There were two main issues before the Supreme Court:

• Issue 1: Was PTT entitled to liquidated damages for delay in respect of work which had not been completed before the contract was terminated? The Supreme Court unanimously found that it was.
• Issue 2: Did an exception from the contractual cap on damages for “negligence” remove from the cap losses caused by Triple Point’s negligent breach of contract or only losses for the commission of some independent tort? The majority (3-2) found that losses for Triple Point’s negligent breach of contract were removed from the cap. The leading judgment is given by Lady Arden. Lord Leggatt gave a concurring judgment (with which Lord Burrows agreed). Lord Sales, with whom Lord Hodge agreed, gave a dissenting judgment.

In this first of a series of three posts published this week, Ruth Keating sets the scene by reviewing the decisions at first instance[2] and in the Court of Appeal[3]. We will consider Issue 1 In the second post and Issue 2 in the third post.

English law applied to the Contract by choice

The base facts are to some extent commonplace for commercial cross-border disputes. Neither party is incorporated in England and Wales – Triple Point is incorporated in Delaware, USA and PTT in Thailand. The contract would be performed in a number of jurisdictions, but not England and Wales. However, the Parties chose English law as the governing law.

The Basic Facts

Triple Point agreed to provide PTT with software and software implementation services.  There were two phases to the project, each with nine stages. Triple Point was to be paid in successive stages by reference to these stages. Work proceeded slowly. Triple Point completed the first two of 18 stages some 149 days late. PTT paid Triple Point for that work. Triple Point demanded payment for the other stages which it had not completed. PTT refused to pay. In response Triple Point suspended work and left the site. PTT maintained that this suspension was wrongful. PTT terminated the contract. When Triple Point sued for the outstanding sums it had claimed, PTT counterclaimed damages for delay and due upon termination of the contract.

The Decisions below

High Court

On Issue 1, Jefford J held that the liquidated damages applied up to the date of termination, thereafter damages were at large. This was considered to be the orthodox analysis.

On Issue 2, Jefford J held that Triple Point’s liability for damages in respect of wasted costs and termination loss was capped by article 12.3 of the Main Part.

Court of Appeal

Triple Point appealed to the Court of Appeal and PTT cross-appealed. Sir Rupert Jackson gave the only substantive judgment, with which Floyd and Lewison LJJ agreed. This judgment was described by Lady Arden in the Supreme Court as a “radical re-interpretation of the case law on liquidated damages clauses”[4].

On Issue 1, Sir Rupert conducted an extensive review of the authorities dealing with the position where the contractor fails to complete and a second contractor steps in, dividing them into three categories.

• Category 1: the liquidated damages clause does not apply if the contract is terminated. Sir Rupert Jackson relied here primarily on a Scottish case in the House of Lords, British Glanzstoff Manufacturing Co Ltd v General Accident, Fire and Life Assurance Corpn Ltd[5].
• Category 2: the liquidated damages clause only applies up to the termination of the first contract and not thereafter.
• Category 3: the liquidated damages clause applied all the way to completion by the replacement (second) contractor.

The Court of Appeal held that Triple Point was a Category 1 case, the effect being the liquidated damages clause did not apply and damages were at large.

There was some dispute as to whether the Court of Appeal had made its determination as a matter of principle or interpretation. In any event, the Supreme Court found that the Court of Appeal had made the following determinations:

1. The wording of article 5.3 could be so close to the wording in Glanzstoff that this authority was binding.
2. There were circumstances in which a liquidated damages clause would not necessarily apply even if the contractor had been guilty of delay and had not completed the work on time. It should not be assumed that the liquidated damages clause had any operation beyond the precise event for which it expressly provided.

On Issue 2, the Court of Appeal agreed with Jefford J and held that the exception to the cap on liability for “negligence” did not apply to cases where Triple Point was liable for breach of the contractual obligation to exercise reasonable skill and care and only applied to “breaches of contract which are also freestanding torts or deliberate wrongdoing”[6].

The Supreme Court

The Supreme Court held that “the Court of Appeal fell into error on Issue 1 in its approach to the liquidated damages clause, which failed to take account in the process of interpretation of the legal incidents and function of such clauses, and on Issue 2 in relation to the interpretation of the cap carve-out for negligence.”[7] The following two posts in this series will analyse the Supreme Court’s reasoning in further detail.

[1] [2021] UKSC 29; [2021] 3 WLR 521.

[2] [2017] EWHC 2178 (TCC).

[3] [2019] EWCA Civ 230; [2019] 1 WLR 3549.

[4] Paragraph 42 of the Supreme Court’s judgment.

[5] [1913] AC 143.

[6] Paragraph 119 of the Court of Appeal’s judgment.

[7] Paragraph 6 of the Supreme Court’s judgment.