The civil and common law approaches to fixed damages upon the occurrence of breaches of contract has taken different paths. Penalties are frowned upon in the common law but liquidated damages enforced. The reverse is broadly true in the civil law. There are a variety of approaches to the enforceability of liquidated damages in common law jurisdictions, some recently evolving, and in the civil law a wide discretion is given to judges and arbitrators to adjust penalties (or liquidated damages) to the particular circumstances of the case. How then to navigate these competing local law provisions in international construction projects when the forms of contract in general use, such as FIDIC, are common law based? This paper will discuss these competing legal approaches and seek to delineate a path through the thickets for the unwary.

Penalties and liquidated damages are an area of law which has been the subject of much attention, change and scrutiny in recent times. In December 2015, the Supreme Court of England and Wales delivered its landmark decision in Cavendish Square Holding BV v El Makdessi, ParkingEye Ltd v Beavis 1 which modified the English doctrine of penalties as it stood for the last century, and steered English law in a new direction. In October 2016, the new French Civil Code entered into force, which consolidated the leading civil law jurisdiction’s approach to penalties. Not only are common and civil law approaches to the doctrine of penalties evolving on different paths, but divergences along each path are plentiful, as various jurisdictions have departed from traditional doctrines, originating from England or the Napoleonic Code.