Chattan v Reigill [2007]

© Daniel Atkinson 2007 07 October 2007

The law and practice relating to liquidated damages is described in the article Liquidated Damages.

Many standard forms of contract provide for liquidated damages for the Contractor’s breach of the obligation to complete the works by the specified completion date. That is the case under JCT 1998 in which Clause 24 is the relevant clause.

If the rate for liquidated damages is stated to be “nil” or is left blank, on a matter of interpretation of the contract this may be the agreed level of damages Temloc Ltd v Errill Properties Ltd [1987] 39BLR34 CA. In practice the Employer will have lost any benefit in having a liquidated damages clause.

That is a different situation to one where the parties delete the liquidated damages clause. In that case the remedy of liquidated damages is removed leaving the remedy of unliquidated damages in the normal way by operation of law. In construing a contract for sale of goods or for work and labour or for both the starting presumption is that neither party intends to abandon any remedies for breach arising by operation of law. Clear express words must be used in order to rebut this presumption Gilbert-Ash (Northern) Ltd v. Modern Engineering (Bristol) Ltd [1974] AC689 HL.

It is possible however that during negotiations that the parties may agree not only to delete the liquidated damages clause but also the right to damages at all for late completion. This possibility was the issue in Chattan Developments Limited v Reigill Civil Engineering Contractors Limited [2007] EWHC 305 (TCC) which was an appeal from the award of an arbitrator.

Chattan and Reigill agreed terms for the construction of 14 homes and associated site works on a site in Trawden, Lancashire. The arbitrator found that an oral agreement which formed the Contract was reached on 10 July 2002. He found that the commencement of the works had already been delayed by approximately 6 months because of demolition work on the site taking longer than expected. Reigill’s tender had been the subject of negotiation and savings. There were significant delays expected on account of the revised design of the foundation, revisions to the drainage layout and the substitution of natural instead of artificial stone. Against that background the arbitrator accepted the evidence of Reigill that it was not prepared to be exposed to the risk of damages for late completion from day one of the Contract. He found that the commonly known purpose of the agreement was that Reigill were not to be put in a position where it would be exposed to the risk of damages for late completion. The arbitrator accepted Reigill’s evidence that discussions between the parties related to both liquidated and unliquidated damages.

Crucially the arbitrator found that when the parties agreed that liquidated and ascertained damages would not apply it is more likely that they intended there would be no right to damages at all for late completion, that is to say, either liquidated or unliquidated, than that liquidated damages would not apply but that there would be a right to unliquidated damages.

The agreement was not therefore just a matter of considering the JCT Standard Form with Clause 24 deleted and with Clause 23 retained.

Ramsey J deciding the appeal against the arbitrator’s award referred to Temloc Ltd v Errill Properties Ltd [1987] 39BLR34 CA and observed that the essential point was that where the parties had intended to apply liquidated and ascertained damages, even of “Łnil”, there was no ability to recover unliquidated damages for that breach. He held that as a result, when there is a valid and enforceable liquidated and ascertained damages clause within an agreement, those damages are the sole remedy for the particular breach to which they relate, commonly delay in completion. Unliquidated damages are not recoverable because the parties’ agreement of liquidated damages replaces the remedy which would otherwise be available for breach.

The question of whether unliquidated damages could be recovered was a matter of the interpretation of the agreement from which it was possible to find a clear intention to exclude that remedy. In the case of a written agreement, that clear intention could usually be derived by construing the terms of the written agreement as a whole. It was not necessary in Temloc for example for there to be an express exclusion clause to preclude the remedy of unliquidated damages.

In the case before Ramsey J, it was for the arbitrator to find, as a fact, what was said and done by the parties and then to apply the law to those findings to ascertain what objectively was the intention of the parties.

Ramsey J considered that there were two possibilities as to the intention of the parties. First that the parties had intended to delete the provision for liquidated and ascertained damages and to leave Chattan with the ability to recover whatever unliquidated damages for delay it could prove. Secondly, that the parties had intended to exclude all damages, liquidated or unliquidated, so that Chattan could not recover damages for delay.

Ramsey J held that the arbitrator made the relevant findings of fact and applied the correct principles of law in coming to the conclusion. Express reference to or exclusion of unliquidated damages was not necessary, given the background and the facts found by the Arbitrator. Had the parties expressed their intention by entering into a written agreement in an amended JCT Standard Form with Clause 24 deleted and Clauses 23 and 25 left applicable it might be argued otherwise, but in this case the parties entered into an oral agreement. The arbitrator’s findings of fact could not be and were not challenged. He had correctly applied the law to those facts.

As a result, his conclusion that it was the intention that there would be no right to damages at all for late completion, either liquidated or unliquidated, could not be faulted. There was therefore no error of law and the appeal was dismissed.