Local Government Lawyer Home Page


Sharpe Edge Webpage Banner

Welcome to Sharpe Edge, Sharpe Pritchard’s local government legal hub on Local Government Lawyer.

Sharpe Edge features news, views and analysis from our team of specialist local government lawyers working at the heart of the latest legal developments. Sharpe Edge platform is also the only place where local government lawyers can get e-access to two law books by our Head of Local Government Rob Hann: The Guide to Local Authority Charging and Trading Powers (‘LACAT’) and The Guide to Local Authority Companies and Partnerships (‘LACAP’).

 

                                                                                                  

Slide background

Make your mind up! Liquidated Damages clause upheld despite Employer’s challenge

<a href=In the recent case of Eco World Ballymore (EWB) v Dobler[1] , an Employer took the unusual position of challenging their own entitlement to liquidated damages (LDs) on the ground that the LDs provision constituted an unenforceable penalty clause. Clare Mendelle and James Goldthorpe investigate.

Applying the penalty clause test as set out in Cavendish Square Holdings v Makdessi[2] , the TCC judge upheld the LDs clause in a judgment which demonstrates the Court’s reluctance to intervene in carefully negotiated commercial bargains.

Background

EWB engaged Dobler to carry out façade and glazing works at three residential blocks at the Embassy Gardens site in Nine Elms. The contract contained a provision which entitled EWB to LDs of £25,000 per week in the event of late completion, capped at 7% of the final contract sum. Whilst sectional completion did not apply, the contract provided that EWB could take early possession prior to practical completion, which it did in respect of two blocks.

After the works were certified as complete, disputes arose between the parties regarding the final account valuation. The key part of these disputes related to the extent and validity of LDs payable following delays to the final stages of the works. Over the course of three adjudications, EWB and Dobler switched positions as to the validity of the LDs clause, with each party taking turns to argue that the liquidated damages regime was void and unenforceable for uncertainty or because it operated as a penalty.

At the TCC, EWB asked the court for declarations as to the proper construction and effect of the LDs provisions. By this stage, EWB claimed that the LDs regime was void or unenforceable as a penalty because it did not take into account their early possession, and sought general damages for delay which they claimed would not be subject to the 7% cap. Dobler argued that the LDs regime allowed for a lower rate of LDs to be levied, which avoided turning the clause into penalty in the event that parts of the work were taken over. It also argued that there was an implied requirement for EWB to act reasonably when deciding whether to levy a lower rate.

Judgment

Applying the test set out in the Makdessi case the Court decided that the LDs clause was valid and enforceable. This was because:

  • The provisions were reasonably clear and certain and capable of being operated.
  • The LDs were not a penalty because:
  • They had been negotiated by the parties with professional input;
  • EWB had a legitimate interest in making sure Dobler completed the works as a whole by the agreed date;
  • By fixing the rate of damages, the parties avoided the difficulty of calculating and proving any loss suffered by EWB; and
  • There was no evidence to suggest that the level of damages was unreasonable or disproportionate to EWB’s likely losses in the event of late completion of any one of the blocks.

As part of her reasoning, Mrs Justice O’Farrell also stressed that “[t]he court should be cautious about any interference in the freedom of the parties to agree commercial terms”, especially where they have benefited from legal advice.

Though ultimately moot given the conclusion reached above, the Court disagreed with Dobler’s argument that there was an implied term that the discretion to set the rate of LDs must be exercised reasonably: there was no need for such a term to make the provision work. As such, if the LDs provision had been found to be unenforceable, an implied term would not have saved it.

The court also considered whether general damages would have been subject to the 7% cap. Interestingly, it was held that they would, as in the court’s view the commercial purpose of the provision had been twofold: (i) to provide for automatic liability for damages in the event of delay; and (ii) to limit Dobler’s overall liability for late completion to a specific percentage of the contract sum.

Comment

EWB v Dobler is unusual in that an Employer challenged its own entitlement to LDs. The parties’ changing positions over the course of the dispute was playfully described as a “volte-face” by the judge. However, there was almost certainly a commercial tipping point during the dispute which explains EWB’s decision to seek to recover its actual losses as general damages, as opposed to the lesser sums it was entitled to under the LD regime.

For Employers on construction projects, there are two key lessons to be learned from this case:

Clearly drafted, commercially agreed LDs clauses represent the most cost effective and certain means of recovering damages for delays even where the Employer has taken partial possession of the site; and
Limits on a Contractor’s liability should allow enough scope for the full recovery of the Employer’s losses in the event of likely breaches, especially as courts may interpret such caps – even those contained in an otherwise unenforceable penalty clause – as being a general limitation of liability.

Clare Mendelle is a Professional Support Lawyer and James Goldthorpe a Paralegal at Sharpe Pritchard LLP.

[1] Eco World Ballymore Embassy Gardens Company Limited v Dobler UK Limited [2021] EWHC 2207 (TCC)

[2] [2015] UKSC 67


For further insight and resources on local government legal issues from Sharpe Pritchard, please visit the SharpeEdge page by clicking on the banner below.

sharpe edge 600x100

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email  This email address is being protected from spambots. You need JavaScript enabled to view it..

LACAT BookFREE download!

A Guide to Local Authority Charging and Trading Powers

Written and edited by Sharpe Pritchard’s Head of Local Government, Rob Hann,

A Guide to Local Authority Charging and Trading Powers covers:

• Updated charging powers compendium          • Commercial trading options

• Teckal ‘public to public’                                    • Localism Act

FREE DOWNLOAD

LACAT BookAvailable to buy:

A Guide to Local Authority Companies and Partnerships

An invaluable, comprehensive toolkit for lawyers, law firms and others advising
on or participating in Local Authority Companies and Partnerships”

- Local Authority Chief Executive

BUY NOW

  More Articles

Rob Hann Photoshop

Ask the Author

These are frequently asked questions to Rob Hann from colleagues in Local Government via the Sharpe Pritchard ‘Ask-the-Author' facility concerning the subject matter of his books on local authority companies, partnerships, charging and trading.
Icons Court

A call to review public contracts with Russian suppliers

Juli Lau and Gonzalo Puertas discuss the first official document to consider public sector contracts with companies linked to the Russian and Belarusian state regimes, issued by the Cabinet Office.
Icons Date

A New NEC Option to tackle greenwashing in the construction industry

Allan Owen and Sophie Drysdale discuss 'greenwashing' in the construction industry and a new secondary option clause X29 for its NEC4 suite of contracts developed by NEC.
Icons House

The Pathway to the Future – The Road Map for Employment Tribunals

David Leach discusses and outlines the road map of the planned changes for modernising the Tribunals in 2022 and 2023 released by The Presidents of the Employment Tribunals.
Icons House

Farrar Out

Clare Mendelle and James Goldthorpe discuss how the insolvency of Farrar Construction leads to clarity from the Courts on dealing with an insolvent contractor under JCT.
Icons House

The UK government has this week introduced the Economic Crime (Transparency and Enforcement) Bill

Peter Collins and Sophie Pilcher discuss the Economic Crime (Transparency and Enforcement) Bill introduced by the UK Government this week.
Icons Hazard

A sweet truth for selectivity

Steve Gummer and Gonzalo Puertas discuss a case that concerns an application for judicial review seeking to challenge a decision to introduce a zero-duty autonomous tariff quota (“ATQ”) of 260,000 metric tonnes of raw cane sugar for refining.
Icons House

Adjudication 101: Introduction and Overview

Michael Comba traces the origins of adjudication and considers why the process was introduced, who it is aimed towards and how construction contracts must include certain provisions.
Icons Date

New Government Guidance on PFI Expiry

Rob Hann, Head of Local Government at Sharpe Pritchard, takes a look at new guidance on PFI expiry recently published by the IPA to help public bodies wrestle with the complexities of transition they will face as these contracts reach full term.
Icons Hazard

Three new Levels to ‘level up’ Local Government in England?

Rob Hann, Sharpe Pritchard’s Head of local government, takes a look at the new proposals under the Government’s Levelling Up White Paper to facilitate devolution to remaining regions of local government in England which are currently without a Mayoral Combined Authority.
Icons Hazard

Will employers still be able to use the practice of ‘fire and rehire’ in 2022?

Christian Grierson and Julie Bann discuss a recent case in which the High Court has granted an injunction preventing Tesco from using the controversial employment practice of ‘fire and rehire’.
Icons Hazard

Progress on Climate Change action plans in Local Government

Stephen Cirell discusses the progress on climate change and renewable energy action plans within Local Government.
<a href=

Witches’ hats, sexist comments, and a £2 million pay-out

Julie Bann and Christian Grierson discuss a case in which a finance specialist has won over £2 million in compensation, after claims of sex discrimination and unequal pay.
Icons Hazard

Stuck in traffic?

High Court rules “VIP Lanes” For PPE contracts breached fundamental procurement law principles, in latest Judicial Review victory for the Good Law Project.
<a href=

Local Authority Sports and Leisure provision – Challenges Post-Covid19

With the unique circumstances posed by the Covid 19 pandemic and temporary closures of Council-sponsored sports and leisure facilities, Rob Hann, Sharpe Pritchard’s Head of Local Government outlines some of the challenges the sector faces.
<a href=

Bucking the Trend on Specific Performance Buckinghamshire Council v FCC Buckinghamshire Limited

Clare Mendelle and James Hughes highlight the wide definition of Third-Party Income and the measures the courts are prepared to take to enforce the terms of longstanding contracts, by analysing the Buckinghamshire Council v FCC Buckinghamshire Limited case.
<a href=

The Government’s response to the Transforming Public Procurement consultation: what will change and what will not?

Juli Lau, Colin Ricciardiello, Beth Edwards and Natasha Barlow analyse the Government’s response to the Transforming Public Procurement consultation.
<a href=

Momentum for Heat Network Roll Out Gathers Pace

Steve Gummer discusses the increased momentum for a Heat Network Rollout.
Icons Hazard

Unconscious Bias, Discrimination and a Warning to Public Sector Employers

Christian Grierson and Julie Bann discuss two employment tribunal judgements, which provide a stark warning to public sector employers about unconscious bias and discrimination.
Icons Hazard

Levelling up – A new opportunity for further devolution in England?

Rob Hann explores the Government's 'levelling up' policy and looks at whether it is an opportunity for further devolution in England.
<a href=

Time limits for commencing proceedings in procurement challenges

Colin Ricciardiello discusses a landmark procurement challenge judgment on the time limit for commencing proceedings.
Icons Hazard

The Revised National Planning Policy Framework: Better design, greener outcomes?

Alastair Lewis and Sarah Wertheim outline the latest National Planning Policy Framework changes and explain how future developments will be impacted by the new rules.
<a href=

Loose talk costs money: Oral agreement to forego liquidated damages was valid

Michael Comba outlines and analyses a contract dispute resolution: Mansion Place Ltd v Fox Industrial Services Ltd [2021] EWHC 2972 (TCC)
<a href=

Procurement reform – an update

Radhika Devesher and Natasha Barlow provide a summary of the proposed and enacted changes to the UK procurement regime post-Brexit.
Icons Court

The Public Procurement Review Service Report: Procurement Pitfalls and How to Avoid Them

Juli Lau and Beth Edwards examine some of the most common procurement pitfalls and provide a checklist of points for local authorities to bear in mind in order to avoid costly errors.
<a href=

JCT Dispute Adjudication Board Rules: a case of “three’s a crowd”?

Peter Jansen who specialises in construction law and dispute resolution, examines the roles and functions of the JCT’s Dispute Adjudication Board and highlights some key considerations for parties planning to adopt the Rules in their JCT contracts.
<a href=

The Electric Vehicle Revolution or…

Emily Knowles discusses new legislation on the requirement of electric vehicle charging points, and its potential impact on the Electric Vehicle Revolution.
Icons House

Consultation on the Electronic Communications Code – What’s Changing?

Lillee Reid-Hunt outlines the legislative changes to the Electronic Communications Code.
Icons Court

You Must Adjudicate First NEC3 imposes obligation to adjudicate first before commencing court proceedings.

Michael Comba discusses NEC3 imposing an obligation to adjudicate first before commencing court proceedings.
Icons Court

Rocking aground the Christmas tree

Clare Mendelle and George Dale discuss and solve a common construction scenario, looking at the position under the Contract, and how the Employer should deal with the Contractor's request.
Icons Hazard

Adequacy Decision Granted to the UK

Charlotte Smith considers two recent adequacy decisions and explains how this affects existing data practices.
Slide background