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Navigating penalties and liquidated damages across common law and civil law jurisdictions

Doug Jones AO

The Civil and Common Law approaches to fixed damages upon the occurrence of breaches of contract has taken different paths. Penalties are frowned upon in the Common Law but liquidated damages enforced. The reverse is broadly true in the Civil Law. There are a variety of approaches to the enforceability of liquidated damages in Common Law jurisdictions, some recently evolving, and in the Civil Law a wide discretion is given to judges and arbitrators to adjust penalties (or liquidated damages) to the particular circumstances of the case. How then to navigate these competing local law provisions in international construction projects when the forms of contract in general use, such as FIDIC, are common law based. This paper will discuss these competing legal approaches and seek to delineate a path through the thickets for the unwary.