Court considers when time will be “set at large” and recoverability of liquidated damages

Lim Chin San Contractors PTE Ltd v LW Infrastructure PTE Ltd [2011] SGHC 162 and LW Infrastructure PTE LTD v Lim Chin San Contractors PTE Ltd [2011] SGHC 163, 5 July 2011

This was a judgment of Singapore's High Court, involving a dispute between contractor and sub-contractor, in relation to construction of an industrial building. LW Infrastructure PTE Ltd (“LW”) was engaged by the employer as main contractor and LW appointed Lim Chin San Contractors PTE Ltd (“LCS”) as the design and build sub-contractor. Under the sub-contract, LCS had to complete the works (subject to extension of time) by 2 August 2002 and failure of LCS to proceed regularly and diligently with the sub-contract works was a ground for termination of its employment. A further clause provided for liquidated damages for delay for the period between the (extended) completion date and the date of practical completion and that if LCS failed to complete by the completion date, LW should issue notice in writing to that effect and LCS was to pay liquidated damages of SG$5,000 per day.

LCS failed to complete the works by the agreed (extended) time and on 2 January 2003, LW sent LCS a notice of its failure to proceed regularly and diligently and subsequently terminated the sub-contract. On 22 June 2004, LW served a notice of arbitration on LCS, claiming damages for delay, including liquidated damages. The arbitrator issued his award in July 2010, finding that (i) LW should have obtained an additional eight Man-Year Entitlements (permits allowing use of workers from certain countries) and should have applied for them earlier; (ii) there were late payments by LW; (iii) although there was delay to the progress of the works due to these incidents, LCS had failed to prove that they caused a delay to the completion of the sub-contract works. The arbitrator held that time for completion was not “set at large”.

Both parties appealed to Singapore's High Court. LCS's appeal raised issues relating to “time at large” and to the question, if there were acts of prevention by LW which affected progress but did not cause overall delay, at what point in time could time be set at large and whether such acts of prevention meant that LW could not terminate and could not claim for additional costs occasioned by termination. LW's appeal related to liquidated or common law damages, which had been refused by the arbitrator. Singapore's High Court held as follows:-

1. In respect of LCS's appeal:-

• There is a distinction between a delay in progress which does not constitute an act of prevention and therefore does not set time at large and a delay in completion which does constitute an act of prevention.
• An employer's conduct will only set time at large if an overall delay in completion of the works is thereby caused.
• If a contract clearly provides that the date of completion will not be set at large even if the completion date of the works is delayed, this bargain will be upheld by the courts.

2. In respect of LW's appeal, it was held that:-

• All future obligations under the sub-contract ceased upon termination, so that no claim for liquidated damages which accrued after termination may be made.
• The termination of a contract does not affect the rights which have accrued before termination.
• The effect of termination of a contract on liquidated damages is only that no claim to liquidated damages can be brought in respect of the period after termination.
• The relevant notice required to enable liquidated damages to be payable did not specifically have to refer to any right to liquidated damages; all that was required was that the notice should state that the sub-contractor failed to complete the works by the completion date.
• Although the date of practical completion had not occurred at the date of termination, liquidated damages were still due for the period up to termination.
• There was a clear conceptual distinction between termination of a contract and termination of employment under the contract; in the present case, the notice of termination was a notice of termination of LCS's employment under the sub-contract.
• The appointment of other contractors to complete the sub-contract works after such termination should not affect the ability of the contractor to claim liquidated damages, which have accrued up to termination.

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