Applying liquidated damages

Bath & North East Somerset District Council can trace its ownership of the site of the hot springs in Bath to a grant of title by Queen Elizabeth I in 1590.
In 2000, the council undertook the restoration of the spa buildings on the site for use as leisure and health facilities. It entered into a contract under the standard JCT form with Mowlem for these works, which were expected to be completed in 2002. Unfortunately that did not happen.
By mid-2003, problems were apparent in the paint coatings that had been applied to the pools on the site. The pools were leaking. The council attributed responsibility to Mowlem's workmanship. Mowlem responded that the fault lay elsewhere, in inadequate design or specification of inappropriate materials.
Eventually the council instructed Mowlem to remove the entirety of the paint finishes and associated fillers back to the substrate. The instruction was given under the provisions of clause 8.3 of the contract, which empowers the architect to instruct the contractor to open up work for inspection or to arrange for tests of any materials and goods.
Mowlem objected to an instruction for the removal of all paint issued under the opening up and testing provisions of the contract. It contended that the matter had moved on from there. Instead, it requested that the instruction be given under clause 13, such that the work would be treated as a variation to the contract works.
Quite why Mowlem objected in this manner is not clear. If it was subsequently proved that it was blameless, the JCT contract would normally provide it with a remedy for extension of time and costs regardless of which clause underpinned the instruction. Nevertheless, Mowlem refused to carry out the work in accordance with the instruction under clause 8.3.
The council defiantly stood its ground and gave notice to Mowlem under clause 4.1.2 of the contract, indicating that Mowlem was to comply with the instruction within seven days. In the event that Mowlem failed to do so, the notice indicated that the council would instruct others to carry out the work and the costs of so doing would be charged to Mowlem's account.
Seven days later, instructions were duly passed to an alternative contractor (Warings), which was refused access to the site
by Mowlem.
Escalating dispute
The next and perhaps inevitable stage of this escalating dispute came when the council applied to the court for an injunction restraining Mowlem from denying Warings access to the
site to carry out the paint
removal works.
That application was heard in the Technology and Construction Court in October of last year and His Honour Judge Seymour QC granted the council the injunction it sought. From there, last week the matter was heard again in the Court of Appeal. Again, the council was successful in obtaining its injunction.
Judge Seymour was clearly unimpressed with Mowlem's argument that the situation had gone beyond testing under clause 8.3. He completely missed the point as to the relevant use and consequences of that clause. The decisive question, as far as he was concerned, was whether or not an injunction should be granted "as a matter of convenience" following the guidance of Lord Diplock, who said that an interim injunction should be granted where the plaintiff "may in the meantime have suffered harm and inconvenience for which an award of money can provide no adequate recompense".
Mowlem's position in respect of this argument was that the contract carried provisions for liquidated and ascertained damages to the tune of £12,000 per week and, if it were proved in the long run that Mowlem was at fault, then the council would be adequately recompensed by the payment of those damages for the full period of delay.
The council accepted that it would be bound in any claim for delay by its contractual agreement regarding liquidated damages.
However, its true loss would be considerably higher if the project were to be stuck on hold while these disputes were resolved. There would be an indefinite stalemate while the parties disputed the causation of the defect, and the council would suffer a significant loss and damage which was in excess of the rate of liquidated damages payable under the contract. Moreover, the council contended that there would be a negative effect on economic regeneration within the area and on public confidence in the council. The council did not want to be associated with a project which had moved from the status of "Eden" to "Dome".
Judge Seymour agreed with those propositions. So too did the Court of Appeal. The liquidated and ascertained damages provisions of the contract represented a cap on the recoverable damages the council could obtain in the event of delayed completion of the project, but did not for any other purpose constitute a fair measure of the full loss that might be suffered by the council.
Having steadfastly ignored Mowlem's complaints over the use of clause 8.3, the court held that Mowlem was in breach of contract by refusing to permit the council to engage its own contractor to carry out paint removal works. The agreement on liquidated and ascertained damages was not an agreed price to permit Mowlem to breach its contract.
The Court of Appeal therefore dismissed the appeal and upheld Judge Seymour's decision to grant the injunction. The council was entitled to choose any particular contractual step that it regarded as open to it and there was no basis on which Mowlem could properly complain that the council should have taken some other step. It was obliged to give access to the council's contractor to carry out remedial work.
All of which has proved to be something of a sideshow, since immediately prior to the appeal the council finally issued the variation instruction that Mowlem was looking for. Whether that means that the question of liability for defects is now resolved is quite another matter.