Mathias Cheung has won the SCL Hudson Prize 2015 for his essay entitled ‘Shylock’s Construction Law: the Brave New Life of Liquidated Damages?’.
The paper comments on the recent Supreme Court decision of Cavendish Square Holding v Makdessi, which replaced the Dunlop test of ‘genuine pre-estimate of loss’ for penalty clauses with a new test of ‘legitimate interest’. It begins with a brief overview of the historical origins and development of the doctrine of penalties, both in equity and at common law, before addressing the new test laid down in the five judgments. The paper then goes on to analyse the impact of the new test on the use of liquidated damages clauses in the construction industry, expressing concerns as to the uncertainty and arbitrary value judgments surrounding the application of the new test.
1. A brief history of the doctrine of penalties – (i) Early roots from equity to common law – (ii)Dunlop and subsequent developments – (iii) Paving the path to Makdessi? – 2. The new test under Makdessi – 3. The purpose of LADs in construction contracts – 4. Potential problems with Makdessi – 5. The way forward.
The paper will be published in the Construction Law Journal in the autumn and is available to download online here.