Is there an implied right to suspend?

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Triple Point Technology v PTT Public Co Limited [2019] EWCA CIV 230, 183 ConLR 24, Court of Appeal

Facts

PTT is a commodities trader, and it contracted with Triple Point to design and develop software for use in commodities trading.  The initial phase of the contract was to be worth $6.9m.  The contract provided at Article 5 that if Triple Point failed to deliver the work within the time specified it was to be liable to pay 0.1% of the value of the undelivered work per day of delay.  Subsequently the parties fell out over Triple Point’s poor quality and slow progress, and PTT held up payments.

Triple Point announced that it was suspending pursuant to an alleged implied term giving it the right to suspend; PTT retaliated by serving notice of termination, and claiming liquidated damages for delay of some $3,400,000.00.

Court of Appeal Held:

  1. There was no need, in terms of “business efficacy” to imply a term of suspension into his contract. Therefore when Triple Point purported to suspend they were actually in breach of contract.  This means that PTT were within their rights in exercising the contractual termination clause.  Alternatively, at common law they were entitled to accept the repudiation represented by the suspension, thus terminating the contract.
  2. The High Court’s Judge’s Award of $3,400,000 in liquidated damages was set aside. Article 5 only entitled PTT to claim damages for a period between the time when he should have achieved practical completion and the time when he did actually achieve completion.  Termination had occurred in the meantime, so that completion could never occur.  Therefore, the basic condition for the calculation of liquidated damages no longer applied.
  3. However this meant that PTT could now claim a (potentially much larger) sum as general damages caused by the breach of contract. Fortunately for Triple Point, there was a separate contractual cap upon the total damages that could be recovered, which was held to limit the amount of general damages to be awarded.

Comment

  1. Although contracts for construction operations, governed by the 1996 Housing Grants Construction and Regeneration Act, contain an express statutory right to suspend for non-payment, there is in English law no general right to suspend contractual performance. This is a mistake which is often made by business people, to whom suspension for non-payment appears to be common sense.
  2. The power an English court has to imply a contractual term into a contract in order to make the contract work (“business efficacy”) is very useful and flexible, but the courts will not accept the argument for an implied term unless convinced that it is genuinely necessary to make the contract work as the parties intended. This is not an easy test to pass.
  3. Triple Point challenged the liquidated damage rate (0.1% of the value of undelivered work per delay) as being unconscionable. The court dismissed this argument commenting that the amount recoverable compared to the fundamental damage to PTT’s commodities trading business was actually quite modest, and certainly not unconscionable.
  4. Further, the use of the word “penalty” was not considered by the court to be relevant to the status or validity of a liquidated damages clause.

For more specialist legal advice contact our Construction & Engineering team.