Third time lucky: Triple Point in the Supreme Court

Triple Point Technology, Inc v PTT Public Company Ltd [2021] UKSC 29 (16 July 2021)

Introduction

The Supreme Court has handed down its long awaited decision on the question of whether delay liquidated damages (LD) provisions survive termination. The case related to a dispute between the parties as to how delay LD provisions apply where an English law contract is terminated prior to its completion, and the interpretation of contractual wording seeking to limit liability. The judgment reverses the 2019 Court of Appeal decision on two grounds and upholds it on one. The key takeaway from the decision is that delay LD provisions continue to apply up to the date of termination of the contract. After termination, the correct remedy is a claim for general damages.

Brief facts

PTT Public Company Ltd is a Thai company which trades in oil and gas. Triple Point Technology Inc is a US-based company which specialises in the development and implementation of commodities trading software.

Triple Point had agreed, in a February 2013 contract, to provide PTT with software and software implementation services. Triple Point were to achieve nine milestones, with the total contract price (USD6.92 million) to be paid in associated instalments. Works began in March 2013 and Triple Point suspended work in May 2014 due to a dispute over payment. When PTT terminated the contract in 2015, only the first two payment milestones had been achieved. Triple Point commenced proceedings in the Technology and Construction Court for sums due in respect of the software licences, and PTT counterclaimed for delay LDs prior to termination and its costs arising out of the termination of the contract.

The LDs

In the case of delay, Triple Point was to pay LDs in accordance with the following clause:

…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…

The cap on Triple Point’s liability

Whilst there was a cap on Triple Point’s liability, this excluded “specific remedies expressly identified as such in this Contract”, and also liability for "fraud, negligence, gross negligence or wilful misconduct".

By way of reminder

In 2019 the Court of Appeal held that where an IT contract had been terminated following abandonment by the contractor, the delay LD provisions did not apply, as they had been intended to deal with a different scenario, in which the contractor completes the works.

The court considered that in deciding whether delay LDs continue to apply where the first contractor fails to complete the works and they are completed by a second contractor there were three alternatives:

• delay LD provisions do not apply at all;
• delay LD provisions apply up to the date of termination of the contract, with general damages available thereafter (the orthodox analysis);
• delay LD provisions continue to apply following termination, up to and including the date of completion by an alternative contractor.

The Court of Appeal found support for all of these alternatives in case law, before deciding, based on the wording of the clause, that the delay LDs mechanism did not apply; the facts of the case did not fit the scenario anticipated by its drafting. The stage two work (which comprised most of the claim) had not been accepted by PTT because Triple Point had abandoned the work. LD provisions only applied to those sections of the work that had been completed, and did not apply to those sections that were incomplete at the time of termination.

The case also highlighted the need to consider whether LDs operate within, or outside of, the general liability cap.

Issues before the Supreme Court

The three issues the Supreme Court was required to decide were helpfully set out on its website as follows:

“Where one party (the "employer") contracts with another (the "contractor") to carry out works for it, and the contract provides that liquidated damages are payable if the works are delayed, whether (a) the employer only has a right to such damages if the contractor completes the works, or (b) such damages are still payable even if the employer terminates the contract before completion. Whether a limitation of liability clause which excludes loss caused by "negligence" applies to acts amounting to a breach of a contractual duty to use reasonable care and skill, but which do not constitute negligence in tort. Whether a limitation of liability clause which expressly excludes claims for which there are "specific remedies expressly identified as such in this contract" nonetheless applies to liquidated damages under the contract.”

Findings

On the question of delay LDs, a unanimous Supreme Court reversed the Court of Appeal’s decision, deciding that the orthodox position applied. Lady Arden, giving the leading judgment, confirmed that delay LDs apply up to the date of termination, with general damages available thereafter. There is no need for parties to include an express confirmation of this position in their contracts, because it reflects the current law. The case of British Glanzstoff was not binding on the court, because it was confined to its facts (an unusual case where the contractor was not in delay at the time of termination).

Considering whether the limitation of liability clause excluded liability for negligence, a majority of the Supreme Court reversed the decision of the Court of Appeal, deciding that including the word negligence in the exclusion to the contractual cap had the effect of excluding all breaches of the duty of contractual skill and care from the cap.

Finally on the third ground of appeal, the question of whether delay LDs fall within the general damages cap or operate outside it, the Supreme Court upheld the decision of the Court of Appeal that delay LDs fell inside the overall contractual cap on damages.

Comment

The Supreme Court decision provides welcome clarity on whether delay LD provisions survive termination, in circumstances where the contract is terminated with the works still incomplete. This was a previously uncertain area of law, with the decided cases going different ways, and parties adopting English law in their contracts will benefit from the certainty the decision brings.

For those drafting LD provisions, the decision should give comfort, as it confirms that delay LD provisions will apply until termination, regardless of whether this is expressly stated.

The decision is of particular significance to the construction and IT industries where delay LD provisions are common and where the accrual of delay LDs until an alternative contractor completes the works could lead to difficulties.