This case is an appeal from the Court of Appeal on the central issue of applicability of liquidated damages following termination of a contract prior to the works being completed. The Supreme Court overturning the judgement of the Court of Appeal on this issue and reverting to the previously generally understood position that liquidated damages accrue to the point of termination.
PTT entered into a contract with Triple Point Technology for the design, installation, maintenance and licensing of a customised software system. Phase 1 involved replacing PTTs existing system and phase 2 covering the development of the new system. Payment was to be made by reference to milestones when certain works elements were completed.
The first two stages of Phase 1 were completed late by Triple Point, and PTT subsequently terminated the contract. Triple Point commenced proceedings to recover unpaid invoices, and PTT counterclaimed for damages and liquidated damages for delay. PTT was successful in the original proceedings and awarded some $4.5m.
Triple Point appealed and was successful with the Court of Appeal holding that PTT was only entitled to liquidated damages for work which had been completed prior to the termination.
The liquidated damages clause was a fairly standard form clause providing entitlement to recover liquidated damages for each day of delay cause by the contractor “from the due date for delivery up to the date [the employer] accepts such work.” The appeal covers other issues concerning caps on liability not dealt with in this summary.
The Supreme Court
The Supreme Court noted that the Court of Appeal accepted it was departing from the previously understood position that liquidated damages would accrue until the contract terminated, at which point the Contractor would become liable for general damages for breach of contract, but that this was inconsistent with the commercial reality and accepted function of liquidated damages; that liquidated damages provide a remedy that is predictable and certain for a particular event.
Parties ‘must be taken to know the general law, namely that the accrual of liquidated damages comes to an end on termination of the contract’. After which, the contract having come to an end, the parties redress is general damages for breach of contract.
‘Parties do not have to provide specifically for the effect of the termination of their contract. They can take that consequence as read. I do not, therefore, agree with Sir Rupert Jackson when he holds in the second sentence of para 110 of his judgment that “If a construction contract is abandoned or terminated, the employer is in new territory for which the liquidated damages clause may not have made provision.” The territory is well-trodden, and the liquidated damages clause does not need to provide for it.’
The Supreme Court concluded that, unless the clause clearly provides otherwise, liquidated damages will apply up to, but not beyond, the date of termination of the contract.
About the Author
David is a Director at Phoenix Consulting and a Fellow of the Chartered Institute of Arbitrators, holds a Masters degree in Construction Law and Dispute Resolution and is currently undertaking adjudication pupillage through the Worshipful Company of Arbitrators . He is an experienced contract and commercial consultant with over 20 years’ experience in the construction industry.
David started his career working for two of the UKs largest construction companies before moving into a consultancy role and has worked on a range of projects in the roads, rail and utilities sector. David has a dual role within the company being responsible in the first instance for the growth and development of the dispute resolution services; whilst also at times providing more traditional commercial management services to clients. He has acted as party representative in formal adjudication proceedings as well as assisting parties in the preparation and defence of contractual claims.