Liquidated damages - Building Contract Claims - page 61

would be treated as imposing a limit on the damages recoverable in an
action for a breach in respect of which it operated to reduce the damages
which would otherwise be recoverable at common law.' 182
What Lord Atkin actually said was:
'I desire to leave open the question whether, where a penalty is
plainly less in amount than the prospective damages, there is any legal
objection to suing on it, or in a suitable case ignoring it and suing for
damages.' 183
Lord Atkin in refusing to pass an opinion on the principle held in Wall and
affirmed in Watts, Watts , appeared to be indicating that the House of Lords
was disengaging itself from its earlier decision by refusing to apply it in
general terms to all penal sums.
3.11 Maximum recovery if liquidated damages do not apply
Where the amount inserted in the contract is held to be a penalty, invariably
such a holding will be against the wishes of the employer who has
inserted the sum in the hope and perhaps expectation of getting it. How-
ever, where liquidated damages are held not to apply, that is usually
because the employer has taken, or omitted to take, some action which
destroys the right to such damages; possibly in an effort to recover greater
damages.
In The Rapid Building Group Ltd v. Ealing Family Housing Association Ltd 184 ,
the court affirmed the judge's holding that it was not open to the defendants
to counterclaim the amount of liquidated damages. This was because they
had been partly responsible for part of the delay in achieving the completion
date. Since there was not adequate provision to allow the defendant to
extend time for that particular reason, the liquidated damages clause did
not apply 185 . The court accepted that the defendant could pursue a claim for
unliquidated damages, but it refused to be drawn on the proposition that
the claim would have a ceiling equal to the amount of liquidated damages.
However, the Supreme Court of Canada has said:
'If the actual loss turns out to exceed the penalty, the normal rules of
enforcement of contract should apply to allow recovery of only the
agreed sum. The party imposing the penalty should not be able to obtain
the benefit of whatever intimidating force the penalty clause may have in
inducing performance, and then ignore the clause when it turns out to be
to his advantage to do so. A penalty clause should function as a limitation
on the damages recoverable, while still be ineffective to increase damages
182 Robophone Facilities v. Blank [1966] 3 All ER 128 at 142.
183 Cellulose Acetate Silk Co Ltd v. Widnes Foundry (1925) Ltd [1933] AC 20 at 570.
184 (1984) 1 Con LR 1.
185 Peak Construction (Liverpool) Ltd v. McKinney Foundations Ltd (1970) 1 BLR 114.