Shylock's Construction Law: The Brave New Life of Liquidated Damages?

Mathias Cheung

May 2016

A paper based on the first prize entry in the Hudson Prize essay competition 2015, presented to a meeting of the Society of Construction Law at a meeting in London on 16th May 2016

The paper comments on the recent Supreme Court decision of Cavendish Square Holding v Makdessi, which replaced the Dunlop test of 'genuine pre-estimate of loss' for penalty clauses with a new test of 'legitimate interest'.It begins with a brief overview of the historical origins and development of the doctrine of penalties, both in equity and at common law, before addressing the new test laid down in the five judgments. The paper then goes on to analyse the impact of the new test on the use of liquidated damages clauses in the construction industry, expressing concerns as to the uncertainty and arbitrary value judgments surrounding the application of the new test.

1. A brief history of the doctrine of penalties - (i) Early roots from equity to common law - (ii) Dunlop and subsequent developments - (iii) Paving the path to Makdessi? - 2. The new test under Makdessi - 3. The purpose of LADs in construction contracts - 4. Potential problems with Makdessi - 5. The way forward.

The author: Mathias Cheung LLB Hons BCL is a pupil barrister at Atkin Chambers, Lincoln's Inn, London.

Text: 16 pages