Devamalya,

Would need more space than is available on this site but a few general cases that might cause LD clauses to be void would be:

1. LD’s represent an unenforcable penalty
2. Uncertainty in the wording of the clause
3. Breach of contract or act of prevention by Employer setting time at large
4. Non compliance with a condition precedent notice to with hold payment
5. Employer waived rights to LD’s

There’s no doubt others if I though hard enough but the above are probably the most common reasons.

Hopes it helps

Devamalya,

Each legal system to it’s own but if it’s an LD case that has got to court, check whether the LD clause was held to be valid.

If held to be void then Employer will only get unliquidated damages, ie damages he can prove and if these damages are greater than the LD provision he would have got under the contract the court will usually use the contract value to cap the unliquidated damages. If what the Employer can prove is less than that which he would have been entitled too if the LD provision was valid then the Employer gets less.

If the LD clause is valid then the Employer usually should get the amount as calculated under the contract (usually LD rate x days delay) up to a maximum if the contract caps LD’s as in Norzul’s case.

eg LD’s $1,000 day - Contractor liable for 10 days delay, Employer due $10,000.

If LD clause held for whatever reason to be void and the Employer can only prove $6,000 loss then that’s all he’ll get. If the Employer can prove $14,000 loss then he will only usually get $10,000 as this was agreed at the time of making the contract as the Contractors liability.

If there was a cap on LD’s , say $5,000 maximum then in either case above the Employer would usually only get $5,000. Again if the actual amount the Employer could prove was say £3,000, then $3,000 is all he would get.

Similarly, if the cap was £20,000, ie the amount due had not reached the maximum then the Employer would get $10,000 if the LD provisions were valid or if the LD provisions were void, whatever he could prove upto but not exceeding £10,000.

Hope this helps

Simon,

I’m with you on that one

All,

There seems to be abit of confusion here between liquidated (LD’s) and unliquidated damages (UD’s).

LD’s (or LAD’s) - genuine pre estimate of loss suffered by the Employer, usually because of delay, that is agreed as the Contractors liability for that breach at the time of making the contract. In calculating LD’s, loss of profit to the Employer can be included. A pre estimate is just that, an estimate, it does not have to be 100% correct, just a reasonable estimate of the Employers loss.

UD’s - all other losses incurred by the Employer. These have to be proven by the Employer in order to claim them but if for any given breach of contract, eg delay, there exists LD’s, then it is unlikely the Employer will be able to claim UD’s over and above the LD’s for that breach. It doesn’t stop the Employer claiming UD’s for other breaches of contract if cause and effect can be proven.

In the case of LD’s being deemed to be the Employers actual loss, it is saying that the LD’s are deemed to be his loss irrespective of whether the actual loss suffered is greater or less than the LD amount. So if the actaul loss is less, the Employer still gets the LD amount, if the actual loss is greater the same applies, he can claim no more.

If "potential loss" is taken to be the actual loss that the Employer incurs, ie it is not a pre calculated amount, then this loss is not a liquidated damage but an unliquidated damage that the Employer must prove. The wording would be all important as to whether the word potential can be taken to mean this or taken to mean the pre calculated amount equates to his potential loss.

Devamalya,

Wouldn’t totally agree with that statement

Norzul,

Assuming the delay is due to the contractors default then the starting point is that the contractor is due to pay liquidated damages for the delay. The payment of LD’s will be the amount set out in the contract and paid in accordance with the contract. Therefore if it is capped at 10% of the contract value then under normal circumstances that cap will stand.

If the loss is now greater and the Employer is trying to find a way round the clause then he’s going to have a difficult time. Even when the LD clause is considered void for some reason the courts will usually still use the values in the contract as the limit on the contractors liability. The reasoning being that this was agreed at the time of making the contract as what the parties intended the contractors liability to be. No more, no less.

Norzul,

1. LD’s are supposed to be a genuine estimate of the damages (financial cost) that the Employer will incurr if the project is delayed - eg loss of profit, loss of rent, liabilities to other contractors, additional site supervision costs, etc, etc. There is no one solution as the situation will be different in every case.

2. If Employer has chosen to limit his LD’s then, all else being equal, tough, that was his choice and he has to stick by it.

Stuart,

Given the amount of arbitrations and court cases relating to LD’s and there application when there has been express provision in the contract then I think the Employer without the provision in the contract would have a huge problem in trying to establish and agree the proper amount of damages. Given the cost of litigation etc then on modest LD’s it would not be worth the Employer persuing them, in effect denying the Employer any damages for late completion.

The provision is there as much for the contractors benefit as it is the employers.

Ron,

Not sure if they were invented for the contractor, I would say they are an advatage to both contractor and employer -

For the contractor they certainly quantify his risk at tender stage.

The Employers advantage is that there is certainty (usually, but not always!!) in getting damages for an over run in time rather than the uncertainty of having to argue for them after the event.

Same as eot clauses, both parties gain some advatage from them.

Norzul,

I have also heard it quoted many times that large LD’s do no more than encourage the contractor to employ more quantity surveyors and claim consultants - they do not act as an incentive to get the job done quicker. This may or may not be true, but there are probably better ways to give the contractor incentives to complete on time.

Norzul,
I think that you are right in the first place - the two terms are pretty much interchangeable.
Liquidated and Ascertained Damages and Liquidated Damages are both based on a (supposed) genuine pre-estimate of the extent of loss that an Owner will incur in the event that his project is finished late.
The use of the word ’ascertained’ simply underlines that the extent of damages has been calculated in advance rather than just guessed at!
You could argue, perhaps, that plain ’Liquidated Damages’ are not calculated thus, but the application of LD and LADs are the same. Often however, and irrespective of the fact that are supposed to be a genuine pre-estimate of likely loss, they are generally set at a maximum of 10% of the Contract Price.
In any case, since the LDs /LADs are clearly set out in the Contract terms, the Contractor has the opportunity to factor them in to his Contract Price if he considers it necessary.

Hope this helps

Stuart

www.rosmartin.com