Liquidated damages - Construction Contracts - page 280

170 The employer terminated in the ninth
month of a ten-month contract. Can the
employer deduct liquidated damages from the
original contractor until practical completion
is achieved by others?
In general terms, it appears that termination of the employment of the contractor brings the
obligations of both parties to an end in so far as future performance is concerned. 1 This
seems to be perfectly in accordance with good sense, because the original contractor can
have no control over the completion if the Works are completed by another contractor. That
is not to say that a party will avoid the payment of damages accrued up to the time of ter-
mination. 2
The decision in re Yeardon Waterworks Co & Wright 3 suggests that the courts will sup-
port a specific term in the contract that provides that in the event of termination of the em-
ployment of a contractor and the completion by another, damages could be deducted until
the Worksare completed. Inthat case, however,the Workswere completed bythe guarantor
of the contractor, which was probably the deciding factor.
The JCT series of contracts provide for termination of the contractor's employment, fol-
lowing which the employer may engage another contractor to enter site and complete the
Works. Such a clause was held to be incompatible with the right to liquidated damages in
British Glanzstoff Manufacturing Co Ltd v General Accident Fire & Life Assurance Corpor-
ation Ltd. 4 If a contractor has left the site, wrongly thinking that the Works are complete, it
seems that contractor will be liable for liquidated damages until the Works have in fact been
completed by a replacement contractor. 5 The precise wording of the clause in the contract
will be the deciding factor. In the New Zealand case of Baylis v Mayor of the City of Wel-
lington, 6 liquidated damages were held to be deductible after termination because the clause
specifically excluded entitlement during the time taken by the employer to secure a replace-
ment contractor.
In re White, 7 theelectriclightingcontractcontainedwhatwasheldtobealiquidateddam-
ages clause. The court remarked that there was a clause in the contract which gave the en-
gineer power, if necessary, to employ other contractors to complete the Works, and which
provided that the defaulting contractor should be liable for the loss so incurred without pre-
judice to his obligation to pay the liquidated damages under the contract. It is not clear from
the report whether the employer was seeking liquidated damages beyond the date of termin-
ation. The employer does not, however, appear to have claimed anything other than liquid-