In respect of one of the EPC contracts, Solar argued that GPP’s entitlement to liquidated damages ceased when GPP terminated the contract. The Court rejected this argument and relied upon the judgment of Coulson J (as he then was) in Hall v Van Den Heiden (No 2) [2010] EWHC 586 (TCC). However, the basis for this decision is questionable as it is a principle of contract that termination will discharge a party’s primary obligations. In the circumstances it is difficult to see how the secondary obligation to pay liquidated damages might survive termination. The view that liquidated damages clauses cannot be relied upon after termination was endorsed by Edwards-Stuart in Shaw v MFP Foundations and Pilings Ltd [2010] EWHC 1839 (TCC) which leaves conflicting High Court decisions on the issue – perhaps the Court of Appeal will provide guidance on this issue shortly.
Liquidated damages – there is now no material difference between Australian, English and New Zealand law in relation to penalties In 127 Hobson Street Ltd v Honey Bees Preschool Ltd [2019] NZCA 122, 127 Hobson and Mr Parbhu appealed against a decision of Whata J in the High Court finding an indemnity clause in a collateral deed to a deed of lease between 127 Hobson and Honey Bees to be lawful and enforceable. The Court of Appeal held: a. the proper construction of the indemnity clause, having regard to what the parties intended the obligation to be, was (1) that the indemnity (if triggered by default) ran until the end of the initial term of the lease and no further; and (2) the indemnity included only payment of rent and outgoings, and did not extend to non-economic obligations excusing all tenant obligations until final reversion; and b. the principles stated in Wilaci Pty Ltd v Torchlight Fund No 1 LP (in rec) [2017] NZCA 152, [2017] 3 NZLR 293 (applying NSW law) apply also to New Zealand. The indemnity was not a penalty. Honey Bees had a legitimate interest in performance given the importance of the primary obligation to install a second lift to their business and distrust that had developed after execution of the agreement to lease. The indemnity was not out of all proportion to this legitimate interest, given the potential disadvantage to Honey Bees of containing the clause in a collateral deed rather than the lease deed itself and the risk settings agreed to by the parties. At [29] the Court provided guidance as to the law prohibiting penalties in New Zealand in the following terms: Wilaci was a decision of this Court, applying New South Wales law. Its reasoning should be regarded as applicable in New Zealand — as several commentators have observed. The reasons for that are fourfold. First, New Zealand law has largely followed English law prohibiting penalties. The principles expressed in the influential speech of Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd long held force here. Secondly, English law was then restated in 2015 in the United Kingdom Supreme Court decision in Cavendish. Thirdly, one issue apart, there is now no material difference between Australian and English law in relation to penalties. Fourthly, we consider a commensurate redirection of the penalties prohibition in New Zealand is necessary. The balance of the common law tilts more in favour of freedom of contract, and the enforcement of consensually selected remedies, today than it did a century ago. Ours is an age of far greater consumer legislative protection. Foremost among these statutes were the Credit Contracts Act 1981 and the Fair Trading Act 1986. Today, contractual overreach calls for assessment primarily through the lens of