Introduction
The recent decision in Terrenus Energy SL2 Pte Ltd v Attika Interior + MEP Pte Ltd [2025] SGHC(A) 4 by the Appellate Division of the High Court of Singapore provides significant insights into the principles governing the award of cost of cure damages in construction contracts. This case addresses the contentious issue of whether a claimant's intention to incur the cost of cure is a necessary prerequisite for claiming such damages. The court's reasoning and conclusions offer clarity and guidance on this area of law.
Background
The dispute arose from a construction project for a solar power generation facility, where Terrenus Energy SL2 Pte Ltd (Terrenus) engaged Attika Interior + MEP Pte Ltd (Attika) as the main contractor. Terrenus claimed damages for defective works, particularly the improper installation of PEG Rods, and sought liquidated and general damages for delays. Attika counterclaimed for the unpaid balance of the contract sum. The lower court awarded nominal damages to Terrenus for the defective PEG Rods, granted Attika an extension of time (EOT) for delays, and awarded liquidated damages to Terrenus for six days of delay. Attika was awarded the balance sum of the contract, subject to deductions for certain claims which were to be submitted to neutral evaluation.
Key issues on appeal
The appeals centered on several key issues:
- Whether Terrenus was entitled to substantial damages (comprising cost of repair) for Attika's failure to embed the PEG Rods to the contractual minimum depth.
- Whether Attika was entitled to any EOT and, if so, to what extent.
- Whether Terrenus was entitled to general damages for delay in addition to liquidated damages.
- Whether Attika was entitled to the balance sum of the contract.
Court's conclusions
The court's conclusion on the issue of the cost of cure damages is particularly noteworthy.
The court concluded that the intention to incur the cost of cure is not a necessary prerequisite for a claim for costs of repairs (this was a significant issue in the case because Terrenus apparently did not intend to repair the defective works). Instead, the intention to cure is just one of several factors to be considered in assessing whether it is reasonable and proportionate to award the cost of cure as damages.
This conclusion resolved one of the perennial arguments in claims where the cost of cure had not been incurred. Claimants argued that they were entitled to costs of cure as long as there was a breach of contract irrespective of whether they intended to actually carry out the repairs. Defendants argued that claimants should not be entitled to costs of cure unless the costs had been incurred or there was clear evidence of intention to incur the costs.
The fundamental principle
The court reaffirmed the fundamental principle that the objective of damages for breach of contract is to put the claimant in the same situation as if the contract had been performed. This can be achieved through either diminution in value or the cost of cure. Any loss arising from a breach of contract is suffered at the time of the breach. The measure of damages should address the expectation loss, and the cost of cure is a valid method if it is reasonable and proportionate. The cost of cure should be awarded if it is reasonable and proportionate to the expectation loss.
Case law analysis
The court reviewed various cases from different jurisdictions in arriving at its judgment.
Notably, English cases have taken different positions on the question of whether the intention to cure was a prerequisite for awarding the cost of cure. For example, the House of Lords in Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 approved of Tito v Waddell (No 2) [1977] Ch 106 and Radford v De Froberville [1977] 1 WLR 1262, both of which decided that intention to cure was a prerequisite. However, in its judgment, the House of Lords appeared to view such intention as merely a factor in determining whether it was reasonable to award the cost of cure.
The position in Australia was clearer. Intention to cure is at most a factor to be considered in determining whether to award the cost of cure (Bellgrove v Eldridge [1954] HCA 36 and Unique Building Property Ltd v Brown [2010] SASC 106).
The position in Singapore was also not clear. In MCST Plan No 1166 v Chubb Singapore Pte Ltd [1999] 2 SLR(R) 1035 the court held that it would be unreasonable to award the cost of cure "because it was not clear that the claimants would spend that amount and embark on such a replacement project". Conversely, in Chia Kok Leong v Prosperland Pte Ltd [2005] 2 SLR(R) 484, the Court of Appeal held that the promisee's intention to repair was not a prerequisite for claiming the cost of cure. More recently, the High Court in JSD Corporation Pte Ltd v Tri-Line Express Pte Ltd [2023] 3 SLR 1445 examined both cases and preferred the position in Chubb. The court in JSD reasoned that while the use to which a claimant puts an award of damages was generally not material, that was applicable only where the claimant had already incurred the loss, such as where the cost of cure had been paid. Where it had not yet been incurred, it was not yet a loss, leaving the claimant with only a claim for diminution in value and any consequential loss, absent an intention to incur the cost of cure. Thus, whether the claimant intended to use the damages awarded to pay for the cost of cure in the future was a critical consideration. The court concluded that intention to cure was a weighty factor in assessing the reasonableness of awarding the cost of cure as damages, albeit one without which, absent very special countervailing factors, a claimant's claim for cost of cure damages would be dismissed:
The court's reasoning for its conclusion
The court discussed the principles underlying contractual damages, emphasizing that the primary objective is to place the claimant in the same position as if the contract had been performed. The claimant is to be compensated for the expectation loss, which is the difference between what was received and what was promised under the contract. There are two main methods to address expectation loss: diminution in value and cost of cure. The former aims to place the claimant in the financial position they would have been in had the contract been performed, while the latter aims to provide the claimant with the financial means to obtain actual performance.
Courts are generally reluctant to compel specific performance and consider it a special and extraordinary remedy. Instead, the cost of cure is seen as a logical method to remedy the claimant's expectation loss without compelling the breaching party to perform. However, the cost of cure is subject to considerations of reasonableness and proportionality, as the quantum of the cost of cure may sometimes be disproportionate to the value of the expectation loss.
The court pointed out that intention to effect the cost of cure is relevant when assessing the reasonableness or proportionality of awarding the cost of cure, but it is not a prerequisite. Various other factors are also pertinent, such as the level of disproportionality between the cost of cure and the benefit to the promisee, the extent and seriousness of the damage or defect, the nature and purpose of the contract, and any personal subjective value attached to the promised performance.
The court therefore asserted that intention to cure is neither a prerequisite nor generally a weighty factor in awarding the cost of cure as damages. It is one of several factors to be considered in assessing whether it is reasonable to award the cost of cure. The court therefore disagreed with the view in JSD that intention to cure is a weighty factor.
The court also addressed the argument the cost of cure should not be allowed if it had not been incurred or there was no intention to cure (because this would mean the loss was not suffered by the claimant). The court said that this view is contrary to the general principle that any loss arising from a breach of contract is suffered at the time of the breach and the court is not concerned with the use to which the claimant puts the award of damages. It is trite that any loss which arises from a breach of contract is suffered at the time of the breach . The consequent question is which measure of damages should be awarded. That depends on which is the fairer method of addressing the promisee's loss as dictated by reasonableness and proportionality. The issues of whether loss has been suffered and whether it is reasonable and proportionate to award the cost of cure should not be conflated. This argument conflated the existence of a loss and the quantification of that loss. It is clear that the cost of cure addresses the loss which arises at the point of breach and cannot be viewed as loss which only arises upon incurrence of the same.
Significance of the decision
The decision is significant for several reasons:
- Clarification of Legal Principles: The court's reasoning provides clarity on the role of intention in awarding cost of cure damages. It establishes that intention to cure is not a prerequisite but one of several factors in assessing reasonableness and proportionality.
- Guidance for Future Cases: The decision offers valuable guidance for future cases involving claims for cost of cure damages. It underscores the importance of a holistic assessment of reasonableness and proportionality, taking into account various factors, including the claimant's intention to cure.
- Reaffirmation of Established Principles: The court reaffirmed the established principle that damages aim to put the claimant in the same situation as if the contract had been performed. This reinforces the importance of addressing expectation loss in awarding damages.
- Impact on Construction Contracts: The decision has particular relevance for construction contracts, where disputes over defective works are common. It provides a clear framework for assessing claims for cost of cure damages in such context.
Conclusion
The decision in Terrenus Energy SL2 Pte Ltd v Attika Interior + MEP Pte Ltd marks an important development in the law of contractual damages. By clarifying the role of intention in awarding cost of cure damages, the court has provided valuable guidance for both legal practitioners and parties involved in construction contracts. This decision underscores the importance of a reasoned and proportionate approach to awarding damages, ensuring that claimants are fairly compensated for their expectation loss.
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