Damages Clauses

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1. Introduction P.2
2. The criteria necessary for a purported liquidated damages clause.. P.3
3. The main factors of claims P.4
4. The benefits to Employers and Contractors in a valid liquidated damages clause P.5
5. If the liquidated damages clause is not held to be valid and enforceable P.6
6. Conclusions and Recommendations P.10

      Question 2: Discuss the criteria necessary for a purported liquidated damages clause to be held to be valid, the benefits that would accrue to Employers and Contractors in agreeing a valid liquidated damages clause and the principles (including but not limited to any disadvantages) involved in claiming damages if the liquidated damages clause is not held to be valid and enforceable 1. Introduction The implementation of construction projects are based Supervision Contract, construction contract as a medium to investors, supervision, construction of the three parties together, both interrelated between them, and mutual restraint, in order to realize the investments project progress the quality objectives are and work together. Therefore, the project contracts are essential for any party to the project file. The construction contract management is the most important daily management. The Fulfillment of Contracts, the contract because of the other party fails to perform or improper performance of the tasks agreed in the contract losses and to the other party claims duration and economic, they constitute the core of contract management. To strengthen construction contract and claims management is not only to ensure the smooth progress of the construction works, the better for companies to avoid the unnecessary loss, strive for more profits The construction industry of Hong Kong determines was rapidly to increase of various engineering construction projects. Demand for the construction industry growing wider. Due to construction in a longer period of time. Moreover, many building and infrastructure projects will be still overflow the original contract period.. For the project quality it directly associated to people’s lives and the property safety. This determines the particularity of the project construction. In project construction, signed a contract to make all kinds of effective measures to ensure the quality of the project. The contract conclusion to the both sides responsibility shall perform the provisions of made clear that if one party does not strictly abide with the terms of the contract entered into by the other party of the contract so that the losses, than the defaulting party shall immediately to stop the breach of contract and shall be punished in the accordance with regulation or pay the injured party liquidated damages to compensate for the loss caused to the other party.     2. The criteria necessary for a purported liquidated damages clause To quote “Requirements for a valid liquidated damages provision To succeed in a liquidated damages claim contractual, a party must be establishment:

  • There has been a breach of contract;
  • That has suffered a loss;
  • That is a causal connection between the violation and the losses that party wants to close.”

1Pinsent Masons, Out Law .com, guide (Liquidated damages) ( August 2011) <https://www.out-law.com/en/topics/projects–construction/construction-contracts/liquidated-damages/> Liquidated damages is a agreement when the party of the contract commit to the pay of a certain amount of as a fixed and agreement upon satisfaction for not doing something in especially mentioned in the contract. If the work was completed late such a sum is enforce, due to their default the complete work was late. On the other hand, a penalty is a sum included in the contract which is intended to punish severely the contractor and is far higher than the employer estimated the loss .Such as the sum would be unenforceable. Claims causes: 1. The contract change with technology, continuous development of new technology, the employer of the projects have become more complex, so that very difficult design in construction is increasing, but the scene is often unforeseen happens. So designers in the design perfect, absolutely no mistakes is not possible. Often in the construction process, they need for design changes, sometimes according to the situation, the engineer will instruct change construction methods, which would lead to changes in construction costs and schedule. 2. The contract documents (including technical specifications) into the implementation phase defects sometimes contract, only to find that the contract itself has irreparable flaws, or ambiguous language, or the existence of loopholes or contradictions, inconsistencies caused both sides to understand. This will cause controversy, leading to claims. 3. In the construction site is not required to provide the materials, equipment, failure to pay for projects, engineers, mainly in the breach of contract because they cannot solve the problem, errors in the work, demanding inspection and other factors, interfere with normal construction. The reason due to problems with third-party engineering related contract or agreed to enter into a third party occurred, the impact on the project schedule or cost, and can also be the cause of the claim. 4. Change policies and Ordinance, that regulations mainly refers to the project cost- relevant policies and regulations, because the timing of the project cost has a strong, regional, so the relevant authorities and the rest of the country will be the introduction of relevant policies, laws and regulations. Some are enforceable, and will change with the market, technology, and constantly changing, it will cause changes in the duration and cost become claims. [i]1Pinsent Masons, Out Law .com, guide (Liquidated damages) ( August 2011) <https://www.out-law.com/en/topics/projects–construction/construction-contracts/liquidated-damages/> 3. The main factors of claims:  

  • Due to a contractor to unable to fulfill the contractual obligations and it will be cause a chain reaction. If one fails to various contractors on time, is performed sequentially, and get something done, inevitably bring about the interference with the after sequence construction work units.
  • Due to changes in the environment, such as: market price increases, changes in the law, abnormal weather conditions, unusual geological conditions, are leading to a potential incentive engineering claims. Under the contract should be extended period, the contract price will be adjusted for accordingly
  • Due to the Tender documents, contract-specific terms, general terms of the contract, drawings, of Bill of Quantities and during performance of the contract agreement and a series of supplementary files, if the contract documents are not rigorous, even contradictions, omissions or errors will become produce one of the important factors claims.

The Claims are in the process of implementation of the contract, because the other party fails to perform the contract or fails to properly perform their obligations under the contract or fails to protect commitments contractual conditions are fulfilled after suffered a loss, that request for com If the delay is the contractor’s responsibility he may consider it financially more advantageous in the absence of an obligation to use best endeavors, to allow the work to overrun the contract period and to pay liquidated damages.     4. The benefits to Employers and Contractors in a valid liquidated damages clause In the construction process, because of the complexity and multiple engineering technology and the environmental variability, it is impossible to completely avoid claims. Claims that the parties to safeguard their economic benefits means the rights of the parties ,as a good claims management it to raise the preventive countermeasures to avoid a contract controversial, so that the project can be completed in accordance with the scheduled time of high quality, for a win-win for both parties. To quote “the case law Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd[1915]” The Court to find out whether the payment provision is in the truth finds or liquidated damages. The liquidated damages is essence for the contract to pre-estimate of damage. A question of construction to be decided upon the terms and for each particular contract under the inherent and judged as at the time of sign the contract circumstances, not as at the time of the breach. Which applicable to the case under considered, prove to be:

  • It will be held to be a penal sum. If the sum is provisions and exorbitant in amount in compare with the greatest of loss that can envisaged in proved to have followed from the breach of contract.
  • A single lump sum is made pay by method of claimant, on the occurrence of one or more or all of multiple events, some of which may occur serious and others but Notable for appear punitive damage.
  • There a no hinder to the sum promised being a real to pre-estimate of damage. That the consequences of the breach of contract are such as to make precise pre-estimation nearly as impossibility. Conversely, the situation when it is possible to obtain at pre-estimate damage be true bargain between the both sides

In this case, the essence of liquidated damages is that it is a genuine covenanted pre- estimate of damages. Whether a sum is a penalty or liquidated damages is a question of construction to be decided upon the terms and circumstances of each particular contract judged at the time of making the contract not at the time of breach. Moreover, it must prove their actual losses, mitigation, which is to take reasonable steps, covered by the liquidated damages provisions to avoid or minimize loss of benefits. In fact, if the clause was valid and applicable, the employer will have the right to specify a penalty even if they have no actual losses.     5. If the liquidated damages clause is not held to be valid and enforceable. To quote” If liquidated damages become unenforceable and hence an entitlement to unliquidated damages arises, can the unliquidated damages be greater had the liquidated damages. In the event of there being no such provision, time can become at large and the right to levy liquidated damages for any delays caused by the contractor is lost if delays are to any of these reason. In Rapid Building Group v Ealing Family Housing Association Ltd (1984) It is accepted that a party must elect whether to claim liquidated or unliquidated damages; but as it seems to me, where the claim for liquidated damages has been lost or has gone, as has been rightly held by the judge, the defendants are not precluded from pursuing their counterclaim for unliquidated damages. It is not accepted on behalf of the defendants that if they pursue their claim it has on it a ceiling equal to the amount of liquidated damages It was startled to be told in the course of the argument that if any part of the delay was caused by the employer, no matter how slight, then the liquidated damages clause in the contract clause 22 become inoperative. In peak construction it was held: if the employer is in way responsible for the failure to achieve the completion date, he can recover no liquidated damages at all and is left to prove such general damages as he may suffered” 2Roger Knowles (2000) ONE HUNDRED CONTRACTUAL PROBLEMS AND THEIR SOLUTIONS p.68,Blackwell Science Ltd Where liquidated damages become unenforceable it will be for the employer to prove such general or unliquidated damages as he is claiming. This is in contrast to liquidated damages which require no proof to be enforceable. The question then arises as to whether, should the general damages which the claimant is able to prove exceed the liquidated damages included in the contract will payment become due for the greater amount so proved. 2Roger Knowles (2000) ONE HUNDRED CONTRACTUAL PROBLEMS AND THEIR SOLUTIONS p.68,Blackwell Science Ltd 6. Conclusions and Recommendations To conclusion, In this study through the concept of the contract, the main content, causes and current situation of contract management and claims be described, quote the case of claims related to introduce Construction Contracts, knowledge of contract management and claims management. Construction contract claims is a complex issue, that involving the knowledge economy, technology, law, management, finance and other aspects. Hong Kong is in a stage of rapid development and the claims are becoming increasingly frequent. Enhanced Claims awareness, strengthen contract and claims management to avoid unnecessary losses, ensure a schedule, quality and economic efficiency of the necessary means. Construction contract is the basis for the claim and the claim is a continuation of contract management. Project claims to prevent the above factors engineering claims analysis produced for the project claim, the owner as a management major is very hard in preventive aspects, specifically should do the following: Earnestly of preparing the project work, to make program, meticulous design work as closely as possible, required under the contract hundred percent complete. In the tender document production, and strive to reach contract of engineering content, one-time contract tendering out. In the implementation process of the claim, the claim is particularly important skill. Due to the objective of environmental conditions, and specifically the following:

  • Looking for a claim early opportunity
  • Signing a contract agreement
  • Must be confirmed the verbal of change orders
  • Timely to attach the issue “Claims notice”
  • 5. Provide adequate demonstrate as a claims report
  • Claims and expenses to calculation under the appropriate methods
  • Individual claim strive to avoid claims;
  • Strive to amicable settlement, prevent antagonism

7. References   Case Law Study

  • Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd[1915]
  • Rapid Building Group v Ealing Family Housing Association Ltd (1984)

Reference Book

  • 2Roger Knowles (2000)ONE HUNDRED CONTRACTUAL PROBLEMS AND THEIR SOLUTIONS p.68,Blackwell Science Ltd

References Online Website

  • 1Pinsent Masons, Out Law .com, guide (Liquidated damages) ( August 2011) <https://www.out-law.com/en/topics/projects–construction/construction-contracts/liquidated-damages/>



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Damages Clauses. (2017, Jun 26). Retrieved January 27, 2023 , from

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