Court Of Appeal Reviews LADs Provisions In JCT Contract

Author:Mr Julian Bailey
Profession:CMS Cameron McKenna LLP

The JCT standard form of contract provides a specific contractual mechanism for deduction of Liquidated and Ascertained Damages ("LADs") by the employer in certain circumstances if the construction project is not completed on time (as do many other standard form construction contracts, although the procedure in the JCT is more complicated than most). In a recent case before the Court of Appeal the question was whether, if the employer had followed the procedure laid down in the contract for deduction of LADs, the later extension of time granted by the architect could render that (previously valid) deduction of LADs unlawful.

The court answered this question in the negative. The employer's right to deduct LADs crystallised when it issued the notice of its intention to deduct LADs. Even though the architect had subsequently granted an extension of time (which effectively reduced the amount of LADs payable), it did not follow that the original notice of intention to deduct LADs was unlawful. Indeed, the JCT Contract specifically provided that, notwithstanding any extension of time given by the architect, the employer could continue to rely on a previous requirement in writing that he could deduct LADs. All that it meant was that the employer would have to repay any sums so deducted within a reasonable time (often a matter of a few days). Arguably, as the deduction was lawful, interest would not have been due under the JCT form.

The issue was relevant because the JCT contract entitles the contractor to determine the contract if an employer repeats a previously specified default. The contractor had issued a notice of default in respect of the allegedly unlawful deduction of LADs. Then, following a later failure on the part of the employer to pay sums due, the contractor issued a notice of determination on the grounds of repeated specified defaults. The Court of Appeal's ruling meant that there had not been a repeated specified...

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