UK Court of Appeal confirms liquidated damages clause non-applicable where contractor fails to achie

The recent decision of the Court of Appeal of England and Wales in Triple Point Technology v PTT [2019] EWCA Civ 230 considered how a clause imposing liquidated damages for delay should be applied in circumstances when the contractor failed to complete the works/services under the contract.

PTT engaged Triple Point to develop software to support a new “Commodities Trading, Risk Management and Vessel Chartering” system. The contract provided for milestone payments, and that Triple Point would be liable to pay liquidated damages “from the due date for delivery up to the date PTT accepts such work”.

Triple Point completed (albeit some 149 days late) a small portion of its contracted scope of works. Triple Point submitted an invoice in respect of these limited works, and also sought to claim additional amounts for work not yet performed. PTT refused to pay any additional amounts as the relevant contractual milestones had not been reached. Triple Point refused to continue work without receiving further payment. PTT considered that Triple Point had wrongfully suspended the works and, as a result, terminated the agreement.

Triple Point commenced proceedings to recover the outstanding amounts claimed in its invoices. PTT submitted a counterclaim seeking liquidated damages for delay and damages due upon termination of the contract. The trial judge held that PTT was entitled to recover damages for breach of contract, as well as liquidated damages for delay. Triple Point appealed the decision on the basis that the trial judge erred in finding that the liquidated damages clause of the contract applied. Specifically, it argued that such provision would only apply when work, which was delayed, was subsequently completed.

In considering this issue, the Court reviewed the relevant authorities and noted that, in cases where the contractor fails to complete the works and a second contractor steps in, the following approaches have emerged in relation to the application of liquidated damages provisions:

1. the clause will not apply;
2. the clause will apply up to the date of termination/abandonment of the first contract; or
3. the clause will apply up to the date on which the second contractor achieves completion under the contract.

In finding that the liquidated damages clause in question had no application to the works which Triple Point failed to complete, Sir Rupert Jackson noted that:

•   The question whether liquidated damages clauses (a) cease to apply or (b) continue to apply up to termination/abandonment, or beyond, will depend upon the wording of the clause itself. The relevant clause focused specifically on delay between the contractual completion date and the date when the contractor actually achieves completion. In these circumstances, the clause had no application to works which had not been completed.

•   If a construction contract is abandoned or terminated, the employer is in new territory for which the liquidated damages clause may not have made provision. Although accrued rights must be protected, it may sometimes be artificial and inconsistent with the parties’ agreement to categorise the employer’s losses as x per week up to a specified date and then general damages thereafter.

•   The fact that the employer could not recover liquidated damages in respect of any non-completed work does not mean that it is left without a remedy for non-completion. The employer could still seek damages at common law for breach of contract.

This decision confirms that the application of a liquidated damages clause in circumstances of termination/abandonment prior to completion of the works will ultimately depend upon the wording of the clause itself. As provisions imposing liquidated damages for delay are standard in construction contracts, it is important that parties make clear how such provisions will apply in circumstances where completion is not achieved, or risk such a provision being found to be non-applicable. Whilst this UK decision is not binding on courts in Australia, it provides some insight into how these issues have been considered and ultimately determined in other jurisdictions.

The full decision can be found here.