Liquidated damages (LDs) are predetermined damages set when a contract is entered into, primarily based on a calculation of the estimated reduction probably to be incurred if the contractor fails to satisfy certain dates. LDs clauses are commonplace in professional contracts. In building contracts, they generally implement wherever the contractor fails to complete works by specified dates due to reasons for which the contractor is culpable. They are commonly calculated according to the time period in between the specified dates and real completion. But what happens if the contractor does not access completion?

In the the latest situation of Triple Stage Technologies v PTT General public Enterprise Ltd (PTT) the Supreme Court needed to identify whether, and if so to what extent, LDs implement in the situations in which a contractor fails to full operates and a 2nd contractor is brought in.

The dispute

PTT, a commodities trader, placed an order with Triple Point, a application procedure provider, for a new software technique working with trading, risk management and vessel chartering. The job deal furnished for payment versus specific milestones in the functions, and it utilized LDs in the function of distinct delays. Payments have been issued in respect of the 1st two phases of works however, the undertaking was issue to delays that resulted in Triple Level failing to access the next phase of work. Triple Issue sought payment from PTT of program licence service fees, which PTT refused as the next stage in the works was not concluded and no payment milestone had been brought on. Triple Stage suspended get the job done pending payment and remaining the site. PTT argued that Triple Level had wrongfully suspended get the job done and PTT served see requiring Triple Level to solution its breaches of contract. When Triple Level did not comply with the notice, PTT formally terminated the agreement and engaged another contractor to comprehensive the operates.

Triple Stage sued in respect of its invoices and for get the job done it experienced carried out prior to termination. PTT counter-claimed for damages such as LDs.

The court docket necessary to determine whether Triple Point was entitled to stop operates pending payment, who was responsible for the hold off, whether or not PTT was entitled to terminate the agreement, to what extent LDs were payable, and irrespective of whether the contractual cap operated to restrict these.

The Know-how and Development Court’s (TCC) Determination

At to start with instance, the TCC held that Triple Point was not entitled to suspend works and that it was in breach of contract. PTT was awarded $3,459,278.40 in LDs for delay up to the day of termination, as properly as other incurred charges. The court docket uncovered the contractual cap on liability did not cover LDs.

Several issues arose from the conclusion, with potentially major ramifications for the development marketplace, in specific:

  • Do LDs clauses utilize at all where by a contractor fails to total and a second contractor is brought in?
  • If so, do LDs clauses only apply up until finally the position of termination? Or do they implement until eventually the second contractor achieves completion?
  • Does a contractual cap limiting legal responsibility utilize to LDs in the situations of termination?

The TCC’s choice was appealed to the Courtroom of Attractiveness.

The Court of Appeal Choice

The Court docket of Attractiveness held that LDs ended up not because of for the period further than termination of the contract and that PTT was entitled to liquidated damages in regard of done and acknowledged works only. When looking at whether or not the contractual limitation of liability applied to these LDs, the court docket held that the applicable clause designed an over-all cap on the extent of Triple Point’s complete liability, inclusive of its liability for LDs.

The recognized place that LDs are payable for incomplete is effective up to the day a contract is terminated and that only normal damages are recoverable thereafter was so forged in doubt. The significance of the points elevated led to a further enchantment to the United kingdom Supreme court.

The United kingdom Supreme Courtroom Conclusion

By unanimous conclusion, the Supreme Court docket rejected the Courtroom of Appeal’s conclusion, keeping that the effect of LDs provisions should usually end when a agreement is terminated, but ought to utilize to incomplete works to that day. It agreed that the contractual cap in this circumstance covered LDs.

Factors to just take absent

Plainly, LDs, liability caps and termination clauses are important and demand mindful drafting. The application and impact of these clauses will normally count on the specific terms made use of.

Nevertheless, the United kingdom Supreme Court’s conclusion confirms that accrued legal rights and liabilities survive termination of deal and that, subject to very clear and specific phrases to the contrary, LDs entitlement generally accrues up to the date of any termination of deal, but thereafter typical damages implement. In addition, the accrual of LDs in these situations can be minimal by a contractual cap on legal responsibility, relying on the precise words of the appropriate provision.