UNITED KINGDOM:

Damage limitation: Clarity from the Supreme Court on lump-sum compensation claims

July 28, 2021

Wedlake Bell

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In 2019 the construction industry was left in a state of confusion by an appeals court (before COVID or BREXIT had a chance to try).COA‘”) Decision that turns the long-held” orthodox “view on its head that compensation payments (“LDs“) for incomplete work would only be incurred until the contract is terminated, not until the work is completed.

On appeal against this decision in Triple Point Technology Inc (Triple Point) v PTT Public Company Ltd (PTT) [2021]
UKSC 29 the United Kingdom Supreme Court (“UKSC“) brought some much-needed clarity to the industry in its highly anticipated judgment on the applicability of LDs until termination. The UKSC unanimously decided that LDs would in fact only last until termination of a contract, regardless of whether the work was completed The UKSC was of the opinion that any other assumption was “incompatible with the commercial reality and the accepted function of liquidated damages”.

This decision gives employers and contractors reassurance in this regard (and not to mention a sigh of relief for employers under existing contracts who, according to the COA ruling, may have had LD rules with questionable enforceability in the event of termination). Despite this newfound clarity, it will be interesting to see if parties or industry groups also try, out of caution, to take this into account when drafting, as we have seen with the NEC4 suite, to include changes that make it clear that the delay damage is on ends termination.

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.

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