Liquidated damages - Building Contract Claims - page 58

employer should include every item of additional cost which he predicts
will flow directly from the contractor's failure to complete on the due date;
that is, the damages recoverable under the first limb of the rule in Hadley v.
Baxendale . It seems that the sum can be increased to include amounts which
would normally only be recoverable under the second limb if the employer
can show that special circumstances were involved 168 . It remains unclear
whether, in the case of liquidated damages, the special circumstances
must be known to the contractor when the contract is made. It seems
appropriate to reveal such circumstances at tender stage although it could
be argued that the higher figure for liquidated damages is itself a sufficient
prior notification.
From a purely practical point of view, an employer will very often reduce
such a figure in order to make the proposed damages more palatable to
prospective tenderers. The Association of Consultant Architects Form of
Building Agreement (ACA 3) is alone among standard forms of main
contract in providing for unliquidated damages as an alternative. Some
local authorities and other public bodies make use of a formula calculation
which basically depends upon a percentage of the capital sum. Whether that
would constitute liquidated damages will depend on the precise circum-
stances and particularly the difficulty with which a precise calculation could
be made. Use of a formula is a perfectly sensible approach where it is
obvious that substantial loss will be suffered in the event of a delay, but it
is virtually impossible to calculate precisely in advance what that loss
would be 169 .
In Multiplex Constructions Pty Ltd v. Abgarus Pty Ltd and Another 170 a
specially drafted liquidated damages clause was held to be entirely valid
and enforceable despite the absence of any specified sum. The damages
were expressed as two parts. The first part was to be the interest calculated
with reference to Trading Banks on daily balances of the total of items listed
in the clause. The items included: 'Payments made by the Proprietor under
any contract relating to the execution of the Works' and 'Reasonable costs
and expenses incurred by the Proprietor in enforcing or attempting to
enforce any contract relating to the execution of the Works'. The other
items were equally imprecise. The second part was rates, statutory charges
'and other reasonable outgoings . . . '.
Although referred to in the contract and by the court as 'liquidated
damages', it is difficult to see how such a clause can justify that description.
An important aspect of liquidated damages is that it is a known amount at
the time the parties enter into the contract. Although that does not preclude
the damages being expressed as a method of calculation, such a method
should be known to have a certain result in any given set of circumstances.
In Multiplex the individual items could not always be ascertained. Works

168 Philips Hong Kong Ltd v. Attorney General of Hong Kong (1993) 61 BLR 41. A format/checklist for
calculating liquidated damages is to be found in Chappell, Marshall, Powell-Smith and Cavenders'
Building Contract Dictionary 3rd edition, 2001, Blackwell Publishing.
169 Philips Hong Kong Ltd v. The Attorney General of Hong Kong (1993) 61 BLR 41 PC.
170

[1992] APCLR 252.