The Supreme Court Favours "Orthodox Approach" To Liquidated Damages Clauses: Triple Point Technology, Inc v PTT Public Company Ltd ' Court Of Appeal Overturned

• Published date: 23 July 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Real Estate and Construction, Corporate and Company Law, Contracts and Commercial Law, Trials & Appeals & Compensation, Construction & Planning
• Law Firm: Akin Gump Strauss Hauer & Feld LLP
• Author: Mr Hamish Lal, Tania Iakovenko-Gr'sser, Brendan Casey and Léa Defranchi

Sir Rupert Jackson sitting in the Court of Appeal had found that the liquidated damages clause providing for liquidated damages to be paid for each day of delay by the contractor "from the due date for delivery up to the date [the employer] accepts such work" did not require liquidated damages to be paid in respect of work which had not been completed (and thus had not been accepted by the employer) before the contract was terminated. The approach taken by the Court of Appeal had raised concern. To many, it seemed odd that a contractor could miss a completion date but still avoid payment of liquidated damages simply because the contract was terminated before the obligation was fully completed. Whether the approach taken by the Court of Appeal was based on a principle of law or on the construction of the particular clause was not entirely clear. The fundamental point is now clear: the Supreme Court in Triple Point Technology, Inc v PTT Public Company Ltd [2021] UKSC 29 handed down on Friday, 16 July 2021 decided that it is a principle of law that the accrual of liquidated damages comes to an end on termination of the contract and after that event, the parties' contract is at an end and the parties must seek damages for breach of contract under the general law (this is the so-called "orthodox approach"). Further and importantly for contract drafters, Parties do not have to provide specifically for the effect of the termination of their contract: they can take that consequence as read. In short, the earlier approach in the Court of Appeal on liquidated damages has been overruled, with the Supreme Court making clear:

• It is well understood that parties agree a liquidated damages clause to provide a remedy that is predictable and certain for a particular event: The employer does not then have to quantify its loss, which may be difficult and time-consuming for it to do Parties must be taken to know the general law captured in the "orthodox approach", namely that the accrual of liquidated damages ends on termination of the contract such that thereafter the parties' contract is at an end and the parties must seek damages for breach of contract under the general law.
  
  
• That there are cogent commercial reasons why parties who include a liquidated damages clause in their contract would be unlikely to intend the employer's right to receive such damages for delay by the contractor to be conditional upon the contractor actually completing the work¹ The Supreme Court...