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The Impact of the Decision in Triple Point Technology on the FIDIC and IChemE Standard Forms

V&E International Dispute Resolution Update, May 14, 2019

In the recent decision of Triple Point Technology, Inc v PTT Public Company Ltd [2019] EWCA Civ 230, the Court of Appeal considered the extent to which liquidated damages are recoverable in the event of termination and attempted to reconcile a string of inconsistent case law. The decision marks a significant change in the law, meaning that employers, in particular, will need to tread carefully in circumstances where termination is a possibility and liquidated damages have accrued. Yasmin Bailey and Scott Stiegler analyse the case to explain the practical impact the case has, as well as considering its potential implications against both FIDIC and IChemE standard form contracts.

Case Background

PTT and Triple Point entered into a contract further to which Triple Point was to provide software and related services to PTT. The works under the contract were divided into a number of phases, each phase being further divided into various stages. Payment under the contract was provided for by milestones, although the contract also included specific payment dates.

The works fell into delay. Triple Point sought payment further to the specific dates set out in the contract, which PTT refused to pay on the basis that Triple Point had failed to achieve the relevant milestones to which the payment related. Triple Point subsequently suspended the contract for non-payment and PTT in turn terminated the contract.

Prior to termination, Triple Point had completed stages 1 and 2 of phase 1 of the works, but other works remained incomplete.

The Legal Issues

The Court of Appeal considered whether PTT could claim liquidated damages for elements of the works which had not been completed at the time of termination.

The liquidated damages clause in question stated:

“if CONTRACTOR fails to deliver work within the time specified and the delay has not been introduced by PTT, CONTACTOR 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”.

The law previously in this area was convoluted given it had been applied inconsistently by the Courts over the years. In British Glanzstoff Manufacturing Co. Ltd v General Accident Ltd1 it was decided that a liquidated damages clause applied only where the contractors had actually completed the works, but had been late in doing so. It did not apply where completion of the works had not been achieved. This decision was not applied consistently in the years to follow and, in some circumstances, it was even held that liquidated damages may be recoverable beyond the date of termination and up to the date the works were completed by another contractor2. As a result, the orthodox view had generally been that accrued liquidated damages are recoverable up to the date of termination, irrespective of whether the milestone had been finally achieved.

The Court of Appeal’s Decision

Having considered the conflicting line of authorities, the Court of Appeal held that where a liquidated damages clause focussed specifically on the delay between the contractual completion date and the date when completion is actually achieved, upon the construction of the words in the clause, liquidated damages will not apply if those works are never, in fact, achieved.

The Court of Appeal did emphasise that the precise wording of the liquidated damages clause was key when construing the scope of its application. However, it was clear that there is no invariable rule that liquidated damages must be used as the formula for compensating the employer for part of its loss. To this end, where the liquidated damages clause was not to apply, then the claiming party would need to seek to recover unliquidated damages.

In light of the specific wording of the liquidated damages clause in question, PTT was only entitled to recover liquidated damages in respect of stages 1 and 2 of phase 1 of the works, which Triple Point had completed prior to termination of the contract.

Practical Considerations

The Court of Appeal’s decision could potentially impact a number of standard form contracts which measure the recoverability of liquidated damages against the delay between the contractual completion date and the date when completion is actually achieved.

For example, clause 8.8 of the 2017 FIDIC Silver Book states that if the contractor fails to comply with the time for completion, then the Employer may be entitled to Delay Damages and that those “Delay Damages shall be the amount stated in the Contract Data, which shall be paid for every day which shall elapse between the relevant Time for Completion and the relevant Date of Completion of the Works or Section”. In light of the decision in Triple Point, it could be argued that (at least under English law) this clause might be construed to mean that the employer may not be entitled to recover liquidated damages for sections of incomplete works at the time of termination.

In contrast to this, clause 15 of the 2013 IChemE Red Book states that if “the Contractor fails to complete the construction of the Plant or any Section or to do any other thing in accordance with Schedule 11 (Times of completion), the Contractor shall pay the Purchaser liquidated damages as specified in Schedule 12 (Liquidated damages for delay)”. Schedule 12 is ordinarily drafted (as suggested by the relevant guidance notes to the standard form contract) so as to express liquidated damages as a sum of money or percentage of the Contract Price against a specified unit of time e.g. per week of delay. Unlike the wording in the 2017 FIDIC Silver Book, this does not necessarily tie the recoverability of liquidated damages to completion.

There is a further difficulty arising from the decision which is how the case is to be reconciled against a contract which gives an employer the right to terminate a contractor where it reaches a cap on liquidated damages, but that contractor is yet to complete the works. Indeed, clause 15.2 of the 2017 FIDIC Silver Book is a good example of such a clause, which expressly provides for termination in circumstances where there is a maximum cap on liquidated damages and that has been exceeded. Similarly, although the 2013 IChemE Red Book does not expressly provide for termination upon reaching a cap for liquidated damages, the guidance notes to the contract state that where the contract is amended to provide for a cap on liquidated damages “in the event of delay beyond the maximum, the Purchaser may have grounds for termination.

The position in both of these standard form contracts is consistent with construction industry norms. However, the answer to the effectiveness, and potential enforceability, of these standards in their unamended form is presently very unclear. In this light, it would be prudent that standard form contracts are appropriately amended to ensure that liquidated damages clauses operate in a manner in which the parties intend and in a way which is consistent with the relevant governing law.

Visit our website to learn more about V&E’s International Dispute Resolution & Arbitration practice. For more information, please contact Vinson & Elkins lawyers Scott Stiegler or Yasmin Bailey.

1 [1913] SC [HL]

2 See Hall v Van Der Heiden(No 2) [2010] EWHC 586 (TCC)


Key Contacts

+44.20.7065.6017
sstiegler@velaw.com
+44.20.7065.6121
ybailey@velaw.com

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This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.