Supreme Court restores the
normal rules for Liquidated Damages
Triple Point Technology vs PTT. BLM (2021) 556, UK
Supreme Court
Facts
PTT was a commodity trader and Triple Point was a software
designer. In February 2013 PTT contracted to pay Triple Point
$6,900,000 to design and supply a sophisticated software program
to support its commodity trading business. The contract provided
for liquidated damages of 0.1% of the value of unusable or
undelivered works from the due date to completion.
The parties fell out over payments and performance, then in
March 2015 PTT terminated the contract with Triple Point for
non-performance. Triple Point sued for outstanding payments,and
PTT counterclaimed for (1) Liquidated Damages (“LD’s”) for delay
to the date of termination and (2) general damages from that date
for the extra cost of getting the work completed by others.
Court rulings
The High Court ruled that PTT were right to terminate, and
awarded LD’s from contractual completion dates to termination,
and general damages for cost to complete thereafter.
The Court of Appeal however ruled that on the wording of the
Contract, LD’s were only due on items or stages of work that had
been finished as at termination. Anything incomplete was not
covered by the LD’s provision.
The UK Supreme Court over-ruled the CA, saying it was “
inconsistent
with commercial reality”.
PTT was awarded LD’s on all work
that was late, up to the date of termination, and damages for the
cost to complete thereafter.
Comment
This is a very welcome decision which has restored how we all
understood Liquidated Damages clauses to work, i.e. that LD’s
apply from the contractual completion date to termination, and
general damages for cost-to-complete apply thereafter.
At paragraph 35 of her judgment, Lady Arden in the UKSC
robustly dismissed the Court of Appeal’s ruling as inconsistent
with commercial reality and with the accepted function of LD’s.
She noted rightly that parties agree a liquidated damages clause
so as to provide a remedy that is predictable and certain for a
particular event (here, as often, that event is a delay in
completion). The employer does not then have to quantify its
loss, which may be difficult and time-consuming for it to do.
She insisted that when interpreting what parties meant by their
contracts, they must be taken to know the general law, namely
that
the accrual of liquidated damages comes to an end on
termination of the contract. After that event, the parties’
contract is at an end and the parties must seek damages for
breach of contract under the general law
. Consequently,
parties do not have to provide specifically in their negotiations
for the effect of the termination of their contract. They can
take that consequence as read.
