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Supreme Court rules that liquidated damages are available, even following termination

Triple Point is one of the most significant cases for the construction industry in recent years. Even though the dispute relates to an IT software contract, it considers issues, including liquidated damages, which are relevant to construction contracts.

On 16 July 2021, the Supreme Court handed down its decision.

Liquidated damages

The Supreme Court has decided how clauses relating to liquidated damages for delay will apply where a contract has been terminated before the works have been completed.

Liquidated damages will accrue for the period of contractor-culpable delay until the date of termination (unless there is a clear contractual provision to the contrary), and unliquidated damages will apply following termination.

The decision overturns the conclusion previously reached by the Court of Appeal in the case that, where a contract is terminated before the works are completed, no liquidated damages would be payable. The Court of Appeal had said, damages would be assessed solely on an unliquidated basis (for the periods both before and after termination).

The Supreme Court’s decision marks a return to the orthodox approach which many believed applied until the Court of Appeal took a contrary view. As Lady Arden said in the leading judgment, “[t]he difficulty about [the Court of Appeal’s] approach is that it is inconsistent with commercial reality and the accepted function of liquidated damages”.

Relief for employers

The Supreme Court’s decision will be a relief for employers who may, since the Court of Appeal’s decision, have been concerned about terminating the contract of a contractor in delay, fearing that this would come at the cost of losing the benefit of the liquidated damages provisions up to the date of termination.

Contractors may also welcome the certainty that a Supreme Court ruling on the point brings.

Case citation: Triple Point Technology, Inc v PTT Public Company Ltd [2021] UKSC 29

Tags

litigation, construction

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