Taylor Woodrow Holdings Ltd & Anor v Barnes & Elliott Ltd

A liquidated damages clause linked to sectional completion is void for uncertainty where the contract does not define the contents of each section or provide a workable mechanism for identifying them. The uncertainty prevents the employer from establishing what work remained incomplete and when, so the clause cannot be triggered. A related contractual mechanism for proportionately reducing liquidated damages on partial possession is likewise inoperable if the value of the relevant sectional works cannot be ascertained. The court may use business common sense when construing commercial documents, but cannot rewrite an uncertain contract. The contra proferentem rule applies only where there is a clearly identified ambiguity.

The claimants appealed under section 69(1) of the Arbitration Act 1996 from an interim award made by an arbitrator on 18 August 2004. The dispute arose from a JCT Standard Form of Building Contract with Contractors Design (1998 edition), as amended, for the refurbishment and conversion of a former hospital into residential units and associated facilities.

The arbitrator decided that the liquidated damages provisions were void for uncertainty and inoperable, and also constituted a penalty rather than a genuine pre-estimate of loss. The appeal concerned whether the contractual provisions for sectional completion, liquidated damages and partial possession were sufficiently certain and operable.

1. The appeal was dismissed. The arbitrator had correctly construed the contract and correctly concluded that the liquidated damages machinery was void for uncertainty and incapable of operation.
2. The contract contemplated six sections, but did not identify the works comprising each section. The contractor’s proposals identified living-unit works in the six sections, while external works and ancillary facilities formed an additional body of work without contractual allocation to particular sections. No sensible contractual mechanism enabled the sectional works to be identified for practical completion.
3. Clause 24 depended on failure to complete a section by its completion date. Without certainty as to the contents of a section, it was impossible to determine what remained incomplete or whether completion had occurred. There was therefore no effective trigger for the liquidated damages clause.
4. Clause 17.1.4, which provided proportional relief from liquidated damages following partial possession, was also inoperable. Although the value of the part taken into possession could be calculated, the contract provided no means of ascertaining the value of the relevant section. The required ratio could consequently not be calculated, and the liquidated damages would not bear a proper relationship to the section remaining incomplete.
5. The court was required to construe the commercial contract with business common sense and to endeavour to avoid frustrating reasonable commercial expectations. That approach did not permit the court to rewrite the agreement. The provisions were uncertain and inoperable, rather than ambiguous, so the contra proferentem rule did not apply.
6. It was unnecessary to determine the alternative issue whether the liquidated damages clause was a penalty, because the uncertainty issue disposed of the appeal. The judge stated that he could not fault the arbitrator’s approach to that alternative issue, but did not decide it.

The judgment was an appeal under section 69(1) of the Arbitration Act 1996 from an interim award made by the arbitrator on 18 August 2004. The appeal was dismissed.