What happens if a party seeks the "cost of cure" as damages for loss suffered due to defective works, but the party does not intend to repair the defects? Does this mean that no damages should be awarded? This issue has recently been re-considered and addressed in the Appellate Division case of Terrenus Energy SL2 Pte Ltd v Attika Interior + MEP Pte Ltd and another appeal [2025] SGHC(A) 4 (the "Judgment").
The issue. As the Appellate Division noted at [2] Judgment, the "law on this question has not spoke with one voice and with clarity" as there are competing considerations in the analysis.
The Appellate Division noted the recent case of JSD Corporation Pte Ltd v Tri-Line Express Pte Ltd [2023] 3 SLR 1445 ("JSD Corp"), where, as summarised at [24] Judgment, "the court [in JSD Corp] expressed the view that the intention to cure was a weighty factor in assessing the reasonableness of granting the cost of cure, to the extent that the failure to prove an intention to cure would, absent very special countervailing factors, result in the claim for the cost of cure being disallowed".
Just one factor. However, as set out in [25] Judgment, the Appellate Division disagreed with JSD Corp. The Appellate Division held that an intention to cure is "neither a prerequisite for the award of the cost of cure as damages nor does it generally carry the significant weight attributed in JSD Corp".
The Appellate Division started from the basis that expectation loss is the primary and default remedy for breaches of contract ([39] Judgment), and that there are two main methods of addressing expectation loss, being diminution in value and cost of cure ([40] Judgment).
The Appellate Division agreed with commentaries that "the cost of cure quantifies the means to obtain actual performance rather than expectation loss" ([40] Judgment), and it "comes closest to giving the claimant actual performance without compelling the breaching party to perform" ([41] Judgment).
However, cost of cure is circumscribed by "considerations of reasonableness and proportionality", which "operate as a pragmatic limitation" ([43] Judgment). This is because "the quantum of the cost of cure may be disproportionate to the value of the expectation loss" ([43] Judgment).
And this is important, because the Appellate Division held at [44] Judgment that it is when the court carries out this assessment of reasonableness and proportionality that the intention to effect the cost of cure becomes one of the factors to be considered. And the Appellate Division agreed that the court is "not concerned with the use to which a successful claimant puts the damages awarded".
What are the other factors that the court would consider when determining whether to award cost of cure as damages? They are set out in [45] Judgment, which we excerpt below.
"45 Various other factors are also pertinent. Without being exhaustive, some examples are: (a) the level of disproportionality between the cost of cure and the benefit that will accrue to the promisee (Ruxley at 353, 367 and 369); (b) the extent and seriousness of the damage or defect and its consequences (Ruxley at 357–358); (c) the nature and purpose of the contract, and the degree to which the contractual objective has been substantially achieved (Ruxley at 358); and (d) any personal subjective value attached to what had been promised under the contract to the claimant (also known as the "consumer surplus") (Ruxley at 360)."
Could it be said that if the cost of cure had not been incurred, no loss has been suffered?
The Appellate Division addressed this at [54] – [62] Judgment, holding 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".
At this juncture, a question that some readers may perhaps have is whether this means that any breach of contract would automatically give rise to a claim for substantial damages.
The answer is that it does not.
Application to the facts. And it is amply demonstrated by how the Appellate Division applied the law to the facts at [63] – [64] Judgment as we excerpt below.
"63 Notwithstanding that Terrenus claimed the cost of cure in relation to the defective installation of the PEG Rods in the sum of $388,566.72, it was apparent that Terrenus did not intend to rectify the alleged defects. It was also apparent that Terrenus did not intend to do so because there was no structural risk. On appeal, counsel for Terrenus, Mr Kelvin Teo ("Mr Teo"), made clear that he was not challenging the Judge's finding that the defects in the embedment of the PEG Rods did not give rise to any structural risk. Indeed, we noted that Terrenus' conduct following the termination of the MBA was consistent with there being no structural risk. Despite the alleged concerns over the structural risk posed by the defective installation, Terrenus had not taken any steps to rectify notwithstanding that the works were completed in 2021. When questioned on whether Terrenus intended to rectify regardless of the outcome of the appeals, Mr Teo was unable to confirm that it would. Further, in the absence of a structural risk and any intention to effect the cure, we did not think it reasonable or proportionate to award the cost of cure. As Terrenus led no evidence of a diminution in value, the Judge was correct in awarding only nominal damages in respect of the PEG Rods.
64 Terrenus argued that it was not necessary to prove structural risk in order to be entitled to the cost of cure – it was sufficient that the agreed performance was not rendered. We disagreed. Structural risk, in the form of the solar panels being possibly swept away or damaged by the wind, was the chief ingredient in Terrenus' own argument before the Judge that it would be reasonable to grant the cost of cure in respect of the PEG Rods. Absent any structural risk, it was not clear to us how any minimal deviation from the contractually specified embedment depth would justify granting the cost of cure particularly given that the amount claimed, $388,566.72, was substantial. It would not be reasonable or proportionate to award the cost of cure in such circumstances. It was also not Terrenus' case that there was any "consumer surplus" or subjective value to be garnered by actual performance in respect of the agreed embedment depth – this was after all a commercial solar panel farm."
(our emphasis added in bold)
As can be seen from the above, the Appellate Division did not agree that "any minimal deviation from the contractually specified embedment depth" would justify a grant of the cost of cure. Such a claim must be "reasonable and proportionate", and on the facts of the case, it would not have been so, given that there was no structural risk nor any "subjective value" to be garnered by the actual performance.
Another example given by the Appellate Division is at [53] Judgment:
"... where a claimant insists that the builder's breach in constructing a house with blue instead of yellow windows greatly affects his or her enjoyment of the property, and yet displays no intention to change out the panels, this may raise doubts as to the true value of the "consumer surplus" provided by the yellow windows."
Conclusion. At the end of the day, it is not the case that every single breach of contract would automatically entitle a party to claim for substantial damages. This decision makes clear that the law in Singapore, as it stands, would be that an intention to cure is merely one of the relevant factors to be considered in determining whether it is reasonable and proportionate to award the cost of cure as damages.
This means, of course, that when dealing with claims for damages, parties would now need to consider "Does the innocent party intend to cure the defect? If not, why not?"
But we note that this issue does not arise that frequently in construction cases involving non-minor defects. Often, for such cases, the dispute would be over matters like liability (for breach), causation, remoteness, reasonableness of cost of repairs, etc., rather than whether the innocent party intends to effect a cure. Nonetheless, this issue is one that is important to bear in mind.
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.
