The contract contained a liquidated damages clause, which provided that Triple Point shall pay “ 0.1% of undelivered work per day of delay from the due … Most liquidated damages clauses provide that the clause will apply where the agreement is wrongfully (or "prematurely" terminated), and therefore the wrongful termination will need to be proved. Examples of jurisdictions where we have seen this approach broadly adopted are China, Thailand and the UAE. The clause gave Mr Leiman "enhanced rights" if he was a "good leaver", but did not seek to penalise him (such as by requiring him to pay a sum of money) if he was not a "good leaver". A clause that provides for a sum of compensation if a term of the employment contract is breached is known as a Liquidated Damages Clause (LDC). There is a question (ultimately undecided in Leiman) as to whether this test, which takes account of the "legitimate interests" of the person seeking to rely upon a clause, applies in Singapore. If yes, then: Will it be possible to persuade the owner to agree to a clause awarding as liquidated damages the operator's profits for the remainder of the operating term (whether based on past performance, or a draft annual budget)? Mr Leiman rejected that suggestion, and challenged the enforceability of the forfeiture provision on the basis that it was a penalty. A liquidated damages clause specifies a predetermined amount of money that must be paid as damages for failure to perform under a contract. This is likely to be reasonably straightforward for simple liquidated damages clauses. A liquidated damages clause is a provision that serves as a remedy for breach of contract. The principal challenges with liquidated damages clauses are that, in many instances, unless the clause seeks to compensate the operator for its lost profits for the remainder of the operating term of the agreement, the operator will be limiting the damages to which it is entitled. Although the case does not reformulate the test in Singapore for penalties, two aspects of the Court's approach are significant. 16 Liquidated Damages 16.1 Payment by the Contractor 24 16.2 Reduction of Liquidated Damages 24 16.3 Employer's Common Law Rights for Damages 24 16.4 Extension of Time During Delay Period 24 17 Substantial Completion 17.1 Certificate of Substantial Completion 25 17.2 Access for Remedial Work 25 17.3 Completion of Phase or Part 25 Dispute Resolution - Commercial Litigation, Dispute Resolution - International Arbitration. Hence, a liquidated damages clause that seeks to compensate the innocent party for a sum greater than the sum which ought to have been paid (i.e. Jhangiani writes or blogs frequently on international arbitration issues, and is an active member of the international arbitration community. "the overall context in which the bargain in the clause was struck; any reasons why the parties agreed to include the clause in the contract; and, whether the clause was entered into and contemplated as part of the parties' primary obligations under the contract in order to secure some independent commercial purpose or end, or whether it was, in the round, to hold the affected party in terrorem in order thereby to secure his compliance with his primary obligations. The key to drafting a liquidated damages provision is to ensure, as far as possible, that the amounts payable as liquidated damages constitute a "reasonable estimate" of the loss likely to flow from a breach of contract. Make sure you take advice when looking to include a liquidated damages clause in your hotel management agreement, particularly to check whether it is enforceable under the governing law of the agreement. A Lack of Agreement? Non-monetary factors can inform the amount payable as liquidated damages for breach of contract, but where this is done those factors should be identified, whether during contract negotiations or even in the contract itself. Will the clause be enforceable under the governing law of the hotel management agreement? The case raised a number of issues but we are going to concentrate on the claims for liquidated damages. Liquidated damages (“LD”) clauses are a common measure for an employer to mitigate against delays caused by the main contractor. A recent decision from the Singapore Court of Appeal gives insight into the approach taken in that country. The common law will respect the parties' agreed-risk allocation, and generally seek to uphold rather than strike down liquidated damages clauses. For all but a very fortunate few, delays are an unfortunate inevitability in construction projects. In each case, enforcing a liquidated damages clause and factors specific to the project may lead to nuances in the drafting of the liquidated damages clause. Clauses 3 and 4 in the examples above are drafted to minimize the risk of those clauses being deemed to be "penalty clauses". © Conventus Law 2020 All Rights Reserved. The Benefits And Drawbacks Of Liquidated Damages Clauses. While the case raised several issues, an argument was raised as to whether clause 3(c) of the Settlement Agreement was an unenforceable penalty, insofar as it purported to forfeit the unexercised Share Options that had vested in Mr Leiman. As prescribed in 11.503(a), insert the following clause in solicitations and contracts:. In another recent case, Seraya Energy Pte Ltd v Denka Advantech Pte Ltd[2019] SGHC 02, the High Court of Singapore also considered the issue of the enforceability of a liquidated damages regime in the context of energy projects. The past few years have seen subtle but important shifts in how the concept of a penalty is defined. Clause 3(c), however, did not require a breach of contract to be activated, therefore (Noble argued) the law of penalties did not apply. The penalty rule in Singapore law is well established2. Introduction . In this context, the court also considered whether the party seeking to enforce it would, by doing so, be given effect to a "legitimate commercial interest", as opposed simply to punishing the party in default in a heavy-handed and indiscriminate way. not a genuine pre-estimate of loss) would necessarily be penal and correspondingly, unenforceable. Usually, the operator must prove that any breaches alleged against it by the owner to justify the termination are not proved; the entitlement to loss of profits must be proved as a question of law; the value of the loss of profits claim is usually proved by a third-party expert report, valuing the operator's estimated profits from the hotel. The Singapore Court of Appeal, in Xia Zhengyan v Geng Changqing 3 SLR 732, shortly before the decision in Cavendish was issued, endorsed again (at) the test set out in Dunlop for whether a … The paper traces the development of the law relating to liquidated damages in Australia, New Zealand, England, and Singapore. to two to three years' lost profits, or a specific sum), and the risks, time and costs of having to prove a claim for lost profits, is it worth including a liquidated damages clause? The court considered six recent cases where the High Court in Singapor… If that clause is a secondary obligation which imposes a detriment on the breaching party which is out of all proportion to the non-breaching party's interest in enforcing the primary obligation, then it will be unenforceable as a penalty. Ensuring that he was a "good leaver" was regarded by the Court as a legitimate commercial purpose. LDCs can pose concerns to employees who wish to quit their job before their employment term is up. Companies from civil law jurisdictions may make little distinction between liquidated damages clauses and penalty clauses in their contracts. If the Project SPV fails to achieve the Project COD by the Project SCOD for reasons other than those set out in Clauses 10.5, 17 and 19, it shall pay liquidated damages to the Authority at the rate provided in Schedule 6 (Delay Liquidated Damages). The amount of the liquidated damages is supposed to be the parties’ best estimate at the time they sign the contract of … A sub-contractor can be made liable for liquidated damages that the contractor is made to pay the employer in certain circumstances: L&M Airconditioning (Pte) Ltd v SA Shee & Co (Pte) Ltd [1993] 3 SLR 483. Noble countered by contending that clause 3(c) could not be a penalty, because a penalty only arises where there is a breach of contract (i.e. The approach varies from jurisdiction to jurisdiction, but in our experience, liquidated damages clauses are less likely to be upheld in civil law jurisdictions. A recent decision from the Singapore Court of Appeal gives insight into the approach taken in that country. In considering this particular issue, the Singapore Court of Appeal affirmed that the Singaporean position concerning penalty clauses and liquidated damages is embodied in the principles set out in the House of Lords decision of Dunlop Pneumatic Tyre Ltd v New Garage & Motor Co Ltd [1915] AC 79. If it will be engaged upon the wrongful termination of the agreement by the owner, how will this be proved? Common law. Liquidated damages provisions in contracts are unenforceable if they constitute a "penalty". GPP claimed against Solar under its guarantees. How can Liquidated Damages Clauses Benefit Owners? Reasonable Estimate of Damages: The parties recognize the difficulty in ascertaining damages resulting from premature termination of this agreement, and agree to liquidated damages which represent their reasonable estimate of the damage from the loss of revenue which will result from premature termination. 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