Supreme Court: Termination does not leave room for liquidated damages


0

Andrew Keeley is a partner at law firm Charles Russell Speechlys The Supreme Court recently issued its highly anticipated ruling in Triple Point Technology, Inc. v. PTT Public Company Ltd. A major cause for concern as the Court of Appeal allowed an IT contractor to escape liability for liquidated damages simply because work was not completed prior to termination. However, this ruling has now been overturned in a landmark ruling by the Supreme Court. There are many similarities between IT and construction projects, in particular the routine risks of late completion and the resulting complex delay claims. In order to simplify matters, it is common for the client and contractor to agree on a predetermined rate of liquidated and proven damages (LADs) that applies if the contractor is liable for late completion. In theory, this benefits both parties – the contractor does not suffer an unexpected level of damage, while the customer does not need to prove the actual losses incurred as a result of the delay. Case In this particular case, software contractor Triple Point halted business after a payment dispute with its client, PTT. However, Triple Point’s suspension was found to be a breach of termination, sufficient for PTT to terminate the contract and claim damages. This is a common scenario that will resonate with those who are more familiar with cement than software. Triple Point raised a number of arguments in its defense. It failed to convince the Court of Appeal that the agreed rate of LADs constituted an unenforceable penalty (penalty clauses prohibited in contracts under English law). In fact, the LADs claimed by the push-to-talk service were modest compared to the actual financial consequences of any delay in installing the software. Although the contractual formula was not perfect, it was a real advance estimate of real losses. However, Triple Point had an alternative defense. She argued that an employer should not be allowed to claim LADs if the contract was terminated before the work was completed. Unhelpfully, there has been an inconsistency in existing case law, with different rulings supporting three different outcomes in this case: LADS does not apply at all; LADS application only until the date of termination of the first contract; The application of LADs continues until the subsequent contractor has completed. First Judgment Although acknowledging that textbooks generally assume that LADs will apply up to the date of termination, the Court of Appeals nonetheless found in Triple Point’s favor and decided that the LADs clause did not apply at all unless the original contractor completed the work. The appeals court ruling sent shockwaves through the construction industry. Because the appellate court’s ruling was based on the specific wording of a complex, bespoke IT contract, no one can be sure how the precedent would apply to clauses of differently worded LADs. Some have argued that the principle would apply equally to common forms of construction contracts, such as the JCT group. Termination decisions have been nervously reassessed by construction clients, who are now at risk of losing a previously apparent right in favor of LADs. The coup was the Supreme Court’s decision last week eagerly awaited by the construction industry. To the relief of developers across England, the Supreme Court held that the orthodox position was correct after all. In her primary ruling, Ms Arden said the appeals court’s interpretation was “inconsistent with commercial reality” and “thrown the child into the bath water”. The parties expressly intended that LADs should be applied and the employer should not have to determine their actual loss. The position is now clear. Unless a clause unambiguously states otherwise, the LADs will continue to apply until the date of termination. After termination the accumulation of LAD will cease, although the contractor may still be liable for any additional losses the employer can prove incurred.


Like it? Share with your friends!

0

What's Your Reaction?

hate hate
0
hate
confused confused
0
confused
fail fail
0
fail
fun fun
0
fun
geeky geeky
0
geeky
love love
0
love
lol lol
0
lol
omg omg
0
omg
win win
0
win
Joseph

0 Comments

Your email address will not be published. Required fields are marked *