Liquidating damages calculation for hud construction
So, a court will enforce the provision, as each party is expected to hold up their end of the bargain.
However, there are limits on the enforceability of liquidated damages clauses.
It is recommended that the liquidated damages clause includes a formula for calculating the damages, accruing at fixed intervals (e.g. The parties should not use a lump sum amount unless the circumstances are such that the parties can calculate the amount accurately and easily.
Practical completion was subsequently delayed by two months.
In Ringrow, the Court noted that a key factor in determining whether liquidated damages are extravagant and unconscionable is whether the amount the aggrieved party is claiming is ‘out of all proportion’ with the loss they are likely to suffer.
What this shows is that a liquidated damages clause will not be unenforceable simply because there is some difference between the value of a liquidated damages clause and a genuine estimate of loss. In Spiers, the Court considered a liquidated damages clause in a development contract.
The court made clear that just because it is not possible to pre-estimate the actual loss that a party may suffer does not mean a liquidated damages clause will automatically amount to a penalty.
The Australian High Court approved the Dunlop case in Ringrow Pty Ltd v BP Australia Pty Ltd  HCA 71 (‘Ringrow’).
Their argument was because any delay of practical completion was due to the developer’s failure to have the road improvement works completed by practical completion.