Injunctions and the adequacy of damages – Bath and North East Somerset District Council v Mowlem Plc

As part of a Millennium project initiative, and in conjunction with National Lottery funding, Bath and North East Somerset District Council (the "Council") entered into a contract with Mowlem Plc ("Mowlem") for the restoration and regeneration of Heritage Spa Buildings and the construction of a new building on site.

The Facts

The parties entered into JCT's standard form of building contract Local Authorities with Quantities 1998 edition as amended on 30 August 2000 (the "Contract") and the project was due for completion in 2002. However, the project suffered delays and in mid 2003 there were problems with the paint coatings applied to the four pools on site.

• An architect's instruction was issued on 22 August 2003 requiring Mowlem to remove the paint back to substrate in accordance with clause 8.3 (the opening up and testing provisions in the Contract);
• Mowlem refused to comply and on 5 September 2003 the Council issued a letter stating that in accordance with Clauses 8.3 and 4.1.2 of the Contract Mowlem must comply with the architect's instruction within seven days or the Council may bring in another contractor to undertake the works instructed.
• Subsequently, the Council appointed Warings Contractors Limited ("Warings") to go on site and remove the paint but Mowlem refused to let Warings on site. As a result, the Council sought an interlocutory injunction from the courts to restrain Mowlem from preventing Warings going onto site until the dispute over the paint was resolved.
• In the first instance, the court granted the injunction in favour of the Council; Mowlem appealed.

Balance of Convenience and adequacy of damages

In the first instance the case came before Judge Seymour who stated that the decisive question was held to be whether on the "balance on convenience" an injunction should be granted, as no interlocutory injunction should be granted if the Council could be adequately compensated by the award of damages for Mowlem's continuing actions to prevent Warings gaining access to the site.

Mowlem argued its case for the balance on convenience on two points:

1. That if the injunction were granted and Mowlem were required to allow Warings on site to comply with the instruction then vital evidence as to Mowlem's workmanship would be lost. Mowlem voiced concerns that the substrate would be damaged in the paint removal process and that it would leave the parties in the position where it would be impossible to determine the validity of any workmanship claims at trial.
2. That if the Council were to succeed at trial then Mowlem would be adequately compensated by an award of damages in the form of liquidated and ascertained damages (LADs) for any losses it sustains whilst Mowlem is preventing Warings entering onto site.

The weekly rate of LADs were shown to be less per week that the actual losses incurred by the Council and the extent of other potential losses which might be incurred by reason of further delay to the project were considered including the effect further delay would have on public confidence and economic regeneration.

Judge Seymour held that, on the evidence, allowing the injunction would not prejudice Mowlem, as if any evidence of deficiencies were destroyed in the paint removing process then it would be to Mowlems's advantage. He determined that if at trial the Council was confined to recovering LADs under the contract then the Council would not be adequately compensated for its losses. As such the balance of convenience was seen to be in the Council's favour and the injunction was granted.

On Appeal

Mowlem appealed on the basis that the liquidated damages provision in the Contract was mutually binding on both parties as a pre-determined and contractually agreed amount of recoverable damages for delay and that as such the Council could not claim that the recovery of LADs would be inadequate compensation in damages in the period up to trial.

The appeal judges considered Mowlem's argument and stated that:

1. The argument depended heavily on an assumption that in agreeing a figure for LADs the parties have agreed an amount representative of the full loss they are likely to suffer. The court highlighted that this position does not take into account the commercial realities of construction contracting and the fact that the figure may have been deliberately limited for commercial reasons or calculated simply to cover costs that are easily quantifiable. The appeal judges concluded that there were doubts as to the soundness of this assumption when taken to its logical conclusion, as Mowlem postulated that if the parties had clearly agreed a limitation clause or a cap on liquidated damages then the court should ignore the fact that once the limitation had been reached one party would continue to suffer loss which is irrecoverable.
2. Mowlem's argument goes beyond the issue of LADs as a contractually agreed measure of damages to suggest that pre-agreed LADs should also be conclusive in the claim to an injunction which is a remedy designed to limit losses and claims for any damages incurred. The Council asserted that an agreement between the parties in respect of LADs is not an agreed price at which Mowlem's is permitted to breach it's obligations under the Contract and the imposition of LADs should not fetter the courts ability to grant any other appropriate relief. The appeal judges were in agreement with the Council's position on this point.

The appeal judges added that the court recognises the difficulties associated with the quantification of damages and that in determining whether an interlocutory injunction should be granted, the court understands that a party left to a claim in damages may suffer a loss which could be completed avoided by the grant of the interlocutory injunction. The appeal judges also considered that the Council could rely on the fact that in the circumstances delay in the progress of the project would cause further losses in respect of damage to economic regeneration and a general loss of public confidence in the Council. Such losses would be unquantifiable and largely irrecoverable and that this could be a factor to be considered in ascertaining whether damages are an appropriate and adequate remedy.

Therefore the Court held that, despite the existence of LAD provisions in the Contract, the Council may rely on the argument that the level of loss the Council would suffer if the injunction were not granted meant that if left to a claim in damages it would not receive adequate compensation. Accordingly, Mowlem's appeal was dismissed.

For further information contact Karen Young on +44 (0)20 7367 2448 or at karen.young@cms-cmck.com