The English Court of Appeal decision in Triple Point Technology Inc v PTT Public Company Limited [2019] EWCA Civ 230 found that a liquidated damages provision would only apply with reference to completed works. Therefore if the works are terminated pre-completion, the correct measure of damages would be with reference to actual losses caused by the delay, to the extent that these can be proved.
The facts
Triple Point Technology Inc ("Triple Point") was a developer of software for use in commodities trading. It supplied software to PTT Public Company Limited ("PTT"), which traded in oil, refined products and petrochemicals. PTT decided to acquire a new software system, over two phases. Each phase was split into various stages, with payments made once certain stages were complete.
The contract between the parties provided that if Triple Point failed to deliver the work within the time specified, it would be liable to pay a penalty of 0.1% of the cost of undelivered work per day, from the date of delay to the date PTT accepted the works.
The work proceeded slowly and Triple Point was 149 days late in achieving completion of stages one and two of the first phase. Triple Point then demanded money in respect of work which was not yet completed. PTT refused to make payment, insisting on the terms of the contract which provided for payments to be made by milestones. On 27 May 2014, Triple Point suspended its works. PTT considered that this suspension was unlawful and purported to terminate the contract.
Triple Point then raised a court action seeking payment of outstanding sums it claimed was due. PTT counterclaimed for payment of delay damages. The judge found that Triple Point was not entitled to any further sums and considered that PTT was entitled to $3.46 million in liquidated damages.
Grounds of appeal
Triple Point then appealed to the Court of Appeal. Among its grounds of appeal, Triple Point claimed that liquidated damages were irrecoverable. They argued that liquidated damages only applied in circumstances where the work was delayed, but subsequently completed. In terminating the contract when the works were incomplete, PTT had lost its ability to claim liquidated damages.
The decision
In deciding this issue, the court reviewed a number of authorities, most notably the Scottish House of Lord's decision in British Glanzstoff Manufacturing v General Accident, Fire and Life Assurance, where it was found that liquidated damages only applied where the original contractor had completed the works. Otherwise, the losses associated with the delay and incomplete works would be covered by general damages. Subsequent English authorities came to a similar conclusion _ once the contract is terminated, the contractor is no longer obliged to complete the works by the completion date; so liquidated damages cannot logically apply. In previous cases where the courts came to a different view, the decision in Glanzstoff had not been brought to that court's attention, or had not been provided in full.
The Court of Appeal considered that the question of whether liquidated damages applied in the event of abandonment or termination depends upon the wording of the contract. In looking at the contract between PTT and Triple Point, damages were clearly confined to the delay period between the completion date and the date when the works were actually completed. It therefore sat squarely within the circumstances described in Glanzstoff and liquidated damages did not apply. PTT could only seek liquidated damages in relation to the sections of work that had been completed, albeit late. General damages applied to any section which was not complete, and actual losses suffered would need to be proven.
Points to consider
The points to consider for parties to a construction contract in light of this decision are:
- Review the wording of the liquidated damages provision and check whether it applies only where the works are complete. If so, then it is unlikely to apply if the works are terminated or abandoned. It may be more appropriate instead of having a single completion date for the whole works, parties apply liquidated damages to sectional completion dates.
- If liquidated damages are restricted to circumstances where the works are completed, parties to a construction contract will need to consider the resulting exposure in damages:
-For an employer, the level of liquidated damages may be more or less than the actual losses suffered, and this is a factor which should be considered in any decision to terminate the contractor's employment under the contract.
-For a contractor, a failure to complete the works may not attract the certainty of liquidated damages, resulting in an exposure to higher general damages. - The party claiming general damages has the evidential burden of proving its losses, which it may not have the records to prove.
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