It is well known that construction projects often overrun and this can cause problems for a client who was expecting to take occupation of a building on a particular date. One way to encourage the contractor to avoid such delay is to agree that damages should be payable for lateness. Where the parties to a contract agree in advance what amount should be payable for late completion, these are know as liquidated damages.
Liquidated damages are usually payable for each week or month of delay. The contractor can mitigate their liability to pay liquidated damages in the event that they are delayed by an event that is outside their control (e.g. variations to the work or delay caused by bad weather).
But what happens where a contract is terminated before the work is completed? Are liquidated damages still payable?
The Court of Appeal provided some helpful guidance on this issue in the case of Triple Point Technology v PTT Public Company Ltd [2019] EWCA Civ 230.
Triple Point contracted with PTT to supply software systems. The parties’ contract provided for payments to be made against certain milestones, but the project fell into delay and PTT terminated the contract and engaged a third party to complete the project. Triple Point issued proceedings to recover the sums due under the invoices that had been rendered and PTT brought a counterclaim for damages, including liquidated damages in respect of the delays to the project.
The Court of Appeal concluded that the contractual provisions that entitled PTT to claim liquidated damages would cease to have effect if the contract was terminated prior to the completion of the works.
In light of the above, employers will need to give proper consideration to the potential of losing their ability to claim liquidated damages before terminating a contract. Whilst employers may still be able to claim damages for delay, they will have to prove their actual losses which will likely be more difficult than simply relying on a pre-determined amount.
If you are involved in a construction project that has fallen into delay please contact the Construction Team at Stephens Scown for advice on what damages could potentially be claimed.