LIQUIDATED DAMAGES – A COMMON LAW SOLUTION FOR THE CIVIL LAW REMEDY – AN INTERNATIONAL EXCURSION 1
HON. PETER VICKERY QC 2
This paper builds upon the scholarly work written Professor Doug Jones AO “Navigating penalties and liquidated damages across common law and civil law jurisdictions” presented at the 8th International Society of Construction Law Conference held in Chicago in September 2018.
Liquidated damages clauses are of undoubted utility. By providing for a fixed sum payment in the event of non-compliance with particular obligations, such as timely performance, liquidated damages clauses help avoid considerable time and expense in proving losses in an area where proof is notoriously difficult.
Recent developments built upon the Dunlop tests in the common law of the United Kingdom in the case of Cavendish , and in Australia in the case of Andrews , leave an important principle untouched: Upon making a finding of an unenforceable penalty provision, a court and an Arbitrator applying the common law in these jurisdictions are both limited to striking down the offending clause entirely.
This may be contrasted with the more flexible approach found in civil law jurisdictions which permits the tribunal to adjust the level of liquidated damages in such circumstances to a more reasonable level.
A need is identified for the construction industry in Australia, and likely elsewhere in the common law world, for a mechanism which will permit a court to preserve all of the advantages of a liquidated damages clause when faced with a challenge to validity, by providing for a more flexible regime to adjust the liquidated damages agreed upon to a more reasonable level in the event of a finding that the liquidated damages clause is unenforceable.
A clause founded upon the concept of a “cascading” restraint of trade clause is suggested for inclusion in a construction contract to achieve this end, and is advanced for consideration.
The 8th International Society of Construction Law Conference held in Chicago in September 2018 was a notable gathering for the construction law community. It was the inaugural international construction law conference hosted by the newly formed Society of Construction Law, North America. 3
1 This article is reproduced from a paper delivered on 3 August 2019 at the National Conference of the Society of Construction Law Australia (SOCLA), Perth, Australia.
2 Hon. Peter Vickery QC FCIArb FACICA (www.petervickeryqc.com) was formerly a Judge of the Supreme Court of Victoria (2008–2018). He retired on 8 May 2018 after serving as Judge-in-Charge of the Technology, Engineering and Construction List of the court (the TEC List). He now works as an Arbitrator; Referee; DRB Panellist; Mediator; ENE Evaluator and conducts Expert Determinations. He is the founding Patron of the Society of Construction Law, Australia (SOCLA).
3 The Society of Construction Law, North America (www.scl-na.org), was founded in 2017 and is established to promote education, study, and research (and publication of the useful results of such research) and its dissemination in the field of construction law and related subjects in the United States, Canada, and South America.
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