A recent Court of Appeal (CA) decision has provided an interesting insight into how UK Courts will approach clauses providing for liquidated damages for delay, a decision that will be of genuine interest in offshore jurisdictions.
In Triple Point Technology Inc v PTT Public Company, the CA held that a clause providing for liquidated damages for delay did not apply where the contractor failed to complete the contracted work, namely the installation of a new software system.
PTT Public Company (PTT), a Thai-based petrochemical trading company, had engaged Triple Point Technology Inc (TPT) to install the system on a two phase basis. Work was slow and TPP missed various completion dates. While TPP were paid for certain completed work, its failure to perform the contract in full led to PTT refusing to make further payments and terminating the contract. TPP commenced High Court proceedings for the sums it said were due and PTT counterclaimed for damages for delay and damages upon termination.
At first instance, the High Court dismissed TPP’s claim and awarded PTT $4,497,278.40 on their counterclaim. Of this sum, $3,459,278.40 were liquidated damages for delay pursuant to the relevant clause.
On appeal, the CA was in agreement with many of the High Court’s findings and rejected the argument that the relevant clause was an unenforceable penalty clause.
However, the CA accepted TPP’s arguments that the clause was not engaged. The CA said that the question of whether such a clause applied in a specific case would depend on the wording of the clause itself. The clause in this case was focused specifically on delay between the contractual completion date and when the work was actually completed by TPP and accepted by PTT. The CA held that if that work wasn’t done, the clause did not apply.
The CA identified three approaches the courts have generally taken to liquidated damages for delay where a contractor does not complete work and a second contractor is engaged, namely
- The clause does not apply;
- The clause applies up to termination of the first contract; and
- The clause continues to apply until the second contractor completes
The decision highlights the need for liquidated damages clauses to be drafted clearly so as to provide certainty as to whether or not liquidated damages are to be either engaged only in the event of performance by the supplier, or engaged regardless of whether or not there has been such performance.