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Stop the press; a liquidated damages case that isn’t about penalties…

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Sophie Pringle

Senior Associate

London

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05 August 2022

You might be forgiven for thinking that any time a party wants to get out of a liquidated damages provision, it argues the clause is an unenforceable penalty.  However, in a recent case, a contractor sought to avoid liquidated damages being deducted from its fees by seeking to argue instead that the liquidated damages provisions were void for uncertainty.  

So novel was this approach that the judge felt the need to record multiple times in his judgment that this case was not about penalties.  (The claimant had presumably decided they would not get this argument off the ground since the clause in question contained lengthy drafting that the clause was not a penalty, it was a genuine pre-estimate of loss, the parties had carefully negotiated it upon taking legal advice etc.)

In this case, the parties had entered into a construction agreement based on a JCT Design and Build Contract, but with a number of bespoke additions, including provisions that said that Peel, the developer, would be entitled to deduct a prescribed amount from the fees it owed Buckingham, the contractor, if certain aspects of the project were delayed.  As anyone who has ever embarked on a building project will have experienced, things inevitably started to run behind schedule and so Peel notified Buckingham that it intended to deduct liquidated damages from the fees it was paying.  Buckingham therefore brought a claim for declaratory relief that the provisions Peel was relying on were sufficiently unclear that they could not be enforceable.

Buckingham ran a number of arguments but, in particular, pointed to the fact that the schedule setting out the amount of liquidated damages contained two different rates, and that the rates Peel was seeking to rely on were described as a “proposal”.  However, the Judge was willing to exclude the references to a proposal as lazy drafting and noted that the parties had probably copied and pasted a tender document into the final agreement.  He therefore found that the provisions were enforceable and Peel was entitled to deduct the fees.

This case is a useful reminder of how reluctant the court is to find negotiated and agreed contractual terms to be unenforceable.  It also contains some interesting commentary around the extent to which the court can look at the circumstances surrounding the formation of a contract and some obiter remarks about whether a liquidated damages provision can act as a cap on general damages (in this case it couldn’t).

Judgment: Buckingham  v Peel  

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