Triple Point, Inc v PTT Public Company Ltd

[2021] EWHC 2095 (Admin)

We reported on this case in Issue 226, where Sir Rupert Jackson in the CA reviewed the general principles concerning the operation of liquidated damages clauses in termination or abandonment cases. He noted that, where the contractor fails to complete and a second contractor steps in, three different approaches had emerged:

(i) the clause does not apply; 

(ii) the clause only applies up to termination of the first contract;

(iii) the clause continues to apply until the second contractor achieves completion. 

He further noted that, whilst the textbooks tend to treat category (ii) as the orthodox analysis, this approach was not “free from difficulty”. 

At first instance, the TCC had held that PTT was entitled to recover (i) the costs of procuring an alternative system; (ii) wasted costs, but subject to a cap of US$1,038,000; and (iii) liquidated damages for delay pursuant to Article 5.3, totalling US$3,459,278.40, which were not subject to the cap. 

Ultimately, the question whether a liquidated damages clause ceased to apply or continues to apply up to termination, or even conceivably beyond that date, depended upon the wording of the clause itself. There was no invariable rule that liquidated damages must be used as a formula for compensating the employer for part of its loss. Sir Rupert Jackson considered the relevant clause had no application here where the contractor never hands over completed work to the employer. The consequence of this analysis was that PTT was only entitled to recover liquidated damages of US$154,662 in respect of Triple Point’s delay of 149 days in completing stages 1 and 2 of Phase 1. This did not leave PTT without a remedy for non-completion. Those damages were at large, rather than fixed in advance, and PTT would be entitled to recover damages for breach of other articles in the contract, assessed on ordinary principles. 

PTT appealed to the Supreme Court. The key issue was whether the liquidated damages clause, which provided for liquidated damages to be paid for each day of delay by the contractor “from the due date for delivery up to the date [the employer] accepts such work”, meant that liquidated damages were payable in respect of work which had not been completed before the contract was terminated.  Lady Arden rejected the CA’s analysis (or “their radical re-interpretation of the case law on liquidated damages clauses”) noting that the CA had departed from the generally understood position that, subject to the precise wording of the clause, liquidated damages would accrue until the contract was terminated. It is only at that point that the contractor becomes liable to pay damages for breach of contract. Lady Arden noted that the CA’s approach was:

“inconsistent with commercial reality and the accepted function of liquidated damages. Parties agree a liquidated damages clause so as to provide a remedy that is predictable and certain for a particular event (here, as often, that event is a delay in completion). The employer does not then have to quantify its loss, which may be difficult and time-consuming for it to do. Parties must be taken to know the general law, namely that the accrual of liquidated damages comes to an end on termination of the contract.”

The Supreme Court also had to consider whether damages for Triple Point’s negligent breach of the contract were within the liability-cap which excluded “fraud, negligence, gross negligence or wilful misconduct”. The court ruled that “negligence” meant damages flowing from a breach of contractual duty to exercise reasonable skill and care and so were not subject to the cap. However, the claims for liquidated damages were subject to the cap as the clause included the words: “Except for the specific remedies expressly identified as such in this contract”. 

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