Variations To Construction Contracts - When A Liquidated Damages Clause May Become Unenforceable

Construction contracts often contain liquidated damages (LDs) clauses which set a pre-determined level of damages that the employer is entitled to recover should certain specified breaches occur (most commonly delay).  Such clauses promote certainty and help to avoid the need for costly and protracted legal proceedings.

To be enforceable, the level of damages must be a genuine pre-estimate of loss.  This should generally be assessed at the date the contract was entered into.  However, the recent case of Unaoil Ltd v Leighton Offshore Pte Ltd ¹, considered whether an LDs clause could become unenforceable if it was not re-considered following a variation to the contract.

THE CASE