The Court of Appeal has now handed down judgment in Triple Point Technology Inc. v PPT Public Company Ltd.[2019] EWCA Civ 230 – on appeal from Mrs Justice Jefford sitting in the TCC – a case where the court had to consider the correct approach to the calculation of damages for delay should be applied where the contract works (in this case the development and installation of new Commodities Trading, Risk Management and Vessel Chartering System software) were never completed. And, despite the contractor’s failure to complete the works, whether the contractor was contractually entitled to payment in respect of issued works orders that conflicted with the milestone payment dates in the CTRM contract. Finally, the court was also required to consider the extent to which the contractual cap on damages would apply.
It is the first of those three issues that I consider in this article; namely, the question as to whether liquidated damages for delay will apply where the contractual works had never been completed and in fact would never be completed by the original contractor. Article 5 of the CTRM contract provided for the payment of liquidated damages of 0.1% “…of undelivered work per day of delay from the due date for delivery up to the date PTT accepts such work…”, an entirely unexceptional provision save possibly for use of the word ‘penalty’ to describe these damages.
TPT completed phase 1 of the works late and then failed to complete phase 2 of the works at all, instead it ceased work alleging none payment under three outstanding order forms (despite these order forms conflicting with the contractual milestones). TPT claimed for payment of the sums allegedly outstanding under its order forms, whilst PPT sought to counterclaim liquidated damages for the entire period of delay – in additional to general damages arising from TPT’s failure to supply functioning CTRM software.
The question for the court at first instance and then on appeal was whether there was any scope for the application of liquidated damages (under Article 5) where the works were never completed and a second contractor has to step in and complete the works. Or whether in those circumstances the claimant should fall back on a claim for general damages for breach of contract following wrongful repudiation of the contract i.e. the right to liquidated damages is lost where the works are never completed.
The CA identified that this question had arisen in a number of previous cases but rather than a consistent line of authorities the courts appeared to have adopted three different approaches depending on the exact wording of the contractual clause [106]:
The liquidated damages clause will not apply and only general damages will be recoverable – British Glanztoff Manufacturing Co. Ltd. v General Accident, Fire and Life Assurance Co. Ltd 1912 SC 591 (Court of Session) and 1913 SC (HL) 1;
The liquidated damage clause only applies up to the date of termination of the first contract and then general damages will apply thereafter – Greencore Port Ltd. v Technical & General Guarantee Company Ltd. [2006] EWHC 3119 (TCC) ; and
The liquidated damages clause continues to apply until the second contractor achieves completion – Hall v Van Der Haiden (No 2) [2010] EWHC 586 (TCC).
In trying to reach a conclusion as to the correct approach the Sir Rupert Jackson noted that “… much will turn on the precise wording of the liquidated damages clause in question.” [107] and whilst the approach identified at (ii) has been treated as the “orthodox analysis” by legal textbooks that approach is not free from difficulties of its own.
The Greencore approach to liquidated damages clauses, as identified at (ii), was explained by Edwards-Stuart J. in Shaw v MFP Foundations and Pilings Ltd [2010] EWHC 1839 (TCC) in the following terms:
“So far as liquidated damages are concerned, in respect of any period of culpable delay up to the date when the contract is terminated the employer is entitled to recover liquidated damages at the contractual rate (or nothing, if that is what the contract provides). However, after the date of termination the parties are no longer required to perform their primary obligations under the contract and so the contractor’s obligation to complete by the completion date no longer remains and the provision for liquidated damages therefore becomes irrelevant. In its place arises an obligation to pay damages for the employer’s losses resulting from the breach of contract, including damages for any loss resulting from any further delay caused by the need to have the works completed by a different contractor.” [41]
However, where the wording of the contractual clause is so closely aligned to that considered by the House of Lords in Glanzstoff then the ratio that decision will continue to apply – meaning that the right to liquidated damages for delay will be subsumed into a claim for general damages.
The clauses considered by the Court in Glanzstoff provided for both liquidated damages “24. If the contractor fail to complete the works by the date named in cause 23, or within any extended time allowed by the architect….” and then at clause 26 for general damages that would apply where the employer incurred additional where the contractor ceased working. The contractor in fact became bankrupt before the works were complete and another contractor had to be brought in to complete the works – delaying the completion by some 6 weeks. The question was then whether the employer had a right to liquidated damages, against the first contractor, for that period of delay pursuant to clause 24 or whether that claim had been subsumed into its right to general damages under clause 26.
Lord Haldane, giving the judgment of the HL, concluded that clause 24 did not apply for the following reasons:
“…first of all, that is altogether inapt to the provisions of made by clause 26, which contain a complete code of themselves; and secondly, because upon its construction I read it is meaning that if the contractors have actually completed the works, but have been late in completing the works, then, and in that case only, the clause applies. Under the circumstances in which this appeal comes before us the contractors have not completed the works; on the contrary, they have been ousted from the works by the employers under their powers given them by clause 26. I am therefore of the same opinion as the learned Judges in the Court of Session, who were unanimous in holding that clause 24 has no application to the present case…”.
The third possible approach, identified in cases such as Hall v Van Der Haiden (No 2), did not meet with much judicial sympathy – albeit the court did not actually hold that those cases were wrongly decided.
The position would therefore appear to be that the exact wording of the contractual provision dealing with liquidated / general damages causes will be crucial – and in the present case the CA found that the liquidated damages clause in the contract was of the Glanzstoff variety as the wording of Article 5.3 of that contract provided that liquidated damages applied “up to the date PTT accepts such works”. As the phase 2 works were never completed – that is to say the works were never accepted as completed by PTT – meant Article 5.3 did not apply. The right to damages for the failure to complete the works would not, of course, be lost. Such damages would simply become recoverable as general damages arising from the contractor’s failure to complete the works rather than as liquidated damages for delay.
The key lesson to be drawn from the decision in Triple Point is that great care should be taken when drafting liquidated damages clauses to reflect whether liquidated damages for delay will apply until contractual termination – even where the works are never in fact completed (the Greencore approach), or, whether the contractual right to liquidated damages will be lost should the works never be completed and only general damages for the increased costs resulting from the delayed completion will be recoverable (the Glanzstoff approach).