However, when there is no liquidated damages clause the general law of damages applies. This is intended to restore the 'injured' party to the position they would have been in had the breach of contract not occurred. Accordingly, if the contractor fails to complete by the contract completion date, the employer must be able to identify and establish:
- The relationship between the parties (the contract);
- A contractual obligation which has been breached (the completion date clause);
- That the employer suffered loss;
- That the loss was caused by the contractor's breach of contract;
- That there were no other intervening or mitigating factors substantially causing or contributing to the loss. If the employer would have suffered the loss regardless of the breach, the breach has not caused the loss; and
- That the loss was a reasonably foreseeable consequence of the breach of contract (the remoteness test).
In some circumstances, loss will be easy to identify and quantity. For example, the employer engages the contractor to build a new office block. The completion date is 30th June 2021. The employer has entered into leases with five tenants, which say that the tenants will take possession on 1st August 2021. The contractor does not complete until 31st October 2021. The employer is in breach of contract with its tenants by failing to give possession, and as a result has lost nearly three months of rent from each tenant. It was also reasonably foreseeable that a delay to completion beyond the start dates of the leases would prevent the tenants from occupying their premises and paying rent.
On the other hand, intervening events may make this more complicated. For example, if the contractor is on course to achieve completion by 20th July 2021 but a gas leak nearby causes an explosion, causing the nearly complete building to collapse, that event is likely to be deemed the actual cause of the employer's inability to release the premises to his tenants, rather than the contractor's late completion.
Next week we will consider time at large. If you haven’t read our previous delay blogs, they can be found here.
For advice on liquidated damages, or any other aspect of a construction contract, please get in touch with our large and experienced construction team.
