Liquidated damages

By Victoria Russell, Fenwick Elliott

Henia Investments Inc v Beck Interiors Ltd [2015] EWHC 2433 (TCC) (14 August 2015)

In these Part 8 proceedings, Mr Justice Akenhead had to consider whether Henia (or any employer) could rely on a Certificate of Non-Completion even though the CA had failed to make a decision on a contractor’s claim for an extension of time. The contract was the JCT Standard Building Contract Without Quantities 2011, as amended. The Judge looked at the wording of the principal liquidated damages provision, clause 2.32, which was not drafted in a way that suggested that the obligation on the part of the CA to operate the extension of time provisions was a condition precedent to an entitlement to deduct liquidated damages. In contrast, it did expressly seek to impose two other conditions precedent, namely the need for the CA to have issued a Certificate of Non-Completion for the Works and for the employer to have notified the contractor before the date of the Final Certificate that he may require payment of, or may withhold or deduct, liquidated damages. It therefore seemed “odd” to the Judge, if there was to be a condition precedent that no liquidated damages should be payable or allowable unless the extension of time clauses had been operated properly, when it was not spelt out as such.

Mr Justice Akenhead also noted that a contractor is not left without a remedy both in the short term through adjudication and in the long-term final dispute resolution processes; it can challenge the refusal to grant an extension and/or the deduction of liquidated damages and, in the case of adjudication, secure relief if it can convince the adjudicator that it is right and that the employer and the CA are wrong in whole or in part. The Judge noted that it may seem unfair on a contractor to have liquidated damages deducted at a time when the CA has failed to deliver the process of considering extension of time claims. There were two answers to this: the ready availability of short- and long-term remedies and the fact that there are numerous potential defaults on the part of both employer and contractor which can give rise to serious financial consequences for the other, and merely because unfairness can happen in the short term it does not necessarily or obviously lead to the need to construe clauses as conditions precedent to the ability of one party to secure such financial advantage in that short term.

Therefore, a failure on the part of the CA to operate the extension of time provisions did not debar Henia from deducting liquidated damages where the other expressed conditions precedent in the relevant JCT clauses had been complied with.

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