Helpfully, two recent judgments offer construction practitioners some useful clarification on liquidated damage provisions: the UK Supreme Court decision in Triple Point¹ and the Singapore High Court ruling of Crescendas Bionics² . Both judgments serve as a reminder that effective liquidated damages clauses must have regard to the particular wording of the provision, the provision’s relationship to the contract as a whole, and the commercial and legal environment in which the respective parties are operating.

Triple Point Technology v PTT Public Company

The Triple Point judgment concerned the installation of a new commodities trading software. The UK Supreme Court had to consider whether a liquidated damages clause survived in circumstances where the contract was terminated by the employer due to a repudiatory breach by the contractor.

In an earlier ruling, the Court of Appeal held that the liquidated damages clause became totally inoperable³ . To arrive at this position, the Court of Appeal had particular regard to a 1913 case with a similarly worded clause. The clause in issue stated that the liquidated damages were to be calculated up and until the date on which the employer accepted the work but said nothing about termination of the contract. Therefore, citing the 1913 case as precedent, the Court of Appeal reasoned that because the works had not been accepted, the liquidated damages clause could not apply.

The Supreme Court disagreed with the Court of Appeal and restored the orthodox position that liquidated damages are claimable up and until the point of termination. Thereafter, the employer was only entitled to general damages. Coming to this judgment, the Supreme Court held that:

1. The ruling of the Court of Appeal was uncommercial, by extinguishing the employer’s accrued rights to liquidated damages before the point of termination, which is the normal commercial practice and the purpose of such clauses;
2. A liquidated damages clause should be interpreted against the background that the law recognises the liability to pay liquidated damages only up to the point of termination, it is not necessary to explicitly provide for this eventuality and the failure to do so does not invalidate the clause; and
3. That clear wording must be used within the provision if one party’s rights are to be dispensed with.

Crescendas Bionics v Jurong Primewide

This complex Singaporean case concerned the construction of a 3-storey business park. Here, the Singapore High Court (SGHC) had to consider whether the delay triggering the liquidated damages was caused in part by the employer and, if so, whether the employer was entitled to rely on the liquidated damages clause. Significantly, the contract in this case was a simple letter of intent totalling four pages and which did not provide for any extension of time.

The SGHC held that the employer did indeed contribute significantly to the project’s delay and, due to this finding combined with the absence of an extension of time provision, determined that time was at large. Consequently, the employer could not rely on the liquidated damages provisions because the time for completion, against which the damages are applied, was itself no longer applicable.

Commercial Considerations

Both judgments provide or reinforce three important considerations that should be kept in mind when dealing with liquidated damages clauses:

1. The specific wording of the particular contractual provision is important, hence why the UK Supreme Court in Triple Point held that deliberate wording must be used to extinguish a party’s rights.
2. That while the particular wording of the provision is important, regard must also be had for the contract as a whole. For example, not including an extension of time provision means that you run the risk of putting time at large (as the SGHC held in Crescendas Bionics), which makes your liquidated damages rights unenforceable.
3. Finally, regard must also be had for the wider commercial and legal environment in which the Parties are operating. The Supreme Court in Triple Point reversed the earlier Court of Appeal ruling on the basis that they focused too much on the wording of the liquidated damages clause itself, and in so doing failed to take account of the orthodox and commercial approach common to the industry.

Conclusion

These judgments highlight the overall salient principle in respect of liquidated damages clauses: they are designed to provide certainty, but this certainty is only as good as the contract when taken as a whole.

In Triple Point the employer terminated the contract because of the contractor’s repudiatory breach. On termination, English law provides for the accrual of liquidated damages to the date of termination, and general damages thereafter. This reflects the fact that liquidated damages form a part of the contract, therefore, once the contract is terminated, the liquidated damages clauses cannot be operated.

In Crescendas Bionics the employer was partially responsible for the delay triggering the liquidated damages. As a consequence, because there was no extension of time provision, time was at large and the liquidated damages clauses could not apply to an undefined completion date. Significant cases involving construction contracts without extension of time clauses are unlikely to occur often, but this decision underlines that liquidated damages clauses exist within a wider contractual matrix.

Perhaps the most insightful aspect of Crescendas Bionics is that both parties argued, at different times, for the liquidated damages clause to be applied. The employer argued for its application in the 2019 decision, and the contractor argued for the clause to be applied as a cap to general damages in the 2021 decision⁴ . This is telling evidence, if any were needed, of the value of liquidated damages clauses in providing commercial certainty to a contract.

¹ Triple Point Technology Inc v PTT Public Company Ltd [2021] UKSC 29.
² Crescendas Bionics Pte Ltd v Jurong Primewide Pte Ltd [2019] SGHC 04 & Crescendas Bionics Pte Ltd v Jurong Primewide Pte Ltd [2021] SGHC 189.
This claim involved a separation of issues. The first judgement was awarded in 2019 on the issues of liability (confirmed on appeal), a subsequent judgement in 2021 dealt with the issue of quantum. For the purposes of this article, these separate judgements are referred to interchangeably.
³ Triple Point Technology Inc v PTT Public Company Ltd [2019] EWCA Civ 230.
⁴ Despite failing in Singapore, a similar argument was recently given judicial approval in England & Wales in Eco World – Ballymore Embassy Gardens Company Limited v Dobler UK Limited [2021] EWHC 2207 (TCC).