Liberty Mercian Ltd v Dean & Dyball Construction Ltd

Contract – Delay – Liquidated damages – Parties entering into building contract for four retail units – Contract providing for phased completion – First section of work delayed – Claimant deducting liquidated damages for culpable delay – Whether liquidated damages constituting penalty – Declarations grantedThe claimant engaged the defendant to construct four retail units, which were subject to a phased release. A new Somerfield store was to be completed to enable Somerfield to fit out the premises and free up parts of the site that were occupied by its old store. Since Somerfield wanted to continue trading from the old store until its new premises were ready for fitting out, it was necessary to introduce phased possession of the various parts of the site.The contract incorporated the JCT Standard form of Building Contract, (1998 ed) 2003 revision, together with the amendments required by an agreement for sectional completion. It also contained a number of home-made amendments. There was a separate document entitled “Details of the Sectional Completion Arrangements”. The first phase was delayed by eight weeks and the defendant sought an extension of time. The claimant’s architect granted an extension of four weeks and indicated that a four-week period of culpable delay was attributable to the defendant. Liquidated damages of £48,000 were deducted in respect of that delay.Disputes arose following the consequences of the delay on the remaining phases of the work and a number of issues were referred for adjudication. By a claim form issued under CPR 8, the claimant sought declarations as to the proper construction of the contract. The defendant contended, inter alia, that the liquidated damages constituted a penalty since it was repeatedly penalised for the same delay by the deduction of liquidated damages in respect of each phase of the work and/or because the delay on the first phase was the subject of liquidated damages across all sections. Held: The declarations were granted.The contract was workable and no question of any penalty arose. Although the contract did not expressly state that a culpable delay under the first phase would give rise to a culpable delay on the remaining phases, the only sensible construction of the sectional completion agreement was that that was what the parties had intended to achieve.It was not uncommon for a party that had agreed to a liquidated damages provision subsequently to argue that the provision was a penalty. However, the courts had always been wary of allowing such an argument to succeed. Where it had been agreed that a single sum would be paid by way of liquidated damages for breach of a number of stipulations of varying importance and the damage was of the same kind for every possible breach and could not be precisely ascertained, the stipulated sum would be regarded as liquidated damages and not a penalty, provided that it was a fair pre-estimate of the damage and not unconscionable: Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 applied; Bramall & Ogden Ltd v Sheffield City Council (1983) 29 BLR 73 considered.However, contractual provisions had been held not to be capable of generating, with certainty, liquidated damages flowing from an identified breach by the contractor where the liquidated damages clause might impose liability on the contractor in respect of delays caused by another contractor or those for which the employer was partly to blame: Braes of Doune Wind farm (Scotland) Ltd v Alfred McAlpine Services Ltd [2008] EWHC 426 (TCC); [2008] 2 All ER (Comm) 493 and Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 69 LGR 1 considered. Simon Lofthouse QC (instructed by Morgan Laroche, of Swansea) appeared for the claimant; Simon Henderson (instructed by Clarke Willmott, of Bristol) appeared for the defendant.Eileen O’Grady, barrister