POST TERMINATION LIQUIDATED DAMAGES
In the recent English Court of Appeal (“EWCA”) decision of Triple Point Technology, Inc v PTT Publish Company Ltd [2019] EWCA Civ 230 (“Triple Point v PTT”), the EWCA dealt with, inter alia, the vexing of how should liquidated damages clauses be applied when the contract has been terminated.
Three different approaches. Sir Rupert Jackson (with whom Floyd and Lewison LJJ agreed) delivered the judgment of the EWCA. As noted by the EWCA at [77] – [106] Triple Point v PTT, there are three different approaches adopted as to how liquidated damages clauses for delay should be applied in a situation where the contractor fails to complete the works before termination, and a second contractor steps in:
(1) The first approach is that the liquidated damages clause does not apply;
(2) The second is that the clause applies only up to the termination of the first contract; and
(3) The third is that the clause continues to apply until the second contractor achieves termination.
Turns on contract. While making clear that the issue will turn on the clause in question ([108] Triple Point v PTT), the EWCA stated that:
(1) The EWCA doubts the correctness of the third approach, as if the third approach is adopted, “… it means that the employer and the second contractor can control the period for which liquidated damages will run” ([109] Triple Point v PTT).
(2) The EWCA also criticized the second approach. The EWCA opined 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. 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. It may be more logical and more consonant with the parties' bargain to assess the employer's total losses flowing from the abandonment or termination, applying the ordinary rules for assessing damages for breach of contract.” ([110] Triple Point v PTT).
(3) As for the first approach, which was the approach adopted by the House of Lords in the decision of British Glanzstoff Manufacturing Co. Ltd v General Accident, Fire and Life Assurance Co. Ltd 1912 2 SC 591 (“British Glanzstoff”), the EWCA held that this approach would be binding in cases where the liquidated damages clause in question is so similar to that in British Glanzstoff, as British Glanzstoff has never been disapproved. In other words, if the parties had contracted such that the liquidated damages clause only applies if there was a delay in completion, but not where the contractor never handed over the completed works, then the liquidated damages clauses cannot apply applied in a situation where the contractor fails to complete the works before termination, and a second contractor steps in.
In Triple Point v PTT, the clause in question provides as follows:
“If CONTRACTOR fails to deliver work within the time specified and the delay has not been introduced by PTT, CONTRACTOR shall be liable to pay the penalty at the rate of 0.1% (zero point one percent) of undelivered work per day of delay from the due date for delivery up to the date PTT accepts such work, provided, however, that if undelivered work has to be used in combination with or as an essential component for the work already accepted by PTT, the penalty shall be calculated in full on the cost of the combination.”
The EWCA held that this clause, similar to the clause in British Glanzstoff, “… has no application in a situation where the contractor never hands over completed works to the employer” because “… The phrase in article 5.3 “up to the date PTT accepts such work” means ‘up to the date when PTT accepts completed work from Triple Point’…”. The EWCA made the point that this clause “… seems to be focussed specifically on delay between the contractual completion date and the date when Triple Point actually achieves completion.” ([112] Triple Point v PTT)
Implications for Singapore. What, then, are the implications for local contractors? The simple takeaway from Triple Point v PTT is that the wording of the contract matters.
In other words, if, for instance, the wording of the contract makes clear that liquidated damages apply only if the contractor was in delay and had handed over the works, and does not apply if the contract is terminated before completion where the works remain to be completed by a second contractor, then the employer would only have a claim in general damages if the employer terminates the contractor where the remaining works were completed by the second contractor.
The above is, of course, an over-simplification of an issue that can be highly complex. This is because the contract has to be construed as a whole.
As a side note, in Triple Point v PTT, the EWCA had cited Prakash J’s decision (as she then was) in LW Infrastructure Pte Ltd v Lim China San Contractors Pte Ltd [2011] 4 SLR 477 (“LW Infrastructure”), and characterized it as falling under the second approach ([106] Triple Point v PTT). And in Triple Point v PTT, the EWCA observed that it appears that Prakash J did not have the benefit of the speeches in the House of Lords for British Glanzstoff ([105] Triple Point v PTT).
This issue of liquidated damages has also arose in Singapore in the High Court decision of CAA Technologies Pte Ltd v HP Construction & Engineering Pte Ltd [2015] SGHC 32, where Justice Tan Siong Thye J cited and adopted the approach of Chao Hick Tin JC (as he then was) in Re Sanpete Builders (S) Pte Ltd [1989] 1 SLR(R) 5 (“Re Sanpete”) (which cited with approval British Glanzstoff) and held thus:
“83 I agree with the plaintiffs on this point. The issue of entitlement to liquidated damages was considered in Re Sanpete Builders (S) Pte Ltd [1989] 1 SLR(R) 5. In that case, Chao Hick Tin JC (as he then was) framed the issue as such: whether a party can claim liquidated damages in a situation where the building contract has been terminated, the date for completion has not arrived, and there has been no certificate from the architect certifying that the works ought reasonably to have been completed by the prescribed date (at [20]). Chao JC held that a condition precedent for imposing liquidated damages on a defaulting contractor is that the contractor must have had until the last hour of the day fixed for completion to finish the works (at [21]). In this case, the defendant terminated the Subcontract before the completion date. Thus, its right to claim liquidated damages from the plaintiff did not arise.”
But Re Sanpete was distinguished in LW Infrastructure on the basis that it was a case where the Court was not concerned with the validity of a claim for liquidated damages accruing prior to termination of the contract ([16] – [18] LW Infrastructure).
Conclusion. While it is beyond the scope of this article to undertake an exhaustive review of Singapore’s position on liquidated damages, it suffices to note that the above cases simply reinforce the following points:
(1) The issue of whether an employer can levy liquidated damages post termination on a contractor, where the contractor has not completed the works and the remaining works were taken over by a second contractor, is not a simple one.
(2) Much will depend on the precise wording of the relevant contract in question, and employers (and contractors) would do well to review their contract carefully.
Tags: Building and Construction; Termination; Liquidated Damages
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