The Court Of Appeal In England & Wales Curtails Use Of Liquidated Damages For Delay

Author:Mr Hamish Lal, Scott M. Heimberg and Josephine Kaiding
Profession:Akin Gump Strauss Hauer & Feld LLP
 
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In international construction arbitration, the use of liquidated damages to address the consequences of failure by a contractor to finish the works by the date set for completion is widespread. Typically, the contractor completes the works late and absent any compelling arguments that the liquidated damages regime is an unenforceable penalty, liquidated damages for the delay are readily calculated and deducted. However, the Court of Appeal in England & Wales in Triple Point Technology, Inc. v PTT Public Company Ltd [2019] EWCA Civ 230 has shattered orthodox thinking on how to apply a clause imposing liquidated damages for delay to completion in circumstances where the contractor never actually achieves completion because his employment is terminated. In such scenarios, it was common for arbitral tribunals to award liquidated damages between the original date for completion and either the later date of termination or the date at which completion was ultimately reached post termination using another contractor. Triple Point Technology, Inc. v PTT Public Company Ltd has ruled that such approaches are incorrect in such a scenario and unless express words in the clause imposing liquidated damages state otherwise, the liquidated damages regime has no application in such a scenario because the contractor has not actually completed the works or handed over the works to the employer.

This is a very important ruling from the Court of Appeal and one with fundamental consequences for those employers and contractors currently involved in relying on a liquidated damages regime where there has been a termination after the original date for completion. In this Alert we consider the Court of Appeal's analysis and how the various and commonly used liquidated damages regimes maybe adjusted to take account of Triple Point Technology, Inc. v PTT Public Company Ltd.

The Approach of the Court of Appeal

In Triple Point Technology, Inc. v PTT Public Company Ltd the express liquidated damages clause stated:

If CONTRACTOR fails to deliver work within the time specified and the delay has not been introduced by PTT, CONTRACTOR shall be liable to pay the penalty at the rate of 0.1% (zero point one percent) of undelivered work per day of delay from the due date for delivery up to the date PTT accepts such work, provided, however, that if undelivered work has to be used in combination with or as an essential component for the work already accepted by PTT, the penalty shall be calculated in full on the cost of the combination.

It was not in dispute that the contract had been terminated...

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