Supreme Court reaffirms established approach to liquidated damages and the interpretation of “negligence” in liability cap

Triple Point Technology Inc v PTT Public Company Ltd [2021] UKSC

The questions

How should a liquidated damages provision for delayed completion operate where termination occurred prior to work being completed or accepted? 
How should a carve-out for “negligence” be interpreted when applying a cap on liability?

The key takeaways

The Supreme Court reaffirmed that, if the relevant terms are express and clear, a liquidated damages clause will apply up to the date of termination of a contract and general damages are recoverable from termination onwards. 

“Negligence” has an accepted meaning in English law covering both a tortious duty to use due care as well as contractual provisions to use care and skill. The meaning of “negligence” in the relevant clause did not exclude the breach of contractual duties of care. 

The background

The Defendant, PTT Public Company Ltd (PTT), entered into a contract with the Claimant, Triple Point Technology Inc (Triple Point), for the development, implementation and maintenance of commodity trading software. The work was to be completed in various phases linked to corresponding delivery and payment milestones.

Article 5.3 of the contract was a liquidated damages provision stating that “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 ...”. 

Article 12.3 provided that Triple Point’s liability under the contract would be capped at the contract price received by Triple Point but that the limitation of liability would not apply to Triple Point’s “liability resulting from fraud, negligence, gross negligence or wilful misconduct”. 

Work was slow and Triple Point completed the first phase of work 149 days late. As a result, PTT paid Triple Point for Phase 1 but withheld further payments on the basis that they were tied to milestones for completion. Triple Point did not dispute that it had not met the Phase 2 milestones but suspended work, leading PTT to terminate the contract for breach. Triple Point issued proceedings for unpaid invoices and PTT counterclaimed for damages. 

The High Court found Triple Point in breach of contract and awarded PTT unlimited liquidated damages, amounting to £3.51m. On appeal from Triple Point, the Court of Appeal held that PTT was only entitled to limited liquidated damages arising out of completed works.
PTT appealed, asking the Supreme Court to consider three issues: (i) whether PTT was entitled to liquidated damages for the delay in completing work before termination; (ii) whether clause 12.3’s negligence carve-out meant that losses arising from Triple Point’s negligent breach of contract were uncapped; and (iii) whether liquidated damages fell within the liability cap.

The decision

The Supreme Court found that the Court of Appeal had wrongly interpreted the liquidated damages clause. PTT did not need to “accept” the work for the clause to operate and they were entitled to liquidated damages up until termination of the contract, despite Triple Point’s failure to deliver. However, those losses fell within the damages cap. 

The Court also construed the carve-out for “negligence” in the limitation clause broadly - losses resulting from Triple Point’s negligent breach of contract were uncapped and PTT was entitled to claim them.

Why is this important?

For parties who seek to include and rely on liquidated damages clauses (such as in IT agreements), the decision re-affirms the general approach that liquidated damages accrue until the contract is terminated. 

It also confirmed that the Court will choose to interpret “negligence” broadly, applying its natural and ordinary meaning under English law, in the absence of wording to the contrary.

Any practical tips?

When drafting liquidated damages clauses, consider the impact of non-delivery and termination and expressly state the consequences. 
For liability caps and limitation carve outs, ensure that the wording of the clauses is clear and unambiguous –if the parties intend that certain damages fall within caps or that certain liabilities should be excluded, say so.