Do liquidated damages for a construction delay always apply?

Construction contracts often include a clause providing for liquidated damages for delay. This requires the contractor to pay a rate of pre-agreed delayed damages called “liquidated damages” to the customer / employer in such circumstances as to when the contractor fails to achieve practical completion by the relevant completion date that has been stipulated in the contract.

The benefit of liquidated damages to the employer is that it does not require the employer to prove that losses claimed have actually been suffered providing that the rate of liquidated damages is not “unconscionable”.

Generally therefore in a construction contract, it has always been the case that the customer was entitled to recover liquidated damages for delay at the contractual rate up to the date when the contract is terminated and thereafter general damages. Perhaps not surprisingly, this area of law has been subject to extensive examination in the Courts.

The Court of Appeal in the case of Triple Point Technology, INC. –V-  PTT Public Company Limited [2019] EWCA  CIV 230 considered the position in detail: 

The Court has clarified the uncertainties in the matter by deciding that where a Contractor’s employment is terminated before the works have been completed, liquidated damages cannot be applied. Instead, the terminating customer must establish the actual losses arising from the delay and claim these losses as general damages. The Claimant is therefore required to prove that the losses claimed have actually been suffered. The Court found that this approach in these specific circumstances was more logical and consistent with the parties’ agreement to apply the ordinary rules for assessing damages for breach of contract.

It is now an interesting position for contractors in similar situations. There is the potential for contractors facing a liquidated damages bill to elect to terminate the contract in a hope that any actual loss suffered by the customer/employer will be much less than the liquidated damages. It is quite likely as a result that there will need to be amendments to contracts to prevent liquidated damages clauses ceasing to apply should it prove necessary to terminate a contractors employment before completion of the works. As always, carefully consider your contracts before signing and seek advice if you believe there is likely to be a problem.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk