Will an employer’s acts of prevention nullify a liquidated damages clause and limit its recoverable damages?

Here, we consider the recent Singapore High Court judgment in Crescendas Bionics Pte Ltd v Jurong Primewide Pte Ltd [2021] SGHC 189.

Based on this decision, even if a liquidated damages clause has ceased to have effect because an employer was responsible for some of the delay to the completion of a project and there is no effective extension of time regime, the employer may still be entitled to general damages for separate delay caused by the contractor. The High Court held that the acts of the employer causing a delay to completion did not disqualify the employer from claiming recoverable damages where the contractor did not then complete the project within a reasonable time. The High Court also held that the general damages recoverable by the employer were not restricted by the level of liquidated damages specified in the contract. This judgment stands in contrast to a recent decision of the English High Court, discussed here, where in obiter, Mrs Justice O’Farrell opined that the cap on liquidated damages would extend to general damages. Ultimately, the safest path for parties wanting to limit general damages in case a liquidated damages clause may cease to apply is to expressly provide for caps under their contract.

Key Takeaways:

• Where an employer causes acts of prevention leading to a delay to the completion of a project, the employer may still be entitled to damages caused by the delay where the contractor then exceeds the revised reasonable time for completion.
• In those circumstances, the amount of recoverable general damages cannot be capped by the amount of specified liquidated damages notwithstanding the employer’s acts of prevention.

Background:

Crescendas, a property developer, engaged Jurong, a general building contractor, under a Letter of Intent (LOI) to build a multi-tenanted business park development intended to be used as a research and development hub for biomedical science institutes and organizations.

Clause 6 of the LOI provided that, should there be a delay in completing the construction and maintenance of the project, Jurong would be liable to pay liquidated damages for late completion. The parties agreed to a project duration of 18 months from the commencement date. The LOI did not provide for an extension of time in the case of employer caused delays. Where there were employer delays, therefore, time would be (and was) set at large, requiring Jurong to complete within a reasonable time. The project was ultimately delayed by 334 days, of which Crescendas asserted 161 days of delay was caused by Jurong. Crescendas claimed that this delay resulted in a loss of rental revenue, holding costs for the land, and other site staff expenses. It sought an assessment of general damages due to it because of that delay.

Jurong responded that the loss of revenue was not a direct result of its breach of contract, but rather the product of various circumstances outside of Jurong’s control and that Crescendas would have incurred these costs regardless of whether there was a delay to the project. Jurong also argued that any general damages recoverable by Crescendas could not exceed the level of liquidated damages payable to Crescendas under clause 6 had it not committed the various acts of prevention.

Decision:

The High Court rejected Jurong’s claim that the amount of general damages recoverable by Crescendas should be capped by the amount of liquidated damages set in clause 6, because:

1. The amount of general damages cannot be capped by the amount of allowable liquidated damages as each type of damage is supported by different considerations. General damages “are intended to compensate the innocent party for the actual losses suffered as a result of a breach” while liquidated damages “are intended to be a genuine pre-estimate of the likely losses that would be suffered in the event of a breach.”
2. As clause 6 is a contractual term willingly agreed to by the parties, there is no basis to set a cap on the level of general damages recoverable by Crescendas.

The High Court also rejected Jurong’s assertion that by allowing Crescendas to recover general damages exceeding the allowable liquidated damages, Crescendas would benefit from its own breach of contract.  In assessing this claim, the High Court agreed with the opinions expressed by Edwin Lee Peng Khoon in Building Contract Law in Singapore, who states that an employer who has caused an act of prevention is still entitled to damages caused by delay only if "the contractor has exceeded the reasonable time for completion". He opines that the employer is not benefiting from their own breach because the consequences of this breach allow reasonable time to the contractor to complete the work. The contractor’s failure to complete the works in a reasonable time does not make it inequitable for the employer to then recover damages for delay.

In conclusion, even though Crescendas was responsible for 173 days of the total delay, Jurong still exceeded the reasonable time to complete the project and was responsible for the remaining 161 days of delay. Therefore, it was not inequitable for Crescendas to recover general damages exceeding the allowable liquidated damages provided for in the agreement. The High Court held that Crescendas’ acts of prevention did not nullify clause 6 allowing it to recover liquidated damages in the event of a delay because Jurong nevertheless exceeded the reasonable time of completion by 161 days.