Paul Darling QC

Paul Darling QC is a leading Advocate, Barrister and Queens Counsel

ICC developments – Publication of composition of Arbitral panels and measures to avoid delay in delivery of awards

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I was very interested to see that the ICC has now decided to publish the identity of Arbitral panels on its website. Absent request or agreement of the parties there will be nothing more. No case name or number A thought provoking development. At the very least, it will enable the world to see who the leading Arbitrators are. More than that it will demonstrate the quality of the dispute resolving cadre

Equally interesting is the decision to reduce fees when Awards are delivered late without good reason – that being three oaths for a panel of more than one and two months for a sole Arbitrator. It will be interesting to see how that plays out. Who knows ? If it works, they might apply it to the Courts !!!

A Happy Christmas to all my readers

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I hope that those who looked at this blog have found it interesting and helpful. In the New Year I am planning to update it weekly and add a new post per week.

In parallel and in response to some suggestions that I have received I am planning to prepare a series of ten articles, to be published again weekly, with some ideas about how to conduct heavy litigation and arbitration.

These are the chapter headings :

  1. Identifying strategies and lines to take.
  2. Pleadings and Statements of Case.
  3. Witness statements.
  4. Expert evidence.
  5. Documents and other  real evidence.
  6. Core bundles and document management at the hearing.
  7. Written opening submissions.
  8. Oral Submissions.
  9. Cross examination and witness handling.
  10. Written closing submissions.

Enjoy Christmas ! And see you in the New Year !!!

Paul

 

THE NEW LAW ON PENALTIES – The effect on sectional completion and partial possession

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Much has been written about the new law of penalties following the decision of the Supreme Court in Cavendish v Makdessi. The new test appears to be whether the clause is a secondary one “which imposes a detriment on the contract breaker out of all proportions to any legitimate interests of the innocent party in the enforcement of the primary obligation”. The fact that a damages clause is not a genuine pre-estimate of loss no longer means that it is penal.

Many of the cases about penalties have been construction cases. I appeared in Tilebox v Alfred McAlpine, a construction case, in which Jackson J identified the anomaly of the common law striking down penalty clauses. The Supreme Court has accepted the anomaly but narrowed it.

One of the old conundrums arose where there were provisions for sectional completion or partial possession but no mechanism for reducing liquidated damages from the figure chosen for the whole of the Works. Keating on Construction Contracts, at 100-006 is quite absolute about the position under the old law.

“Unless there are effective provisions for dividing the single sum between the sections or reducing it in proportion to the part taken into possession, the claim for liquidated damages will fail.“

Under the old law, that was putting it a little high to begin with. What if the figure reserved was £1 and this would not have been extravagant however minor the breach? On analysis the problem was that if you had multiple breaches leading to the same damages it was difficult to see how the sum could be a genuine pre- estimate.  The better view was that the choice of a single sum for multiple breaches created a presumption that the sum was a penalty and shifted the onus onto the party seeking to claim to save the provision. To do so the party would have had to show that the sum reserved was either a genuine estimate, or less, for the least serious breach that was covered.

Where this conundrum stands after Cavendish remains to be seen. Certainly the statement of principle in Keating cannot survive, even if it was right to begin with. As a consequence of the abolition of the requirement that the sum be a genuine pre-estimate of loss the effect of Cavendish is probably to put the matter wholly at large. It seems that in each case it will be necessary to look without preconception and see whether assuming the least serious breach possible the figure does or does not offend against the new test.

Procedural conditions precedent to liquidated damages

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In Henia Investments v Beck Interiors [2015 ] EWHC 2433 (TCC), Akenhead J. decided that under the JCT Form failure on the part of the Contract Administrator to make a decision in respect of a contractually compliant application for an extension of time would not render the Contract Administrator’s Non-Completion Certificate invalid nor prevent the Employer from deducting and/or claiming liquidated damages.

It will be recalled that there are two pre-conditions in the JCT Form in Clause 2.32.1 to the deduction of liquidated damages. One is that the Contract Administrator has issued a Non-Completion Certificate and second, the Employer has notified the Contractor that he may require liquidated damages to be paid by one route or another.

What if the Contractor has made a compliant application for extension of time which the Contract Administrator has not dealt with in accordance with the Contract? What if, for example, the Contract Administrator has simply defiantly ignored the application and indeed said that he was doing so?

Akenhead J. decided that that did not matter.  He appears to have been heavily influenced by the fact that if the Contract Administrator did so behave (and it is possible to think of many scenarios less dramatic than the example I have given), then the Contractor could simply go to adjudication.

Akenhead J. had to consider with an extract from Keating on Construction Contracts:

“Similarly where a contract imposes a duty on the architect to extend time and he fails to perform that duty in accordance with the contract, the employer is unable to claim liquidated damages.”

No authority was cited for that proposition.  It is easy to understand the logic behind it.  The entitlement to liquidated damages arises because “the contractor has failed to complete by the Completion Date.”  That is the starting point and the foundation for an employer’s claim for liquidated damages.  It was either the original date or according to the Contract, such other date as is fixed …. under clause 2.28.”.  Then surely unless the  Contract  Administrator has dealt with the application in accordance with the contract there is no valid date against which to deduct liquidated damages.  The contrary argument that the date remains as originally or previously fixed until changed ignores the fact that the Employer be benefitting then from the Contract Administrator’s wrong.

Equally, the fact that now there is now a speedy mechanism for deciding whether there should be an extension of time – by adjudication – might be thought to miss the point.  The speed of the dispute resolution process cannot be relevant. The short point is that until satisfied the Employer would on the Judge’s finding, have an accrued right to liquidated damages. And that despite the fact that its own agent had, on the extreme facts postulated, deliberately ignored the Contract.

Furthermore, the Contractors right to have the issue decided by the Contract Administrator, familiar with the facts has been ignored. Is the Contractor not entitled to that decision even as a dry run ?

All of what Akenhead J. said was obiter dictum as by the time the case came to court, the point did not arise on the facts. It was good of him to decide it.   It will mean, though, that  the paragraph in Keating will need review.

This is a point to be argued again, at first instance and no doubt in the Court of Appeal.

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