FIDIC / Legal Reference: FIDIC Red Book Clause 8.7
A pre-agreed sum payable upon a specific contractual breach — most commonly late completion. Liquidated Damages clauses save the innocent party from having to prove actual loss. For an LD clause to be enforceable, the rate must have been a genuine pre-estimate of likely loss at the time of contracting.
What it means in practice
In construction contracts, LDs are almost always applied to late completion. The rate is set out in the Appendix to Tender and expressed as a daily or weekly sum. Once the contractor overruns the completion date, the employer may deduct LDs from payments due — without proving that it has suffered the stated amount of loss.
The distinction between an enforceable LD clause and an unenforceable penalty was reformulated in English law by the Supreme Court in Cavendish Square Holding BV v Makdessi [2015]. The test is whether the clause is a primary obligation protecting a legitimate interest, or an extravagant secondary obligation triggered by breach.
Where disputes arise
Contractors routinely challenge LD rates in final account negotiations, arguing that the rate was not a genuine pre-estimate, that time has been put at large, or that EOTs were wrongly refused. UAE courts also have discretion to reduce excessive rates under Civil Code Article 390.
UAE Context
UAE courts and DIAC tribunals will generally enforce LD clauses as drafted, but both have discretion to reduce excessive rates under UAE Civil Code Article 390 — a meaningful distinction from English law where courts have much more limited power to interfere.
Related terms
Liquidated Damages disputes require both legal analysis and delay expertise. e-Basel combines claims advisory and delay analysis services to advise on LD entitlement and enforceability.
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