2 South West Building & Construction SOUTH WEST


March 2011


BUILDING & CONSTRUCTION


Tavistock Newspapers Ltd, 14 Brook Street, Tavistock, Devon, PL19 0HE. Tel: 01822 613666 Fax: 01822 618222


INSIDE THIS ISSUE


■ NPS project in the spotlight - Page 6 ■ Focus on Exeter area - Page 8 ■ Environment Topics - Page 12 ■ Bond Timber - Page 16 ■ Ellis Engineering - Page 19 ■ Welding and Fabrication - Page 20 ■ Fire Safety - Page 22 ■ Renewable Heat Incentive - Page 25 ■ Focus on Plymouth area - Page 28 ■ Alzheimer’s Research UK - Pages 31


CAPTION FOR FRONT PAGE PICTURES: News and information from the businesses on the front cover is featured in this issue of South West Building & Construction magazine.


Quote of the month


‘


When they call you iconic and a legend, what they mean is old - Veteran actor Harrison Ford


STEPHEN HOMER


Liquidated damages


Stephen Homer, a former chairman of the CIC South West (Devon & Cornwall), discusses a recent case.


How you can contact us


EDITORIAL Editor: Paul White


Main contributor: Andrew Townsend Paul White Communications


PO Box 40, Callington, PL18 9WB ADVERTISING:


Judith Jewell Tel/Fax 01837 658941 E-mail judithjewell@btinternet.com


MAILING LIST


If you have a change for our mailing list Tel 01822 615007 Fax 01822 618971


E-mail swbmail@internet-today.co.uk ’


AS readers will be aware, construction contracts can include a clause for liquidated damages which entitles one of the parties to compensation if the other party is in breach. The traditional approach of the courts is to uphold such a clause as long as it represents a genuine pre- estimate of loss and is not an attempt to impose a penalty on the party which breaches the contract. However, the recent case of Azimuti-Benetti v Healey suggests that the courts may be willing to adopt a more commercial approach to liquidated damages clauses than has previously been taken. Azimuti-Benetti builds luxury yachts and in September 2008 it had contracted with Mr Healey’s company to build a 60m yacht, with Mr Healey providing a personal guarantee. Mr Healey’s company paid the deposit for the yacht but failed to pay the first installment of 10 per cent of the contract price due in October 2008. Eventually, in January 2010 Azimuti-Benetti terminated the contract and sought summary judgment. In the contract was a clause which stated that if Azimuti-Benetti lawfully terminated the contract it would be entitled to 20 per cent of the contract price as liquidated damages, to compensate Azimuti-Benetti for its estimated


losses. In response to Azimuti- Benetti’s claim, Mr Healey argued that the liquidated damages clause was in fact a penalty clause and therefore he was not liable under his guarantee. The court concluded that the clause was not a penalty clause. The court decided that the dominant purpose of the clause was to strike a balance between the interests of the parties should the contract be lawfully terminated.


The judge applied the ‘commercial justification test’ and held that the clause was commercially justifiable because at the time the contract was entered into the dominant purpose of the clause was not to deter the other party from breaching the contract.


By applying the ‘commercial


justification test’ the court was entitled to take into account the commercial negotiations between the parties and the fact that both parties had had legal representation throughout the negotiations.


This case illustrates that the courts are increasingly willing to analyse liquidated damages clauses from a commercial perspective rather than rigidly sticking to the principle of genuine pre-estimate of loss. If anyone has any queries arising from this contract I can be contacted via email at s.homer@ashfords.co.uk.


South West Building & Construction Magazine


The magazine is now available to read on the world wide web


Visit: www.tavistock-today.co.uk and click on Special Publications


to view the magazine on line. Tel: Judith on 01837 658941 Email: judithjewell@btinternet.com


DISCLAIMER: The CIC SW (Devon & Cornwall) will not accept any responsibility for any loss occasional to any person acting or refraining from action as a result of the material included in this publication.


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