Liquidated Damages After Termination of Contract?

Following a recent decision in the Technology & Construction Court, contractors and employers need to take particular care to ensure that contracts expressly deal with post-termination damages. Until now case law has strongly suggested that an employer's right to liquidated and ascertained damages ("LADs") from a contractor ends upon termination of the contract between them. However, in Hall & Shivers v Van der Heiden Coulson J adamantly rejected this principle, leaving it open for an employer to claim LADs after termination of the contract. In his judgment handed down in March 2010, Coulson J awarded the employer liquidated damages beyond termination through to completion of the project several months later by a replacement contractor. Coulson J rejected the argument 'as a matter of principle' that liability to pay LADs ended when employment was terminated.

It is possible that Coulson J's ruling on this point will not be followed further. However, parties to construction contracts should expressly deal with the issue to avoid ambiguity, because the court's decision will take as its starting point the exact wording of the contract. If the contract wording specifies that LAD provisions are to continue even after termination, that is likely to be upheld. Conversely, if LADs liability is to cease upon termination, the contract should say so. Particular care needs to be taken with the wording of relevant clauses to ensure that they properly...