This document provides an overview of liquidated damages. It defines liquidated damages as a sum agreed upon in advance that is payable if one party defaults. The history of liquidated damages dates back to 1838, with key cases establishing that liquidated damages cannot act as a penalty. Issues around liquidated damages include whether they are an unenforceable penalty and proving actual damages if they are. Standard construction contracts often include liquidated damages provisions. Recent cases have addressed liquidated damages in both construction and sports contracts. Some jurisdictions like South Africa and India have passed statutes allowing penalties through legislation.

1. Liquidated Damages
Presented by
Sean Sullivan Gibbs BSc, LLB (Hons), FRICS, FCIARB
Director Hanscomb Intercontinental Ltd

2. LIQUIDATED DAMAGES
1. Introduction
The structure of the presentation will be:
1. Introduction
2. Definition of liquidated damages
3. History
4. Issues associated with liquidated damages
5. Use within standard forms of contract
6. Recent cases
7. Alternative solutions
8. Question & answers

3. LIQUIDATED DAMAGES
2. Definition of liquidated damages
The parties may agree by contract that a particular sum is payable on the default of one of them. If the agreement is not
obnoxious as a 'penalty', such a sum constitutes 'liquidated damages' and is payable by the party in default. …...
In every other case, where the court has to quantify or assess the damages or loss, whether pecuniary or non-pecuniary, the
damages are 'unliquidated'.
Halsbury's Laws of England/DAMAGES (VOLUME 12(1) (REISSUE))/1. INTRODUCTION/808. 'Liquidated‘ and 'unliquidated'
damages and penalties.
In short, liquidated damages are fixed in advance of the breach, whereas general or unliquidated damages are proven
damages assessed after the breach.
The practice of liquidating damages is by no means of recent origin. The Shorter Oxford English Dictionary gives 1574 as the
earliest known date for ‘ascertained and fixed in amount’ as the meaning of the word ‘liquidated’. And from the courts there
are numerous law reports dating back to the early 19th century of cases concerned with liquidated damages in construction
contracts.
Brian Eggleston, Liquidated Damages and Extension of Time in Construction Contracts, 3rd Edition (2008)

4. LIQUIDATED DAMAGES
3. History
• Holme v Guppy 1838
– Holme And Another -v- Guppy And Another [1838] EngR 133; (1838) 3 M & W 387; (1838) 150 ER 1195
• Dunlop v New Garage 1915
– Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] UKHL 1
– ‘The essence of a penalty is a payment of money stipulated as “in terrorem” of the offending party: the essence of
liquidated damages is a genuine covenanted pre-estimate of damage.’
• Cavendish v Makdessi; Parking Eye v Beavis2015
– Cavendish v Makdessi; Parking Eye v Beavis [2015] UKSC 67
– The new test for whether a provision is an unenforceable penalty is:
"… whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all
proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation."
• Modern Court Attitude
– ‘ .. commercially experienced parties should be free, even encouraged, to agree liquidated damages, as it leads to
certainty and avoids argument about the level of recoverable loss actually suffered.’
– Atkin Chambers, Hudson’s Building and Engineering Contracts , 12th Edition , Sweet & Maxwell

5. LIQUIDATED DAMAGES
4. Issues associated with liquidated
damages
• If penalty they are unenforcable and usual rules
on damages applies
– Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] UKHL 1
– Cavendish v Makdessi; Parking Eye v Beavis [2015] UKSC 67
• Claimant must then prove loss
– Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] UKHL 1
• Prevention Principle
– Rapid Building v. Ealing Family Housing [1984] 29 BLR 5

6. LIQUIDATED DAMAGES
5. Use within standard forms of
contract
• JCT (Joint Contracts Tribunal)
• ICE (Institute of Civil Engineers)
• NEC (New Engineering Contract
• FIDIC (Federation Consulting Engineers)
• LOGIC (Oil and Gas UK)
• ICHEME (Institute Chemical Engineers)

7. LIQUIDATED DAMAGES
6. Recent cases
• CONSTRUCTION
Vertase FLI Ltd v Squibb Group Ltd [2012] EWHC
3194 (TCC);
• FOOTBALL
Berg v Blackburn Rovers Football Club & Athletic
plc [2013] EWHC 1070

8. LIQUIDATED DAMAGES
7. Alternative solutions
• Most other common law countries follow the
English position except
• South Africa & India passed statutes allowing
penalties to be levied
• The South African Conventional Penalties Act 1962 , as amended by General Law Amendment Act 102 of 1967,
Justice Laws Rationalisation Act 18 of 1996, and General Law Amendment Act 49 of 1996
• Indian Contract Act, 1872
• Scottish Law Commission proposed similar
change by way of draft bill but this has not
been accepted by Scottish Parliament

9. LIQUIDATED DAMAGES
8. Question & answers
Please feel free to ask questions

10. HANSCOMB INTERCONTINENTAL LTD
www.hanscombintercontinental.com
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+44 (0)20 3287 8518
sean.gibbs@hanscombintercontinental.co.uk
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