Liquidated Damages, The Triple Point Case, and the New JCT
The Joint Contracts Tribunal (JCT) has released its new Design and Build Contract 2024. A new clause (2.29.5) relating to liquidated damages has been included that reflects the judicial outcome of the Triple Point case (Triple Point Technology Inc v PTT Public Company Ltd [2021] UKSC 29). This new clause allows for liquidated damages to accrue between the completion date and the date of termination and confirms that liquidated damages do not apply for the period following termination. This article will explore the liquidated damages regime and the Triple Point case.
Liquidated Damages Prior to the Supreme Court Decision in Triple Point
Liquidated damages are often provided for in commercial and construction contracts. These clauses are based on a fixed or agreed sum of money to be paid as compensation to parties who have suffered a breach of contract resulting in a loss, namely delay. A key benefit of the inclusion of a liquidated damages clause is certainty for an employer to a project, with a set amount of compensatory damages representing a genuine pre-estimate of loss.
Prior to the Supreme Court providing much needed clarity on the application of liquidated damages in Triple Point, the application of liquidated damages in the context of termination was uncertain. Previously, upon termination of a contractor, there were three methods in which the contract could be construed for liquidated damages to apply:
- The liquidated damages clause did not apply;
- The liquidated damages clause applied up to termination; or
- The liquidated damages clause continued to apply until a second contractor achieves completion.
The Triple Point Case
The Facts
PTT appointed Triple Point under a milestone payment contract. Delay occurred and PTT argued (i) Triple Point were not entitled to payment for incomplete works, and (ii) Triple Point had to meet contractual milestones for it to be entitled to receive payment. Triple Point then ceased all works on the grounds of non-payment. Following this, PTT terminated the contract on the grounds that Triple Point had wrongfully suspended the works.
In the TCC, Triple Point sought recovery of unpaid invoices. PTT counterclaimed for (i) damages for wasted costs pre-termination, (ii) liquidated damages up to the date of termination, and (iii) termination loss.
The Court of Appeal Judgment
Levying liquidated damages following the period of termination was called into question because this allows an employer and its new contractor to control the period in which liquidated damages would apply, to the disadvantage of the terminated contractor. In other words, why should the original contractor suffer for delay caused by its replacement?
The liquidated damages clause specified that liquidated damages would apply ‘up to the date [the employer] accepts such work’. The Court of Appeal regarded this as meaning the date when the employer accepted completed work from the contractor. The court held that on the facts, the contractor did not complete the work, therefore acceptance did not occur and liquidated damages could not apply. The first method of assessment was therefore given more weight.
The Supreme Court judgement
The Supreme Court unanimously overturned the central decision of the Court of Appeal (referred to as Issue 1). It held that acceptance of the work is not a condition required to receive liquidated damages. Instead, the language illustrates the point at which liquidated damages would stop accruing.
The Supreme Court clarified that approach two was favoured i.e. liquidated damages applying up to the point of termination. The court confirmed that liquidated damages were to be calculated up to the date of termination of the contract between the employer and the contractor, even if the works had not been accepted by the employer.
The reasoning behind this was one of commercial sense – it would not reflect the bargain struck if the contractor were free from the application of liquidated damages in circumstances in which the works were not complete, but it is too far a stretch to place the consequences in the hands of another. In this decision, the court upheld the key function of liquidated damages in providing certainty to the parties.
JCT 2024 Impact
Clause 2.29.5 in the new JCT D&B reflects the position established by the Supreme Court by providing:
‘2.29.5 If the Contractor’s employment is terminated under this Contract:
2.29.5.1 where the date of termination occurs prior to the date of practical completion of the Works, the provisions of clauses 2.28 and 2.29 shall apply in respect of the period between the Completion Date and the date of termination, and the reference to practical completion of the Works or Section in clause 2.29.2 shall be deemed to be a reference to the date of termination;
2.29.5.2 in respect of the period after the date of termination, subject to clause 2.29.5.1, the Employer shall not be empowered to require the payment of or to withhold or deduct liquidated damages under clause 2.29 but the provisions of this clause 2.29.5.2 shall be without prejudice to and not in substitution of any other rights and remedies of the Employer.’
This update serves to provide further clarity on the application of liquidated damage, harmonising the common law and contractual positions. However, it is important to note that while this case proves helpful in providing a settled authority on the application of liquidated damages, the court emphasised the need for careful drafting by asserting that liquidated damages are still to be considered on a case-by-case basis. This will be important for any construction contracts with respect to proposed amendments to the new suite of JCT contracts.
This article first appeared in Construction Index
