Chapter 12 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:
Temloc Ltd v Errill Properties Ltd (1987) 39 BLR 30
- Errill contracted with Temloc for the construction of 3 retail units for a shopping development.
- The contract provided for the payment by the builder of ‘liquidated and ascertained damages’ for delay in completion.
- 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.
- Temloc was 47 days late in completing the works.
- Temloc argued that as the liquidated damages had been agreed ‘£nil’ it meant that no damages were payable for delay.
- Errill contended that the insertion of £nil indicated that the parties had only agreed liquidated damages should not apply to the project and that this did not affect rights with respect to claims for unliquidated damages under the general law.
- When there is a valid and enforceable liquidated damages clause within an agreement, those damages are the sole remedy for the particular breach to which they relate.
- The question of whether unliquidated damages could be recovered is a matter of the interpretation of the agreement.
- 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.
Baese Pty Limited v RA Bracken Building Pty Limited (1990) 6 BCL 137
- Baese contracted with Bracken (the contractor) for the construction of a house in Sydney.
- While the contract made provision for the payment of liquidated damages in the event that practical completion was not achieved by the date for practical completion, the rate specified for liquidated damages was ‘$nil’.
- Bracken argued that the parties had agreed that in the event of delay, Baese’s only entitlement would be to nil damages.
- The court held that the task was one of interpretation of the particular contract.
- 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.
- In order to find that the liquidated damages clause was intended to be an exclusive remedy for delay, clear words to that effect would be required.
- Baese was entitled to general damages.