In a recent judgment on 12 November 2021, Mr Justice Eyre held that under a JCT Design and Build Contract, 2016 Edition (“DB 2016”) an oral agreement between the parties to forego liquidated damages (“LDs”) was binding. The Technology and Construction Court (“TCC”) found there was an agreement (and a final abandonment of rights by the Claimant) made during a telephone conversation. This case also provided helpful wider observations on the operation and enforceability of LDs and the reliability of witness evidence.
1. The Claimant, a property developer engaged the Defendant, a contractor to refurbish and extend student accommodation in Nottingham. There were delays in the performance of the works.
1.1 The Defendant’s case: these delays were to a limited extent due to the Covid-19 pandemic and the national lockdown but to a greater extent due to the Claimant’s failure to give timely possession of the site and to clear it of students. To which the Defendant relied upon emails to the Claimant and contended that these emails should operate as notices of delay, pursuant to cl.2.24 of DB 2016.
1.2 The Claimant’s case: the Defendant had failed to progress the works and to commit sufficient labour and resources to the works. The Claimant also denied that the Defendant’s emails were effective as no particulars of the effects of the delays had been provided, as required by cl 2.24 of DB 2016.
2. In the Contract Particulars, four sections of Works were identified. The Contract Particulars stated the rate of LDs (cl. 2.29) as follows:
“Section 1: For the first week, £1; For each week thereafter, £100 per bed per day for bedrooms apartment corridors and associated living / kitchen areas within a student apartment.
Section 2: At a rate of £100 per bed per day for bedrooms apartment corridors and associated living /kitchen areas within a student apartment.
Section 3: At a rate of £100 per bed per day for bedrooms apartment corridors and associated living /kitchen areas within a student apartment.
Section 4: £1,000 per week for all external areas.”
3. Issues came to a head on 13 November 2020 when the Claimant served a Pay Less Notice and a number of notices of intention to deduct LDs. The Defendant disputed the Claimant’s entitlement to make such deduction and referred the dispute to adjudication.
4. The Defendant argued that during a conversation between himself and a director of the Claimant, while each was driving on 14 October 2020, it was agreed:
4.1 that the Claimant would forego any entitlement to LDs; and
4.2 in return the Defendant agreed to forego any right to claim payment for loss and expense (“L/E”) as a result of the delay in the works.
5. The Claimant maintained there was no such binding agreement and to the extent that reference was made to it foregoing its right to claim LDs this was a waiver which it was entitled to and did revoke.
6. However, an adjudicator found there was an agreement. Procedurally, it was this decision which caused the Claimant to commence these TCC proceedings seeking a declaration that no agreement had been made on 14 October 2020.
7. There were two (2) central issues
7.1 The effect of the conversation on 14 October 2020 and whether this formed a binding agreement; and
7.2 If that conversation did not result in a binding agreement, was the Claimant precluded from seeking LDs? The Defendant raised (i) the validity of the non-completion notice and notice to deduct LDs (ii) that the LDs were unenforceable due to being penal and (iii) grounds of uncertainty and/or by application of the principle in Bramall & Ogden v Sheffield City Council.
8. The validity of the non-completion notice and noticed to deduct LDs:
8.1 the Defendant’s notice of delay to progress of the works and claim for an extension of time under cl 2.24 and cl 2.25 of DB 2016 did not prevent the Claimant issuing a non-completion notice and claiming LDs under clauses 2.28 and 2.29.
8.2 The Contract should operate on the basis of the Completion Dates which had not yet been altered (see judgment paragraphs 81 to 85).
9. LDs - unenforceable as being a penalty
9.1 the Defendant argued that the LDs provision was penal (in part) because “it was not the result of a bespoke assessment of the loss which might be suffered by reason of a breach of the Contract”.
9.2 LDs here did not constitute a penalty because:
9.2.1 there was in fact negotiation about the LD figures. The Defendant had obtained “a modest revision of the liquidated damages provision which had been proposed by the Claimant”; and
9.2.2 the sums were not considered to be “disproportionate when seen in the context of the consequences of a breach”
9.3 Was the provision for LDs inoperative and unenforceable by application of Bramall & Ogden v Sheffield City Council?
9.3.1 The approach adopted by O’Farrell J in Eco World–Ballymore Embassy Gardens Co Ltd v Dobler UK Ltd was adopted and despite the “cumbersome” LDs mechanism it was capable of being operated. There was not an automatic presumption that LDs weren’t enforceable simply because there was a single rate of LDs where there was sectional completion or partial possession.
Witness evidence – first impressions count
10. As a key take away, the judge provides helpful context as to how he came to objectively assess the “gist of the conversation” and resulting agreement between the two parties having heard witness evidence. The Judge said having regard to the “demeanour of the witnesses and the impression” formed having seen both in the witness box that “Mr Kite’s (the Defendant’s) recollection better accords with the truth of the conversation than does that of Mr. Ramanathan (the Claimant)”.
11. The reliability of witnesses’ recollection of events was said to be “significant”.
Accordingly it remains key to ensure parties present reliable witness evidence and maintain efficient record keeping specifically in relation to following up any oral agreements and / or variations in written form. Ultimately a witnesses’ impression is paramount but also the evidence will be considered “through the prism of the contemporaneous documents; of their subsequent actions; of those events which are accepted or clearly demonstrated to have happened; and of inherent likelihood”.