Chattan Developments Ltd v Reigill Civil Engineering Contractors Ltd

Where parties orally agree that liquidated and ascertained damages will not apply, the court must determine objectively whether they intended to preserve a right to unliquidated damages or to exclude damages for delay altogether. Express words excluding unliquidated damages are not invariably required. The relevant question is the parties’ intention as established by the facts and circumstances of the agreement. An arbitrator’s findings of fact should be respected where they have a proper evidential basis and the correct legal principles have been applied.

Chattan appealed under section 69 of the Arbitration Act 1996 against an arbitrator’s determination of a preliminary issue arising from a construction contract. The contract concerned the construction of homes and associated site works. The parties had orally agreed that the liquidated and ascertained damages provision in the JCT form would not apply. The arbitrator concluded that the agreement excluded all damages for delay, including unliquidated damages.

Chattan contended that deletion of the liquidated damages provision left a contractual right to claim unliquidated damages. The central issue was whether the arbitrator had made an error of law in construing the oral agreement and in relying on the factual and commercial context.

1. The appeal was dismissed. The arbitrator had correctly determined the relevant question of law by identifying the agreement made orally at the meeting on 10 July 2002 and applying the law to the facts found.

2. The letter of 11 July 2002 evidenced the oral agreement but was not itself the contract. The court therefore had to ascertain objectively whether the parties intended merely to delete liquidated damages or intended that there should be no right to damages for late completion at all.

3. Temloc Ltd v. Errill Properties Ltd (1987) 39 BLR 30 established that, where a liquidated damages provision is intended to govern the relevant breach, it may be the sole remedy and unliquidated damages may be excluded by construction without an express exclusion clause. The same approach required interpretation of the agreement as a whole.

4. The arbitrator’s findings that the contractor was not to be exposed to the risk of damages for late completion, and that the parties were more likely to have intended to exclude all such damages, were findings of fact supported by the evidence. Express reference to unliquidated damages was not necessary in the circumstances.

5. The arbitrator’s reference to the commercial reasons for the employer accepting the arrangement was a permissible reality check based on the established facts. It did not amount to an error of law. The arbitrator had not adopted an erroneous view expressed by a witness about the need to write a right to unliquidated damages into the contract.

The conclusion that Chattan had no right to recover either liquidated or unliquidated damages for delay could not be faulted.

The judgment concerned an appeal under section 69 of the Arbitration Act 1996 from an arbitrator’s Award No. 2 dated 18 August 2006. The appeal was dismissed.