• Archives
• Text

March 1, 2010

Power Owners in Strong Position to Collect Liquidated Damages

By Judah Lifschitz, Esq. and James McMichael, Esq.

The Athens Decision—Owner’s Actual Damages Held Irrelevant

In Athens, the arbitration panel determined that the owner’s actual damages, calculated in hindsight, were irrelevant to the determination of the reasonableness and enforceability of the liquidated damages provision. The EPC contract provided for the assessment of liquidated damages at up to $147,000 per day of inexcusable delay in the event Bechtel failed to achieve timely completion. Bechtel asserted that this amount constituted an unenforceable penalty. The panel ruled that in order to constitute a penalty, “the quantum of damages proposed must be shown to be unreasonable at the time that the contract between the parties was negotiated. The fact that the quantum may, with the benefit of hindsight, be higher than the other party actually suffered is of no consequence.”

Using this determination, the panel concluded that the evidence clearly established that the amount stipulated to by the parties in the EPC contract “was reasonable at the time the contract was entered into.” This conclusion was based on, among other things, both parties’ knowledge and sophistication with respect to the economics of financing, construction and operating a power plant, Bechtel’s previous experience working with Athens’ parent company on “numerous other EPC projects,” and the fact that both parties were represented by “competent and experienced negotiators” at the time the EPC contract was entered into.

—Judah Lifschitz, co-president of Shapiro, Lifschitz & Schram, PC, can be reached at lifschitz@slslaw.com or 202-689-1900, ext. 3025. James D. McMichael, vice president of Shapiro, Lifschitz & Schram, PC, can be reached at mcmichael@slslaw.com or 202-689-1900, ext. 3028. Judah Lifschitz was lead counsel for Athens during the litigation.