Triple Point: Liquidated Damages for uncompleted works run until termination

Lady Arden has this morning handed down the much anticipated 60 page judgment of the Supreme Court in Triple Point Technology Inc v PTT Public Co Ltd.  Here are my first thoughts based on Lady Arden’s speech in handing down this decision.

Triple Point deals with how LAD provisions operate where the contractor never itself completes the works and the employer had terminated the contract.  This Court of Appeal’s March 2019 decision set out three ways in which LAD provisions can operate in such circumstances but did not set out a definitive rule.  The appeal to the Supreme Court raised two questions although it is the first on LADs that is of wider interest to the industry:

1. If/how LADs for delay are payable when the contract is terminated and the works are never completed or are completed by a third party; and
2. The application of a cap on liability for negligence to breach of contractual duty to use reasonable care and skill.

The Supreme Court held that in these circumstances the primary approach to LAD provisions (subject to their precise wording) is that LADs on works not completed by the original contractor will run until the date of termination.  To disapply the LAD provision for such works goes against the commercial bargain reached by the parties (of a pre-agreed figure of loss for delay) and would require the employer to go through the costly process of proving its actual loss.  The Supreme Court’s decision lines up with what many in the industry thought the position was before the Court of Appeal’s decision.

Whilst it is the decision on LADs that is of wider interest, the decision on the caps on liability will be of much more interest to the parties.  The decision on the cap on liability increased the damages to be paid by Triple Point to PTT from c. $1m to nearly $15m.

Background to the case

Triple Point Technology Inc (“Triple Point”) was engaged by PTT Public Co Ltd (“PTT”) to supply a software system for which it was to be paid upon completion of certain milestones.  Milestones 1 and 2 were completed and Triple Point was paid c. $1m for those milestones.   These milestones being completed some 149 days late.  No further work was completed on further milestones but Triple Point sought payment of a further c. $5m and absent further payment Triple Point would cease work.  PTT did not pay further sums and Triple Point ceased work.  PTT subsequently terminated the Triple Point’s contract for repudiatory breach.

Triple Point brought a claim for the c. $5m and PTT counter-claimed for, amongst other things, LADs relating to the delayed milestones 1 and 2.  In the first instance and the Court of Appeal, PTT was successful in its counterclaim.  At first instance PTT was awarded general damages of c. $14.5m (subject to a contractual cap of c. $1m) and LADs of c. $3.5m (not subject to the contractual cap).  The LADs were calculated up to the date of completion of late works (for milestones 1 and 2) and up to the date of termination (for the balance of the unfinished work). 

Triple Point appealed the decision to the Court of Appeal and PTT, in turn, appealed to the Supreme Court.  The point of wider interest in the decision relates to the application of LADs where the works have not completed but the contract is terminated. 

Liquidated Damages

Before the Court of Appeal Triple Point contended, amongst other things, that LADs were not payable on works which were never completed by them.

The Court of Appeal held that, in instances where works were never completed by the contractor, there are three ways in which LAD provisions can operate:

1. LADs only apply to works actually completed by the contractor although late (i.e. milestones 1 and 2 which were completed by Triple Point albeit late);
2. LADs apply to uncompleted works up to the date of termination and general damages apply thereafter (i.e. milestones 1 and 2 to date of their completion and the balance of the milestones attracts LADs until termination); or
3. LADs apply to all works not yet completed by the contractor until they are subsequently completed (even if this is by a replacement contractor) (i.e. LADs would apply to the milestones uncompleted by Triple Point until such time after termination as the replacement contractor completed the works).

The Court of Appeal, whilst doubtful of the third option, did not set out any hard and fast rule for how LADs operate - it all turns on the specific wording of the LAD provision which read:

“If Contractor fails to deliver work within the time specified and the delay has not been introduced by PTT, Contractor shall be liable to pay the penalty at the rate of 0.1% (zero point one percent) of undelivered work per day of delay from the due date for delivery up to the date PTT accepts such work…” (emphasis added)

The Court of Appeal held that the first means of operation applied because “up to the date PTT accepts such work” means “up to the date when PTT accepts completed work from Triple Point”.  Triple Point was, therefore, liable for LADs on milestones 1 and 2 but not on the balance of the uncompleted milestones.  That does not mean that PTT did not have a remedy for delay to such uncompleted milestones but, rather, that it needed to prove its losses in the usual way for breaches of contract rather than having a pre-agreed rate of damages.  In reaching this decision, the Court of Appeal had relied upon (as Lady Arden described it in handing down) the “forgotten” House of Lords 1913 decision (with “rather unusual facts”) of British Glanzstoff Manufacturing Co Ltd v General Accident, Fire and Life Assurance Corpn Ltd which the Supreme Court considered to not be binding here.

The Supreme Court disagreed with the Court of Appeal and set out that the operation of LAD provisions needs to be viewed with the background of the law on such provisions and held that the primary approach to LAD provisions (subject to their precise wording) is, essentially, the second approach set out by the Court of Appeal.  LADs apply to works completed (albeit late) by the original contractor (to the date of their late completion) and to works not completed by the original contractor to the date of termination.