The Court of Appeal has provided guidance on whether a liquidated damages provision should be engaged when contracted work has not been completed by the date of termination
“Where termination of the contract has occurred before completion, liquidated damages may not be recoverable,” says Kate Chalkey, senior associate at law firm Aaron & Partners.
She advises parties to state in contracts whether a liquidated damages provision is to apply if works are incomplete by the date of termination. In the case referred to the Court of Appeal, Triple Point was engaged by PTT to develop a software system.
The works were divided into phases, with payment subject to the completion of milestones. Triple Point achieved completion of stages one and two of phase one 149 days late. Triple Point submitted an invoice for completed work, which PTT paid. But PTT refused to make further payments for incomplete work.
Triple Point refused to work without payment. Triple Point started proceedings to recover the sums in its unpaid invoices but PTT denied payments were due and claimed damages for delay.
At first, Triple Point’s claim was dismissed and PTT was deemed entitled to recover liquidated damages for delay. Triple Point appealed on the basis that damages were not recoverable under a specific clause – Article 5.3 – of the contract as it only applied when work was delayed, but subsequently completed.
The court ruled PTT was entitled to recover liquidated damages in respect of Triple Point’s 149-day delay, but no other delays as they concerned incomplete work.
Chalkey comments: “The Court’s decision was dependant upon the specific wording of Article 5.3.”