Liquidated damages against software development

The question of whether liquidated damages are payable against software development work which was never completed was taken to the Court of Appeal earlier this year (2019) in the case of Triple Point Technology Inc. v PTT Public Company Ltd [2019] EWCA Civ 230.

Triple Point entered into a contract with PPT to supply PTT with a Commodity Trading & Risk Management (CTRM) software system. The project was split into two phases: phase 1- to replace the existing system; phase 2 – to further develop the software to accommodate new types of trade. A series of milestones were included in the contract together with a liquidated damages clause that stated that liquidated damages for delay are claimable at the rate of 0.1% (zero point one percent) of the undelivered work per day of delay from the due date for delivery up to the date that PTT accepts such work.

Triple Point completed the first two stages of phase 1 and despite finishing 149 days later than contracted, PPT paid the corresponding invoice. However, Triple Point continued to invoice PTT against the payment milestones for work that hadn’t yet been completed. Unsurprisingly, PPT refused to pay these invoices. Triple Point suspended work and left the site. Triple Point raised a court action against PTT to recover its unpaid invoices and PTT put in a counter-claim for liquidated damages.

In the first instance, the judge decided that PPT didn’t have to pay the invoices for work not yet completed and held that Triple Point was in breach of its contractual duty to exercise professional skill and care and was not entitled to suspend work. The judge also determined that the delay and ultimate failure of the contract was caused by Triple Point’s negligence. The judge awarded PTT the costs of procuring an alternative system and wasted costs, subject to the contract liability cap (of around US$1m being the total contract value); and liquidated damages for the unperformed portion of the contract, which were not subject to the liability cap (of around US$3.5m).

Triple Point appealed the judge’s decision claiming that liquidated damages for delay could not be recovered because they only applied when work is delayed, and then subsequently completed but that in this case they had not even started the work. The appeal judge agreed and determined that PTT was only entitled to recover liquidated damages in respect of Triple Point’s delay of 149 days in completing stages 1 and 2 of Phase 1 (of around US$155,000) and that PTT was not entitled to recover liquidated damages for any of the other delays because Triple Point did not complete any other sections of the work. PTT could however claim damages for breach of contract but this was subject to the contract liability cap of around US$1m.

The overall claim was therefore reduced by the Court of Appeal from around US$4.5m to US$1.5m.

This case highlights the need for absolute clarity when drafting liquidated damages clauses and ensuring that a clear cap is determinable.

Amanda Williams | Head of Commercial Law