Case Law

The job was supposed to start in May and finish in September 2007, at a cost of £143,054. Liquidated damages were set at £700 per week and appear at least in part to have been based on the cost of alternative accommodation for the owners of the flat.

The job fell into delay. The contractor was granted an extension of time of six weeks. The owners moved back in December 2007 although the works were far from complete. In January 2008 the contractor purported to suspend the works for non-payment.  By March the owners had had enough and terminated. Another contractor finished the works in May 2008.

The owners sued the contractor looking to recover, among other things, liquidated damages to May 2008, ie way beyond them taking back possession of the flat and

post-termination. 

The contractor, although not represented at the hearing, put in an initial defence arguing that the termination was invalid as it had validly suspended and that there was no entitlement to liquidated damages from the point the owners returned to the property (in essence because the damages then became a penalty) or post

termination.

Mr Justice Coulson decided: The contractor’s suspension had been invalid. Under the contract to entitle the contractor to suspend there had to be an outstanding

certificate which there wasn’t. Even if there had been, the contractor had not given the required seven-day notice - a reminder of how important it can be to follow the contractual termination provisions;

The owners were entitled to liquidated damages post-termination to the point of completion of the works by the new contractor. This is remarkably different to generally held views regarding when liquidated damages stop; 

The liquidated damages were not a penalty; at the time they were fixed they represented a genuine pre-estimate of the owners’ loss and this was not changed by the fact the owners had re-possessed the flat.  So what can you take from this?

Make sure you follow the rules that allow you to suspend;  Decide whether you would be happier with fixed or general damages if you were to be terminated;

Think carefully about your liquidated damages clause - should you stipulate in the contract that no damages for late completion (either general or fixed) will apply after

possession or termination?

Food for thought.

Fiona Rossetter is a senior associate at law firm Dundas & Wilson CS LLP