Cases - McAlpine v Tilebox

Record details

Name

McAlpine v Tilebox

Date

[2005]

Citation

BLR 271 TCC

Keywords

Construction contracts - liquidated damages - objective test - whether penalty or liquidated damages clause - whether honesty or genuineness of employer relevant to test of liquidated damages clause

Summary

The defendant was a development company that engaged the claimant contractor to develop a property in Guildford into a 90,000 sq ft commercial premises suitable for a corporate headquarters. The contract, which took the form of the JCT Standard Form of Building Contract with Contractor's Design (1998 edition), provided for liquidated damages to be payable at a rate of £45,000 per week. McAlpine claimed that this sum was penal; Tilebox retorted that its potential liability to the ultimate employer, Standard Life (including lost rental income and the erosion of Tilebox's completion payment under a pain/gain share mechanism) was included within the LAD clause and the provision was thus enforceable.

Jackson J, following a comprehensive analysis of the authorities, found that the LAD clause was a reasonable pre-estimate of losses and was actually lower than the actual losses suffered by Tilebox. On the facts, it was foreseeable that Tilebox's potential losses arising out of delay could include its liability to Standard Life in terms of lost rental income and its inability to recover all or part of its completion bonus.

In order to avoid an LAD provision, it was insufficient to show that payments recoverable under that provision are disproportionate to those allowable at common law: a substantial discrepancy is required between estimated loss and the LAD sum. Although the pre-estimate has to be genuine, the test to be applied is an objective test, and does not turn on the honesty or 'genuineness' of the employer who makes such a pre-estimate.

The Court was obliged to consider whether a liquidated damages clause amounted to a penalty. In reaching his judgment, Jackson J appears to suggest that a strict contra proferentem approach to the construction of liquidated damages provisions is somewhat outdated, especially given that in most commercial building contracts the employer and contractor operate from positions of equal bargaining power. Although Jackson J's reasoning ultimately relates to a liquidated damages clause, it is suggested that the same can legitimately encompass provisions regarding extensions of time.