Singapore Appellate Court Confirms Validity Of Delay Liquidated Damages On Termination

• Law Firm: Herbert Smith Freehills
• Subject Matter: Real Estate and Construction, Construction & Planning
• Author: Mr Daniel Waldek, Tse Wei Lim and Calan Shamsudin
• Published date: 08 February 2023

The Singapore Appellate Court has re-confirmed that delay liquidated damages stop accruing on the date a contract is terminated.

This is an important decision for parties to Singapore law-governed construction agreements. The established Singapore position, which allows an employer to rely on liquidated damages provisions even when the contract is terminated, was called into question following the decision in Triple Point Technology Inc v PTT Public Co Ltd [2019] EWCA Civ 230. While that decision was overturned by the UK Supreme Court (see our analysis here), the Supreme Court did not explicitly affirm the correctness of the Singapore approach. Diamond Glass now confirms that the positions under Singapore law and English law are aligned.

Diamond Glass also confirmed that a contractor who fails to request an extension to the contractual completion date can be liable for liquidated damages for delay, notwithstanding that the Employer may be responsible for such delay.

Background

The decision in Diamond Glass Enterprise Pte Ltd v Zhong Kai Construction Pte Ltd [2022] SGHC(A) 44 concerns a contract between Zhong Kai (contractor) and Diamond Glass (subcontractor) for the supply and associated works for certain buildings and facilities at Singapore Changi Airport.

Diamond Glass was required to complete certain works by 16 March 2018. However, Diamond Glass terminated the contract before those works were completed. Zhong Kai engaged third parties to carry out the remaining works which were completed on 30 September 2018. Zhong Kai claimed for liquidated damages in respect of the entire period of delayed completion, including the period after termination of Diamond Glass's contract.

It was common ground that the subcontract works experienced delays leading up to termination, but the parties disagreed on what caused them. Diamond Glass argued that the delays were caused by Zhong Kai and/or third parties, including delays in obtaining regulatory approvals, glass specification changes and delayed payment. However, Diamond Glass had not requested an extension to the completion deadline.

The Singapore High Court, at first instance, found that Diamond Glass was responsible for the delayed works and allowed Zhong Kai's claim for liquidated damages for the entire period between the contractual completion date and the date of actual completion. Diamond Glass appealed against the trial judge's decision.

Decision

The Appellate Division allowed Diamond Glass's appeal in part...