Construction contracts invariably contain liquidated damages provisions as the remedy for late completion of the contract works. Arguments are often raised by a paying party about the applicability of such provisions, when it wishes to avoid having to pay liquidated damages. The most common arguments raised are that they constitute a penalty and are unenforceable, or are no longer applicable as the time for completion is at large.

A different argument concerning liquidated damages was advanced in the case of Biffa Waste Services -v- Maschinenfabrik Ernst Hese GmbH (MEH). In addition to its entitlement to recover liquidated damages for “simple” delay (that is delay which is not caused by a breach of any obligation in the contract other than that to complete on time), Biffa contended that it was also entitled to recover unliquidated damages for delay which was caused by a breach of some other obligation in the contract (e.g remedying defects or not providing all necessary supervision), other than the obligation to complete on time. Accordingly, Biffa sought to recover its reasonable costs of mitigating delay from MEH. MEH rejected Biffa’s claims, stating the liquidated damages provisions constituted an exhaustive remedy for delay related losses.

Biffa engaged MEH to design and build a waste recycling plant under a Design and Build Deed. The Design and Build Deed included at clause 47.1, a provision for liquidated damages which contained the following wording:

“...the Contractor shall pay to the Employer the relevant sum.....as liquidated damages for such default.....(which sum shall be the only monies due from the Contractor for such default)...

...and....

...The payment or deduction of such damages shall not relieve the Contractor from its obligation to complete the Works or from any other of its obligations and liabilities under the Contract and shall be without prejudice to any other right or remedy of the Employer...”

The judge held that the words “....(which sum shall be only the only monies due from the Contractor for such default)...” had the effect of making clause 47.1 the exclusive remedy for such delay, noting that it would be consistent with the general position stated in Temloc Ltd -v- Errol Properties Ltd that a liquidated damages clause in a contract covers all damages for non-completion or constitutes an exhaustive remedy as to the damages payable by the Contractor in the event of a failure to complete the works on time.

The judge then considered Biffa’s argument that the wording “any other right or remedy” opened up a claim against MEH for unliquidated damages for delay where there was a breach of other provisions of the Design and Build Deed. The judge did not accept the argument that the liquidated damages clause made a distinction between a “simple” failure to complete and a failure to complete caused by a breach of another obligation. The judge held the words “any other right or remedy of the Employer” referred to rights or remedies which were not monetary in nature, such as those in relation to rates of progress and termination under the contract or at common law. The judge stated that it was those other rights which were not prejudiced.

The judge held that his view was consistent with the decisions in Piggott Foundations Ltd -v- Shepherd Construction Ltd where the liquidated damages provision prevented the avoidance of the cap on liquidated damages (capped at £40,000) by claiming damages for the breach of any other contractual provisions which had resulted from the failure to complete the work in the contract period, and Surrey Heath Borough Council -v- Lovell Construction Ltd where the liquidated damages were an exhaustive remedy for delay where a building had been damaged by fire.

Accordingly, Biffa was not able to recover its mitigation costs to avoid the delay; the judge considered the cost of taking such steps was included in the pre-estimate of the loss which formed the basis of the liquidated damages.

Whilst this decision turned upon the particular wording of the liquidated damages provisions, it provides further support for the proposition that liquidated damages clauses are, absent express words to the contrary, likely to act as an exhaustive remedy for all delay related losses.

- Gary Peters