Introduction

The classic rules relating to liquidated damages arise from the case of Dunlop Pneumatic Tyre Co v New Garage & Motor Co Ltd.1 That case concerned the ability for a party to pre-fix (liquidate) damages in relation to a particular breach by the other party. The construction industry mostly associates this rule with a pre-agreed amount of liquidated damage for each day or week for a delay that occurs to a project. The mechanism has been widely used in the standard forms and bespoke construction contracts. Liquidated damages could be used in a wider variety of situations, beyond simply the fixing of a pre-agreed amount over time arising from delay. For example, it could be used in relation to a failure to perform to a particular standard (‘performance damages’). Indeed, the forfeiture of a deposit in circumstances where the contract is not to proceed, the ascertained level of the deposit retained is a form of liquidated damage to compensate the other party for opportunity cost.