KEYWORDS: EFFECT OF NIL LIQUIDATED DAMAGES

KEY TAKEAWAY

Even if a contract states that no ("zero" or "nil'" liquidated damages are payable to a party for a delay, that party may still be entitled to claim common law damages, subject to the intention of the parties. This case provides an example of where a "zero" liquidated damages clause did not prevent the principal from recovering general damages for delay.

The facts

The dispute concerned a standard form building contract that provided that if the builder did not complete the house by the date contracted, liquidated damages would be payable at the rate specified. A space was left blank in the contract for the rate of the liquidated damages to be inserted, with a note stating "(if nothing stated, Zero)" (at [67]–[68]). The house was not completed by the date for practical completion as specified and the proprietors sought about $50,000 in general damages from the builder for the delay (at [7]).

The dispute was referred to arbitration. Relevantly, the arbitrator concluded that the parties' failure to enter a figure in the schedule resulted in the liquidated damages clause being "inoperable", but permitted him to assess general damages based on ordinary principles (at [70]). The arbitrator awarded about $40,000 damages payable by the builder to the owner for late completion (at [11]).

The builder sought leave to appeal under the Commercial Arbitration Act 1986 (ACT): the Australian Capital Territory has not (yet) enacted the new uniform domestic arbitration legislation. The builder alleged that the award general damages for late completion was an error of law manifest on the face of the award (at [71]).

The builder argued that the arbitrator erred in law by awarding damages for late completion to the principal in the absence of a liquidated damages clause in the building contract. The principal submitted that the effect of a "zero" value in the liquidated damages clause is that the parties have agreed to limit themselves to a fixed sum under the contract, and in effect it was an exclusion of the owner's rights to seek any damages for delay (at [25], [41]).

The decision

Burns J examined the series of cases which had considered similar situations, including Temloc Ltd v Errill Properties Ltd (1987) 39 BLR 30, Baese Pty Ltd v RA Bracken Building Pty Ltd (1990) 6 BCL 137 and J-Corp Pty Ltd v Mladenis [2009] WASCA 157. He distilled four principles from the cases (at [79]):

"The principles which I distil from these cases are:

  1. the requirement in each case is to ascertain the intention of the parties to the agreement concerning damages for delay;
  2. in ascertaining that intention, consideration may be given not only to the language of the agreement, but also to the surrounding circumstances known to the parties and the apparent purpose and object of the transaction. Temloc was a case where evidence was received of surrounding circumstances, being evidence of a course of dealings between the parties to the agreement which confirmed that the intention of the parties was that damages for late completion would not be available;
  3. the vesting of a discretion in the proprietor to exercise a contractual right to claim liquidated damages may indicate that the parties did not intend the contractual right to liquidated damages to be the exclusive remedy for delay; conversely, a mandatory clause, in the sense of compelling the builder to pay regardless of any demand for payment by the principal, may indicate that the clause is intended to provide an exclusive remedy; and
  4. in construing a contract which, on its face, provides for no liquidated damages for breach, an intention to exclude a right to common law damages must be expressed in clear and unambiguous terms."

Burns J concluded that the arbitrator's decision, which was consistent with Buss JA's approach in J-Corp, did not display a manifest error of law on the face of the award, nor, indeed, was there strong evidence of any error (at [80]).

http://www.austlii.edu.au/au/cases/act/ ACTSC/2015/188.html

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