When PTT ended its software contract because Triple Point had fallen badly behind, the question was whether an agreed daily sum for delay remained payable for work that Triple Point had never finished and PTT had never accepted. The Supreme Court held that it was payable for delay up to termination. By a majority, it also held that a contractual cap did not limit damages caused by Triple Point’s negligent breach of its duty to take reasonable care.
The contract and the breakdown
PTT engaged Triple Point to provide a customised commodities-trading system. The contract provided for payment by milestone and a daily sum for specified delay.
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Article 5.3 made Triple Point liable, if it missed a delivery date and PTT had not caused the delay, to pay 0.1 per cent of the undelivered work for each day from the due date until PTT accepted the work. The contract called this a penalty, but it was common ground on the appeal that the clause provided for liquidated damages rather than an unenforceable penalty. Article 12.3 limited Triple Point’s total liability under the contract to the contract price received for the services or deliverables involved. Apart from specific remedies identified in the contract, PTT’s remedy was that Triple Point should try to cure the breach or, failing that, return the related fees. The final sentence said that this limitation did not apply to liability resulting from fraud, negligence, gross negligence or wilful misconduct.
Completion of the first-phase business blueprints was significantly delayed, and work on the second phase never began. In March 2014 the parties agreed that PTT would accept the first two milestones, subject to recorded outstanding items. PTT paid US$1,038,000. In May 2014 Triple Point demanded other invoiced sums. PTT said they were not due, and Triple Point refused to continue. It completed no further part of either phase. On 23 March 2015 PTT terminated the contract.
The claim and the earlier decisions
Triple Point had already begun proceedings in the Technology and Construction Court for alleged unpaid software licence fees. PTT denied that claim and counterclaimed for hardware costs wasted before termination, liquidated damages until termination, and the cost of procuring a replacement system.
The trial judge found that Triple Point had negligently planned and managed the work. She awarded liquidated damages for delay, wasted hardware costs and the costs of a replacement system. Her treatment of those amounts under the cap was challenged on appeal.
The Court of Appeal confined delay damages to work completed and accepted before termination. It also treated the contractual limit as covering liquidated damages and construed the negligence exception narrowly.
Delay damages after termination
All five Justices held that the Court of Appeal was wrong on liquidated damages. Lady Arden, with whom Lord Leggatt and Lord Burrows agreed, said that it had treated British Glanzstoff Manufacturing Co Ltd v General Accident, Fire and Life Assurance Corpn Ltd as establishing a principle. That case concerned the meaning of one building contract and the liability of the original contractor for delay after a substitute had been brought in. It did not create a rule that liquidated damages are unavailable unless the original contractor finishes. Lord Sales and Lord Hodge agreed. Lord Leggatt added that Glanzstoff was a decision on construction, not authority for a wider principle in English or Scots law.
The majority started from the function of such a clause. It fixes a predictable sum for delay, sparing the customer the difficulty of proving loss and giving the supplier a known exposure. Parties are taken to know that accrual ends when the contract ends; after that, loss is claimed as ordinary damages. They need not spell out that consequence, and they are unlikely to intend that a right which has already accrued simply disappears. The words “up to the date PTT accepts such work” supplied an end date if acceptance occurred. They did not make acceptance a condition of any liability, nor free Triple Point from liquidated damages for work that was never accepted.
Lord Leggatt pointed out that PTT’s acceptance was not stated as a condition of liability. An interpretation that rewarded a supplier for abandoning delayed work would be an unlikely commercial bargain.
What “negligence” meant in the cap
The majority allowed PTT’s appeal on the cap exception as well. Lady Arden held that “negligence” has an accepted meaning in English law: both the tort of failing to take care and breach of a contractual duty of skill and care. Article 12.3 concerned liability for breach of the contract, so the exception could not sensibly be confined to an independent tort. Nor would that reading have left the cap pointless. Alongside duties of care, Triple Point had strict obligations, including obligations concerning software defects and agreed functionality, intellectual property, confidentiality, timing and other specified results. The courts below had looked for a realistic independent tort and none fitted a contract performed by data transmission. An independent tort would anyway have been outside the limitation in article 12.3.
Lord Leggatt also considered that the contract needed clear wording to take away the customer’s ordinary remedy for a failure to exercise reasonable care.
Lord Sales, with whom Lord Hodge agreed, dissented on this issue only. He considered article 12.1 to be the core obligation and to require reasonable skill and care in almost everything done under the contract, including software and deliverables. On that view, treating “negligence” as contractual carelessness would grant the cap and then largely remove it. He read the exception as aimed at unusual or culpable conduct and “negligence” as a freestanding tort arising alongside, but outside, the contractual work. He would have dismissed the appeal on this issue. The majority rejected that construction.
Did the cap otherwise cover liquidated damages?
On the final issue the Court was unanimous and agreed with the Court of Appeal. The sentence capping total liability and the following sentence restricting the form of remedy had separate functions. The exception for specific remedies, which included liquidated damages, qualified only the exclusive-remedy sentence. It did not remove liquidated damages from the overall cap, and a reasonable assessment of the relevant part of the price was possible. PTT therefore failed on that point of construction. In this case it did not reduce the recovery: the damages resulted from negligent breach of the contractual duty of care, so the majority held that the exception took them outside the cap.
Verdict: The Supreme Court unanimously held that delay damages accrued up to termination even for unfinished work. By three votes to two it held that the negligence exception included breach of the contractual duty of care. On the third issue it unanimously held that liquidated damages would otherwise fall within the cap.
Source: Triple Point Technology, Inc v PTT Public Company Ltd [2021] UKSC 29
