Peel engaged BGCL to design and build a plant building and certain other pieces of work (the works). The agreement between the parties was executed using a JCT Design and Build Contract, as amended by a schedule of Amendments (the contract).
The completion of the Works was delayed, a Pay Less Notice was issued to BGCL notifying it that a deduction of £1,928,253.77 in liquidated and ascertained damages (LADs) was being applied to the contract Sum.
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The issue outlined by BGCL
BGCL issued proceedings based on an argument that the provisions in the contract relating to LADs were too uncertain and therefore unenforceable. It put forward this claim on the basis that:
- There was an inconsistency in the contract regarding the date for completion;
- There were two different rates of LADs set out in the contract;
- It was unclear if the rate % rate of LADs would be calculated daily or per week;
- Should apply to the actual contract sum, or the proposed contract sum originally set out in the contract. There was a circa £450,000 difference between these two figures; and
- That there was not a clear or workable procedure set out in Schedule 10 for the application of LADs in a situation where partial possession occurred due to takeover of sections of the works.
Therefore, it was submitted by BGCL that the LADs provisions should be found to be uncertain and unenforceable.
The legal position
It is worth noting: “. . . a provision in a contract will be void for uncertainty if the court cannot reach a conclusion as to what was in the parties’ minds or where it is not safe for the court to prefer one possible meaning to other equally possible meanings. . .”
Only where a court cannot logically conclude what the parties meant will the contract be deemed to be uncertain. This is a difficult threshold to meet, and the same case noted that “courts are reluctant to hold a provision in a contract void for uncertainty, particularly where the contract has been performed”.
Date for practical completion
Although there were two different dates for completion provided in the contract, it was logical to conclude that the parties intended that LADs would not be attached to the earlier of the two. Rather that the LADs would be triggered by the later date.
Two different rates of LADs
Schedule 10 had two different columns which included two different rates for LADs. One set out proposals for the rates as part of the tender documents, and the other set out BGCL’s best and final offer, which was written in later and agreed by the parties.
The court found that “the counter-offer proposing different rates for liquidated damages from those identified in the tender documents would have nullified the earlier offer”. Therefore, the two different rates were reconcilable.
The contract sum
There was also conflicting information in sub-columns in schedule 10 - one sub-column provided for “% of contract sum analysis /day” and the other for “£/wk” in relation to the rate of LADs to be applied to the contract sum.
The court decided that if the parties intended to use “% of CSA/day” then the “£/wk” calculation would not have been included. The fact that it expressly stated that the LADs were “per week” in a written clause below the table in schedule 10 reinforced this.
Partial possession
BGCL submitted that schedule 10 failed to set out terms governing partial completion, and that such a regime should have been included.
The court disagreed with this, highlighting that the contract particulars stated that “Sections do not apply”, and no sections were identified as defined terms. Therefore, schedule 10 was enforceable.
The court concluded
None of the arguments advanced by BGCL were supported by the court. The court held that the provisions were certain and enforceable.
The key lesson is that where there are discrepancies in contractual terms, courts will always seek to apply commercial common sense to the contract to reconcile any purported ambiguity.
For those of us drafting LADs clauses, setting out clearly when LADs will be triggered and what events (such as partial possession or adjustments to the contract sum) allow the rate of LADs to be adjusted are elements of good practice that shouldn’t be forgotten.
If you are uncertain as to what the LADs provisions your contracts actually mean, you should seek an expert opinion. Understanding your contract will save you legal costs down the line.
Emma Payne is a junior associate in the Quigg Golden construction law team. Stephen McKenna is a senior associate at Quigg Golden and an ICE accredited contract manager.
