LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd

• Judgment Date: 05 July 2011
• Date: 05 July 2011
• Docket Number: Originating Summons No 759 of 2010
• Court: High Court (Singapore)

LW Infrastructure Pte Ltd

Plaintiff

and

Lim Chin San Contractors Pte Ltd

Defendant

[2011] SGHC 163

Judith Prakash J

Originating Summons No 759 of 2010

High Court

Arbitration—Award—Recourse against award—Appeal under Arbitration Act—Subcontractor resisting appeal on question of law on basis of arguments of fact—Whether permissible—Section 49 (1) Arbitration Act (Cap 10, 2002 Rev Ed)

Arbitration—Award—Recourse against award—Arbitrator dismissing claim on preliminary point of law without considering all prerequisites to claim—Whether variation was appropriate remedy in the absence of sufficient findings by arbitrator to support it—Section 49 (8) Arbitration Act (Cap 10, 2002 Rev Ed)

Building and Construction Law—Damages—Liquidated damages—Main contractor terminating subcontract after date on which completion should have been achieved—Whether main contractor able to claim liquidated damages in respect of period before termination

Building and Construction Law—Damages—Liquidated damages—Standard forms providing for credit to be given to contractor for matters after termination which would have entitled contractor to extension of time had it gone on to complete works—Whether relevant in subcontract where no such credit was given

Building and Construction Law—Damages—Liquidated damages—Whether right to liquidated damages only accrued upon actual completion of subcontract works

Contract—Contractual terms—Rules of construction—Parties did not consider standard forms—Allocation of rights and obligations significantly different from standard forms—Whether standard forms relevant to construction of contract

Contract—Discharge—Main contractor claiming liquidated damages for period before termination of subcontract—Whether discharge affected accrued rights

A construction subcontract obliged the subcontractor to complete the subcontract works by 2 August 2002. On 12 May 2003, the main contractor terminated the contract on the basis that the subcontractor failed to proceed regularly and diligently with the performance of its obligations. New subcontractors were engaged and practical completion was achieved on 1 August 2003.

In June 2004, the main contractor served a notice of arbitration on the subcontractor, claiming, inter alia, general damages, and liquidated damages pursuant to cl 24. This claim was advanced on three alternative grounds: (a) liquidated damages from 31 October 2002 to 28 July 2003 at $5,000 per day;(b) liquidated damages from 31 October 2002 to 12 May 2003 at $5,000 per day, and general damages thereafter till 28 July 2003 at the same rate; and (c) general damages from 31 October 2002 to 28 July 2003 at $5,000 per day. The total amount claimed on all three grounds was the same: $1,360,000.

The reason that $5,000 per day was claimed as general damages was that this was the rate of liquidated damages imposed on the main contractor by the employer. The arbitrator rejected the claim for general damages because the main contractor had failed to prove the extent of its loss which was attributable to the subcontractor.

The claim for liquidated damages was rejected because the arbitrator found that a liquidated damages clause did not apply after termination of the contract. The main contractor appealed to this court pursuant to s 49 of the Arbitration Act (‘the Act’) on the following questions of law: (a) whether the right to liquidated damages which accrued before termination had been extinguished or rendered inapplicable following termination of the subcontract; (b) whether the right to liquidated damages which accrued before termination had been extinguished or rendered inapplicable following completion of the works by other subcontractors after termination; and (c) whether, in a claim for liquidated damages, proof of damage was required.

This appeal was brought only against the arbitrator's finding in relation to damages for the period between 31 October 2002 and 12 May 2003, the main contractor having conceded that it could not claim liquidated damages in respect of the period after termination of the subcontract.

Held, allowing the appeal and remitting the award to the arbitrator:

(1) Although s 49 (1) of the Act merely specified that appeals had to be brought on questions of law arising out of arbitral awards, by necessary implication the arguments raised in opposition to such appeals had to also be arguments of law, although they need not themselves necessarily arise out of the award: at [27].

(2) It was well-established that no liquidated damages accrued once a contract had been terminated, in the absence of express contractual provision to the contrary. However, the termination of a contract did not affect rights which had accrued before termination: at [14] and [15].

(3) At the time of termination, the main contractor's right to liquidated damages had already accrued. There was a distinction between, on the one hand, the conditions for the existence of a right to liquidated damages, and, on the other hand, the total quantum of damages which might be recovered pursuant to that contractual right. It was well-established that the function of a liquidated damages clause was to allow the employer to claim or deduct liquidated damages immediately once the agreed completion date had been overrun: at [30] and [31].

(4) It was true that, ex post facto, the total period of delay to completion might turn out to be shorter than the expected period of delay viewed at the agreed completion date. But this did not assist the subcontractor because the right to liquidated damages might be characterised in the following manner: a right to liquidated damages arose the moment the works had not been completed by the agreed completion date, and the total quantum of a claim to liquidated damages consequent on this right would increase with every day (or week, etc, as the case might be) that actual completion was not achieved. However, the total quantum of liquidated damages that might be claimed was subject to alteration by subsequent events such as extensions of time which would, by extending the agreed completion date, reduce the effective period of delay for which the contractor was liable. In other words, the maximum quantum of liquidated damages that could be claimed increases as time passed, but the actual quantum of liquidated damages which were eventually claimed or deducted, over the entire period, might be less than that: at [36].

(5) It was doubtful whether the terms of other contracts, even if they were contained in standard forms widely used in Singapore, were at all relevant to the interpretation of cl 24 which was clear and not ambiguous. Even if the terms of such standard forms were materially similar to cl 24 and cl 24 was ambiguous, the ultimate objective was to ascertain the parties' objective intentions as expressed in the contract which they had entered into and not some other contract. The principle of objectively ascertaining the shared contractual intentions of the parties remained paramount and, therefore, any extrinsic evidence had to go towards proof of what the parties, from an objective viewpoint, ultimately agreed upon. There was no evidence that the parties had regard to the standard forms when entering into the subcontract. Indeed, it was apparent that the chosen allocation of rights and obligations in the subcontract was significantly different from that in the standard forms: at [43].

(6) In the standard forms, credit was given to the original contractor for matters following termination which would have entitled the original contractor to an extension of time had it completed the works itself. This was because the liquidated damages provisions in those forms survive termination, unlike the liquidated damages provision in the subcontract in issue. Thus, the clauses in the standard forms could not possibly be relevant to the interpretation of cl 24: at [46] and [48].

(7) The court's remedial jurisdiction in an appeal on a question of law arising out of an award was provided by s 49 (8) . The difficulty with the main contractor's preferred remedy of a variation of the award to allow its claim of liquidated damages was that such a variation required a finding that it was entitled to all the liquidated damages claimed. This was a finding which necessarily required that all the prerequisites of such a claim had in fact been satisfied. Because the arbitrator rejected its claim on the preliminary point of law, he did not proceed to determine whether the other prerequisites, such as that of notice, were met. Although the court was of the opinion that the notice requirement had been satisfied, this was a matter to be decided by arbitration pursuant to the parties' intentions. It would not be appropriate for the requested variation to be ordered in the absence of sufficient findings by the arbitrator to support it: at [58] to [60].

[Observation: There was a clear conceptual distinction between termination of the contract and termination of one's employment under the contract. In the present case, the notice of termination on 12 May 2003 was a notice of termination of the subcontractor's employment under the subcontract. Thus, the mere termination would notipso facto have affected the existence of the liquidated damages clause. However, the claim of liquidated damages for the period after such termination would still be barred in the absence of express provision to the contrary: at [51] to [53].]

Bank of Boston Connecticut v European Grain and Shipping Ltd [1989] AC 1056 (folld)

British Glanzstoff Manufacturing Co Ltd v General Accident, Fire and Life Assurance Corp Ltd [1913] AC 143 (distd)

British Glanzstoff Manufacturing Co Ltd, The v The General Accident, Fire, and Life Assurance Corp Ltd [1912] SC 591 (distd)

Engineering Construction Pte Ltd v AG [1994] 1 SLR (R) 125; [1994] 1 SLR 687 (distd)

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