Carbone v Fowler Homes Pty Ltd (No 2) [2024] NSWCA 214
In the past the UK Courts have been prepared to accept that a liquidated damages regime (even with a liquidated damages rate of $Nil or $1 per day) could operate to exclude any common law right to damages, even in the absence of clear express terms to that effect.
This position has not been adopted by the Australian Courts as seen in the judgment by the New South Wales Court of Appeal in Carbone v Fowler Homes Pty Ltd; Carbone v Fowler Homes Pty Ltd [2024] NSWCA 192. If it is the intention to exclude any common law right to damages, clear express terms to that effect should be drafted in your contracts.
Background
In this case, Joe Carbone and Matthew Carbone (Appellants), each Appellant signed a separate contract with Fowler Homes Pty Ltd (Fowler Homes) to build a residential duplex on each neighbouring site in Oran Park, NSW. Each contract specified a period for practical completion of 48 weeks. If the project did not reach practical completion by then, the Appellants were entitled to liquidated damages at a nominal amount of $1 per day.
Construction began around August 2018 and was expected to finish by July 2019 but practical completion was delayed due to the disputes between the parties.
Issue
One of the issues before the Court of Appeal was whether the Appellants were entitled to common law damages (e.g. loss of rent) notwithstanding the Appellants’ entitlement to liquidated damages of $1 per day under the contracts.
Judgment
The Court of Appeal held that the nominal rate of liquidated damages was insignificant compared to the contract price (and it could not have been the intention of the parties to fully negate a party’s fundamental right to damages for a breach of contract).
If it were the parties’ intention that liquidated damages would be the sole remedy for a builder’s failure to reach practical completion by the date for practical completion, clear language to that effect should be drafted into the contracts.
Key takeaway
Builders should be aware that nominal liquidated damages (relative to the total contract sum) are unlikely to exempt them from general damages claims by owners. To exclude a common law entitlement, clear and explicit language is necessary in the Contract
If you would like to discuss this article with us, please contact Brett Vincent, Partner, or Barbara Farhat, Senior Paralegal on (02) 9261 5900.