Time - Scottish Construction Contracts - page 157

Jarvis Brent Ltd v. Rowlinson Construction Ltd (1990) and JFFinneganLtd v.
Community Housing Association Ltd (1996).
If the employer's losses arising from the breach for which liquidated damages have
beenstipulatedaregreaterthanthestipulatedamount,theyarenotentitledtoignore
the liquidated damages clause and claim for such losses as they can prove. In effect,
the clause operates as a limitation of the contractor's liability. Doubt remains as to
whether, in the event that the liquidated damages provisions of a contract become
inoperable, the employer can recover more by way of unliquidated damages than the
amount stated in the contract as liquidated damages.
Occasionallytherateof'nil'hasbeeninsertedastherateofliquidateddamages.
Although it has been argued that this simply means that the parties have not agreed
thesumpayablebywayofliquidateddamagesandthatunliquidateddamagesmaystill
be payable, the better view is probably that it is to be treated as an agreement that no
damages are to be paid to the employer for delay, see Temloc Ltd v. Errill Properties Ltd
(1988). It should be noted that the reasoning in Temloc Ltd was not followed in Baese
Pty Ltd v. RABrackenBuildingPtyLtd (1990). Although the contract in Temloc Ltd
was one under JCT 80 conditions, it may have a wider application in other contracts
where the terms are similar. It does not assist in determining what the position is
where there is a dash (-) inserted in the contract or the rate of damages is left blank.
It has been said that liquidated damages clauses are to be construed contra profer-
entem , (i.e. against the party putting it forward) but this requires detailed considera-
tion of issues such as whether the parties had equal bargaining power to negotiate the
contract and whether the contract is in a standard form drawn by a body on which
employers, contractors and sub-contractors are represented. In some cases, insofar as
the clause has a limiting effect on the contractor's liability for damages for late comple-
tion, it may be capable of being challenged by the employer under the Unfair Contract
Terms Act 1977.
In relation to delay damages under the NEC3, see Section 6.11.10.

6.9.2 Where liquidated damages provisions are not enforceable

A liquidated damages clause is unenforceable if the amount specified is a penalty. he
classic discussion of the differences between a penalty clause and a valid liquidated
damages clause is contained in the speech of Lord Dunedin in Dunlop Pneumatic Tyre
Co. Ltd v. New Garage & Motor Co. Ltd (1915) where he said that:

(1) Though the parties to a contract who used the words 'penalty' or 'liquidated
damages' may prima facie be supposed to mean what they say, yet the expression
used is not conclusive. The court must find out whether the payment stipulated
is in truth a penalty or liquidated damages

(2) The essence of a penalty is a
payment of money stipulated as in terrorem of the offending party; the essence of
liquidated damages is a genuine covenanted pre-estimate of damage

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(3) he
questionofwhetherasumstipulatedisapenaltyorliquidateddamagesisaquestion
of construction to be decided upon the terms and inherent circumstances of each

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