Liquidated Damages And Cap Carve Outs

• Published date: 16 September 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Contracts and Commercial Law, Trials & Appeals & Compensation, Professional Negligence
• Law Firm: W Legal
• Author: W. Legal

A recent Supreme Court (SC) decision brought some calmness back to the tech world by overturning what was deemed to be a surprising decision by the Court of Appeal (CoA). The CoA had caused a stir when their interpretation of a liquidated damages clause removed the predictability and certainty that such clauses should provide; and when their interpretation of negligence departed from the traditional definition of negligence under English law. The following will look at the SC's decision to overturn the ruling of the CoA and instead return to the orthodox view of a liquidated damages clause and the traditional understanding of negligence under English law.

The parties entered into a software contract in 2013 that was tailored specifically for their agreement, and that dictated the terms and obligations for the design, installation (by data transmission), maintenance and licencing of software by Triple Point Technology, Inc (TP) for PTT Public Company Ltd (PTT). Ultimately, the contract was terminated and the question of liquidated damages and a cap carve out clause arose.

Dealing with the first question, the SC clarified that the principal issue was whether, under the contract, PTT were entitled to liquidated damages for work that had not been completed or delivered before the contract was terminated. Lady Arden highlighted that for the clause in question to make commercial sense, it could not have meant that liquidated damages would only be available in the incredibly limited circumstance provided for in the contract. The contract stipulated that liquidated damages would only be available where, although there was delay, the work was eventually completed and delivered. It was noted that such an intention by the parties for the clause to mean only this, would not have been commercially rational.

Rather, Lady Arden explained that the parties must have intended that where an event intended for by the contract did not happen, the right of liquidated damages would not be removed or extinguished, instead it would continue up until the date of termination of the contract. The SC stated that the CoA's approach in...