Cases - CFW Architects v Cowlin Construction Ltd

Record details

Name

CFW Architects v Cowlin Construction Ltd

Date

[2006]

Citation

EWHC 6 (TCC)

Keywords

Construction contracts - liquidated damages - design and build contract - delay by architect - repudiation by architect - requirement for plans in order for contractor to fulfil design and build contract - whether penalty or liquidated damages clause

Summary

This dispute concerned the construction of houses for military personnel in Tidworth, Wiltshire. The claimant architect was retained by the defendant contractor to carry out and coordinate the defendant's design package for the works. HHJ Thornton QC held that the claimant architects repudiated the contract, such repudiation being accepted by the defendant. The contractor sought to recover (amongst other things) a sum of over £400,000 representing liquidated damages which had been levied upon it by the employer pursuant to the GC/Works/1 (edition 3) 1998 revision standard form design and build contract between the employer and the contractor. The actual figure claimed by the contractor against the architect for liquidated damages was paid to the employer following a settlement between the employer and the contractor.

The design and build contract provided for liquidated damages calculated on a house-by-house basis. The houses were to be used for relocating military personnel and, as a result, the LAD provision expressly comprised (amongst other things) the cost of alternative accommodation for a six-month period (this being the minimum period in respect of which alternative accommodation could be organised).

The architect sought to avoid this head of loss on the grounds that the liquidated damages provision in that contract was penal, arguing that if (as was the case) an extension of time had been granted, then the employer would have had to enter into alternative rental arrangements in any event, and thus should not have passed on such costs to the contractor.

The Court held that whilst the liquidated damages provision was 'potentially harsh', it was nonetheless enforceable; although it was not a certainty, it was possible that the alternative accommodation charges could arise at the point when liquidated damages first became payable (as opposed to arising in any event as a result of a delay for which the contractor was not responsible).

This appears to be a reformulation of the 'greatest loss that could conceivably be proved to have followed from the breach' principle as articulated by Lord Dunedin.

After commencement of the works, the contractor introduced a further phasing arrangement for the houses, but this never became part of the contract. The employer refused to take over houses in accordance with the phasing arrangements, and instead insisted on taking possession only when the development was complete. In delivering his judgment, HHJ Thornton QC did not suggest that this would have precluded the recovery of liquidated damages. However, in line with the authorities above, it seems that if the employer had taken modified phased possession of the houses, it may have encountered difficulties in enforcing the LAD provision. (This is so even though the clause in question provided for completion on a house by house basis (as did the LAD clause in Bruno Zornow). However, given that the contract in CFW v Cowlin provided for phased completion in any event (as opposed to the contract in Bruno Zornow which did not), it is possible that a court could construe a 'modification' of that phasing as compatible with the underlying LAD provision. Caution should be exercised in circumstances where an employer may wish to either introduce or modify a sectional completion provision during a building project whilst also intending to preserve his right to claim liquidated damages.)