Introduction

Construction law practitioners are familiar with the Singapore case of LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd [2011] SGHC 163 (LW Infrastructure). The Singapore High Court in that case held that in the absence of express provision to the contrary, termination of the contract does not affect a claim for liquidated damages in respect of the period before termination. This case is also cited with approval in Law and Practice of Construction Contracts, 5th edition (Sweet & Maxwell 2018). For all intents and purposes, the Singapore law position appears settled even though there is no direct guidance from the Singapore Court of Appeal.

Recently, the English Court of Appeal (EWCA) considered this issue again. In Triple Point Technology v PTT Public Company [2019] EWCA Civ 230 (TPT), the EWCA affirmed the 19th century House of Lords decision of British Glanzstoff Manufacturing v General Accident, Fire and Life Assurance Co 1912 SC 591 (Court of Session), 1913 SC (HL) 1 (British Glanzstoff) and held that a liquidated damages clause would not apply if the works were not completed as at the time of termination of the contract.

TPT is the latest in a line of UK cases that diverge in different directions, and we seek to navigate the paths in this article.

Facts

PTT contracted Triple Point to replace its trading, risk and management system. Triple Point was to complete their work in two phases: replacing the existing system (Phase 1) and developing the system to accommodate new types of trade (Phase 2). The contract documents provided for payment by milestones and specific dates for payment.

The contract contained a liquidated damages clause, which provided that Triple Point shall pay “0.1% of undelivered work per day of delay from the due date for delivery up to the date PTT accepts such work.”

Triple Point’s work was 149 days late, but it had completed stages 1 and 2 of Phase 1. PTT paid for such completed work. Triple Point then sought payment for the other stages of uncompleted work. PTT refused payment on the basis that the Triple Point had not achieved any of the applicable milestones. Triple Point then suspended work and left the site. As it turned out, PTT then terminated the contract.

For present purposes, the most significant issue that arose was whether PTT could enforce the liquidated damages clause when the contract was terminated before relevant works were completed. The court at first instance held that PTT was entitled to impose liquidated damages up until the date of termination.

Holding

The EWCA had a different view. It held that no liquidated damages accrued for the work that was not completed in the event of termination.

The EWCA identified three approaches that the courts had taken with respect to the imposition of liquidated damages in similar situations:

1. The clause does not apply in the event of termination.
2. The clause only applies up to termination of the first contract.
3. The clause continues to apply until the second contractor achieves completion.

The House of Lords in British Glanzstoff took the first approach. Lord Haldane LC held that “if the contractors have actually completed the works, but have been late in completing the works, then, and in that case only, the clause applies”.

The EWCA agreed with the House of Lords in British Glanzstoff and held that since the clause in question focused on the delay between the contractual completion date and the date when Triple Point actually achieves completion, the clause did not apply in a situation where the work was not completed.

On the other hand, the EWCA did not agree on the second and third approaches. The hesitation in respect of the third approach is understandable – such an approach would allow the second contractor and the employer to control the period for which liquidated damages would run.

However, the second approach was the one that LW Infrastructure agreed with. The EWCA noted that the SGHC in LW Infrastructure distinguished British Glanzstoff and held that the right to liquidated damages had not even accrued yet. That said, the EWCA remarked that the SGHC ostensibly did not have sight of the full judgment in British Glanzstoff, and was of the view that it might have held differently had the full reasoning in British Glanzstoff been considered.

Significance

This case was the first in a generation of reported cases to cite British Glanzstoff in the UK. While much will depend on the precise language of the clause in question, it appears that English courts will, unless there is express language to the contrary, now hold such liquidated damages clauses inapplicable should it refer expressly to liquidated damages accruing until completion of works.

Is TPT correct? Consider the following:

1. It is uncontroversial that upon termination, parties are able to sue for contractual obligations that have accrued pre-termination. In a situation whereby the right to liquidated damages have accrued, why would the fact of whether or not the works were completed have any bearing on this accrued right? That said, one can still claim general damages which TPT accepted but this is very different from imposing liquidated damages under a contractual framework.
2. The EWCA formed the view in TPT that allowing imposition of liquidated damages might be inconsistent with the parties’ bargain to categorise the employer’s losses as £x per week up to a specified date and then general damages thereafter. However, this assumes that the employer had bargained to forfeit its right to liquidated damages so long as termination takes place before completion of the works. Is such an assumption consistent with commercial realities?

Leaving aside the usual standard form contracts commonly used in Singapore for the moment, it will be interesting to see how the Singapore Court will look at this issue following TPT. It may be an open question whether the Singapore Court of Appeal will follow TPT, or agree with the reasoning in LW Infrastructure.

As such, parties should carefully consider this decision when negotiating liquidated damages clauses. It is prudent to be extremely clear on the impact of such clauses to reflect parties’ intentions as closely as possible.

Parties should also review their liquidated damages clauses and ascertain how they can be impacted in the situation of termination (of contracts). Perhaps the safest way is to ensure preservation of a party’s right to impose liquidated damages post-termination but whether such clauses will be upheld may not be crystal clear.