Singapore: Liquidated Damages Not Recoverable Where Contract Terminated Prior To Completion

Last Updated: 2 September 2019
Article by Conrad Campos
Most Read Contributor in Singapore, October 2019

In Triple Point Technology, Inc v PTT Public Company Ltd [2019] EWCA Civ 230, the UK Court of Appeal ("EWCA") addressed the question of whether an employer was entitled to liquidated damages where the contract had been terminated prior to the contractor completing the work.

PTT had engaged Triple Point to supply a new commodity trading software system. Payment was by milestone or specified dates. The project was to be completed in stages with a completion date for each stage. Triple Point's work progress was slow. The first two stages of phase 1 were to be completed by 31 October 2013 but were completed late on 19 March 2014. That only the first two stages of phase 1 were completed was not disputed by Triple Point. On 27 May 2014, Triple Point suspended work and left the site. The last stage completion date was 11 June 2014. On 15 February 2015, PTT terminated the contract.

On the question of liquidated damages ("LD"), the EWCA held that PTT was entitled to LD for late completion of stages 1 and 2 of phase 1, but not from the contract completion date of each uncompleted stage to date of termination on 15 February 2015.

The LD clause in question read: "If contractor fails to deliver work within the time specified and the delay has not been introduced by PTT, contractor shall be liable to pay the penalty at the rate of 0.1% of undelivered work per day from the due date for delivery up to the date PTT accepts such work..."

After reviewing the authorities, the EWCA observed that there have been 3 different approaches to liquidated damages clauses in prior case law where a contractor failed to complete and a second contractor stepped in:-

  1. The clause did not apply1;
  2. The clause only applied up to termination of the contract2; and
  3. The clause continued to apply until completion was achieved by the replacement contractor3.

Applying the principle in British Glanzstoff Manufacturing Co. Ltd v General Accident, Fire and Life Assurance Co Ltd 1912 SC 1913 ("Glanzstoff"), the EWCA held that whether an LD clause in a case (a) ceases to apply or (b) continues to apply up to termination/abandonment, or even conceivably beyond that date, must depend on the wording of the clause itself.

On the facts, the EWCA found that the LD clause did not make provision where the contractor never hands over completed work to the employer. The clause was focused on delay between the contractual completion date and the date when Triple Point achieved completion. The CA reasoned that it would be artificial and inconsistent with the parties' agreement to categories the employer's losses on a fixed sum per day up to a certain date and then general damages thereafter. It may be more logical and more consonant with the parties' bargain to assess the employer's total losses flowing from the abandonment or termination, applying the ordinary rules of assessment of damages.

The EWCA opined that there was no reason why a distinction should be made between a termination before the contract completion date and a termination after the contract completion date. The CA also doubted the correctness of allowing LD until actual completion by a replacement contractor as the employer and second contractor can control the period for which LD will run.

Interestingly, in its review of the authorities, the EWCA considered the Singapore High Court decision of LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd [2011] 4 SLR 477 ("LW Infrastructure") where the Honourable Justice Judith Prakash distinguished Glanzstoff and allowed recovery of liquidated damages up to the termination of the contract. The EWCA observed from a reading of the report decision that Prakash J may not have had sight of the full decision of Glanzstoff.

What is noteworthy in LW Infrastructure, however, is that the Singapore Court opined in dicta that LD provisions in standard forms widely used in Singapore such as the PSSCOC and SIA Contract survive termination because there is express contractual provision to that effect.4 Essentially, where the contract expressly provides for it, there seems to be no reason why such LD provisions will not survive termination. This is in fact consistent with the decision in Triple Point which is to the effect that whether or not a LD provision survives termination turns on the proper interpretation of the provision itself.

The question that remains is, in the absence of such an express clause, will the entitlement to LD still exist where the contract has been terminated without practical completion by the contractor? In this regard, it remains to be seen whether the Singapore Courts will follow the EWCA's lead, notwithstanding the decision in LW Infrastructure.

Moving forward, employers should weigh both the legal and commercial considerations before deciding whether to terminate a contract, and whether termination would prevent it from claiming LD, if that is its preferred course. In some instances, employer's may in fact want to terminate the contract and claim general damages as the damages that it suffers from non-performance of the contractor may outweigh what it may recover under the LD clause.

Footnotes

[1] British Glanzstoff Manufacturing Co. Ltd v General Accident, Fire and Life Assurance Co Ltd 1912 SC 1913; Chanthall Investments Ltd v F.G. Minter Ltd 1976 SC 73; and Gibbs v Tomlinson (1992) 35 Con LR 86.

[2] Greenore Port Ltd v Technical & General Guarantee Company Ltd [2006] EWHC 3119; Shaw v MFP Foundations and Pilings Ltd [2010] EWHC 1839; LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd [2011] 4 SLR 477; and Bluewater Energy Services BV v Mercon Steel Structures BV [2014] EWHC 2132.

[3] Hall v Van Der Heiden (No 2) [2010] EWHC 586; Crestdream v Potter Interior Design (2013) HCCT 32/2013; and GPP Big Field LLP v Solar EPC Solutions SL [2018] EWHC 2866.

[4] See Clause 31.3(a) of the PSSCOC and Clause 32(8)(g)(i) of the SIA Contract.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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