Cellulose Acetate Silk Co Ltd v Widnes Foundry Ltd  AC 20
Contract law – Contract terms – Measure of damages
The plaintiff and defendant contracted for the plaintiff to construct a chemical plant in 18 working weeks. There was a clause in the contract that stated that the defendant would pay a penalty of £20 per week for every week that the project went past the 18-week time limit. The project was completed by the defendant but it was thirty weeks late and the plaintiff incurred £5,850 in loss as a result of the delay. The loss was caused due to the fact that the material that the plaintiff used for their product was compromised by the delay. The defendant argued that the plaintiff was only able to recover money as per the terms of the agreement which was £600. The plaintiff challenged this.
The issue for the court, in this case, was to consider the effect that the penalty clause in the contract would have on the delay in the construction of the chemical plant. The clause stated that the penalty would be £20 for every week that completion was late. If this clause did not have effect, and the plaintiff could claim damages for the amount they had lost, this would be for £5,850 rather than £600.
The court dismissed the plaintiff’s appeal. The penalty sum of £20 per week, as was agreed in the contract, was the full amount that the plaintiffs could claim. Therefore, the plaintiffs could only claim for £600 on the basis that the project had been delayed for thirty weeks. This is despite the fact that the loss of the plaintiffs was significantly greater than this.