Tripple Point v PTT (2019) - Observations

This post sets out some observations regarding the application of liquidated damages for delay where a contractor or supplier never achieves completion. This scenario was considered by the UK’s Court of Appeal in the case of Triple Point v PTT [2019].

Background

The contract in question involved provision of a bespoke software system for commodities trading. Triple Point was the software supplier/installer for PTT, the end-user.

The project was essentially to be carried out in 2 phases. Phase 1 involved replacement of the existing software system. Phase 2 required developing the system to accommodate new types of trades.

The contract commenced on 10 January 2013, with completion required by 11 June 2014. Within this overall period, the works were split into 8 completion milestones.

Unfortunately, the works proceeded slowly. Triple Point achieved completion of the 1st milestone on 19 March 2014, i.e. 149 days late. Arguments concerning payment of invoices and progress then ensued, culminating with Triple Point suspending work and leaving the site on 27 May 2014. In PTT’s view, Triple Point had wrongfully suspended work, and thus on 15 February 2015, terminated the contract.

Entitlement to liquidated damages for delay

Under Article 5.3 of the contract, Triple Point was required to pay damages for delay at the rate of 0.1% of undelivered work per day.

“If [Triple Point] fails to deliver work within the time specified and the delay has not been introduced by PTT, [Triple Point] shall be liable to pay the penalty at the rate of 0.1% ...... of undelivered work per day of delay from the due date for delivery up to the date PTT accepts such work, provided, however, that if undelivered work has to be used in combination with or as an essential component for the work already accepted by PTT, the penalty shall be calculated in full on the cost of the combination.”

On 2 preliminary points, Triple Point argued:-

(1) Article 5.3 was a penalty and was out of all proportion to any legitimate interest of PTT; and

(2) if liquidated damages were applicable, this would lead to double-recovery, as the same loses were recoverable as general damages.

The Court of Appeal held in relation to these preliminary arguments that:-

(1) Article 5.3 was not a penalty and the loses flowing from late delivery of the software on PTT’s business could be much greater than that required under the clause; and

(2) there was no double-recovery, as “A liquidated damages clause (if valid) operates in substitution for a general assessment of the claimant’s losses caused by delay”.

However, in relation to whether liquidated damages applied when work was delayed, but not subsequently completed (and accepted), the Court of Appeal found it to be a much more complex question.

In considering this problem, the Court of Appeal reviewed previous case law and literature. It found that in cases where a contractor failed to complete and a 2nd contractor steps in, there were 3 different approaches to clauses providing liquidated damages for delay:-

(a) the clause does not apply (e.g. Glanzstoff);

(b) the clause only applies up to termination of the 1st contract (e.g. Greenore); and

(c) the clause continues to apply until the 2nd contractor achieves completion.

On the wording of Article 5.3, the Court of Appeal held that the clause “…focused specifically on delay between the contractual completion date and the date when Triple Point actually achieves completion...”. As such Triple Point was liable for liquidated damages for completing the 1st completion milestone 149 days late. But for the remaining incomplete works, liquidated damages were not applicable. This was despite Triple Point apparently being responsible for the further delay up to when it left the site, and even subsequently up to when TPP legitimately terminated the contract. Instead, TPP had to recoup costs associated with the further delay via “…ordinary principles…”.