Dan Morris, 13 August 2026
Drafting Carefully for Liquidated Damages (LDs)
LDs fix the rate of compensation payable for delayed completion of construction works in advance, avoiding the expense of proving actual losses.
Limitations of LDs:
- Concurrent Causes and the Prevention Principle: LDs are fixed and cannot be converted to “unliquidated”. This is problematic when concurrent delays occur, especially if the paying party contributed to the delay. In such a case, the “prevention principle” may apply, which can cause the liquidated damages regime to fail and the time for completion to be “set at large”.
- Judicial Reluctance: Courts are generally reluctant to recognize the exclusion of the prevention principle, even treating a “bad faith” decision not to extend time as an act of prevention.
- Tailored Liability: LDs can be challenged where they are inconsistent with tailoring liability, such as when a contractor seeks to limit its liability to the owner’s upstream liability to various tenants with different delay terms.
Actionable Advice:
Practical solutions exist to achieve tailored liability without undermining the liquidated damages regime, but they require careful contract drafting by experienced construction lawyers.
The Law of Money, Progress Payments, and Restitution
In construction law, claims that are typically unliquidated become liquidated (e.g., LDs) and claims that are typically liquidated become unliquidated (e.g., progress payments).
Progress Payments as Interim Measures:
- Not Earned: A construction contractor does not “earn” its progress payments; security of payment legislation aside, a contractor is only entitled to the full price upon handover.
- Interim Status: Progress payments are described as “interim payments on account only” and “not evidence of the satisfactory completion of the works under the contract,” meaning they are temporary measures to keep the contractor financially viable.
- Adjudication: This interim nature is why an adjudicator’s determination under security of payment legislation is not final and must yield to the final determination of a Court or arbitrator.
Restitution and Quantum Meruit:
If a construction contract is terminated mid-way, all work delivered and progress payments paid have to be given back due to a “total failure of consideration”.
- Restitution Obligation: The obligation is to give back what was received for the failed consideration.
- Quantum Meruit: Since labour cannot be physically returned, its equivalent is given in money, measured as the quantum meruit (“as much as it is worth”).
- High Court Authority: The High Court of Australia in Mann v Paterson Constructions Pty Ltd [2019] HCA 32 vindicated the idea that a contractor can claim restitution based on a “total failure” of consideration for contracts with one indivisible work scope.
- “Free Acceptance” Test: The quantum meruit is assessed from the owner’s perspective. It requires the element of choice, or “free acceptance,” which means the law will only recognize the value of the contractor’s work if the owner had the choice to allow the builder to complete the works but chose instead to undermine the contract.
LDs for Nuisance: The Hunt Leather Lesson
Hunt Leather Pty Ltd & Anor v. Department of Transport for NSW [2024] NSWCA 227 is a decision about private nuisance (the impact of activity on one site on neighboring sites).
The Case:
A construction project’s substantial delay led to prolonged business disruption for adjacent retail shops, for which Hunt Leather was awarded damages in private nuisance. The continuation of disruption long after the contractual completion date was not deemed foreseeable and reasonable. Defenses that the Department had not breached any duty of care or was exercising statutory powers were dismissed.
The Lesson:
Property developers and construction contractors in constrained urban sites are exposed to liability for business disruption to adjacent occupants, largely a function of delay. This liability must be accounted for when pre-estimating the likely loss and damage, which should then be converted to the daily liquidated damages rate charged to the head contractor and apportioned to subcontractors.
Tribunal Does Not Make Building Remedy Orders Just Kos
The State Administrative Tribunal’s decision in Kos and DND Building Co Pty Ltd [2022] WASAT 32 merely acknowledges the risk of the Tribunal not being well-informed enough on the evidence to craft precise building remedy orders.
- The Tribunal will specify work to be done in an order where there are clear and unambiguous findings about the method or approach to remedy defects.
- Kos does not state that the risk is ubiquitous, the single most serious risk, or that mitigating this risk takes priority over adherence to High Court authority Belgrove v Eldridge.
The Tribunal will always craft building remedy orders that are as specific and precise as the evidence allows, to achieve the practical and cost-proportionate solution mandated by Belgrove and the finality of justice.