The setting a minimum figure for liquidated damages does not automatically result to converting the said damages into penalty that would bar its recovery by the employer. This legal implication was what was tackled in the separate case of Arnold and Philips. In the of Arnold, the Privy Council considered the decision of Sears J in Arnold where Sears J held that where a minimum figure is stated, this may have the effect of transforming a penalty a perfectly valid liquidated damages clause into a penalty (Halley G. and Shaw, G., Mar 1994) Although almost similar argument with that of Arnold’ case was used in the case of Philips, the Privy Council decided differently in the case of Philips.
Halley G. and Shaw, G. (Mar 1994) cited that the contractor in the case of Philips failed to suggest at the given stated that the sum claimed by the government (employer) by way of liquidated damages was in fact exorbitant, if in case there will be delays. In other words, the contractor merely based its argument in a number of hypothetical situations, where the sum payable would have been totally out of proportion to any loss which the government was likely to suffer in that situation. The Privy Council pointed out that the expressions used in the contract are not conclusive since the court will still have to find whether the payment stipulated is in truth a penalty or liquidated damages.
It may be concluded that what happened in the case of Philips was that the employer was able convince the Privy Council that that if there is delay in completion it will inevitably incur expenses of standing nature irrespective of the scale of work outstanding and that those expenses shall continue until the work is completed. Thus the Privy Council found the setting of the minimum liquidated damages to have been done correctly and hence it did not amount to a penalty (Halley G. and Shaw, G., Mar 1994).
Reference: Halley G. and Shaw, G. (Mar 1994) Construction Contract- Asia Engineer