UK Supreme Court overturns Court of Appeal’s interpretation of Liquidated Damages clause

The UK Supreme Court (UKSC) in Triple Point Technology, Inc v PTT Public Company Ltd [2021] UKSC 29 has overturned the English and Wales Court of the Appeal (EWCA) decision of Triple Point Technology, Inc v PTT Public Company Ltd [2019] EWCA Civ 230, concerning the operation of a liquidated damages clause for delay.

We previously prepared a summary of the EWCA decision, which can be found here. In that decision the EWCA held that the liquidated damages clause in a software development agreement (CTRM Contract) was not enlivened in circumstances where Triple Point (the Contractor) had failed to complete certain works, and in which PTT (the Employer) had terminated the contract and brought in a substitute contractor to complete the works.

The liquidated damages clause in question provided that the Contractor would be liable to pay liquidated damages “from the due date for delivery up to the date [the Employer] accepts such work”.

The Employer appealed the decision to the UKSC. A central issue upon appeal was whether the Employer was entitled to liquidated damages for delay in respect of the works which were not completed before the Employer terminated the CTRM Contract.

The UKSC overturned the EWCA’s decision, finding that the Employer was entitled to liquidated damages in respect of works that had been completed as well as those works which had not been completed, at the time of termination. The UKSC considered the previous authorities on this issue and concluded that the EWCA’s approach was inconsistent with both commercial reality and the accepted function of liquidated damages, being a remedy that is predictable and certain for a particular event (e.g., delays to completion).

The UKSC observed that, if the interpretation put forward by the EWCA was accepted, it would render the liquidated damages clause of “little value” insofar as:

•   it would allow the Contractor to escape all liability if the works were delayed but the Employer had not accepted the works before termination; and
•   the Employer’s accrued rights to liquidated damages would simply disappear by virtue of terminating the CTRM Contract.

Whilst this decision is not binding on courts in Australia, it does provide insight into how these issues have been approached in other jurisdictions.

The full UKSC decision can be found here.