Do Liquidated Damages accrue post-termination?

Do liquidated damages continue to accrue after a construction contract has been terminated? This was one of the issues that the High Court was asked to consider in the recent case of GPP Big Field LLP v Solar EPC Solutions SL.

A solar power generation plant construction project involved a contractor who was put into liquidation. This compelled the employer, GPP, to terminate the contract and to achieve completion by using alternative contractors. Relying on liquidated damages provisions in the underlying EPC contract, GPP argued that liquidated damages continued to accrue after the date of contract termination until completion, and made a claim against the contractor’s holding company, Solar. Solar on the other hand argued that its liability for liquidated damages ended as soon as GPP gave notice to terminate the contract.

The court found in favour of GPP, following Hall v Van Den Heiden (2010), in which Coulson J rejected the contractor’s submission “as a matter of principle”, reasoning that if the contractor was only liable to pay liquidated damages before termination, he would be rewarded for failing to carry out the works while the employer would be penalised for trying to get the works completed by another contractor.

The decision in Hall v Van Den Heiden has been criticised by commentators, primarily because at the point of termination the contractor loses control of the time for completion. Also, Hall v Van Den Heiden does not seem to have been followed before GPP v Solar. The decision in GPP v Solar may therefore have come as a surprise to some practitioners.

It should be noted that in GPP v Solar the contractor failed to cite the critical academic commentary or any cases supporting its argument. Accordingly, it is not unlikely that the decision in GPP v Solar will be challenged at some point in the future.

However, for the time being and as long as GPP v Solar stands, employers should be able to claim liquidated damages beyond termination until completion, and contractors need to be aware of this risk.

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