Completing the contract



Courts will interpret each liquidated damages clause on its own particular facts. For example, inserting 'N/A' in a clause or a schedule to describe the liquidated damages rate might be interpreted as meaning 'liquidated damages do not apply - nothing is payable', or as meaning 'liquidated damages do not apply - general damages are payable'.

If the word 'nil' is inserted in a clause or a schedule as the liquidated damages rate in circumstances indicating that the clause was intended to be an exhaustive statement of the principal's entitlement to damages for late completion, then a court may find that the parties have agreed that there should be no entitlement to damages, including general damages, for delayed completion.

The following two leading cases illustrate how courts can interpret liquidated damages clauses:


CASE STUDY



Temloc Ltd v Errill Properties Ltd

(1987) 39 BLR 30



Facts


  • Temloc was a building contractor who entered into a contract which incorporated the JCT Standard Form of building contract 1980 edition.
  • In the appendix '£ nil' was entered against clause 24.2 (liquidated and ascertained damages) and the period over which payment was to be made was left blank.
  • Completion date was stated to be 28 September 1984.

Result


  • The effect of '£ nil' was not that clause 24.2 was to be disregarded or ineffective but that on a proper construction of the contract it had been agreed that there should be no damages for delayed completion.
  • Any claim for general damages would have to be based upon an implied term.
  • No such term could be implied because of the express provisions of clause 24.
  • Clause 24 constituted an exhaustive agreement as to damages which are, or are not, to be payable by the contractor in the event of failure to complete the works on time.


CASE STUDY



Baese Pty Limited v RA Bracken Building Pty Limited

(1990) 6 BCL 137



Facts


  • Baese (the principal) was claiming damages for delay in completion.
  • The contract was in the form JCC B 1985.
  • The 'Rate for Liquidated and Ascertained Damages' in the appendix was 'nil'.
  • Bracken (the contractor) argued that the parties had agreed that in the event of delay, Baese's only entitlement would be to nil damages.

Result


  • The court held that the task was one of interpretation of the particular contract.
  • No real assistance could be gained from referring to previous decisions such as Temloc Ltd v Errill Properties Ltd or Cellulose Acetate Silk Co Ltd v Widnes Foundry, as they dealt with contracts in materially different terms.
  • On the interpretation of this contract, there was not an exhaustive statement of the principal's entitlement if the works did not reach practical completion by the date for practical completion. The contract contemplated that the architect may or may not give a notice in writing applying liquidated damages.
  • Clear words would be required before it was held that a liquidated damages clause was the entirety of the principal's rights.
  • The principal was entitled to general damages.

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Updated 15 July 2014