Liquidated Damages After Termination of Contract?

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CMS Cameron McKenna Nabarro Olswang

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Following a recent decision in the Technology & Construction Court, contractors and employers need to take particular care to ensure that contracts expressly deal with post-termination damages.
United Kingdom Corporate/Commercial Law

Following a recent decision in the Technology & Construction Court, contractors and employers need to take particular care to ensure that contracts expressly deal with post-termination damages. Until now case law has strongly suggested that an employer's right to liquidated and ascertained damages ("LADs") from a contractor ends upon termination of the contract between them. However, in Hall & Shivers v Van der Heiden Coulson J adamantly rejected this principle, leaving it open for an employer to claim LADs after termination of the contract. In his judgment handed down in March 2010, Coulson J awarded the employer liquidated damages beyond termination through to completion of the project several months later by a replacement contractor. Coulson J rejected the argument 'as a matter of principle' that liability to pay LADs ended when employment was terminated.

It is possible that Coulson J's ruling on this point will not be followed further. However, parties to construction contracts should expressly deal with the issue to avoid ambiguity, because the court's decision will take as its starting point the exact wording of the contract. If the contract wording specifies that LAD provisions are to continue even after termination, that is likely to be upheld. Conversely, if LADs liability is to cease upon termination, the contract should say so. Particular care needs to be taken with the wording of relevant clauses to ensure that they properly reflect the parties' intentions.

For a discussion of the issues and more detail on the current position under the standard forms of construction contract please click here.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 05/05/2010.

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