Question

ABC entered into a contract with EDG to build 60 houses for the workers of EDG at a total sum of 5million within 24 months from the date of the contract. It was further agreed that in the event ABC fails to complete and deliver the houses to EDG within 24 months, ABC shall pay compensation in the form of liquidated damages for any delay at the rate of ten percent (2%) per annum of the agreed price. Owing to the shortage of building materials, cement and skilled labour, ABC took 48 months to complete and deliver the houses to EDG. EDG has claimed compensation of 200,000 from ABC. ABC has denied liability and claimed that the contract was frustrated on the ground that the delay in completing the houses was due to events outside their control.

Advise EDG

Answer 1

In my opinion, EDG has no other option but to take legal action against ABC because ABC took 48 months to complete and deliver the houses to EDG. However as per original contract, in the event ABC fails to complete and deliver the houses to EDG within 24 months, ABC shall pay compensation in the form of liquidated damages for any delay at the rate of two percent (2%) per annum of the agreed price which comes out to be 200000 for a delay of 24 months. But te court would give judgement in favour of ABC since the delay was caused due to situation or events not under their control such as shortage of building materials, cement and skilled labour.