Eco World - Ballymore Embassy Gardens Company Ltd v Dobler UK Ltd

[2021] EWHC 2207 (TCC)

This was a Part 8 hearing for declarations about the liquidated damages provisions in a construction contract entered into between EWB and Dobler, in circumstances where EWB had taken over part of the works as completed.

EWB said that the liquidated damages clause was void and/or unenforceable as the contract permitted EWB to take partial possession of the works in advance of practical completion but did not contain any mechanism for reducing the level of liquidated damages to reflect the early possession. In other words, the provisions were penal and/or unenforceable, having regard to the provisions for partial take-over of the Works and any mechanism for reducing the level of liquidated damages to reflect such take-over. As a result, EWB was entitled to claim general damages for delay, including any substantiated damages above the contractual liquidated damages cap. Dobler disagreed.

The Works comprised the façade and glazing works for Blocks A, B and C of Building A04 within the development. The original completion date was extended to 30 April 2018. During the week ending 15 June 2018, EWB took over Blocks B and C but did not issue a practical completion certificate in respect of these parts of the Works. On 20 December 2018, the entire Works were certified as having achieved practical completion. 

Mrs Justice O’Farrell referred to the Supreme Court case of Triple Point Technology, Inc v PTT Public Company Ltd (Dispatch 254) where Lady Arden had considered the commercial benefits to both parties of an effective liquidated damages provision:

“… Parties agree a liquidated damages clause so as to provide a remedy that is predictable and certain for a particular event (here, as often, that event is a delay in completion). The employer does not then have to quantify its loss, which may be difficult and time-consuming for it to do …”

The contract provided for liquidated damages to be paid by Dobler if it failed to complete the Works by “the relevant Date for Completion of … the Works”. It did not contain any provision for sectional completion or specify separate completion dates for each block.  Nor did it provide for an alternative rate of liquidated damages that would be applicable to any late completion affecting only one of the blocks, or part of the Works. Therefore, if Dobler failed to complete any of its work in Blocks A, B or C by the New Completion Date (or any extended date), EWB would be entitled to liquidated damages at the rate set out in the Trade Contract Particulars.

As a matter of construction, the Judge considered that the contract provisions were reasonably clear and certain. There was one completion date for the whole of the Works. Liquidated damages are payable at the rate set out in the Trade Contract Particulars for failure to complete the whole of the Works by the completion date. There was no reduction in the rate of liquidated damages where partial completion is achieved or the employer takes over part of the Works prior to practical completion. 

Was the liquidated damages provision penal and/or unenforceable because of the use of the same rate of liquidated damages as compensation for late completion of any combination of Blocks A, B and/or C, despite the fact that different levels of loss would be incurred; in particular, where EWB chose to exercise its right to take over part of the works?

The Judge did not think so. 

Firstly, the liquidated damages provision was negotiated by the parties, who both had the benefit of advice from external lawyers. A court should be cautious about any interference in the freedom of the parties to agree commercial terms and allocation of risk in their business dealings. The provisions limited Doblers’s exposure to an unknown and open-ended liability, while at the same time giving EWB certainty about the amount that it will be entitled to recover as compensation. Both could, therefore, better manage the risk of delay in the completion of the project.

Secondly, EWB had a legitimate interest in enforcing the primary obligation of Dobler to complete the Works as a whole by the revised Completion Date. Late completion of any part of the Works was likely to have an adverse impact on the work of following trade contractors carrying out fit out and other finishing works, causing not just delay but also disruption to the project as a whole. Late completion of Blocks B and/or C would expose EWB to liability for liquidated damages to the local authority. Late completion of Block A would expose EWB to the risk of losing purchasers for the apartments.

Thirdly, quantification of the damages that would be suffered by EWB would be difficult, particularly if part, but not all, of the Works were completed on time. Different combinations of partially incomplete blocks could result in a wide range of the categories of loss referred to above. By fixing in advance the liquidated damages payable for late completion of the whole Works, the parties avoided the difficulty of calculating and proving such loss.

Fourthly, the level of damages was set at £25,000 per week (or pro rata for part of a week), with a grace period of four weeks and a maximum of 7% of the Trade Contract Sum. There was no evidence before the court, and it was not suggested by either party that this level of damages was unreasonable or disproportionate to the likely losses in the event of late completion of the work in any one or more of the blocks forming part of Building A04.

In those circumstances, the liquidated damages provision was not extravagant, exorbitant, or unconscionable. It was a secondary obligation which imposed a detriment on Dobler which was proportionate to the legitimate interest of EWB in the enforcement of the primary obligation of completion of the Works in accordance with the terms of the Contract. 

Dobler further submitted that the clear intention of the parties was that Dobler would not pay more than £25,000 per week if it fell into culpable delay. The fact that the mechanism for imposing that liability might fail ought not to detract from their bargain in this regard. Further, the agreement that delay damages would be capped at 7% of the Trade Contract Sum was an independent covenant on the part of EWB that operated as a limitation of liability provision in any event. The Judge agreed. 

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