It’s all just LAD stuff

The £600m constructor Buckingham Group Contracting Ltd has had a sophisticated ding-dong about the liquidated and ascertained damages (LAD) stuff in its building contract with Peel L&P Investments & Property Ltd. I say “stuff” because I couldn’t make head or tail of how the umpteen thousands of pounds per week – or was it day, or minute? – worked in their JCT contract. I should say, rather, a JCT contract that had been tampered with.

I put it down twice – no, five times – because I found it unfathomable. That was exactly Buckingham’s argument; it said to the court: “There are several terms about LAD that concern how the contract should be read.” In other words, it was unfathomable – and void for uncertainty.

Hmm … Well, all this “stuff” was there when the contractor happily bid £26m to build a new paper mill at Ellesmere Port in Cheshire. And Buckingham was canny enough to cap its exposure to LAD at 7.5% of the contract sum. That’s £1,928,253.77 to you and me.

Incidentally, do give more thought to capped exposure to LAD. Put bluntly, it’s a bit risky to specify an open-ended £x per week; that can easily mount up and wipe out a builder. Identify the maximum exposure, and know your risk.

Suffice it to say, the works ran late. The usual arguments ran about finger-pointing, but here Buckingham took a fresh look at the amended completion clauses and scratched their heads as to meaning. For example, the date for completion of the works in the JCT was clear. It said: 1 October 2018. But then they looked at the schedule pointing to milestones completion dates. The seventh said: 30 November 2018 for practical completion.

Somebody in the grandstand giggled and yelled: “What do you think of the show so far?” Back came the silver-tongued retort of counsel: “It is accepted by the defendant that there is a modest inconsistency within the documents.” Oh, I do like that; I promise to use it some time. The court said that there was a contractual obligation to complete the works by 1 October 2018, but no liquidated damages could be taken until 30 November 2018. Neat. Modest.

Somebody in the grandstand yelled: ‘What do you think of the show so far?’ Back came the silver-tongued retort: ‘It is accepted by the defendant that there is a modest inconsistency’

Buckingham was arguing that this part of the contract was “void for uncertainty”. It’s a tough argument to get past a judge, though. The courts are reluctant to hold a provision in a contract void for uncertainty, particularly when the contract has been performed. Lord Justice Moore-Bick (he of Grenfell Inquiry fame) remarked in another case: “The conclusion that a contractual provision is so uncertain that it is incapable of being given a meaning of any kind is one which the courts have always been reluctant to accept.”

Buckingham tried another angle to torpedo the LAD stuff. It argued that the milestones intended partial possession to be taken but there was no means of calculating the value that the relevant part bears to the section sum.

The opponent said, and the court accepted, that the contract repeatedly said “that sectional completion did not apply”. That position is not difficult to see. Contracts frequently have milestone dates, but that does not mean an LAD sum for being late. More likely what irked Buckingham was to hit milestone completions and keep the same end-figure for LAD. All in all, the court decided the LAD provisions were certain and enforceable.

>>>Also read: Supreme clarity on liquidated damages

>>>Also read: Essential law: Liquidated damages, part four

What if it had gone the other way and the LAD machinery had fallen down? What then is the score, if the building contractor is responsible for delay and is in breach of whatever date is said to be the deadline? What, if anything, can the employer ask for, if no LAD now applies? Can it claim general damages instead? Yes, previous cases have decided that the injured party is entitled to prove actual losses: some call this “unliquidated damages”.

Then we must ask whether the cap on damages, in this case £1,928,253.77, applies to general damages. This issue came up in previous cases. A case last year, Eco World – Ballymore Embassy Gardens Company Ltd vs Dobler UK Ltd, usefully travelled this ground. Umpteen textbooks and court cases are referred to there. And the answer is: it all depends. Suffice it to say that, in Eco World, the court decided that if, repeat if, the LAD clause in that dispute fell down, the clause discussing 7% cap on damages would apply to general damages too. In other words, a maximum exposure of 7% of the final account.

But in Buckingham the court wouldn’t buy the argument that general damages for delay (if the LAD clause failed) would be capped at £1,925,253.77. It was successfully argued that the LAD clause and the cap in that sum focused solely and completely on the LAD regime. So if Buckingham had successfully argued that the LAD machinery wouldn’t work, it might well have walked into an even bigger walloping. Remember, a failed LAD invites the employer to claim all its foreseeable losses caused by delay; yes, all, meaning all it can prove. It may come to much less than the cap, or much more.

The court looked for some intention in the contractual bumf as to what would happen to general damages if the LAD cap fell down. But answers came there none. And this was scarcely odd, because no one had thought about it.

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple