Plumbing Connection Spring 2016

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PLUMBING CONNECTION SPRING 2016 45
Of course, a party can only claim damages for a particular
item of loss (such as having to pay someone else to rectify
defective works) once and for all i.e. there is no ‘double
dipping’ allowed.
Another important principle to bear in mind is that in case
of a breach by another party to a contract, the innocent
party has a duty to what is called ‘mitigate their damages’.
To put that in simple terms, the innocent party cannot take
advantage of the breach and stand by and let the damages
increase. That person must ‘protect themselves’ against
further loss if they can.
LIQUIDATED DAMAGES
Sometimes, and commonly in the domestic building
context, the parties to a building contract have a clause
which provides for a set amount of damages (say on a
weekly basis) which are in a sense automatically available
upon the happening of a certain event (e.g. commonly,
delay).
They are in a sense the ‘converse’ to where damages are
‘at large’ and so unlimited. There is however an important
circumstance where they will not, despite being written into
the contract, apply. That is where the damages are deemed
to be a ‘penalty.’
Broadly, a liquidated damages clause (where a penalty)
will actually be struck down or taken out of the contract
(and so ignored) where the deemed purpose, because of the
amount at which it applies, is excessive in comparison to the
estimated damages which a party may suffer and so is not
to compensate but to punish the breaching party. This backs
up the aim of damages which are to compensate for a loss
rather than punish someone for wrongdoing.
SEEK ADVICE
There are traps for the unwary in this area, particularly
in the discreet area of termination of a contract. Getting
the process or the procedure in the area of contractual
termination can be fraught with difficulty. Terminating a
contract when you are not entitled to, or doing it incorrectly
such as not providing enough time to remedy the default
that led to the potential right to terminate, can land you
in VCAT or in the County Court (primarily) facing a large
damages claim. But I digress.
One of the key messages of this article is that when
damages are ‘at large’ and so almost unlimited (depending
on the exact circumstances) it may often surprise one
what items of financial loss can be compensated for. It
is important however, at the outset, to only be claiming
compensation for a loss where there has in fact been an
actual breach. That is the first step required in an analysis of
a situation.
Seek advice when in doubt in this area as particular
complexities can exist. This is particularly so where an
innocent party (i.e. a building owner) may have a choice
between damages for rectification costs or damages for the
reduction in value of the property as a result of defective
works. If possible, seek that advice early.
LEGAL MATTERS
PAUL COTT
Contact:
Paul Cott LLB (Hons), Grad Dip Legal Practice, LLM is a
Senior Associate Lawyer. Working in commercial litigation
for a number of years has seen Paul amass a wealth of
knowledge and experience in building and construction
litigation which he is willing to share. Paul is also a member
of the Building Dispute Practitioners Society.
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