Triple Point: more than simply ‘liquidated damages’

The Supreme Court judgment in Triple Point has perhaps received the most coverage in relation to the findings concerning liquidated damages. However, two other issues were considered by the Supreme Court in this important case, as explained in more detail by Karen Gidwani.

Summary of the case

By a contract dated 8 February 2013 (“the Contract”), PTT Public Company Ltd (“PTT”), a commodities trading company, engaged Triple Point Technology Inc (“Triple Point”) to provide it with a Commodities Trading Risk Management and Vessel Chartering System (“CTRM system”). The works were to be carried out in two phases, and payment was to be made against milestones.

Article 5 of the Contract provided that, if Triple Point failed to deliver the work within the time specified and the delay was not caused by PTT, then Triple Point was liable for liquidated damages 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 of the Contract provided, amongst other things, that the total liability of Triple Point to PTT under the Contract was limited to the Contract Price received by Triple Point (this limitation was referred to as the “cap” in the litigation). However, the limitation on liability was stated not to apply to Triple Point’s “liability resulting from fraud, negligence, gross negligence or wilful misconduct”.

The work proceeded slowly. In March 2014, Triple Point achieved completion of Stages 1 and 2 of Phase 1, 149 days late. Triple Point submitted an invoice in respect of this work which PTT paid. Triple Point then asked PTT to pay further invoices in respect of other work that had not yet been completed. PTT refused to make any further payments, relying on the contract terms which stated that payment would be made against milestones. PTT argued that Triple Point had not achieved any of the milestones except the completion of Stages 1 and 2 of Phase 1. In late May 2014, Triple Point suspended work and left the site. PTT maintained that Triple Point had wrongfully suspended work and terminated the Contract for negligent breach and fundamental breach. 

In February 2015, Triple Point commenced court proceedings seeking the sums claimed under the invoices. PTT responded by way of defence and counterclaim, claiming liquidated damages for delay to the date of termination and general damages for losses arising upon termination of the contract. 

The trial took place in the TCC in late 2016 and judgment was handed down by Jefford J in August 2017. The judge dismissed Triple Point’s claim and awarded PTT $4,497,278.40 made up of an award of approximately $3.4m for liquidated damages and $1m for general damages. The judge found that the delay to the project was caused by Triple Point’s negligence in carrying out its obligations under the Contract1 and that PTT had been entitled to terminate due to Triple Point’s breaches of contract which also comprised negligent performance.2 The judge found that PTT was entitled to liquidated damages for delay up to the date of termination and to its general damages arising from the termination.3 The judge also found that, whilst liquidated damages liability was not caught by the limitation of liability in Article 12.3, the general damages liability was capped as the exclusion for “negligence” only related to a breach of a duty of care in tort rather than a breach of the contractual duty to take reasonable skill and care.4 Imposing that cap reduced the amount recoverable as general damages significantly, to approximately $1m. 

Triple Point appealed and PTT cross appealed against the finding that general damages were capped. Interestingly, the issue on liquidated damages that was then determined by the Supreme Court, and which has excited so much comment, was not part of the parties’ prepared arguments. During oral argument in the Court of Appeal, Triple Point was invited to make submissions on liquidated damages and, in particular, the proposition that it was not liable to pay any liquidated damages for delay because the work in question was never completed or accepted by PTT.

In its judgment, the Court of Appeal (Lewison and Floyd LJJ and Sir Rupert Jackson) considered this question on liquidated damages and held that, following termination of the contract, PTT was not entitled to claim liquidated damages in respect of incomplete work.5 Liquidated damages were, therefore, only available to the point where works have been completed (i.e. Stages 1 and 2 of Phase 1), reducing the amount of liquidated damages to which PTT was entitled from over $3m to approximately $154,000.

With regard to the cap on liability, the Court of Appeal found, firstly, that the exception for “negligence” applied only to independent torts and not to breaches of the contractual obligation to exercise due skill and care;6 and, secondly, that liquidated damages were also subject to the limitation on liability in Article 12.3.7

The net result was that PTT could not claim the liquidated damages that had accrued at the time of termination other than in respect of the one completed milestone, and to the extent Triple Point was liable to PTT, all such liability was subject to the cap on liability under Article 12.3. As this cap had already been used up by the general damages awarded in the TCC, PTT could not recover any liquidated damages. PTT appealed to the Supreme Court.  

In July 2021, the Supreme Court (Lady Arden, Lord Leggatt, Lord Borrows, Lord Sales and Lord Hodge) handed down judgment. On the issue of liquidated damages liability, the Supreme Court unanimously allowed the appeal, finding that the right to liquidated damages remained an accrued right as at termination regardless of whether the works had been completed. The Supreme Court judges were also unanimous in finding that the cap on damages did extend to liquidated damages and, therefore, dismissed the appeal on this issue. However, in respect of the exclusion to the cap, the meaning of “negligence”, the Court was split 3:2, with the majority (Lady Arden, Lord Leggatt and Lord Burrows) finding that the reference to “negligence” in Article 12.3 of the Contract did not exclude breach of a contractual duty of care. The result was that PTT was awarded its liquidated damages accrued to the date of termination, and whilst the liquidated damages were subject to the limitations in Article 12.3, these damages and PTT’s termination losses were found not to be capped as they were losses arising from breaches of the contractual duty to take due care.

Liquidated damages: recoverability when a contract is terminated

It is worth summarising the reasoning of the Court of Appeal before turning to the judgment of the Supreme Court.  

In the Court of Appeal, Sir Rupert Jackson considered the authorities and concluded that there were three different approaches to the entitlement to liquidated damages following termination: the first approach was to say that the liquidated damages clause did not apply (as in British Glanzstoff Manufacturing Co Ltd v. General Accident, Fire and Life Assurance Corpn Ltd8); the second approach was to treat the liquidated damages clause as only applying up to the termination of the contract; and the third approach was to treat the liquidated damages clause as applying until completion of the works by a second contractor. Sir Rupert noted that the textbooks generally treated the second approach as the orthodox analysis but found that this was “not free from difficulty” for, if a contract is abandoned or terminated, then this, in Sir Rupert’s view, was “new territory” for the employer for which the liquidated damages clause may not have made provision. Sir Rupert went on to find that the liquidated damages clause in the Contract was focussed specifically on delay between the contractual completion date and the date when Triple Point actually achieved completion, that this was like the liquidated damages clause in Glanzstoff and that, as in Glanzstoff, the liquidated damages clause had no application in a situation where the contractor never hands over the completed work to the employer. PTT was, therefore, awarded its liquidated damages in respect of the delay in completing stages 1 and 2 of Phase 1 (work to a milestone that had been competed) but was found not to be entitled to recover liquidated damages for any of the other delays. Instead, such damages were at large to be assessed on ordinary principles.9

There was a sharp intake of breath among many construction lawyers following the decision of the Court of Appeal on this issue. Whilst there was no absolute authority, received wisdom based on first principles was that the second approach applied: that is to say that an entitlement to liquidated damages once accrued would remain in place at termination and could be sued upon regardless of state of completion of the works. This was reflected in the textbooks and in practice. Whilst the Court of Appeal stated that each case must turn on its facts, the reasoning underlying the finding that damages would now be at large if termination occurred was that the liquidated damages clause was focussed on delay between the contractual completion date and the date when completion was actually achieved,10 with no express words to say that liquidated damages could still be claimed should the contract be terminated. It could be said that most, if not all, liquidated damages clauses were focussed or drafted in this way.

The judgment was criticised for not being clear as to the circumstances in which the different approaches should be applied. Additionally, whilst the Court of Appeal premised its decision on the basis that each case must turn on its facts, the inference was that the first approach adopted by the Court of Appeal was the appropriate approach, not least because when Sir Rupert Jackson reviewed the authorities, he stated that some might have been decided differently had the Glanzstoff case been considered.11

The immediate effect of this decision was for those making claims for liquidated damages following termination to be met with the argument that the case fell within the principles of Glanzstoff and no liquidated damages relief was available (often coupled with an argument that no general damages for delay were available either as they could not be proved or were excluded under the contract). Parties who had negotiated and agreed fixed damages for delay were now being told that the bargain that they had struck had changed. Having agreed a rate of liquidated damages, the employing party (whether employer to contractor or contractor to subcontractor) were being put to the time and cost of proving their actual loss as a result of delay. 

This was dealt with head on by Lady Arden in her leading judgment in the Supreme Court. Lady Arden stated that the difficulty with the approach taken by the Court of Appeal was that it was inconsistent with commercial reality and the accepted function of liquidated damages. Further12:

“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. Parties must be taken to know the general law, namely that the accrual of liquidated damages comes to an end on termination of the contract (see Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, 844 and 849). After that event, the parties’ contract is at an end and the parties must seek damages for breach of contract under the general law. That is well-understood: see per Recorder Michael Harvey QC in Gibbs v Tomlinson (1992) 35 Con LR 86, p 116. Parties do not have to provide specifically for the effect of the termination of their contract. They can take that consequence as read. I do not, therefore, agree with Sir Rupert Jackson when he holds in the second sentence of para 110 of his judgment that “If a construction contract is abandoned or terminated, the employer is in new territory for which the liquidated damages clause may not have made provision.” The territory is well-trodden, and the liquidated damages clause does not need to provide for it.”

Lady Arden went on to state that reading a liquidated damages clause in this way meets commercial common sense and prevents the unlikely elimination of accrued rights. She also made clear that, in her judgment, Glanzstoff was not a case of significance and was confined to is particular facts.13 The correct approach to liquidated damages clauses is to adopt the usual principles of interpretation and the interpretation accepted by the Court of Appeal in effect “threw the baby out with the bathwater”.14

The result of this decision is that construction lawyers can now breathe more easily, and clarity at the highest level has been given on this point. Parties to contracts now know that the orthodox position is that where fixed damages are agreed then, absent clear words to the contrary, those damages will apply up to the point of termination. This provides certainty which drives down cost and the potential for dispute. It also leaves it open to parties to use clear words to agree either the first or third approach outlined by the Court of Appeal should they so wish.

The meaning of “negligence”

There has been a lot of focus on the liquidated damages element of the Triple Point judgment; however, the findings concerning the cap on liability are also of importance.

Article 12.3 of the Contract consisted of four statements. Article 12.3.1 stated that Triple Point was liable for any damage suffered by PTT as a consequence of Triple Point’s breach of contract. Article 12.3.2 stated that the Triple Point’s total liability to PTT under the Contract was limited to the Contract Price. Article 12.3.3 stated that, except for the specific remedies expressly identified in the Contract,  PTT’s exclusive remedy for any claim arising out of the Contract was for Triple Point to use best endeavours to cure the breach at its expense or, failing that, return the fees paid to Triple Point for the services or deliverables related to the breach. Finally, Article 12.3.4 stated that the limitation of liability would not apply to Triple Point’s liability resulting from fraud, negligence, gross negligence or wilful misconduct.

As noted above, the judge at first instance had found that all Triple Point’s breaches of contract had been breaches of the contractual duty of care (negligence). It was, therefore, important for PTT to establish that the exclusion to the cap on liability for negligence also covered contractual negligence. Accordingly, the courts considered whether the term “negligence” in Article 12.3 referred only to independent torts or whether it extended to breaches of the contractual duty to take care. Both the judge, at first instance, and the Court of Appeal considered that “negligence” in this context must mean independent torts only.

Central to the reasoning of the judge at first instance and the Court of Appeal was the concern that if “negligence” included a breach of the contractual duty then this made the imposition of a cap in the first place almost meaningless. The cap was imposed on liability arising due to Triple Point’s breach of contract. The contract was for the provision of services which were to be provided with skill and care. The lower courts considered that there was little point in imposing a cap on liability for such services to then remove that cap later in the clause by carving out from the limit on liability breaches of the contractual obligation to take care.

The Supreme Court were divided on this issue but ruled by a majority of 3:2 that “negligence” did include the contractual duty to take care. Lady Arden and Lord Leggatt, who were in the majority, gave judgments on this issue and Lord Sales provided a dissenting judgment on this point.

Lady Arden’s starting point was the meaning of negligence. She held that “negligence” has an accepted meaning in English law, covering both the separate tort of failing to use due care and also breach of a contractual provision to exercise skill and care. Accordingly, the matter was quite simple: unless some strained meaning could be given to the word “negligence” in the context of the final sentence of Article 12.3, the effect of the clause was that negligence did not exclude the breach of a contractual duty of care.15 This was a short and simple analysis of the true construction of the Contract, but Lady Arden also went on to deal with the findings of the lower courts. 

In respect of the central argument, that Article 12.3 could not limit liability on the one hand and then take away the majority of that limit on the other, Lady Arden accepted the submissions of PTT that the contract was not solely about the provision of services and that there were certain matters which Triple Point had agreed to do or provide as an absolute covenant, rather than as an obligation subject to skill and care. That being the case, the cap did not render the limitation of liability in Article 12.3 meaningless.16 Further, neither the lower courts nor Triple Point had been able to provide a realistic example of an independent tort to which the exclusion on the cap would apply if the cap was only limited to tort rather than contract. Perhaps more fundamentally, Lady Arden also could not see how the exclusion in Article 12.3 could relate to tort at all given that the Article only referred to limiting damages arising under the contract.17

Lord Leggatt was of similar opinion. His starting point was that the clause was clearly dealing with liability under the law of contract and not with liability in tort.18 He also agreed with Lady Arden as to the natural meaning of the term “negligence”. Lord Leggatt noted that the approach of the courts to the interpretation of exclusion clauses (including clauses limiting liability) had changed markedly in the last 50 years and, following a consideration of the authorities, he went on to say19:

“The modern view is accordingly to recognise that commercial parties are free to make their own bargains and allocate risks as they think fit, and that the task of the court is to interpret the words used fairly applying the ordinary methods of contractual interpretation. It also remains necessary, however, to recognise that a vital part of the setting in which parties contract is a framework of rights and obligations established by the common law (and often now codified in statute). These comprise duties imposed by the law of tort and also norms of commerce which have come to be recognised as ordinary incidents of particular types of contract or relationship and which often take the form of terms implied in the contract by law. Although its strength will vary according to the circumstances of the case, the court in construing the contract starts from the assumption that in the absence of clear words the parties did not intend the contract to derogate from these normal rights and obligations.”

Lord Leggatt concluded that, by declining to interpret the term “negligence” in Article 12.3 as bearing its ordinary legal meaning, this would involve a substantial departure from the obligation to exercise reasonable skill and case implied by law into contracts for services such as the Contract20, the inference being that the parties could not have intended to do this in the absence of clear words.

These aspects of the Triple Point judgment are important. Firstly, there is now Supreme Court authority on the ordinary and natural meaning of “negligence” in commercial contracts. Secondly, through Lord Leggatt’s judgment, very clear guidance has been given in relation to how to construe exclusion clauses.

Cap on liquidated damages

This point was decided relatively shortly: the Supreme Court agreed with reasoning of the Court of Appeal that Article 12.3 covered both liquidated damages and general damages.21 In particular, the structure and drafting of Article 12.3 was such that it imposes an overall cap on Triple Point’s total liability, including for liquidated damages.

Conclusion

This case has clarified the law in a number of different areas and the three separate judgments given by Lady Arden, Lord Leggatt and Lord Sales are all worth reading. The uncertainty that existed in respect of liquidated damages claims following the Court of Appeal decision is now resolved and this, in turn, should reduce the scope for unnecessary argument and cost to be expended on this issue in litigation.

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  • 1. [2017] EWHC 2178 (TCC) paragraph 198
  • 2. Ibid, paragraph 240(i)
  • 3. Ibid, paragraphs 285 and 286
  • 4. Ibid, paragraph 262
  • 5. [2019] EWCA Civ 230, paragraphs 112 and 113
  • 6. Ibid, paragraph 120
  • 7. Ibid, paragraph 127
  • 8. [1913] AC 143
  • 9. Ibid, paragraph 113
  • 10. Ibid, paragraph 112
  • 11. Ibid, paragraph 109
  • 12. [2021] UKSC 29, paragraph 35
  • 13. Ibid, paragraph 42
  • 14. Ibid, paragraph 48
  • 15. Ibid, paragraph 52
  • 16. Ibid, paragraphs 54 and 55
  • 17. Ibid, paragraphs 57 and 63
  • 18. Ibid, paragraph 97
  • 19. Ibid, paragraph 108
  • 20. Ibid, paragraph 113
  • 21. Ibid, paragraph 71

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