Supreme Court ruling on the right to claim liquidated damages – Triple Point
The Supreme Court has handed down a decision which brings significant clarity to the question of how liquidated damages clauses operate after a contract has been terminated and where works were not completed by the original contractor.
Overturning a problematic decision by the Court of Appeal, the Supreme Court in Triple Point Technology Inc v PTT Public Company Ltd [2021] clarified that the “conventional” approach applies i.e. in the absence of clear wording to the contrary, the contractor will be liable for liquidated damages for delay until the date of termination and for general damages after that, subject to any limitations or exclusions in the contract.
Liquidated damages clauses – a reminder
It is often difficult to predict the amount potentially recoverable as damages for breach of contract. A liquidated damages clause provides certainty for the parties by establishing in advance the damages recoverable for a specified breach, usually late or defective performance, rather than a complete failure of performance.
What was the background?
PTT Public Company (PTT) engaged Triple Point Technology (Triple Point) to design and implement a software system. Triple Point was to be paid in instalments on completion of “milestones” and would be liable for liquidated damages in respect of works delivered late. Only the first of the milestones was completed, 149 days late. Triple Point demanded further sums in respect of works not yet completed and suspended work when those demands were not met. PTT terminated the contract.
What happened in the litigation?
Triple Point brought a claim for non-payment of invoices. PTT counterclaimed for liquidated damages for delay up to the date of termination and general damages for breach of contract thereafter for actual losses arising from the termination including the cost of an alternative software system.
The trial judge dismissed Triple Point’s claim and held that PTT was entitled to liquidated damages and general damages. Triple Point appealed.
Controversial Court of Appeal decision
In relation to the liquidated damages point, the Court of Appeal decided that PTT was entitled only to liquidated damages for delay in respect of works which had been completed before the contract was terminated.
The Court of Appeal said that each case turned on the wording of its clause. In this case, the clause provided that liquidated damages would be payable per day of delay “from the due date for delivery up to the date PTT accepts such work”. As the contract was terminated early, most of the works were never completed, so consequently PTT could not, and did not, accept them. As a result, PTT was entitled to recover liquidated damages in respect of Triple Point’s 149-day delay in completing the first of the milestones but not in respect of works which were never completed and accepted.
The decision cast doubt on the operation of liquidated damages clauses generally – if a contract was substantially delayed but terminated before completion of the works, to what extent (if at all) was the contractor liable to pay liquidated damages?
Commercial common sense decision from the Supreme Court
The Supreme Court overturned the Court of Appeal’s decision. It decided that the purpose of the clause was to provide for liquidated damages if Triple Point did not discharge its obligations on time, regardless of whether PTT accepted the works. The reference to acceptance was to provide an end date for the liquidated damages, it did not follow that there were no liquidated damages if acceptance did not occur.
The Supreme Court said that the Court of Appeal’s decision that works needed to be completed and accepted for liquidated damages to be payable was inconsistent with commercial reality and at odds with the accepted purpose of liquidated damages clauses. It clarified that the “conventional” approach applies instead i.e. in the absence of clear wording to the contrary, the contractor will be liable for liquidated damages for delay until the date of termination and for general damages after that, subject to any limitations or exclusions in the contract.
Comment
The Court of Appeal’s decision attracted significant attention and concern that customers might face difficulty in recovering liquidated damages in the common scenario of the customer terminating for breach or the contractor abandoning the contract. The Supreme Court’s decision therefore provides welcome certainty for contracting parties.
How can we help?
If you would like to discuss any issues concerning contract disputes, please contact a member of our Commercial Disputes team.