Member Article

The contract between Liberty Mercian and Dean and Dyball was for completion of a number of retail units. The Contractor was given a series of sectional completion dates for the works with liquidated damages payable if any of these were missed. The Contractor was late completing one of the early sections, and was therefore liable for LADs in respect of this section. However, because he was then delayed in starting all following sections it meant that (unless he could accelerate the works which proved extremely difficult with such a tight programme) he would almost certainly be liable for further LADs for the next section, and then so on throughout the contract.
Dean & Dyball asked the Court to rule that this method of levying liquidated damages was a penalty, and therefore invalid. The court rejected their arguments.

The employer suffered a separate financial penalty for each section of the works being delivered late, meaning the LADs were a genuine pre-estimate of loss. Therefore, the Court decided that this clause was not a penalty and the contractor was liable to pay the LADs set out in the contract. If the Contractor had negotiated a clause stating that the sections should have been completed within a certain time period of their commencement, the contractor would have escaped the full effect of having to pay these LADs. However, this would not have compensated the employer properly for his losses.

This case emphasises the importance of accurately recording completion dates and LADs, particularly where there is sectional completion under the contract.