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Monday, 1 March 2021

D Mclaughlin and Sons Ltd v Linthouse Housing Association Ltd

[2021] Scot SAC Civ 5

Linthouse commenced proceedings against DM, seeking declaration about the true value of what was termed “the final certificate sum”. Was there a contractual entitlement to withhold sums retained by way of liquidated damages? The date for completion of the Works was 28 October 2016; completion was actually achieved on 15 June 2017. The necessary contractual notices followed including a notice of intention to deduct liquidated damages. On 11 May 2018, the architect granted an extension of time of five weeks and a new completion date of 2 December 2018 was fixed. That had the effect of cancelling the earlier Non-Completion Certificate. No new Non-Completion Certificate was issued. DM repaid the damages deducted by reference to the five-week extension and continued to withhold the rest. At first instance, the Sheriff said that because no further certificate was issued, DM had no basis for withholding the remaining liquidated damages.

DM said that the fixing of a later completion date did not mean that they lost the right to liquidated damages. If that had been the case, the contract would have expressly provided for that. To imply such an obligation would give rise to draconian consequences on an employer and go against commercial common sense. DM did have a valid contractual basis upon which to withhold liquidated damages under the contract. As such, Linthouse had no entitlement to the liquidated damages sum.  To hold otherwise would be to unjustly reward Linthouse in relieving it of the consequences of a 28-week period of delay. 

Linthouse said that the contract was clear that the ability of a party to impose liquidated damages was subject to the suspensive conditions laid out in the contract. There was no valid Non-Completion Certificate which meant that those conditions were not satisfied.

The court disagreed with DM. The position in relation to the deduction of liquidated damages in the absence of a valid Non-Completion Certificate had been clear for a considerable period of time. Where a Non-Completion Certificate was required, the absence of such new certificates was fatal to these claims (Octoesse LLP v Trak Special Projects LtdDispatch Issue 199).

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