In Buckingham Group v Peel L & P Investments and Property [2022] EWHC 1842 (TCC), the Technology & Construction Court found that a cap on liquidated damages was not a cap on general damages, distinguishing the facts of Eco World - Ballymore Embassy Gardens Company Limited v Dobler UK Limited [2021] EWHC 2207 (TCC).  The case is an important reminder of the approach taken by the Courts to the interpretation of liquidated damages clauses in construction contracts.

The facts

The Defendant, Peel L&P Investments and Property Ltd (Peel), engaged the Claimant, Buckingham Group Contracting Ltd (Buckingham), to design and build a corrugated cardboard manufacturing plant at Ellesmere Port pursuant to a written agreement dated 29 January 2018 (the "Contract").  The Contract was based on a JCT Design and Build Contract 2016, subject to a schedule of bespoke amendments.  As would be expected, the Contract included a number of Annexes, such as the Employer's Requirements, Contractor's Proposals and the Contract Sum Analysis.

There were significant delays to the completion of the project.  Peel (through its agent) issued a Pay Less Notice to Buckingham, notifying it of its intention to deduct £1,928,253.77 by way of liquidated damages.  This was the same amount as the cap on liquidated damages specified in the Contract.

The proceedings

Buckingham brought Part 8 proceedings contending that:

• the Contract's liquidated damages mechanism was void for uncertainty and/or unenforceable (Issue 1); and
• any remedy in respect of general damages was limited to the amount of the liquidated damages cap, i.e., £1,928,253.77 (Issue 2).

Issue 1: Was the Contract's liquidated damages mechanism void for uncertainty and/or unenforceable?

Buckingham contended that the Contract did not provide for a consistent date for practical completion against which liquidated damages could be calculated.  Whereas the Contract Particulars specified a "Date for Completion" of 1 October 2018, Schedule 10 identified the "Milestone Date" for "Practical Completion" as 30 November 2018.

This argument raised a broader question as to the interpretation of the applicable liquidated damages regime under the Contract.

Schedule 10 of the Contract provided a "Liquidated Damages Schedule" which set out the liquidated damages payable for delay to completion by reference to "Sectional Milestones" pursuant to clause 2.29 of the Contract.  However, clause 2.29 (unamended from the JCT standard form) conflicted with bespoke clause 2.29A.

Mr Alexander Nissen KC (sitting as a Deputy High Court Judge) found that the bespoke regime provided by clause 2.29A prevailed and, as a result, liquidated damages were calculated by reference to the "Milestone Date" of 30 November 2018.

Buckingham's further arguments alleging conflicting rates of liquidated damages and the Contract's failure to provide an adjustment to the rate of liquidated damages to reflect partial possession also did not succeed.

The liquidated damages mechanism was therefore certain and enforceable, and Peel retained its entitlement to £1,928,253.77 by way of liquidated damages for delay.

Issue 2: Were general damages subject to the cap on liquidated damages?

Had it been found that the liquidated damages mechanism was void and/or unenforceable, it would have been open to Peel to claim general damages for delay.  Therefore, it was not strictly necessary for the Court to consider this issue, but it did so to provide some useful guidance.

The Court considered the recent decision of Mrs Justice O'Farrell in Eco World - Ballymore Embassy Gardens Company Limited v Dobler UK Limited ("Eco World"), in which it was held that a liquidated damages provision "may on true construction be found to operate as a limitation of liability provision".

In Eco World, the relevant wording was: "Liquidated damages will apply … 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 …".  Having regard to the "objective understanding of the parties in the commercial context", O'Farrell J decided that this wording operated as a separate limitation of liability on general damages for delay.

In the present case, Schedule 10 of the Contract included the wording: "Cap on Maximum LADs … £1,928,253.77".  Buckingham contended that this acted as a cap on general damages for delay and invited the Court to follow Eco World.  However, the Court decided that, on true construction, the wording was too narrow to impose a separate limitation of liability on general damages.

Key takeaway points

The Courts have now considered two not completely dissimilar caps on liquidated damages and reached different conclusions as to whether the wording can be construed as a separate limitation of liability.  It is therefore important that parties are clear from the outset whether it is intended for a cap on liquidated damages to apply equally to general damages in the event that the liquidated damages mechanism fails.

Alternatively, parties may go further by excluding general damages for delay, such as in the FIDIC suite of contracts where parties can specify the maximum amount of liquidated damages while ensuring that these are the only damages for delay to completion.