Supreme Court makes significant ruling in liquidated damages case

Background

Triple Point Inc (Triple Point) had been engaged to install and maintain software system for PTT Public Company (PTT). The work was split into two phases and payment was due in instalments on completion of certain milestones. Triple Point was delayed in completing the Phase 1 works and did not complete the Phase 2 works.

As Triple Point was not meeting the contractual timetable, PTT accepted and paid for some of the delayed work but refused to pay for work not yet completed. Triple Point suspended the work and PTT terminated the contract.

Triple Point initiated a claim in the Technology and Construction Court (TCC) for the payment of unpaid invoices. In response, PTT counter-claimed for costs arising from the termination of the contract and liquidated damages up to the date of termination.

The TCC dismissed Triple Point’s claim for unpaid invoices as the sums had not become due under the payment mechanisms under the contract.

Furthermore, the TCC held that:

• Triple Point was liable for liquidated damages up to the date of termination, regardless of the fact that works that had yet to be completed; and
• Triple Point’s liability for liquidated damages was not subject to the cap on liability in the contract as Triple Point had been negligent, and the cap did not apply to negligence.

Triple Point appealed to the Court of Appeal.

The Court of Appeal held that:

• Triple Point was liable for liquidated damages, but they were only payable in respect of delayed work that had been completed at the date of termination; and
• Triple Point’s liability for liquidated and general damages was subject to the cap on liability because the exclusion for negligence was only for cases of freestanding negligence. The exclusion from the cap did not extend to Triple Point’s breach of contractual duty of exercising reasonable care and skill.

PTT lodged an appeal to the Supreme Court.

Judgment

The Supreme Court held that:

• Triple Point was liable for liquidated damages up to the date of termination, even though works remained incomplete. The Supreme Court said that the authority relied on by the Court of Appeal in British Glanzstoff Manufacturing Co Ltd v General Accident, Fire and Life Assurance Corpn Ltd [1913] AC 143 was specific to its facts and therefore not good authority; and
• Triple Point’s liability for liquidated damages and general damages was not subject to the cap on liability because that the term “negligence” should be given its natural and ordinary meaning, which included breach of a contractual provision to exercise skill and care. Therefore, the exclusion to the cap on liability applied

Comment

The Supreme Court’s judgment provides that, in the absence of clear language in the contract to the contrary, liquidated damages can be claimed up to termination where works are incomplete.

The judgment also serves as a lesson to those preparing contracts to carefully consider whether they intend to exclude liquidated damages in circumstances where work is incomplete as at termination and to carefully draft exclusions and caps on liability.

For more specialist legal advice please get in touch with Lucilla Waugh on 0191 211 7984 or email [email protected]