How many errors can one contract have in their clauses relating to liquidated damages?
Genuine pre-estimate of loss
In Buckingham v Peel, the contract included a clause stating:
The Parties agree that… having given careful consideration to this matter, all LADs payable by the Contractor are considered by the Parties to be a genuine pre-estimate of the losses which the Employer will incur… arrived at without any inequality of bargaining position as between the Parties as a true bargain between the Parties; fair, given the nature and circumstances of the agreement; neither excessive, extravagant, unconscionable or oppressive in all the circumstances…
This approach seems fundamentally misunderstood.
Under English law, the case law has established that liquidated damages can be held to be a penalty if they are excessive, extravagant, unconscionable or oppressive in all the circumstances. But the need to establish they are a genuine pre-estimate or there was no inequality bargaining power no longer applies.
Waives right to challenge
The clause went on to say the Contractor waives absolutely any entitlement to challenge the enforceability in whole or in part of the liquidated damages provision.
Of course, the court case was about just that – the enforceability or otherwise of that provision! English courts have never liked parties choosing to oust their jurisdiction and neatly side-stepped this clause by noting that the dispute was abut certainty (within their inherent jurisdiction) and not about whether the amounts were a penalty.
Certainty
Certainty has two distinct roles:
- we need certainty on essential terms before a contract exists between the parties;
- we need certainty on any specific term before the court will enforce that term.
As a contract had been signed, this was not a debate about whether a contract existed.
The contractor sought to argue that the liquidated damages were unenforceable or void for lack of certainty, not as a penalty but because they were were defectively drafted or incomplete.
[How ironic when the contract included a clause which stated that each Party confirms that it does not enter into the agreement with any expectation that this schedule of liquidated damages will be unenforceable for any reason.]
The contract contained two different dates for completion of the works (in a schedule of liquidated damages, and in the contract particulars). However, the court managed to interpret the contract to give effect to the parties’ intentions – the earlier date was aspirational but not linked to recovery of liquidated damages.
There were other errors or inconsistencies in the contract but the court managed to construe the contract provisions as certain.
What should you do?
Aim for a clear consistent contract – and get a second pair of eyes to check for errors or omissions (a key cause of disputes) before you sign.
Case: Buckingham Group Contracting Ltd v Peel L&P Investments and Property Ltd [2022] EWHC 1842
