Case Reports

Is inserting "NIL" enough to avoid damaged for delay?

In J-Corp Pty Ltd v Mladenis [2009] WASCA 157 (28 August 2009), the Western Australian Court of Appeal determined whether a clause limiting liquidated damages to "NIL DOLLARS ($00.00)" prevented the owners from claiming general damages for delay when the builder failed to reach practical completion on their home by the due date.  The preliminary question requiring determination by the Court was whether, on proper construction, the clause specifying "NIL" liquidated damages excluded the respondents' right to claim common law damages for losses suffered due to the appellant's breach of Contract?

The Court reviewed a number of earlier conflicting authorities on the point (in particular, Temloc Ltd v Errill Properties Ltd (1987) 39 BLR 30; Cf Baese Pty Ltd v RA Bracken Building Pty Ltd (1990) 6 BCL 137; Cellulose Acetate Silk Co Ltd v Widnes Foundry (1925) Ltd [1933] AC 20) before examining the Contract terms.  The Court commented [at 44] that the guiding principle can be stated as follows:

[C]lear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of contract arising by operation of law

The Court found that there were no "clear and unequivocal words" in the Contract that excluded the owners from claiming general damages for delay.  The words "NIL liquidated damages" meant precisely that.  There could be no recovery for liquidated damages. However, general damages were still available to the owners.  BUT, the Court noted [at 49] that:

[I]n the event of delay the owner will be left with a potentially costly and time-consuming remedy in unliquidated damages, a remedy that in many circumstances, particularly in respect of a contract for the construction of a house, it may not be practical or worthwhile to pursue

The Court cautioned [at 51] that the position may well be different where a contract provides for the liability of the builder for liquidated damages in a positive amount.

This decision reaffirms that the use of 'NIL" or 'N/A" for liquidated damages clauses in building contracts will not necessarily exclude a party's right to common law damages.