May a contractor challenge a liquidated-damages provision after entering into the contract?
Yes. Agreement to the clause does not prevent a later contention that the provision is penal or does not apply on its proper construction. The challenge must identify a recognised legal or contractual basis and be supported by evidence.
Yes. A contractor may challenge the clause when liability is asserted, but must establish the basis on which it is unenforceable or inapplicable
A challenge may concern construction, defective contractual machinery, the penalty rule or the calculation itself. Under the penalty rule, first identify a secondary obligation arising on breach. The question is then whether the stipulated detriment is out of all proportion to the employer's legitimate interest when the contract was made. The contractor cannot shift the entire evidential task to the employer merely by alleging that the rate exceeds actual loss.
| Issue | Position |
|---|---|
| Contract signed | Does not bar a later legal challenge |
| Construction challenge | Clause may not apply to the breach or section claimed |
| Penalty challenge | Modern legitimate-interest and proportionality test |
| Burden | Challenging party must establish the allegation |
| Actual loss | Relevant evidence, not the exclusive legal test |
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