Liquidating damages clause

Liquidated damages clauses allow a principal to charge monies at an agreed daily or weekly rate if a contractor fails to achieve practical completion of the works by the date provided for in the contract. These clauses are imperative to principals as they provide both: The principal does not need to show that it has suffered any loss as a result of the delay.

As such, contractors also receive a benefit as the clause circumvents the need for the parties to engage in costly and time consuming litigation.[1] Where a principal claims liquidated damages from a contractor, it is quite common for contractors to claim that a liquidated damages clause is a penalty, and therefore unenforceable.

The contract stated that the liquidated damages rate increased incrementally based on the length of the delay.

The Court determined that the liquidated damages clause was not a penalty.

The purpose of having a liquidated damages provision is to establish a pre-set amount of payment to address circumstances where damages are hard to determine or otherwise difficult to prove.

Why would you include a liquidated damages provision in your contract?

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Even if you have a valid liquidated damages provision in your contract, you may not recover under it.

Parties should avoid stipulating liquidated damages rates which could be perceived as penalising a contractor for late completion.

For example, when assessing what is a ‘genuine pre-estimate’ one should consider whether: A principal should not be able to recover liquidated damages as well as claim other compensation, such as damages at common law.

If you, too, delayed the completion of the project or otherwise breached the contract, the court will consider your conduct when evaluating the merits of applying the provision.

This information is provided for informational purposes only and does not constitute legal advice.

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