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PRACTICAL LAW

CONSTRUCTION BLOG

MARCH 20, 2019

Can liquidated damages be claimed after


termination? Wrong question!
Imagine this: a contractor undertakes to perform certain works by
a specified date, and agrees to pay liquidated damages (LDs) if it
does not complete by that date (subject to any entitlement to an
extension of time). The contractor, through its own fault, is late and
does not complete by the specified date. In fact, the contractor is
very late and, in the end, the employer terminates the contract be‐
fore the works are completed (as it is entitled to do under the
contract). by Alexandra Clough
partner
at Bryan Cave Leighton
For those of us involved in the construction industry, this scenario
Paisner LLP
does not require too much imagination.

In my previous blog post, I said that whether LDs could be recovered after termination of the
contract would appear on my hypothetical construction law exam paper. I was concerned about
how and whether the unlucky student sitting this exam question would get to the right answer.

It turns out that there was a more fundamental problem – I asked the wrong question. The re‐
cent Court of Appeal decision in Triple Point Technology Technology Inc v PTT Public Co Ltd
shows that I should have asked whether LDs are recoverable at all in the event of termination. 

Before considering the most recent case, let’s take a look at the previous case law.

The starting point

The line of relevant cases starts with the House of Lords case of British Glanzstoff Manufactur‐
ing Co Ltd v General Accident Fire and Life Assurance Corp Ltd (1912). In this case, the court held
that an LDs clause only applied where there was a delay in completion by the contractor itself.
Where the work was completed by others, the employer was not entitled to recover any LDs and
must prove the damage suffered.
LDs are not recoverable after termination

Jumping forward nearly a century, in Greenore Port v Technical & General, the contractor went
insolvent before the works were complete. Jackson J (as he then was) in the TCC decided that
the claimant was entitled to recover LDs for delay up to the date of termination and general
damages thereafter.

In Shaw and another v MFP Foundations and Pilings Ltd, the contract in question stated that LDs
would be £nil, meaning that no damages were recoverable for delay. Edwards-Stuart J in the
TCC found that the LDs provisions in the contract applied up to the date of termination. After
that, he held that the requirement to pay LDs at the contractual rate (or nothing, if so provided)
falls away after termination.

The position in Greenore and Shaw is the accepted position in the two leading construction law
case books. Keating says:

“If the contract is brought to an end by determination or otherwise, then prima


facie all future obligations cease and no claim can be made for liquidated
damages accruing after determination. But there may be some special clause
which has the effect of keeping the provision for payment of liquidated damages
alive although the work has been taken out of the hands of the contractor.” 

Hudson is in agreement with Keating:

“Further liquidated damages are only recoverable for a period when the Contractor
is in a position to complete the work. Therefore, after termination, only general
damages will be recoverable.”

LDs are recoverable after termination

In contrast to the above cases, there have been two first instance cases which decided that LDs
are recoverable after termination.

GPP Big Field LLP v Solar EPC Solutions SL concerned EPC contracts relating to solar power
generation plants in the UK. GPP claimed damages (both liquidated and unliquidated) for late
and/or non-completion of the works. The case was heard in the commercial court by Mr
Richard Salter QC, sitting as a deputy High Court judge, and one of the questions he was asked
to consider was whether the contractor was liable for LDs after the date of termination of one
of the EPC contracts.

The judge held that LDs would continue until the actual date of commissioning of the plant, de‐
spite that the contract had been terminated prior to this point.

Similarly, in Hall and another v Van Der Heiden, Coulson J (as he then was) held:
“Accordingly, as a matter of principle, I reject the submission that the defendant’s
liability to pay liquidated damages came to an end when the employment was
terminated”.

The principle referred to was that, if LDs ceased to be payable upon termination, the contractor
would be rewarded for its own default (it being the contractor’s default that led to termination).

I therefore concluded in my previous blog post that a Court of Appeal decision on the issue
would be very helpful. And now we have one!

Triple Point v PTT

Triple Point v PTT concerns a contract in which Triple Point agreed to provide a software sys‐
tem and related services to PTT.

Work proceeded slowly because Triple Point failed to properly resource the project. The work
was broken down into stages, and Triple Point achieved completion of some of the stages sig‐
nificantly behind schedule. The parties fell out over what sums were due to Triple Point and
eventually PTT terminated the contract pursuant to its terms. At the point of termination a sig‐
nificant portion of the work was still outstanding.

One of the issues for the judge was whether PTT could claim LDs for elements of the work that
had not been completed at the time of termination. PTT claimed LDs from the specified com‐
pletion dates in the contract, up to the date of termination (not beyond).

Triple Point argued that these LDs were not recoverable at all, because the work was never
completed and accepted by PTT. Triple Point argued that the LDs clause only applied when the
work was delayed but subsequently completed and accepted by PTT.

In the Court of Appeal, Sir Rupert Jackson relied heavily on the reasoning in Glanzstoff, holding
that:

“…Whether the liquidated damages clause (a) ceases to apply or (b) continues to
apply up to termination/abandonment, or even conceivably beyond that date, must
depend on the wording of the clause itself. There is no invariable rule that
liquidated damages must be used as a formula for compensating the employer for
part of its loss.”

He held that the clause in question, which focused specifically on delay between the contrac‐
tual completion date and actual completion, had no application in a situation where a contrac‐
tor never completes the work.

Although Sir Rupert Jackson emphasised that every case will turn upon the wording of the
clause on question, he cast doubt on the decisions in Hall and GPP. He even said that he may
have decided Greenore differently had Glanzstoff been cited to him.
In my view, this decision will come as a surprise to many who have considered this issue in the
past. It had previously been accepted that LDs would be recoverable at least up to the point of
termination.

The decision in Triple Point v PTT turned very much on the wording of the LDs provision in ques‐
tion but, in my experience, the wording used was not particularly unusual. Parties to construc‐
tion contracts should think carefully about whether they want their LDs provisions to apply in
the event of termination and draft accordingly. Thought should also be given as to how the ter‐
mination provisions interact with the LDs provisions. It will be interesting to see whether parties
start inserting amendments to the standard forms to address this decision.

2 thoughts on “Can liquidated damages be


claimed a er termination? Wrong question!”

Craig McpheatorMarch 23, 2019 at 4:48 pm

Get your liquidated damages clauses updated to include for continuation of the clause and
the application beyond delay to the completion date and termination, now!! Very succinct
article so thank you.

Nikhil KulkarniMarch 26, 2019 at 5:11 am

Very informative article indeed…especially Jackson J saying “…[LD] on delay between the
contractual completion date and actual completion, had no application in a situation where a
contractor never completes the work”. Need to check LD clause wording carefully going
forward!

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