Liquidated damages are recognized under UAE law and confirmed by courts and arbitration tribunals in the United Arab Emirates. Liquidated damages are designed as a fair representation of losses in situations where actual damages are difficult to determine. In general, liquidated damages must be fair and not punishable. From the owner`s point of view, this acts as a form of cheap insurance against your contractors. In the event of an infringement, the owner can immediately calculate the damage without bothering to prove the actual damage. Proof of actual damage can be a complex, time-consuming and costly process. Damages liquidated in a specific contract clause may be referred to to cover circumstances in which a party is faced with a loss of assets that do not have a direct monetary correlation. For example, if a party entered into a contract supply chain information that is of paramount importance to a company, it could be subject to liquidated damage. One of sterias` arguments focused on whether LDs were criminal in nature. Steria submitted that the contract structure with LDs payable for each section could be a penalty if the final completion date was finally met, regardless of delays in completing one of the first three tasks.
Since the timely conclusion of the subcontracting did not result in a delay in the main contract, Sigma would not be liable to its client, while Steria would be responsible for LDs in the subcontracting. The judge did not accept it. Delays in 1-3 tasks may have caused a sigma loss, even though the final completion date could be reached. Sigma or other subcontractors could experience delays and disruptions, resulting in losses or expenses that could not be recovered elsewhere. It was also relevant that both contracts be limited to 10% of the total achievable LDs. The clause was not punishable. The judge also found that an action for general damages was not possible, as the contract made it clear that Sigma`s only recourse was LD. However, he found that if the LD clause had not been applicable as a sanction, it could not be used as a ceiling under any circumstances. The sanctions rule does not apply to many payments made under a contract. Three cases give some indication on this point. A very useful test is whether the amount should be paid as a primary obligation or whether it should be paid as an ancillary obligation, i.e. in the event of a breach of a primary obligation.
If the first one, it won`t be a punishment.