Let the decision be sidestepped

Key point The Supreme Court’s judgment highlights the common law’s sometimes flexible approach to judicial precedent My analysis of the Supreme Court’s decision in Triple Point Inc v PTT Public Company Ltd [2021] UKSC 29 means you need to bear some legal Latin in mind.  In particular, the doctrine of judicial precedence: stare decisis. This translates as “let the decision stand” and is intended to give a degree of certainty (and a priority of importance) when courts consider an issue which has already been the subject of judicial consideration. And, to oversimplify things slightly, the higher the court, the more binding the previous judges’ views. Decisions of the Supreme Court (and before that the House of Lords) bind all courts below. The Supreme Court can overturn a previous House of Lords or Supreme Court decision but does so relatively rarely, preferring, as in Triple Point, to sidestep the issue. The issue When Triple Point was considered by the Court of Appeal ([2019] EWCA Civ 230, see EGi 09/05/19, The case that time forgot), a very distinguished panel (Sir Rupert Jackson, Lewison and Floyd LJJ) had to decide how a liquidated damages provision of a contract worked when the contract had been terminated or abandoned and a third party had completed the work. Most commentators would have said that, subject to the precise wording of the clause in question, liquidated damages would accrue until such time as the contract was terminated. After that, any further losses were recoverable under the ordinary law of damages. The Court of Appeal disagreed. It held that the liquidated damages clause did not apply at all. And it did so because it felt, following the stare decisis principle, that it was bound by a long-forgotten House of Lords decision which considered the liquidated damages clause in a Scottish contract: British Glanzstoff Manufacturing Co Ltd v General Accident Fire and Life Assurance Corp Ltd [1913] AC 143.  The wording of the liquidated damages clause in Triple Point was key: “If… [Triple Point]… fails to deliver work within the time specified and the delay has not been introduced by PTT,… [Triple Point]… shall be liable to pay… at the rate of 0.1%… of undelivered work per day of delay… up to the date PTT accepts such work”.  Glanzstoff was also a case where the original contractor did not complete the work and the liquidated damages provision made it clear that it applied if “the contractor fails to complete the works by the date named”. The House of Lords held that, because the contractor did not complete the work, the clause did not apply at all. The Court of Appeal thought that the similarity of the two clauses meant it was bound to follow Glanzstoff and that any delay damages had to be assessed under the normal principles governing damages (often a time-consuming and expensive process involving expert delay analysis, which is why parties often agree to liquidated damages provisions when negotiating the delay provisions in contracts).  The proper approach to liquidated damages clauses Lady Arden, who gave the leading judgment of the Supreme Court, disagreed. Central to her thinking was a conclusion that the Court of Appeal had adopted an approach which was “inconsistent with commercial reality and the accepted function of liquidated damages”. Liquidated damages were intended “to provide a remedy that is predictable and certain for a particular event” and the judge highlighted the attraction of avoiding the time and cost difficulties of quantifying loss in the absence of a liquidated damages provision. Lady Arden also stressed two points of principle to highlight the fact that liquidated damages provisions did not need to deal with what happens when the contract is terminated.  First, parties to contracts “must be taken to know the general law”, in this instance that liquidated damages cease to accrue on the termination of the contract (Photo Production Ltd v Securicor Transport Ltd [1980] AC 827).  Second, following termination, the parties must seek damages for breach of contract under the general law (Gibbs v Tomlinson (1992) 35 Con LR 86). As such, parties “do not have to provide specifically for the effect of termination of their contract. They can take that consequence as read.” But what about Glanzstoff? Having established the correct approach to liquidated damages, Lady Arden still had to deal with the potentially tricky decision which the Court of Appeal had felt was binding on them. The judge sidestepped it quite neatly. Liquidated damages clauses depend on the wording of the particular clause. Glanzstoff was, quite simply, an obscure decision that turned on its own particular facts and did not justify the Court of Appeal’s “radical reinterpretation of the case law on liquidated damages clauses”. The judge noted that all the House of Lords did when considering this issue was to reaffirm the judgment of the court below. The judges did not actually interpret the provision themselves. Lady Arden also challenged the idea that Glanzstoff was an important authority, going so far as to highlight a 1914 textbook on Scottish contract law which concluded that the case was simply authority for the meaning of the particular clause in question. Key takeaways Lady Arden’s judgment highlights the importance which our courts give to well-established principles. The law of liquidated damages was not broken and it did not need the Court of Appeal to fix it. It also highlights the flexibility of the common law: one judge’s binding precedent can be another’s unimportant and easily-dismissed curiosity. Stuart Pemble is a partner at Mills & Reeve Image © James Veysey/Shutterstock