Last edited 19 Feb 2018

Unliquidated damages

Unliquidated damages are damages that are payable for a breach of contract, the exact amount of which has not been pre-agreed. This is in contrast with liquidated damages which are a pre-agreed when the contract is entered into.

Construction contracts generally include a provision for the contractor to pay liquidated damages (or liquidated and ascertained damages, sometimes referred to as LADs) to the client in the event of a breach of contract - typically failing to complete the construction works by the completion date set out in the contract.

Unliquidated damages are a form of compensation which is said to be ‘at large’, that is, the amount is not predetermined with the contract is entered into, but is determined by a court (either a judge or jury) after the breach has occurred.

The advantage of unliquidated damages is that it allows for the recovery of losses that may have been impossible to foresee or to estimate with any certainty before the breach.

The disadvantage is that it leaves the client having to prove their actual losses in the event of a breach, which can be very complex, and it leaves the contractor with an unknown liability.

The client must also prove that losses flow naturally from the breach and are not 'remote'.

In standard form construction contracts, parties will sometimes insert ‘NIL’ or ‘n/a’ for the rate for liquidated damages, if they do not wish to claim liquidated damages, however, this can imply that losses for unliquidated damages are also nil. If parties wish to exclude liability for liquidated damages, they must state this clearly in the contract to avoid ambiguity, either stating that unliquidated damages apply, or deleting the clause altogether.