Braes Of Doune Wind Farm (Scotland) Ltd -v- Alfred McAlpine Business Services Ltd by MacRoberts LLP
This case concerned a contract entered into by Braes Of Doune Wind Farm (Scotland) Ltd (as Employer) and Alfred McAlpine Business Services Ltd (as Contractor) in November 2005.
The contract was an Engineering, Procurement and Construction contract ("EPC") in terms of which McAlpine had agreed to carry out works in connection with the provision of 36 wind turbine generators near Stirling.
A dispute in relation to the Braes of Doune's entitlement to liquidated damages for alleged culpable delay on the part of McAlpine was referred to arbitration. The Arbitrator found that the liquidated damages provision was unenforceable on the ground that it was insufficiently certain. He determined that there was no entitlement to withhold or set off against sums otherwise due to McAlpine and issued an award in favour of McAlpine.
Although the works were situated in Scotland the contract was governed by English law and conferred exclusive jurisdiction on the English courts. Braes of Doune therefore applied to the English courts for leave to appeal on a point of law.
Justice Akenhead noted in the first instance that it is unusual for liquidated damages clauses, freely agreed by the parties, to be found unenforceable. However, he went on to state that there is established authority under English law that if such damages amount to a penalty the clause would be unenforceable. That is also the position under Scots law.
Although his own analysis would have been different to the Arbitrator's and he disagreed with part of the Arbitrator's reasoning, Justice Akenhead considered that the Arbitrator's decision was ultimately right. In his view the most convincing argument advanced for McAlpine was that the liquidated damages clause could well impose a liquidated damages liability on McAlpine in respect of delays to individual wind turbine generators ("WTGs") caused by the wind turbine contractor.
The extension of time clause allowed McAlpine extensions to the extent that overall or critical delay was caused by the wind turbine contractor. There was, however, no provision in the contract for sectional completion of the works. Thus, until all of the WTGs were complete and fully connected into McAlpine's works, the works could not be completed. In circumstances of concurrent delays where McAlpine caused delay but also individual WTGs were delayed by the wind turbine contractor, McAlpine could not obtain relief from liquidated damages. Despite there being a clear intention to the contrary, namely the extension of time provision, McAlpine could end up paying liquidated damages for delays caused by the Wind Turbine Contractor's defaults in completing their work on the turbines.
In the foregoing circumstances Justice Akenhead considered the imposition of such damages to be a penalty and therefore unenforceable.
Clearly each case will turn on its own particular facts. It was noted by the judge that this particular contract provision was a one off LAD arrangement. The unusual nature of it was due to the juxtaposition of the work of the Contractor and the Wind Turbine Contractor. However, there are lessons to be learned. Great care is required when drafting the liquidated damages clause and its interaction with the extension of time provisions particularly when sectional completion considerations may come into play. The specific mechanism for calculation of the liquidated damages should also be thought through carefully. Failing to do so could, as with the case, result in the parties intentions being frustrated.