Regular readers of this column will know that Liquidated and Ascertained Damages (LAD) are a good thing, writes Kim Franklin. The alternative to agreeing a liquidated, or fixed, sum payable for late completion is calculating the actual losses for delay - known as general (or unliquidated) damages.
If your development has a commercial use, demonstrating the rental income or profit you have lost while you waited for completion is a relatively straightforward business.
The loss of use of a domestic building can be measured against the cost of providing alternative accommodation.
But if the project was a nonprofit-earning venture, for example new municipal offices, demonstrating actual losses is no fun at all, believe me.
Nevertheless, some people remain to be convinced.
They don't like the sound of liquidated damages, believing them to be a penalty payable for late completion irrespective of the cause of the delay.
Although most standard forms provide for liquidated damages at the rate of '£x per week', it is not unknown for these provisions in the appendix to be crossed out, ignoring the fact that the body of the contract still provides for damages for delay. When the project subsequently overruns and the employer wants to recoup its delay-related losses, it is a moot point as to whether it can claim its actual losses instead.
In Temloc v Errill Properties (1987), the parties famously agreed that LAD should be '£ nil'. The appeal court decided that the parties had made an 'exhaustive agreement' as to what damages were, or in this case were not, payable for the delay. The employer was precluded from claiming its actual delay-related losses.
It had agreed 'nil' and would get nothing.
These issues arose in the case of Chattan Developments v Reigill Civil Engineering Contractors (Judgment 15.02.07).
Chattan engaged Reigill for the construction of 14 homes in Trawden, Lancashire.
The parties agreed orally that the standard contractual LAD clause would not apply.
When the project was delayed, Chattan claimed general damages of over £300,000.
Reigill argued that the exclusion of the liquidated damages clause precluded Chattan from claiming any losses for delay.
The arbitrator agreed that while it was a surprising thing for Chattan to give up its right to damages, the site had been bedevilled by delay before Reigill's involvement and more delays were expected.
There were therefore sound commercial reasons to agree to Reigill's terms rather than waste yet more time finding another contractor. He concluded it was more likely that the parties intended there would be no right to damages at all for late completion rather than leave open a claim for unliquidated damages. He found that the exclusion of liquidated damages from the contract prevented Chattan from recovering any delay damages at all. The appeal judge agreed that the LAD provisions eclipsed all other delay damages.
If you really want to scrap LAD, but still claim actual losses, make sure your contract is in writing and that all references to liquidated damages are expunged.
Kim Franklin is a barrister and chartered arbitrator at Crown Office Chambers in London. Visit www.crownofficechambers. com