Liquidated and Ascertained Damages (LADs) avoid arguments about how much a contractor has to pay when works are finished late, writes Sue Lindsey. The employer fixes a figure in advance that represents a reasonable estimate of its loss. That is what it gets, regardless of whether the actual loss is more or less. When there is no LAD provision, the disgruntled employer has to set about proving its loss. Quite apart from evidential difficulties, fitting the numbers together to arrive at a loss can be a bit of a puzzle.
In Bridge UK Com Ltd v Abbey Pynford plc (Judgment 04.04.07), the court grappled with losses incurred by a printer which lost about 10 days production on its new and fabulously expensive printing machine, as a result of problems with the plant base installed by the defendant. While the judgment shows just how factspecific such loss claims are, it provides some helpful pointers for a business employer trying to decide on a reasonable estimate of its loss. It should also persuade any doubters that LADs are a good thing, one that can save a lot of costly argument after the event.
The starting point is that a business can claim either wasted expenditure or loss of expected profits - not both. In other words, a manufacturer cannot recover both the profit it would have made on a particular item, and the costs that it would have had to expend to make the item in order to get that profit.
Careful thought is often needed to work out how this applies in practice.
In this case, the claimant printer was awarded damages for loss of profit under two heads: first, work that was sent out elsewhere to be done; and second, work that it was unable to carry out at all. The printer sent out some printing jobs which would otherwise have been done on its new press.
It provided its own plates and paper, but was charged for using the outsourced presses and the incurred extra transport costs. It also had to meet the cost of consumables such as ink.
The judge concluded that the claimant's profit, had it used its own machine, would have been the price charged to its client less the costs it would have incurred, such as the cost of its employees and the consumable items. The claimant incurred all these costs anyway, but in addition it had to pay for the outsourced press and transport. That additional expenditure represented a loss of profit on the items printed elsewhere.
As for loss of profit on the work that the claimant had turned away, the judge concluded that throughout the period of delay the claimant had still had to meet costs such as its wages bill without receiving any profitable return on that expenditure. The judge assessed this second head on the basis of that wasted expenditure.
But because a part of the wasted expenditure was money that the claimant would have had to spend to earn the profit anticipated in the first head of claim, and was wrapped up in the assessment of that head of loss, a proportion of the wasted expenditure had to be deducted in the calculation of the second head of loss.
Sue Lindsey is a barrister at Crown Office Chambers in London. Visit www. crownofficechambers.