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Kai Qi Tay

From: Kevin Attrill

Sent: 15 October 2009 09:12
To: Wallace Lee; Zamri Mat Ail; Brian Teh; Tan Li Ling Angeline; Charlotte Sze Sze Kong; Jason Zhou; Vincent Khin Voon
Chin; Li Hoon Lim; Dalencia Kwong; Ping Keong Lee; Teo Wei Ling Joan; Kai Qi Tay
Subject: FW: Liquidated damages 0: General damages 1
FYI
Kevin Attrill
Senior Commercial Manager
Gammon Contruction Limited Singapore Branch

Co. Reg. No: FO2909C

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Liquidated damages 0: General damages 1

An issue that continues to bedevil the construction industry is whether general damages are
recoverable when the parties agree that liquidated damages are not. In a typical scenario where
this issue arises, the parties will have agreed that liquidated damages are not payable if the
contractor is late in performing its works by striking out the liquidated damages clause in a
standard form, or by stating that the rate of liquidated damages is “nil”, “£0”
this, are they implicitly agreeing that the employer is also unable to recover general (or
unliquidated) damages, i.e. damages that the employer proves that it actually suffered due to
the contractor’s delay?
In one case last year from Western Australia, the court upheld an arbitrator
general damages were recoverable where liquidated damages were stated to be
has been another recent case where the Court of Appeal of Western Australia reached a similar
conclusion.
Background
A builder entered into a standard form lump sum building contract with a proprietor to construct
a brick house. The contract stated that the builder would not be responsible for delays in
commencing or completing the works over which the builder had no control. Additionally, the
contract stated that the builder “shall be liable to pay the Proprietor liquidated damages at the
rate of NIL DOLLARS ($00.00) per day for each day beyond practical completion until practical
completion is deemed to have taken place”.
Findings
The court held that while there was a clear intention that liquidated damages did not apply, on
the proper construction of the contract the court was unable to find a clear and unambiguous
intention to exclude the common law right to damages. The fact that the parties did not intend
liquidated damages to apply did not mean they also intended that general damages should be
irrecoverable.
Comment and Commercial Implications

This Australian decision may be contrasted with the most prominent English case on point,
the decision of the Court of Appeal in Temloc v Errill (1987), in which the insertion of
in the appendix in relation to liquidated damages was held to exclude both liquidated and
unliquidated damages. The approach that all courts have taken to the question of whether
general damages are recoverable is to look at the words of each particular contract, in an
attempt to divine the intentions of the parties. By taking this approach, different results
may be yielded according to the facts.

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However, the common feature of most of these cases is that when the parties provide that
liquidated damages are “nil”, “£0” or “n/a”, or they strike out a liquidated damages clause,
they usually haven’t turned their minds collectively to the issue of whether general
damages should be recoverable even though liquidated damages are not. A further
complication is that the contract will often give no real indication either way of what the
parties actually intended (even if they had a common intention).

How can the courts resolve this dilemma? The approach taken in the most recent case
from Australia takes an attractively simple approach, i.e. if the parties have not expressly
excluded the general right at common law to recover unliquidated damages for delay, the
presumption is that that right persists. This approach may help to avoid getting into
(intractable) difficulties over what the parties really meant, and effectively casts the burden
on the contractor to demonstrate that the parties intended a different meaning (i.e. that
general damages would not be recoverable).

What is the lesson for parties negotiating a contract? If you don’t want liquidated damages
to apply, and you don’t want general damages to be recoverable, your contract needs to
spell this out, otherwise there is a real risk of a court (or an arbitrator or adjudicator)
deciding that general damages may be recovered for contractor delay. Simply stating that
liquidated damages are “nil”, “£0” or “n/a”, or striking through the liquidated damages
clause, is not enough because it creates an ambiguity.

Reference: J-Corp Pty Ltd v Mladenis [2009] WASCA 157

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