An extract from The Global Damages Review - 2nd edition

Overview

The approach of the Singapore courts with regard to compensatory damages claimed in civil litigation has been based on the usual principles like causation, remoteness of damages and mitigation. The claimant or plaintiff bears the burden of proving both the fact and amount of loss, and therefore must adduce sufficient evidence to quantify the damage. In terms of proving loss suffered by the plaintiff in claims for unliquidated damages, the Court of Appeal in Singapore has stated that an award of compensatory damages in contract law should be based ideally on the plaintiff's own loss rather than measuring it by reference to the defendant's gains or profits.

Most notably perhaps, the Singapore courts have remained committed to the traditional principles of remoteness of damages espoused under Hadley v. Baxendale, declining to follow the new test set out by Lord Hoffman in The Achilleas, which is whether the defendant assumed responsibility for the loss that arose from the breach. Thus in MFM Restaurants Pte Ltd v. Fish & Co Restaurants Pte Ltd, the Court of Appeal expressly decided against adopting the 'assumption of responsibility' test, pointing out, inter alia, that the 'assumption of responsibility' approach (which is agreement-centred and based on whether the contract breaker had, on a true interpretation of the contract, assumed responsibility) appeared to exclude the operation of the very doctrine of remoteness of damage in contract law itself. The Court of Appeal was concerned with the practical uncertainties in applying this new test, given that parties at the time of entering the contract would usually not be thinking of assuming responsibility for the consequences of a future breach. The court thus did not accept Lord Hoffman's approach, except to the extent that the concept of assumption of responsibility is already incorporated in both limbs of Hadley v. Baxendale. The position under Singapore law was reaffirmed in Out of the Box, where the Court of Appeal reiterated its preference for the orthodox approach under Hadley. The court also stressed that, conceptually, 'it is important that cases that in fact concern the interpretation of a contract to identify the specific nature of the obligation that has been undertaken not be conflated, or for that matter confused, with cases that truly are concerned with questions of remoteness'.

While this is a chapter on compensatory damages, it should be noted that the Singapore courts have expressed caution on the award of restitutionary damages recognised by the UK courts under AG v. Blake, or at least the characterisation of AG v. Blake damages as restitutionary in nature. AG v. Blake was an exceptional case, where the defendant breached his contractual undertaking not to divulge official information gained as a member of the UK intelligence service by entering into a publishing deal for his autobiography, and where the Attorney General sought a full account of his wrongfully gained profits. AG v. Blake therefore allowed the award of damages based on the defendant's gains or profits, rather than the plaintiff's losses. The Court of Appeal in Singapore held that the main difficulty with recognising AG v. Blake damages as a part of Singapore law is the uncertainty of the legal criteria to be applied in awarding such damages. Nonetheless, the court left open the possibility that AG v. Blake damages could be recognised, although the precise status and scope of this category of damages under Singapore law is likely to remain unresolved until it is determined by the court in the future.

In addition, while the Court of Appeal recently accepted Wrotham Park damages as a part of the contractual remedies available under Singapore law, its approach differs from the UK position in some important respects that will be briefly discussed below.

Recent case law

i Turf Club Auto Emporium v. Yeo Boong HuaThe facts of the case

The facts of Turf Club revolve around a failed joint venture (JV) between two groups of shareholders to develop a plot of land in Singapore, and a settlement recorded in a consent order that was subsequently breached. The majority group of shareholders, the SAA Group, had leased a plot of land from the Singapore government authority (the Singapore Land Authority) under a head lease. The SAA Group then granted corresponding subtenancies to the JV companies, which in turn granted sub-subtenancies of the units on the site to ultimate tenants. The revenue of the JV companies therefore would come from the rent payable by the ultimate tenants. While the site was being developed, the two groups fell into dispute. The parties eventually reached a settlement that was recorded in a consent order. The consent order provided for a bidding exercise, where both groups of shareholders agreed that the higher bidder would purchase the shares of the lower bidder. It was also agreed that if the minority group was the higher bidder, the majority group would use their best endeavours to transfer the lease to the JV companies. Valuers were appointed to conduct an independent and fair valuation of the shares and supervise the bidding exercise.

While the valuation process was ongoing, and unbeknown to others, the SAA Group renewed the head lease with the Singapore Land Authority for another three years but failed to grant corresponding subtenancies to the JV companies. After this came to light, the minority group commenced legal proceedings against individual members of the SAA Group, claiming contractual breaches of the consent order and in tort.

The decision

In a landmark decision, the Court of Appeal affirmed in Turf Club the availability of Wrotham Park damages as part of the remedies under contract law in Singapore. Prior to Turf Club, references have been made to Wrotham Park damages by the Singapore courts, although such damages have never been awarded. Wrotham Park damages are measured (objectively) by such a sum of money as might reasonably have been demanded by the plaintiff from the defendant as a quid pro quo for relaxing the covenant between them. This is akin to a 'licence fee' that the plaintiff could reasonably have extracted in return for his or her consent to the defendant's actions that would otherwise constitute a breach of contract.

The Court of Appeal established that the legal requirements for the award of Wrotham Park damages under Singapore law are as follows:

  1. the court must be satisfied that orthodox compensatory damages (measured by reference to the plaintiff's expectation or reliance loss) and specific relief are unavailable;
  2. it must, as a general rule, be established that there has been (in substance, and not merely in form) a breach of a negative covenant; and
  3. the case must not be one where it would be irrational or totally unrealistic to expect the parties to bargain for the release of the relevant covenant, even on a hypothetical basis.

The assessment is objective and by reference to a hypothetical bargain rather than the actual conduct of the parties.

Applying the law to the facts, the Court of Appeal held that Wrotham Park damages could not be claimed because orthodox compensatory damages were available to the plaintiffs, which could be identified as the loss of the value of their shares in the JV companies caused by the breaches of the consent order.

Finally, the Court of Appeal also set out some tentative observations on AG v. Blake damages. The court indicated that the primary difficulty in recognising such damages as part of Singapore law was the uncertainty of legal criteria to be applied in awarding such damages. If AG v. Blake damages were to be accepted as part of the law on contractual damages in Singapore, it may perhaps be recognised as an exceptional remedy confined to the unique category of cases where the law has a legitimate basis for punishing the defendant or deterring non-performance.

The significance of the decision

The decision in Turf Club has made it clear that Wrotham Park damages are recognised as a head of contractual damages in Singapore. The Court of Appeal explained that the doctrine fills a remedial lacuna that arises in cases where the court is unable to award orthodox compensatory damages or grant specific relief, but where there is still a need to provide the plaintiff with a remedy to protect the plaintiff's performance interest (i.e., the primary right to performance of the defendant's obligations).

In an illuminating judgment, the Court of Appeal also examined the conceptual foundation of Wrotham Park damages. While the court indicated that Wrotham Park damages may be restitutionary as a matter of description, given that often at least some of the gains of the defendant are disgorged, they are in fact compensatory in nature. In fact, a restitutionary approach suggests or implies that Wrotham Park damages should be available only where the defendant concerned derives a benefit from his or her breach of contract, but that is not the case. Indeed, the Court of Appeal explained that Wrotham Park damages are objective compensatory awards aimed at compensating the plaintiff for the loss of the performance interest of which the plaintiff has been deprived owing to the defendant's breach of contract. Further, given that such damages are assessed by reference to the hypothetical bargain, the Court of Appeal indicated that it is not clear why the tests of causation and remoteness of damages apply, since they are premised on the need to establish a sufficient link between the defendant's breach and the subjective loss of the plaintiff.

However, the Court of Appeal declined to follow the UK Supreme Court in One Step if it indeed limited the award of such damages to cases where the contractual right breached is considered to be an economically valuable 'asset' (i.e., where the breach results in the loss of a valuable asset created or protected by the right that was infringed, such as in cases involving a restrictive covenant over land, intellectual property or confidential information). The Court of Appeal was of the view that it was not clear when a contractual right can be considered an 'asset' or when there would be (as per Lord Carnwarth's concurring judgment with the majority) 'the abstraction or invasion' of 'property and analogous rights'. In its judgment, the Court stated that there should be no reason to deny protection to a plaintiff's performance interest where the contractual right breached was of a personal nature, as opposed to property rights, when orthodox contractual remedies are not available.

Looking forward, the UK Supreme Court in One Step had identified examples of breaches of contractual rights that can be protected under this doctrine such as breaches of confidentiality. Breaches of confidentiality, where the plaintiff is unable to restrain the breach in time, often can give rise to situations where compensatory damages may be hard to quantify. It may even be possible to envisage that compensatory damages in such cases, having regard to the three requirements highlighted by the Court of Appeal in Turf Club, are unavailable, as opposed to just being hard to quantify. Applying the test set out in Turf Club, one can appreciate that the third requirement may be difficult to satisfy – parties to a confidentiality obligation would generally not care to bargain for the release of the confidentiality or non-disclosure covenant and would instead insist on the strict compliance with the covenant. If that is so, it may be difficult to envisage cases of breach of confidentiality that satisfy the third requirement, which is that the case must not be one where it would be irrational or totally unrealistic to expect the parties to bargain for the release of the relevant covenant, even on a hypothetical basis. It remains of interest for a case to come up for consideration in future where a party seeks Wrotham Park damages in Singapore for breach of a confidentiality covenant, and whether the first and third requirements as set out by the Court of Appeal in Turf Club can be satisfied where confidentiality covenants are breached. Nonetheless, breaches of confidentiality and whether they can qualify for Wrotham Park damages aside, it is now clear that Wrotham Park damages are available as a contractual remedy in Singapore for breaches of contract, and that such damages are compensatory in nature.