In the construction and engineering context we are often concerned with "liquidated damages" but seldom do we hear mention of "unliquidated damages".
Liquidated damages are a pre-determined sum of money payable in respect of a specific breach of contract. Most commonly we associate liquidated damages with delay. In this context the parties usually agree in the contract that in the event the contractor is late in reaching completion of the works for handover then the contractor shall pay to the client the sum of [x] per day or per week that the works are delayed. See B is for Breach for more information.
Unliquidated damages by contrast are the damages claimed when the loss has not been pre-determined by the parties. I.e. unliquidated damages are claimed for any breach of contract which is not subject to a liquidated damages clause.
Unliquidated damages is not the only relief available to a party suffering from another party’s breach of contract. It is also possible to request that the court awards "specific performance" as the relief for breach of contract. In these circumstances the court will order the breaching party to carry out the obligation which it is breaching. Alternatively, the court may order that a third party carry out the obligation at the cost of the party in breach. In reality, these rarely feature in construction and engineering disputes because of the criticality of time in construction and engineering projects. It would be unusual for a party to have the luxury of waiting for an order of the court to force the breaching party to remedy the breach. Projects do and must move along at a pace. Recognising this contracts often provide specifically for such remedies within the mechanism of the contract in certain circumstance, for example if the contractor fails to rectify a defect arising during the maintenance period the client may employ a third party and recover the cost from (or "backcharge") the contractor.
Consequently, unliquidated damages is the most common relief awarded by the court for breach of contract. Which raises the question: if the amount is "unliquidated" what can the innocent party claim for the breach? The court takes a compensatory approach to the award of unliquidated damages for breach of contract. That is to say that the court looks to restore the loss suffered by the innocent party, to put it back into the position it would have been in but for the breach. It will not look to penalise the breaching party or to put the innocent party in a better position than it would otherwise have been.
The court will look at the actual (proven) losses of the innocent party, including the gain it has forfeited, such as loss of profit. However, those losses must have arisen as a natural consequence of the breach and the nature and extent of the loss must have been foreseeable at the time the parties entered into the contract.
It is not necessary to show that the loss was foreseen only that it was foreseeable. To avoid the argument and enhance the prospects of recovery, if a specific, but perhaps unusual, loss is in the contemplation of one party at the outset it would be prudent to draw attention to it in the contract. An example of this might be for a main contractor to make clear in the sub-contract the level of liquidated damages it will suffer from the client if the sub-contractor causes a delay to the main contract works (in circumstances where the sub-contract does not contain a liquidated damages provision for delay).
The party suffering from the breach is also under a duty to mitigate the losses it suffers as a result of the breach, it cannot simply sit back and allow the losses to accrue if they can be avoided or reduced by the reasonable efforts of an ordinary person/party. If steps to mitigate the losses were available but not taken, the court will reduce the damages it awards commensurate with what they would have been if the steps were taken.
Construction and engineering contracts often contain caps on liability. A cap on liability is a limit on the damages which will be payable as a result of a breach or breaches of contract. These play key role in the allocation of risk and pricing of a commercial contract. As they are included by the agreement of the parties the courts will usually uphold them.
Another common limit on liability in construction and engineering contracts (including in standard form documents) is the exclusion of consequential losses. This limits the innocent party to the recovery of the direct loss it suffers as a result of the other party’s breach. Again, these clauses have a key commercial function and the courts will uphold them.
A final point to mention, is that the courts can and will award damages for "moral loss". However, it is necessarily difficult to ascertain a party’s actual (proven) moral losses.