In Diamond Glass Enterprise Pte Ltd v Zhong Kai Construction Co Pte Ltd and another appeal  SGHC(A) 44, the Appellate Division of the High Court had the opportunity to address, among others, the position of the law on liquidated damages in Singapore. In this article, we set out two key points of the decision in respect of the same.
This decision concerns two cross-appeals arising out of the decision of the High Court judge (the "Judge") in Zhong Kai Construction Co Pte Ltd v Diamond Glass Enterprise Pte Ltd  SGHC 277 (the "Judgment") (at ).
In the interests of brevity, we will not reiterate the facts, and will focus on the findings of the Appellate Division of the High Court on the sub-issue of liquidated damages ("LD"), as one of the main issues before the Court was whether the LD awarded to ZK was correctly ascertained (at [38(a)]).
No LD post-termination. In considering ZK's claims for LD, one sub-issue was whether ZK should have been awarded LD post-termination of the Subcontract (at  - ).
The Court agreed with the finding of the Judge that DG's wrongful termination was a repudiatory breach on DG's part (at ), which ZK accepted on 30 June 2018 by informing DG that it would need to engage third parties to complete the remaining works (at ).
However, was the Judge right in awarding LD post-termination (i.e., from 1 July 2018 to 30 September 2018 (both dates inclusive))?
The Court, agreeing with LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd  4 SLR 477 ("LW Infrastructure") and Triple Point Technology Inc v PTT Public Co Ltd  AC 1148 ("Triple Point"), held that ZK was not entitled in law to claim LD after termination of the Subcontract (at  - ).
"62 We agree with the above authorities, which were unfortunately not raised before the Judge below. They support the proposition that LD do not accrue after the termination of a contract, in the absence of special provision. On first principles, this must be the case since the primary obligations of a contract come to an end upon termination: see Triple Point at . We therefore endorse the High Court's decision in LW Infrastructure on this point."
While this may seem to be a settled point of law, this holding by the Court is a welcomed confirmation of the general position in Singapore.
In this regard, we emphasize that this represents the general position. It is possible that, depending on the wording of the specific contract in question, liquidated damages may continue to accrue post-termination.
Condition precedent. Another sub-issue which was raised before the Court was the events of delay caused by and/or attributable to ZK (at  - ).
The Judge had made findings on DG's submissions on ZK's "acts of prevention" (at  - ), but DG submitted on appeal that there were three other periods of delay which were attributable to ZK (at ).
As these three purported delay periods were not specifically pleaded, the Court was of the view that it "[did] not need to consider such a new case on appeal", but nevertheless proceeded to briefly address the merits of the argument for completeness (at ).
The Court cited Clause 4 of the Subcontract in relation to extension of time (at ):
The Sub-Contractor shall be entitled to extension of time for the events, where the Sub-Contractor has been prevented to execution of the Sub-Contract Works due to any Wrongful and/or negligent act or default or delay or breach of this Sub-Contract by the Contractor and/or Main Contractor and/or Principal.
The Sub-Contractor shall, as a condition precedent to such extension of time, make such application to the Contractor in writing with sufficient supportive documents (e.g Impact Analysis and etc) within 30 days of the occurrences of the relevant events.
And the Court applied Clause 4 to the facts as follows (at ):
"84 Applying cl 4 above, in the event that DG has been prevented from executing the Subcontract works, DG would be entitled to an extension of time for completing such works. However, cl 4 importantly stipulates that a condition precedent must be satisfied before DG is entitled to an extension of time, viz, DG must make an application to ZK in writing with supporting documents within 30 days of the occurrence of the delay caused by, among other persons, ZK. In this regard, DG confirmed during the hearing that no extension of time application was ever made while the Subcontract subsisted. By the operation of cl 4, DG would therefore not be entitled to the extension of time and there would therefore be no change in the date on which the LD period commences."
While this is not surprising, nonetheless, it is an important reminder that notice provisions must be complied with strictly. The failure to put in a timely notice requesting for an extension of time can, and often does, have severe consequences.
Gaymark refuted. Interestingly, in oral submissions, DG relied on the Australian case of Gaymark Investments Pty Ltd v Walter Construction Group Ltd (formerly Concrete Constructions Group Ltd)  NTSC 143 ("Gaymark") to say that "because ZK had caused delay during the three alleged delay periods ... ZK is not entitled to LD notwithstanding DG's non-compliance with the condition precedent set out in cl 4." (at ).
The proposition in Gaymark was summarised by the Court as such (at ):
"87 We note that Gaymark supports the proposition that liquidated damages and extension of time clauses should be strictly construed, and as a result, a contractor's failure to comply with the condition precedent for an extension of time would, in the absence of special provision, set time at large and therefore prevent the employer from claiming liquidated damages, where the employer is responsible for the delay: see Gaymark at ."
The Court noted the treatment of Gaymark in other cases (at  - ), and ultimately endorsed Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd (No 2)  EHWC 447 (TCC). We set out the reasoning of the Court below (at  - ):
"90 Further, we note that the reasoning in Gaymark has been criticised. In essence, the liability to pay liquidated damages despite the occurrence of act(s) of prevention should be understood to be caused by the contractor's failure to give the required notice rather than by said act(s) of prevention: see Law and Practice of Construction Contracts at para 9.191; Hudson at paras 6-031-6-033; and Hsin Chong Construction (Asia) Ltd v Henble Ltd  HKCU 1397 at . Since extensions of time based on employer prevention are expressly subject to strict notice requirements, such an understanding accords with contractual principles of party autonomy and of reasonable commercial intention. Moreover, as stated in Steria Ltd v Sigma Wireless Communications Ltd  EWHC 3454 (TCC) ("Steria") at : "... one can see the commercial absurdity of an argument which would result in the contractor being better off by deliberately failing to comply with the notice condition than by complying with it". The commentary to the report of Steria in the Building Law Reports therefore states that: "[t]he employer's entitlement to damages, it might be said, was caused not by the delay but by the delay coupled with the contractor's failure to satisfy the condition precedent". We agree and endorse this understanding on first principles.
91 From the weight of authority and on first principles, we hold that a contractor must fulfil the condition precedent for an extension of time to be availed of such an extension of time, and the contractor's non-compliance with such a condition precedent does not prevent the employer from claiming liquidated damages. To this extent, we approve of Multiplex and reject the approach in Gaymark. In the present case, since DG has admitted that it did not make any extension of time application while the Subcontract subsisted (see  above), it did not fulfil the condition precedent for an extension of time as required by cl 4 of the Subcontract. Time is not set at large by virtue of this non-compliance. DG's reasons for its being delayed are therefore irrelevant for the purposes of whether the LD period should be reduced. Hence, the LD period should not be reduced on account of any alleged delay attributable to CAAS/SJ/SCB/ZK."
While the case of Gaymark is not new and has been criticised in subsequent decisions and authorities, prior to this decision, the case of Gaymark has not been addressed in any reported local court decisions. It is therefore welcomed that the Court has taken the opportunity to reject Gaymark in a reported decision.
Conclusion. In this blog, we have set out two key points of the decision in relation to the law of liquidated damages in Singapore, which can be summed up below.
- The first is that liquidated damages generally cease to accrue post-termination of the contract. This is important for contractors who have their contracts terminated, whether, for example, by the employer or by the employer accepting the contractor's repudiatory breach.
- The second is that, even if the employer is at fault (for the delay), contractors must take care to ensure that they fulfil the condition precedent requirements for an extension of time. Otherwise, the employer is not prevented from levying liquidated damages against the contractor. The sending of timely notices is vital.
We end off by noting that the judgment also deals with other important issues such as whether (and when) the requirement for the employer's agreement for variations has been waived, whether retention sum should be set off against damages given that there was termination, and whether a party can seek to recover legal costs associated with adjudication under the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) in subsequent final dispute resolution proceedings. Interested readers should therefore read the judgment in full.
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