Recent Ruling allows for deduction of Liquidated and Ascertained Damages following Termination

Recent Ruling allows for deduction of Liquidated and Ascertained Damages following Termination

Following a recent decision in the case of Hall & Shivers v Van der Heiden [2010], Contractors and Employers need to take particular care to ensure that contracts expressly deal with post-termination damages.   Until now case-law has strongly suggested that an Employer’s right to liquidated and ascertained damages from a Contractor ends upon termination of the contract between them.  However in this case the courts adamantly rejected this principle, leaving it open for an Employer to claim LADs after termination of the contract.   In his judgment handed down in March 2010, the Judge awarded the Employer liquidated damages beyond termination through to completion of the project several months later by a replacement Contractor.  The court rejected the argument ‘as a matter of principle’ that liability to pay liquidated and ascertained damages ceased when the Contractors employment was terminated.

It is possible that the court’s ruling on this point will not be followed further.  However, parties to construction contracts should expressly deal with the issue to avoid ambiguity, because the court’s decision will take as its starting point the exact wording of the contract.  If the contract wording specifies that Liquidated and ascertained damages provisions are to continue even after termination that is likely to be upheld. Conversely, if Liquidated and ascertained damaged liability is to cease upon termination, the contract should say so.  Particular care needs to be taken with the wording of relevant clauses to ensure that they properly reflect the parties’ intentions.

MALCONLAW 2011