In Selby Hall and Philip Shivers v Jan Van Der Heiden, Coulson J rejected the suggestion that the defendant contractor’s liability to pay liquidated damages came to an end when its employment under the building contract was terminated as a result of its breach.
While the defendant was not at the trial (and he’d sacked his legal team shortly beforehand), Coulson J thought that the implication of such a contract term would reward the contractor for its own breach (see paragraphs 76 and 77 of the judgment). As such, Coulson J held that liquidated damages were payable until the date of practical completion achieved by the new, replacement contractor.
This is not a view which is so categorically shared by the editor of Hudson’s Building and Engineering Contracts (11th Edition) (see paragraphs 10.047-10.053). Hudson suggests that in the absence of any express provision to the contrary, the most probable position is that:
- Liquidated damages will remain recoverable up to the date of termination.
- General damages for delay will apply after the date of termination.
This is a view which appears to be supported (at least in respect of common law termination) by Keating on Construction Contracts (8th Edition) (see paragraph 9-028).
While Coulson J did not have the benefit of hearing from the defendant and, as a result, an alternative argument may not have been before him, it is understandable why the general position should be that the liquidated damages specified in the original contractor’s building contract fall away on termination and general damages kick in.
The project can be further delayed for many reasons after termination of the original contractor’s employment, not all of them caused by the original contractor’s default and the termination. For example, the new contractor may also be in culpable delay (and, as a result, liquidated damages may also be recoverable from the new contractor).
If this is the case, the employer should not be able to recover liquidated damages for delay twice. In addition, after the original contractor’s employment under its contract has been terminated, there will be no operable mechanism to grant the original contractor an extension of time.
So, while contractors should continue to have liability to an employer for its loss caused by the contractor’s breach, in the general scheme of things that liability should, after termination, sound in general damages (reflecting the employer’s actual loss caused by the breach) and not in liquidated damages. On the basis that it is not, as appeared to Coulson J, an “all or nothing” scenario, the contractor would not be rewarded for its own breach.
It will be interesting to see how a future defendant and court will deal with the question the next time it comes to be fully argued.
