Delay penalties and damages in construction contracts

Abstract

The issue of delay penalties in works contracts (locatio operis) and their coexistence with a law that aims to be equitable, has brought about some concerns particularly in trying to establish whether a “penalty” is necessary, as opposed to mere compensation, and whether this is also interchangeable with “damages”. An attempt to understand the distinction between the two terms was first made – the legal implications of this distinction, and how local Courts and common law Courts distinguished between the two, as well as a comparison of the different legal provisions in continental jurisdictions. A comparative analysis of the different penalty and damages clauses in some widely used standard forms contract was also undertaken. The research concludes with some observations on certain traits, identified in the analysis, on the interpretation of penalty clauses by our Courts. Finally, the approaches taken in local jurisprudence when assessing penalties and liquidated damages were tabulated against the approach taken in a recent landmark case in common law Courts to try and visualise the trend of our local Courts’ interpretation vis-à-vis the common law approach.