Lorna Carter

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When are liquidated damages (LDs) recoverable after termination of a contract?

Construction / 04 April 2019

Liquidated damages are a fixed sum claimable (often per week) by the employer (or purchaser) from the contractor (or supplier) for the costs of delay on a contract from the due date for completion of works or services (or provision of the product) until the actual completion date.  They are commonly used in IT and construction contracts.

Until recently the generally accepted position in was that LDs would be recoverable from the date the works were due to be completed (allowing for any extensions of time due) until the date of termination of a contract.  The principle being that LDs should only be claimed while the contractor is in a position to complete the works.  After this time any damages for delay would be a matter for the employer to prove rather than relying on the fixed sum claimable for delay agreed by the parties.

However, the position was been moved on in two first instance cases* where the Court in both cases rejected this position and saw no reason why the LDs should not continue to be claimed post-termination of the contract.

This threw the position into some confusion which has now been addressed by the Court of Appeal in the case of Triple Point v PTT (2019).  In the Triple Point case Sir Rupert Jackson held that the LDs clause had no application whatsoever in a situation where the contractor itself does not complete the works.  However, it is fair to say that the decision turned very much on the wording of the LDs clause.  So the generally accepted position and the movement on from this have both been turned on their heads.

In the light of this some further thought may need to be given by contracting parties as to when they intend for LDs bite and when they are to stop biting.

*GPP Big Field LLP v Solar EPC Solutions SL (2018), Hall and Another v Van Der Heiden (2010)

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