RIGHT TO DEDUCT LIQUIDATED AND ASCERTAINED DAMAGES SURVIVES GRANT OF AN EXTENSION OF TIME

Reinwood Ltd v L Brown & Sons Ltd [2008] UKHL 12, 20 February 2008

In Reinwood Ltd v L Brown & Sons Ltd [2008] UKHL 12, 20 February 2008, the House of Lords dismissed an appeal from the decision of the Court of Appeal (on which see our August/September 2007 issue, pp 5–9) and held that the cancellation of a certificate of non-completion by the subsequent grant of an extension of time did not have the consequence that the employer could no longer rely on the certificate of non-completion for the purpose of deducting liquidated and ascertained damages when it had paid out on the interim certificate prior to the grant of the extension of time. The cancellation of the certificate of non-completion did not operate retrospectively. The right to deduct liquidated and ascertained damages was held, as a matter of construction of the contract, to arise on the giving by the employer of notice of intention to deduct and the exercise of that right was not affected by the subsequent grant of an extension of time. To the extent that the grant of an extension of time reduces the liquidated and ascertained damages which an employer can retain, the employer must repay that sum within a reasonable time; but the grant of an extension of time was held not to deprive the employer of the initial right to deduct the liquidated and ascertained damages at least in the case where the employer pays out on the interim certificate prior to the grant of the extension of time.