International Construction Law Review
LIQUIDATED DAMAGES AT THE RATE OF NIL ($00.00): REAL INTENTION OR ABSURDITY?
DR M SALEH JABERI*
Partner, ESK Law Firm
ABSTRACT
Given the important role liquidated damages (LD) clauses play in construction contracting, it is unsurprising that they frequently become the focus of construction disputes. This issue is exacerbated when liquidated damages are set at $nil or “N/A”. This article argues that parties often pay insufficient attention to LD
clauses in standard contract forms, necessitating court intervention. $nil LD clauses also undermine the intended purposes of LD clauses and exhibit characteristics of penalty and unconscionable clauses. The exhaustive nature of LD clauses further complicates the issue by preventing principals from recovering any damages. Therefore, courts should either strike out such clauses or require clear language
from the parties to give an exculpatory effect to a $nil LD clause.
“There is the vigilance of the common law which, while allowing freedom of contract, watches to see that it is not abused.”1
INTRODUCTION
It has long been recognised as sound commercial practice for parties to incorporate provisions in their contracts that address the most probable breaches. This approach led to the development of standard contract forms and the use of liquidated damages. The verb “to liquidate” means to “convert into cash” and comes from the Latin verb “liquidare”, which means to make clear.2 Consequently, the purpose of a liquidated damages clause is to transform an uncertain future loss into a defined present amount (or other detriment), thereby clarifying the consequences of a breach for the parties at the time of contracting. On the other hand, unliquidated damages are damages that are payable for a breach, the exact amount of which has not been pre-agreed. The unliquidated sum to be paid as compensation is
* Dr M Saleh Jaberi is an attorney and a partner at ESK Law Firm. He is also the author of the book Construction Law (Mizan Publishing, 2015) and is actively involved in construction contracts. (Jaberi@esklawfirm.com)
1 John Lee & Son (Grantham) Ltd v Railway Executive (CA) [1949] 2 All ER 581 at 584, per Lord Denning.
2 Halson, R, Liquidated Damages and Penalty Clauses, 1st Edition, (Oxford University Press, 2018) at 3.03.
Pt 1] Liquidated Damages at the Rate of Nil ($00.00)
41