Damages for breach of contract for incomplete work? Have you looked carefully at your liquidated damages provisions?

by Graham Cunningham 

June 2019

Triple Point Technology Inc v PTT Public Co Ltd 2019 EWCA Civ 230

A contract clause which provided for liquidated damages for delay did not apply where the contractor had failed to complete the contracted work. It did apply only in respect of completed sections of work. In respect of the former, damages for breach of contract were recoverable.

Triple Point agreed to supply a software system to PTT. The contract contained a liquidated damages clause (Art.5). Damages would be paid at the rate of 0.1% of undelivered work per day from the date it was expected to be delivered until PTT accepted it.

As is often the case with software supply contracts, Triple Point did not allocate sufficient resources to the project. It failed to integrate three software packages and the ultimate product did not have the required functionality.

Triple Point completed two stages of the project. They were delivered 149 days late but were invoiced and paid. Triple Point then asked for payment of further invoices for incomplete work based on the payment dates set out in the original order. PTT refused to pay, citing the contract term that provided for payment by milestones, and pointing out that these had not been achieved after completion of the first two stages.

Triple Point refused to accept this position, suspended work and left the site. PTT for its part terminated, or purported to terminate, the contract.
The first instance judge found, inter alia, that PTT could recover liquidated damages for delay under Art. 5 but subject to the cap set out in the contract (Art.12.3)

Triple Point appealed. It said that the liquidated damages clause was not engaged because it did not apply in respect of work that PTT had never accepted.

The Court of Appeal considered that there were three different approaches to clauses providing liquidated damages for delay, where a contractor failed to complete and a second contractor had to step in.

1. The clause did not apply.
2. The clause only applied up to termination of the first contract.
3. The clause continued to apply until the second contractor had achieved completion.

The Court considered that the point 2 represented the usual approach but recognised that this was not free from problems. The Court considered that it had to construe the clause itself. In the present case, Art.5 was held to cover the delay between the contractual completion date and the date when Triple Point actually achieved completion and the work was accepted by PTT. Therefore Art.5 did not apply where Triple Point never handed over completed work to PTT.

In the result, PTT could recover liquidated damages in respect of the 149-day delay in completing the first two stages of the contract. It could not recover liquidated damages for the other delays because Triple Point had not finished the work. In respect of these damages for breach of contract could be recovered by PTT assessed on ordinary principles. Did the liquidated damages for delay fall outside the overall cap in Art.12.3? The Court held that it did not, again construing the clause. The overall cap had been achieved by the award of general damages and PTT could not therefore recover any liquidated damages.

If you have any questions concerning this development, please reach out to a member of the Jurit LLP General Counsel Services team (e-mail: info@jurit.com or dial 020 7846 2370).

Please note this paper is intended to provide general information and knowledge about legal developments and topics which may be of interest to readers. It is not a comprehensive analysis of law nor does it provide specific legal advice.  Advice on the specific circumstances of a matter should be sought.

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