Cap or No Cap: A New Eco World for Liquidated Damages?

Gavin Wilson

June 2023

A paper based on the commended entry in the Hudson Prize essay competition 2022

The paper looks at the issue of whether a penal liquidated damages clause can operate as a cap on general damages. It summarises the law on penalties and examines two recent TCC cases: Eco World, in which O’Farrell J stated obiter that a penal liquidated damages clause would cap a claim for general damages, and Buckingham, in which Mr Nissen KC stated obiter that general damages would be uncapped. The author argues that the ‘cap’ approach is to be preferred and submits four detailed reasons for this view.

1. Background – a. the law on penalties – b. Eco World – c. Buckingham – 2. The case for adopting the ‘cap’ approach – a. There is persuasive support for the ‘cap’ approach – b. charterparty authorities favouring a ‘no cap’ approach are of limited application and are unreliable – c. Eco World shows the courts’ willingness to adopt the ‘cap’ approach whilst Buckingham is an exceptional case – d. the ‘no cap’ approach will negatively impact the use of liquidated damages in commercial contracts – Conclusion

The author: Gavin Wilson is an Associate Project Manager at WSP.

Text: 16 pages