News

03 April 2023

INTRODUCTION

Termination may relieve a party from future obligations. However, it does not relieve a party from obligations or liability accrued pre-termination, unless clear and unequivocal words are stipulated to that effect.

In Triple Point Technology Inc v PTT Public Company Limited [2021] UKSC 29 (“Triple Point v. PTT”), the UK Supreme Court, in reversing the decision of the Court of Appeal clarified that a contractor can still be held liable for liquidated and ascertained damages (“LAD”) even if the contract was terminated (prior to the completion of the project).

BACKGROUND

PTT Public Company Limited (“PTT”) entered into a software contract with Triple Point Technology Inc (“Triple Point”) whereby Triple Point was to provide and install certain software for PTT. Article 5.3 of the contract stipulates that:

“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…” [emphasis added]

A dispute occurred between the parties and PTT terminated Triple Point before the project was completed.

TECHNOLOGY AND CONSTRUCTION COURT (“TCC”)

Triple Point sued PTT at the TCC for, amongst others, unpaid invoices. PTT on the other hand counterclaimed for, amongst others, breach of contract and LAD.

The TCC dismissed Triple Point’s claim and allowed PTT’s claim for, amongst others, LAD in respect of pre-termination delay.

DECISION OF THE COURT APPEAL

The Court of Appeal reversed the TCC’s decision on the claim for pre-termination delay, holding the view that although Triple Point did not complete the project on time, PTT was not entitled to claim LAD because PTT did not “accept” the (uncompleted) work as stipulated by Article 3.5.

DECISION OF THE SUPREME COURT

On further appeal, the Supreme Court disagreed with the Court of Appeal’s approach on the following grounds:

1. Termination does not take away the accrued rights unless the contract expressly stipulates so.
2. The Court of Appeal’s interpretation of Article 5.3 (i.e., that LAD is only claimable if the incomplete work were “accepted” by PTT) is inconsistent with commercial reality and the accepted function of LAD.

The Supreme Court also clarified that whether the employer is contractually entitled to claim LAD for pre-termination delay is a matter of construction of the contract as opposed to a matter of principle.

The Supreme Court thus held that PTT was contractually entitled to claim LAD for pre-termination delay irrespective of whether PTT had accepted the unfinished work, and that this accrued right to LAD cannot be taken away unless expressly provided for in the contract.

RECENTLY APPLIED IN MALAYSIA

Triple Point v. PTT was referred to in PWC Bina Sdn Bhd v Ideal City Development Sdn Bhd [2022] MLJU 519 (“PWC Bina”).

In PWC Bina, the contract provided for LAD between the period from the extended completion date and the date of practical completion. The plaintiff there argued that the arbitrator had wrongfully re-written the contract by allowing the defendant to claim LAD for the period between the extended completion date to the date of termination of the contract and therefore, the arbitral award ought to be set aside.

Lim Chong Foong J (as he then was) held that the arbitrator was not plainly wrong:

“It is common ground that the Plaintiff’s proposition is indisputable in a typical completed contract. However, this is a terminated contract mid-stream before completion is achieved. In the circumstances, I am of the view that the Arbitrator’s finding is not plainly wrong and unacceptable. A similar result has been achieved in the recent English Supreme Court case of Triple Point Technology Inc v PTT Public Company Limited [2021] UKSC 29 akin to the circumstances here where .the contractual provisions did not expressly provide for a terminated contract scenario.” [emphasis added]

KEY TAKEAWAY

The cases above emphasise that termination does not in law take away the employer’s right to claim LAD accrued in respect of pre-termination delay unless express terms to that effect are inserted in the contract. In other words, in the absence of express contractual provisions, termination does not relieve a contractor’s liability for LAD accrued in respect of pre-termination delay.

 

Victoria Loi Partner [email protected]

Ong Kun Sen Associate [email protected]

 

This article is intended for general information of the clients of our Firm. It should not be regarded as legal professional advice. If you need advice based on specific facts, please feel free to contact us.