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

<a href=

Are Collateral Warranties Construction Contracts? Timing is Key.

Clare Mendelle and Anna Sidebottom examine the recently decided case of Toppan v Simply[1], which has provided guidance on when collateral warranties may be considered “construction contracts” under the Housing Grants, Construction and Regeneration Act 1996 and so give the warranty holder the right to adjudicate.
Icons Court

Climate emergency or climate catastrophe?

Rob Hann asks how central & local government departments and councils can work together more effectively to combat the challenges to achieve net zero by 2050.
Icons Court

Big Problems Need Radical Solutions – Time to Play Monopoly with District Heating?

Steve Gummer examines how local authorities might make district heat networks a reality.
<a href=

The Judicial Review and Courts Bill

The Judicial Review and Courts Bill was introduced to the House last week on 21 July 2021. William Rose and Anna Sidebottom discuss the potential impact of the bill.
<a href=

Liquidated damages and termination

Clare Mendelle, Francesca Gallagher and James Goldthorpe provide an outline of the Supreme Court's recent decision in Triple Point Technology vs PTT Public Company Limited.

Mandatory Vaccination for Care Home Workers in England

The Government has announced that people working in care homes in England must be fully vaccinated against Covid-19 from October 2021, unless they have a medical exemption, write Rachel Murray-Smith and Francesca Gallagher.
Icons Court

Transparency in Procurement: Procurement Policy Note (“PPN”) 07/21

Julie Lau, Clare Mendelle and Beth Edwards outline the new regime for publishing procurement notices post-Brexit
Icons Court

When procurement law and contracts for interests in land meet

Colin Ricciardiello provides a case law update examining cases that have examined the overlap between a requirement to procure and a contract for the disposal of an interest in land.
tb w74 h74 crop int a734a5aec8e0dcb7849ee8ebeb84a53d

UK granted data protection adequacy decision

Charlotte Smith summarises the new data protection adequacy decision.

First Impressions on the New Subsidy Control Bill

Last week the Government published its new Subsidy Control Bill. The Bill represents a significant shift in the way in which subsidies are assessed and also provides some clarity about the regime that will replace the EU State aid regime, writes Peter Collins.
Icons Court

Managing new enforcement powers for councils under the Traffic management Act 2004

Rob Hann considers the recent legislative changes to traffic management in England, including the introduction of Clean Air Zones and widening local authorities enforcement powers for moving traffic offences.
Icons Court

Implementing Net Zero: Taking account of Carbon Reduction Plans in the Procurement of Major Government Contracts

The Government recently published the Procurement Policy Note 06/21. This will require suppliers bidding for major government contracts to provide a Carbon Reduction Plan at the selection stage and commit to achieving Net Zero by 2050, writes Clare Mendelle and James Goldthorpe.
tb w74 h74 crop int a734a5aec8e0dcb7849ee8ebeb84a53d

Public Procurement Update June 2021

On 3 June 2021, the Government issued the National Procurement Policy Statement (NPPS), and the associated Procurement Policy Note (PPN). George Dale explains what each document does.

What a bind: Section 106 planning obligations where there are multiple land interests

Rachel Lee and Christos Paphiti consider whether the case of R (on the application of McLaren) v Woking Borough Council impacts upon local planning authorities (LPAs) ability to properly consider the land interests and parties as regards to performance of specific obligations.
Icons Court

The use of experts only works when everyone plays by the same rules

Colin Ricciardiello looks at the use of expert witnesses in the wake of an important recent decision.
Icons Court

Unlawful Award of Contract

The High Court has ruled that the Minister for the Cabinet Office, Michael Gove, broke the law by giving a contract to a market research company, Public First, who are run by long-time associates of his. Anna Sidebottom, Francesca Gallagher and Clare Mendelle report.
Icons Date

Time after time: extending time for determination of a prior approval application

Rachel Lee and Christos Paphiti examine the time period for determination of Prior Approval (‘PA’) applications and explore how a local authority can extend the time period for determination.
Icons Date

The Cram Slam – Part 26A Restructuring Plans and Commercial Leases

David Nelson looks at the impact on landlords of a controversial High Court decision to allow a restructuring plan for a chain of health clubs.
Icons Court

The limits of an adjudicator's jurisdiction

Dr Paul Hughes and Anna Sidebottom look at the effect of Prater v Sisk [2021] on the ability of an Adjudicator to rely on previous 'out of jurisdiction' decisions between the same parties
Icons House

The Queen’s Speech and Judicial Review

Colin Ricciardiello looks at the likely effects of the government's proposed changes to the judicial review process.
Icons House

The Subsidy Control Bill

Ryan Copeland and James Hughes analyse the main provisions of the Subsidy Control Bill announced in the recent Queen’s speech.
Icons Court

Councils unable to hold meetings remotely from 7th May

Radhika Devesher considers the fallout from the High Court's decision that online council meetings cannot continue past 7th May and outlines the practical steps that councils can take to ensure that the decision-making process is not adversely affected.
Icons Court

You can’t claim that! Court finds exclusion clauses work just like any other clause

The recent case of Mott MacDonald Limited v Trant Engineering Limited serves as a timely reminder that exclusion clauses in construction contracts can and do work and will be enforced by the courts to prevent what may otherwise be valid claims write Clare Mendelle and James Goldthorpe.
Icons Date

Sparks Flying: Increasing Network Connectivity For Tenants

Lillee Reid-Hunt, James Nelson and Natasha Barlow look at the potential impact of The Telecommunications Infrastructure (Leasehold Property) Act 2021 on reducing delays in the installation of telecommunications equipment to leasehold properties.
Icons House

Subcontract held to govern works commenced before execution

Clare Mendelle and James Goldthorpe examine a case which considered which terms governed liability for works carried out prior to the execution of a contract.
Icons Court

No overlap between substance and jurisdictional issues

Clare Mendelle and James Goldthorpe examine the implications of Ex Novo Limited v MPS Housing Limited [2020] EWHC 3804 (TCC)]
Icons Court

Home is where the heart is

Bernadette Hillman and Christos Paphiti outline the new permitted development right and what it means for the property sector and planners
Icons Date

Can a worker get paid for sleeping?

Some jobs such as care workers, security guards and nightwatchmen require the individual to work night shifts where they may, with the approval of their employer, sleep during some or all of the shift, but nevertheless remain on standby during that time.
Icons Date

Can you decline to sponsor skilled workers under the new immigration rules?

Is there an obligation to consider resident workforce prior to employing migrants? Julie Bann and Aleksandra Wolek report.
Icons House

The Long Goodbye to the PFI

Rob Hann, Sharpe Pritchard’s Head of Local Government takes a look at the House of Common’s Public Account Committees’ recent report into the pending expiry of PFI contracts which contains some interesting recommendations….
Icons Court

Changes to the Electronic Communications Code

The Department for Digital, Culture, Media and Sport has commenced a consultation on changes to the Electronic Communications Code 2017 (the “Code”). James Nelson, Lillee Reid-Hunt and Natasha Barlow report.
Icons Court

The Heat Networks (Scotland) Bill

Until last week the heat network sector in Scotland was not specifically regulated. The recent Heat Networks (Scotland) Bill seeks to rectify this by creating a regulatory framework and licencing system designed to encourage the increased use of heat networks.
Icons Date

A step in the right direction

Rob Hann and Juli Lau outline Sharpe Pritchard’s response to the Government’s Green Paper on reforming the ‘outdated’ public procurement regime.
Rob Hann

Life on the Edge!

This week sees the launch of Sharpe Edge – the home of Sharpe Pritchard on Local Government Lawyer. We have created Sharpe Edge for local authorities who are looking for ways to help their communities rebuild and regenerate following the devasting impact of the Covid-19 Pandemic.
Icons Court

Teckal and Beyond….

In this article Rob Hann, Sharpe Pritchard’s Head of Local Government, takes a look at what isn’t covered in the recent Green Paper on Transforming the UK’s Public Procurement rules, namely the exception contained in regulation 12 of the Public Contracts Regulations 2015 (PCR 2015), commonly referred to as the Teckal exemption and asks whether Teckal is ‘fit for purpose’ in a post Brexit, post pandemic environment?
Icons Court

Jurisdiction Clauses & Enforcing Adjudication Decisions

The case of Motacus Constructions Ltd v Paolo Castelli Spa [2021] EWHC 356 (TCC) confirms adjudication’s status as an interim-binding measure and reinforces its importance as a dispute resolution forum in the construction industry.
Slide background