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Question: Read this legal briefing paper (by Fenwick Elliott) relating to relatively recent case law on contractual liquidated damages, and penalty. Write an internal company memo explaining the key legal and practical implications for construction contracts of these developments in the case law. Answer: Internal memo To, Contract team/ project control office From, Contracts Manager Subject: primary legal and practical implication of liquidated damage in construction It is a common fact that the contractor of a commercial contract will suffer irreparable loss if the project delays and the profit margin will also be affected by that. In every contractual agreement, there are certain provisions on the liquidated damage to protect the employer or the contractors to sustain loss from the project. However, it has been advised that the provision of liquidated damage has been widening by the Supreme Court and it is therefore, required to be applied after proper evaluation. While considering the scope and impact of the liquidated damage in commercial contracts or construction, the Court has made a distinction in between the liquidated damage provision and law of penalties in the light of two historical cases of Cavendish Square Holdings v MakdessiandParking Eye Limited v Beavis. It has been observed by the court that the employers are not mandatorily required to prove the actual estimated loss under the liquidated damage provision and options are still open for them to make claim for liquidated damage. However, if the liquidated damage is unable to characterize the pre-estimated loss of the employer, the contractor can challenge the provision on the basis of penalty clause[1]. The difference between the liquidated damage and penalties has been established for the first time in the case of Dunlop v Matthew Tyre Co Limited v New Garage Motor Co Limited[2]. It had been observed by the court that penalty will be imposed on the parties if any breach has been made against any contractual terms and the breach must be extravagant and unconscionable. In the case of Cavendish Square Holdings v Makdessi[3], it has been observed by the court that where the level of liquidated damage does not represent the pre-estimate loss of the employer and failed to justify the commercial credibility, it will be excluded from the provision of penalty clauses. It has further been observed by the court that in case of penalty, the nature of liquidated damage clause should be penal and unconscionable and where the clauses are primary; the breaching parties are required to pay the liquidated damage only for delay in the work. The court was of the view that liquidated damage is differen t from penalty as it is extended beyond the recovery of financial loss and the same principle has been established in Parking Eye Limited v Beavis appeal[4]. Therefore, it can be concluded that the provision of the liquidated damage should be reviewed for evaluating the claim made by the employer for the purpose to determine whether the application for claim can be challenged or not and it has a primary legal obligation. Kind Regards Dated: Signed Contracts Manager References: Cavendish Square Holdings v Makdessi [2013] EWCA Civ 1539 Dunlop v Matthew Tyre Co Limited v New Garage Motor Co Limited (1915) AC 79. Nicholson, Alex. "Too entrenched to be challenged? A commentary on the rule against contractual penalties post Cavendish v Makdessi and ParkingEye v Beavis."European Journal of Current Legal Issues22.3 (2016). Parking Eye Limited v Beavis appeal [2015] UKSC 67 Nicholson, Alex. "Too entrenched to be challenged? A commentary on the rule against contractual penalties post Cavendish v Makdessi and ParkingEye v Beavis."European Journal of Current Legal Issues22.3 (2016). (1915) AC 79. [2013] EWCA Civ 1539 [2015] UKSC 67