In a recent decision of Triple Point Technology v PTT Public Company  EWCA Civ 230 (click here to access the text of Sir Rupert Jackson's decision), the Court of Appeal in the UK considered whether or not a contractor continued to be liable for liquidated damages for delay where the contract was terminated prior to the date specified for completion.
Triple Point, a Delaware based software development company, contracted to supply a commodity trading and risk management system to a Thai company, PTT. Triple Point failed to resource the project properly, and failed to meet the delivery timetable in the contract. A dispute over payment ensued, with Triple Point suspending its work while its invoices were outstanding and PTT terminating the contract for Triple Point's failure to proceed with the work.
On the issue of suspension, the Court of Appeal declined to imply a term that the contractor could suspend work for non-payment. On this issue, Jackson J held (at para 65):
"If PTT failed to make payments on the due dates, Triple Point would have all the remedies for non-payment. These would include suing for the money due, applying for summary judgment, treating non-payment as a repudiation and so forth. There was no need for the contract to include a provision that Triple Point could suspend work for non-payment, even though from one party's point of view such a term would have been nice to have ..."
While one must have faith in Justice Jackson's belief in legal process, considering the cost and time of legal proceedings, a right to suspend would have been better than a "nice to have" (Triple Point suspended work in May 2014, the contract was terminated in February 2015, the case went before the Technology & Construction Court later in February 2015, the case heard in November 2016 and judgment issued in August 2017, leave to appeal was granted in February 2018, the appeal heard in January 2019 and the Court of Appeal judgment delivered on 5 March 2019). However, there can be little doubt that there is no standing common law right to suspend work for non-payment. In NZ, the right to suspend for non-payment for "construction work" under section 24A of the Construction Contracts Act 2002, but under strict and limited circumstances.
In relation to delay, it cannot be overlooked that the extended date for delivery of the software had not passed at the time of termination. Justice Jackson considered the relevant case law, including a long forgotten House of Lords decision of British Glanzstoff Manufacturing Co Ltd v General Accident, Fire and Life Assurance Co Ltd 1913 SC (HL) 1, which provided that, depending on the wording of the contract, liquidated damages applied case only if the original contractor completed the work, and completed it late. He then outlined three scenarios:
- the liquidated damages clause does not survive termination, the situation of Glanzstoff,
- the clause applies up to the termination of the contract, the orthodox view, and
- the clause continues to apply after termination until the works are completed, albeit by another contractor.
While observing that the interpretation of the liquidated damages and any limitation of liability clauses would prevail, he observed that scenario (1), covered by the Glanzstoff case, was probably more prevalent than most would appreciate. If the clause can be read that the named contractor must complete the work and complete it late, then liquidated damages cease to be available if the contractor does not actually complete the work.
Justice Jackson expressed doubts about the cases covering scenario (3), as the original contractor had limited ability to control the period for which the liquidated damages would run.
Scenario (2), Jackson J recognised as being the orthodox view - ie, that liquidated damages apply from the date for completion until the date of termination, but not thereafter (with general damages then becoming payable) - but he observed that this position was "not free from difficulty". He went on to comment "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. Although accrued rights must be protected, it may sometimes be artificial and inconsistent with the parties' agreement to categorise the employer's losses as £x per week up to a specified date and then general damages thereafter." Much depends on the wording of the clause itself, and there is no "invariable rule" to cover the issue.
In relation to the cap on damages, again the issue turns on the interpretation of the contract. In the circumstances, the court held that the cap survived termination.
If a principal under NZS3910:2013 elects in terms of clause 14.2.1 to resume possession of the site and complete the works "without terminating the contract" in terms of clause 14.2.3, an argument could be made that, following the Court of Appeal in Triple Point and the earlier House of Lords decision in Glantzstoff, liquidated damages could continue to apply following completion by another party. The counter-argument, of course, would be as Justice Jackson commented, that the contractor could hardly be liable for delays under the control of the principal and any subsequent contractor.
Yet again, care in drafting is the moral of this lesson.