How will an employer’s acts of prevention affect a liquidated damages clause?

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Authored by: Justin Yuen

In Crescendas Bionics Pte Ltd v Jurong Primewide Pte Ltd [2021] SGHC 189, the High Court of Singapore ordered the Defendant to pay general damages to the Plaintiff for delays in the completion of a construction project. It held that the Plaintiff could still recover damages, notwithstanding that the Plaintiff had caused acts of prevention, leading to delays in completion of the project. The court rejected the Defendant’s argument that the amount of general damages recoverable by the Plaintiff should be capped at the amount of liquidated damages that the Plaintiff would have been entitled to under the liquidated damages clause in their agreement, had it not committed the various acts of prevention.

Background

The Plaintiff, a property developer, and Defendant, a general building contractor, signed a Letter of Intent (LOI) under which the Plaintiff engaged the Defendant as management contractor to build the 3^rd phase of a business park development (Biopolis 3). Clause 6.0 of the LOI provided that, in the event of a delay in completing the construction of Biopolis 3, the Defendant would be liable to pay the Plaintiff liquidated damages for late completion of a specified amount.

The parties’ relationship deteriorated, as they disagreed on their respective obligations and the scope of responsibilities under the LOI. In addition, there were delays in the completion of Biopolis 3. It was undisputed that the time taken for completion exceeded the time period of 18 months stipulated in the LOI for the Defendant to complete Biopolis 3. The Plaintiff thus brought proceedings against the Defendant and the Defendant also brought various counterclaims against the Plaintiff.

Judgment on Liability

Previous High Court and Court of Appeal judgments had ruled on liability, holding that:

(i) completion of Biopolis 3 had been delayed by 334 days in total;

(ii) the Plaintiff was responsible for 173 days of the delay, caused by its acts of prevention;

(iii) as the Plaintiff was responsible for 173 days of delay due to its acts of prevention, the Defendant was no longer bound to complete Biopolis 3 within 18 months as stipulated under clause 5.0 of the LOI. Consequently, the Plaintiff’s right to claim liquidated damages under clause 6.0 of the LOI no longer applied; and

(iv) the Defendant was responsible for 161 days of the delay. On this basis, the Defendant was liable to the Plaintiff for general damages for 161 days of delay.

Assessment of Damages

In these proceedings, the Plaintiff sought an assessment of the general damages due to it in respect of the 161 days of delay for which the Defendant was responsible, as the contractual provision on liquidated damages in the LOI was rendered inoperative as a result of the Plaintiff’s acts of prevention.

Defendant’s position

The Defendant contended that any general damages payable by it to the Plaintiff for the delay caused by the Defendant could not exceed the liquidated damages that the Plaintiff could have obtained under clause 6.0 of the LOI, had it not committed the various acts of prevention. The Defendant argued that the parties’ fixation on the liquidated damages rates during the negotiations indicated that the parties contemplated that the total amount of liquidated damages recoverable under clause 6.0 of the LOI would act as a cap on the total amount of general damages for which the Defendant would be liable in the event of a delay.

In the alternative, the Defendant argued that the amount of liquidated damages recoverable under clause 6.0 of the LOI ought to act as a cap on the Defendant’s liability as a matter of law. 

Plaintiff’s position

The Plaintiff contended that it was entitled to the full extent of the general damages that it was able to prove to the court, as there were no express exclusion or cap (whether in the LOI or agreed between the parties) on the quantum of general damages the Plaintiff could recover. 

Court’s Decision

The court rejected the Defendant’s argument that any general damages payable to the Plaintiff for the delay could not exceed the liquidated damages that the Plaintiff could have obtained under clause 6.0 of the LOI had it not committed the various acts of prevention, because, notwithstanding the Plaintiff’s acts of prevention, the Defendant still exceeded the reasonable time for the completion of Biopolis 3 and was responsible for 161 days of delay.

The court said that general damages and liquidated damages are underpinned by different considerations. General damages are intended to compensate the innocent party for the actual losses suffered as a result of the breach. In contrast, liquidated damages are intended to be a genuine pre-estimate of the likely losses that would be suffered in the event of a breach. Furthermore, clause 6.0 of the LOI was a contractual term which the parties had willingly agreed to be bound by in the event of a delay. Hence, there was no principled reason for capping the amount of general damages recoverable by the Plaintiff in these proceedings.

The court added that although the Plaintiff was responsible for 173 days of delay due to its acts of prevention, the Defendant nevertheless exceeded the reasonable time for the completion of Biopolis 3, which was 18 months. The Defendant was, therefore, still responsible for 161 days of delay. In these circumstances, it would not be inequitable to allow the Plaintiff to recover general damages exceeding the amount of liquidated damages provided for in clause 6.0 of the LOI.

Comments

The High Court of Singapore in this case came to the opposite conclusion to that of England’s Technology and Construction Court (TCC), made a few days earlier in Eco World-Ballymore Embassy Gardens Company Limited v Dobler UK Limited [2021] EWHC 2207. In that case, the liquidated damages clause was found to still apply, but the court commented that had the liquidated damages clause been found to be a penalty and unenforceable, the cap contained in that clause would still apply to general damages for delay. The court found that the intention of the parties was that the Defendant’s liability for delay damages would be so limited.

The interpretation of a liquidated damages clause depends on the wording of the clause itself and the circumstances known to or assumed by the parties at the date of the contract. It is not surprising that different courts may reach different conclusions, having taken into account the above factors in each case.

Key Contacts

Justin Yuen

Partner | Litigation and Dispute Resolution

Email or call +852 2825 9734