On 16 July 2021 the Supreme Court handed down judgment in Triple Point Technology Inc v PTT Public Company Ltd [2021] UKSC 29 and in doing so brought to an end the uncertainty as to the survival of accrued rights to liquidated damages following termination of the applicable construction contract.

The Supreme Court found that the Court of Appeal fell into error in what was termed in the case as the “availability of liquidated damages issue”. The issue centred around whether PTT, as employer, was entitled to liquidated damages for delay in respect of work which had not been completed before the contract was terminated.  The relevant clause in the contract stated that if Triple Point, as contractor, failed to deliver work within the time specified and the delay had not been introduced by PTT, Triple Point would be liable to pay liquidated damages from the due date for delivery of the work up to the date PTT “accepted the work”.

During the course of the works disagreements arose between the parties which culminated in PTT giving a contractual notice of termination of the contract. At the time of the termination, Triple Point had completed certain agreed and defined stages of the works as set out in the contract, but the majority of works had not been completed.  Proceedings were commenced in which the availability of liquidated damages issue was one of the matters before the Court.

At first instance the Court determined that the delay in performance of the works was caused by Triple Point and found Triple Point liable to pay liquidated damages to PTT in respect of the delays to the completion of all of the works, completed stages or otherwise, that had occurred prior to the termination of the contract.

Triple Point appealed. The Court of Appeal held that PTT was entitled to liquidated damages, but only in respect of works that had been completed by reference to the agreed and defined stages and, therefore, only those works that had been accepted by PTT.  PTT was not entitled to liquidated damages in respect of the remainder of the works that had not been completed prior to the termination.  The Court of Appeal found that, for the purposes of the liquidated damages clause, PTT could only accept work completed by Triple Point. Given the termination of the contract, Triple Point was no longer capable of delivering the remainder of the works and, therefore, PTT was no longer capable of accepting works that at the date of termination had not already been handed over to PTT. Therefore, the Court of Appeal’s finding put to an end PTTs accrued rights to liquidated damages in respect of incomplete stages of works because PTT had terminated the contact.

In advising clients of the potential ramifications of the Court of Appeal’s decision in circumstances where the termination of a contractor’s employment under a contract or the contract itself was being considered, care had to be exercised in ensuring that rights to liquidated damages were not being extinguished by virtue of the termination itself.

The Supreme Court has now reversed the decision of the Court of Appeal in relation to the availability of liquidated damages issue. The Supreme Court found that the function of the words in the relevant clause upon which the Court of Appeal relied was to provide an end date for liquidated damages and acceptance of the works by PTT to ensure that there could be no further claim for damages in respect of the relevant delay. The Supreme Court found that it did not follow that there were to be no liquidated damages if there was no such acceptance of the works by PTT and that to arrive at such a conclusion would be to render liquidated damages clauses of little value in commercial contracts. The Supreme Court found that the purpose of agreeing in advance on a sum payable as liquidated damages for each day of delay caused by a contractor would be defeated if the stipulated sum was payable only if and when the contractor chose to complete the contract.

The decision of the Supreme Court will be welcomed in circumstances where advice is being sought regarding the termination of a contractor’s employment under a construction contract or the contract itself where progress of the work has been delayed and the validity of a retrospective claim for liquidated damages is being considered and preserved.

If you have any queries about this matter, please contact Nik Haria or any member of the Construction & Engineering team.

Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.

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