Cases - Alfred McAlpine Capital Projects Ltd v Tilebox Ltd

Record details

Name

Alfred McAlpine Capital Projects Ltd v Tilebox Ltd

Date

[2005]

Citation

EWHC 281 (TCC)

Keywords

Construction contracts – JCT standard form contract – delay –damages - liquidated damages – penalty clauses – genuine pre-estimate of loss – reasonable rate

Summary

McAlpine were a contractor to Tilebox and completed a development very substantially late. Liquidated damages in the building contract were fixed at £45,000 per week or part thereof and had amassed to a total sum of £5.4m.

McAlpine sought a declaration to the effect that the liquidated damages were a penalty and thus were unenforceable.

After reviewing the existing law on liquidated damages the judge confirmed that there must be a substantial discrepancy between the level of damages stipulated in the contract and the level of damages which is likely to be suffered before it can be said that the agreed pre-estimate is unreasonable.

He further confirmed that because the rule about penalties is an anomaly within the law of contract, the courts are predisposed, where possible, to uphold contractual terms which fix the level of damages for breach. This predisposition is even stronger in the case of commercial contracts freely entered into between parties of comparable bargaining power.

After a thorough review of the likely losses anticipated at the date that the contract was entered into and a review of the existing contractual provisions the judge concluded that on one interpretation of the contracts it was most unlikely although just conceivable that the total weekly loss would be as high as £45,000. Even against this background the judge decided that the clause should not be struck down as a penalty. He gave 5 reasons for his decision:

1. The gap between the range of possible future losses and £45,000 was not nearly wide enough to warranty characterising this clause as a penalty.
2. A genuine attempt had been made to estimate the losses which would flow from future delay and while, if this estimate had been substantially wrong, the genuineness of the efforts would not have saved the clause, nevertheless it is a relevant factor.
3. The difficulty which was inherent in the exercise of estimating future losses makes it particularly sensible in this case for the parties to have agreed upon a weekly figure.
4. The judge was predisposed where possible to uphold contractual terms which fix the level of damages. This predisposition was somewhat stronger in this case where it involved a commercial contract made between two parties of comparable bargaining power.
5. During the course of the pre-contract negotiations, the level of liquidated damages was the subject of specific debate. A figure of £45,000 was considered not only by the parties, but also by their legal advisors. The fact that the clause survived such scrutiny is further evidence that, as at the date when the contract was entered into, the liquidated damages provision was reasonable.

Having decided that the weekly amount of liquidated damages did not amount to a penalty the judge was asked to further consider whether the fact that the actual foreseeable damages suffered by the employer would significantly reduce (to about 20% of their full value) after about 40 weeks whereas the liquidated damages continued unreduced would make the liquidated damages clause a penalty. The judge rejected this argument on the basis that both parties took the view that, if there was a delay, it would be for substantially less than 40 weeks and against this background it was perfectly sensible and reasonable for the parties to have agreed the weekly figure without limitation.