The Supreme Court delivered the much anticipated judgment in the case of Triple Point Technology, Inc v PTT Public Company Ltd [2021] UKSC 29. The decision should be welcome to professionals, restoring the conventional approach that, subject to the precise wording of the clause, damages will normally prevail until termination of the contract.
Background
In 2013, the appellant, PTT Public Company Ltd (PTT), entered into a software contract with the respondent, Triple Point Technology Inc (Triple Point). The project consisted of two phases, the first ending on March 19, 2014, 149 days late.
The contract contained the following clause (Article 5.3) relating to damages:
“If the CONTRACTOR does not deliver the work within the specified time and the delay has not been introduced by the PTT, the CONTRACTOR will be liable to pay the penalty at the rate of 0.1% (zero point one percent ) of work not delivered per day of delay from the due date for delivery until the date on which PTT accepts such work â€
A dispute arose between the parties over the delay and PTT refused to make further payments on the grounds that the milestones had not been met. Triple Point refused to continue working without further payment and, therefore, PTT alleged that Triple Point wrongly suspended work and terminated the contract.
Triple Point has initiated proceedings in the Technology and Construction Tribunal (TCC) to collect the unpaid amounts on the unpaid invoices. PTT sought damages and damages for delay.
At first instance, the TCC dismissed Triple Point’s claim and ruled that Triple Point was not entitled to additional payments due to non-compliance with milestones. The ICC also found that PTT was entitled to damages under Article 5.3 in the amount of almost US $ 3.5 million. Triple Point appealed to the Court of Appeal.
Among other findings, the Court of Appeal overturned the judge’s award of standard damages, ruling that because of the wording of section 5.3, which stipulated that standard damages were payable “until the date accepts such workâ€, PTT was not entitled to recover damages because the work had not been completed and accepted.
Previously, in cases where the contract was terminated, it was generally understood that damages would accumulate until termination and that general damages could be claimed thereafter.
This ruling created uncertainty in the industry as it suggested that the right to standard damages in clauses (such as the standard damages clause in an unmodified JCT) that specifically refer to damages lump sums for accumulated delay until practical completion, could disappear completely in the event of termination of the contract, when practical completion is never reached.
Arguably this could create a situation in which the contractor is rewarded for his own breach, with liquidated damages falling on termination and the employer then having the onus of demonstrating his loss and facing arguments as to his loss. mitigation in a general damages claim, rather than relying on predetermined rates.
The case was appealed to the Supreme Court.
Supreme Court decision
The question for the Supreme Court was whether one party contracts with another to perform work for them, and the contract provides that damages are payable if the work is delayed, whether:
- The employer is only entitled to such damages if the contractor completes the work.
- These damages are still payable even if the employer terminates the contract before completion.
The Supreme Court allowed the appeal on this issue, finding that the Court of Appeal had departed from the generally accepted position that, subject to the precise wording of the clause, damages would accumulate up to termination of the contract. At this point, the contractor is required to pay damages for breach of contract. To follow the approach of the Court of Appeal would be incompatible with commercial reality and the accepted function of damages.
The Supreme Court found:
“The parties agree to a damages clause in order to offer a predictable and certain remedy for a particular event (here, as often, this event is a delay in completion). The employer does not then have to quantify its loss, which can be difficult and time-consuming. The parties should be held to be aware of the general law that the accumulation of damages ends upon termination of the contract. After this event, the parties’ contract ends and the parties must claim damages for breach of contract under common law. Understood.
The decision provides much appreciated clarity and confirms that contracts do not need to specifically provide for the effect of termination in their damages clauses. Of course, if the parties wish to provide that damages expire when practical completion is never reached, they can do so, but in the absence of this specific mention in the clause, they will function normally until the termination of the contract.
