JCT and clause 24

In Temloc Ltd v Errill Properties Ltd (1987) 39 BLR 30, the parties had inserted a rate of “£nil” in the Appendix of the contract, in relation to clause 24 (the provision for liquidated damages in the JCT form of contract).

The Court of Appeal held, in Temloc, that inserting “£nil” had the effect of excluding unliquidated (as well as liquidated) damages for delay because:

  • the contract contained a valid and enforceable liquidated and ascertained damages provision (for an amount of “£nil”); and
  • as a matter of interpretation - construing the JCT form of contract as a whole - the parties’ agreement in relation to liquidated damages for delay (even at a “nil” rate) replaced the remedy of unliquidated damages (that would otherwise be available for breach). It was not necessary for there to be an express exclusion clause to preclude the remedy of unliquidated damages.

In the following case, a “Temloc” issue arose, but in different circumstances:

Chattan Developments Ltd v Reigill Civil Engineering Contractors Ltd [2007] EWHC 305 (TCC)

The parties entered into an oral agreement which incorporated certain terms of the JCT Standard Form of Building Contract 1980 Private With Quantities (with Amendments 1 - 18). This oral contact was evidenced by a follow-up letter by the contractor to the employer which included the statement:

“Liquidated and Ascertained Damages - n/a. All Relevant Events and List of Matters to remain unaltered”.

The arbitrator decided that, on the facts of this case, the exclusion of liquidated damages from the contract had the effect of preventing recovery of unliquidated, as well as liquidated, damages for delay.

The employer appealed under section 69 of the Arbitration Act 1996 on a question of law arising out of the arbitrator’s decision. The employer argued that, as a matter of law, the deletion of clause 24 of the JCT Standard Form of Contract removed the employer’s right to receive liquidated damages but did not affect its entitlement to receive unliquidated damages.

The argument in favour of unliquidated damages applying

The employer argued that it was entitled to recover unliquidated damages because, under the oral agreement:

The provision in clause 24 of the JCT Standard Form of Building Contract had been deleted. [Editors’ note: in Temloc, clause 24 had remained in effect - the amount recoverable was “£nil”.]

  • Other provisions of the JCT Standard Form of Building Contract had been retained, in particular clause 23 (which required the contractor to complete the works by the completion date); and clause 25 (which provided for extensions of time for “Relevant Events”). 
  • It was clear from the House of Lords’ decision in Gibert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689, that clear words were required for the parties to exclude a remedy for a breach of contract. Following Gilbert Ash, the employer could only have lost its right to recover unliquidated damages if the follow-up letter (sent by the contractor, which evidenced the oral contract) had expressly excluded unliquidated damages.

Did unliquidated damages apply?

The judge noted that there would have been much force in the employer’s arguments if the parties had 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. [Editors’ note: in that case, it seems that the issue would then have been whether it was possible to find a clear intention to exclude unliquidated damages, construing the terms of the written agreement as a whole.]

However, the parties had not entered into a written agreement. The employer’s arguments lost their force because:

  • the parties had entered into an oral agreement (the terms of which had been evidenced in the letter form the contractor to the employer); and
  • the arbitrator had found, as a matter of fact, that the intention of the parties was that the employer would have no right to damages at all for late completion, either liquidated or unliquidated.

The court found that the arbitrator’s finding of fact was unimpeachable. There was no error of law.

Editors’ comments

The judge’s comments indicated that the result might well have been different if the parties had entered into a written agreement which had deleted clause 24 and retained clauses 23 and 25. If this is the case, then - where parties enter into a written agreement - the position may be that:

  • where parties delete clause 24, the employer would be entitled to recover unliquidated damages; whereas
  • where parties retain clause 24 (but state that the damages are to be “£nil”), the employer would not be entitled to recover unliquidated damages (following the Temloc case).

If this is the case, there is a clear risk that unintended consequences could result. If parties agree that an employer will not have the right to levy liquidated damages, it is clearly advisable to avoid any argument over its right to recover unliquidated damages by stating expressly whether or not the employer is to have the right to claim such damages. View Chattan Developments Ltd v Reigill Civil Engineering Contractors Ltd [2007] EWHC 305 (TCC)