LIBERTY MERCIAN LTD V DEAN & DYBALL CONSTRUCTION LTD

[2008] EWHC 2617 (TCC), Technology and Construction Court, Mr Justice Coulson, 31 October 2008

Contracts (construction) – Construction works scheduled to be completed in phases – Liquidated damages clause for delay structured in sections – Delay under first section cascaded down to following sections – Whether clause a penalty

A construction contract provided for liquidated damages and a review mechanism in the customary form. The construction works were intended to be carried out sequentially and the liquidated damages clause was accordingly structured in sections. A delay occurred under the first section which led to delays also under sections 2, 3, 4 and 5. Coulson J held that this did not lead to the clause becoming a penalty. The completion of the works was always intended by both parties to be sequential and the fact that the liquidated damages varied from section to section was a strong indication that they were a genuine pre-estimate of loss. The contract was entirely workable as it was.