court is to interpret the relevant contractual provisions, in accordance with Arnold v Britton [2015].
  • The natural and ordinary meaning of the provisions was that if Dobler failed to complete Blocks A, B and C by the revised completion date, LD’s contractual rate would apply.
  • The LO provision was not criminal, “unreasonable” or “extravagant”. Factors supporting this included:
  • both parties were represented by a lawyer during contract negotiation;
  • there was a legitimate interest in enforcing the Dobler’s completion provisions before the revised completion date;
  • quantifying the damage that would be suffered by Eco would be difficult; and
  • the level of damages was neither unreasonable nor disproportionate.
  • The LDs clause was therefore valid and applicable.
  • Dobler was not entitled to any deduction from the LD rate.
  • Eco was not entitled to collect unpaid damages and was bound by the contractual ceiling of LD.
  • Alternative argument regarding the ceiling

    Although not necessary in view of the above conclusion, the ICC also considered Dobler’s alternative argument that even if the DL mechanism was null and / or inoperative, the ‘cap’ of clause s ‘would still apply to all general or unliquidated damages. An important factor to consider in this context would be whether the cap was intended to limit liability for late fees. Considering the Contract as a whole, the ICC has determined that the 7% cap in this case “would work as a limitation of liability provision, even if the damages were nil or a penalty“.

    Therefore, even if Eco had succeeded in arguing that the LD clause was null and / or unenforceable, its claim for general damages would still have been subject to the 7% cap.

    Points to remove

    The lessons to be learned from this case are:

  • When drafting LD provisions in contracts, care should be taken to ensure that they are clear, concise and consistent with other contractual provisions (especially if your contract contains provisions for partial completion and / or early possession and care).
  • Consider the status of any contractual cap on LDs, because even if the clause becomes void and / or unenforceable, the cap may effectively remain in place as a limitation of liability for general damages for delay.
  • The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

    Sir Iain DrummondShepherd and Wedderburn LLP
    1 foreign exchange croissant, Conference Square
    Edinburgh
    EH3 8UL
    UK
    Phone. : 131 228 9900
    Fax: 131 228 1222
    Email: [email protected]
    URL: www.shepwedd.com

    © Mondaq Ltée, 2021 – Tel. +44 (0) 20 8544 8300 – http://www.mondaq.com, source Company briefing


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