Punitive Damages in Singapore Contract Law

Last updated on October 4, 2017

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The general aim of awarding damages for breaches of contract is to compensate the aggrieved party for losses suffered due to the other party’s breach of the contract between them.

However, if you are a party to an action for breach of contract, you may be wondering how willing the Singapore court will be to award damages to punish the party in breach, i.e. punitive damages (or exemplary damages), for failing to perform its contractual obligations.

What are Punitive Damages?

Punitive damages are amounts of damages which go beyond what is necessary to compensate the aggrieved party for its losses. The aim of awarding punitive damages is to punish the party in breach, and to discourage similar behaviour by both it and others in the future.

Punitive damages may be awarded in an action in tort, for civil wrongs done against an innocent party and which do not arise from any contractual relationship between the parties. In such cases, the award of punitive damages sends a clear message that the wrongdoer’s conduct is unacceptable and will not be tolerated.

But what about for breaches of contract?

Can Punitive Damages be Awarded for Breaches of Contract in Singapore?

The Singapore Court of Appeal has held in PH Hydraulics & Engineering Pte Ltd v Airtrust (Hong Kong) Ltd that as a general rule, punitive damages cannot be awarded for breach of contract in Singapore.

This is because:

1. The concept of punishment has no place in contract law.

Obligations in a contract are undertaken voluntarily by the parties, who have themselves agreed on the scopes of their respective obligations. When the contract is breached, the court’s role is to ensure that the aggrieved party is compensated for the losses it has suffered as a result of the breach. This is done by awarding compensatory damages.

Therefore, it is not for the court to impose additional obligations on the party in breach to give more than what it had agreed to give under the contract. It is also inappropriate for the court to impose its own view of how the parties should conduct themselves.

Accordingly, there is no basis for awarding punitive damages for breaches of contract.

2. Punitive damages are not needed to fill any “remedial gap” for breach of contract.

The “remedial gap” argument suggests that existing remedies are inadequate in punishing and deterring outrageous behaviour. Therefore, the courts should have the discretion to award punitive damages for breaches of contract in deserving cases.

However since there is no room for the concept of punishment in contract law (as discussed above), there is no “gap” to begin with.  Even if there were such a “gap”, there are a number of alternative remedies, which have incidental punitive or deterrent effects, for the court to use. These remedies include:

  • Wrotham Park damages”: Damages based on the sum the aggrieved party could have reasonably demanded in return for permitting the breach; or
  • Account of profits: Damages based on the gains or profits obtained by the party in breach, due to the breach.

3. It is difficult to identify criteria for when punitive damages should be awarded.

What is regarded as “outrageous” behaviour would vary from person to person. This makes it difficult to determine to lay down specific and workable criteria on when a contracting party’s conduct will have exceeded acceptable “self or vested interest” (which underlies most contractual activity) to become “outrageous”.

In the absence of specific criteria, awarding punitive damages for breaches of contract would lead to the undesirable effect of commercial uncertainty and instability.

4. Awarding punitive damages for breach of contract would be undesirable from a policy perspective.

Awarding punitive damages could encourage aggrieved parties to “tag on” claims for punitive damages as a matter of course. This might add to the length, complexity, and costs of litigation. Aggrieved parties may also be unfairly able to coerce the parties in breach into making large settlements out of court in order to avoid being made to pay punitive damages.

The court was also of the view that contractual conduct would be better managed through legal regulation instead of judicial remedies such as punitive damages. This is because regulators are better equipped to assess and remedy the wider social and economic implications of any measures they may put in place.

For the above reasons, the court therefore held that punitive damages would generally not be awarded for breaches of contract.

However, the court was also careful to add that it might award punitive damages in a “truly exceptional case” involving a “particularly outrageous type of breach”.

What Might be an “Exceptional” Case?

The Singapore court has not set out any definitive criteria on what it may consider to be a “truly exceptional case” for which punitive damages could be awarded for breach of contract. Instead, the court has merely stated that “planned and deliberate” fraud alone would be insufficient to render a case “exceptional”.

Even malicious conduct, such as making false accusations against an innocent party, would not be sufficient for the court to award punitive damages.

Alternatives to Seeking Punitive Damages

Instead of seeking punitive damages, aggrieved parties could:

  1. Bring a concurrent cause of action in tort, where punitive damages are recognised.
  2. Seek an award of damages for mental distress for the breach of contract. Awarding such damages will allow the court to give redress to the aggrieved party, while still upholding the compensatory function of damages for breach of contract.
  3. Seek damages for fraudulent misrepresentation by the party-in-breach. In such situations, the court may be willing to grant a more generous award of damages for losses incurred by the aggrieved party. This includes both unforeseeable loss and all consequential loss.

In view of the Singapore court’s reluctance to award punitive damages for breaches of contract, aggrieved parties should generally think twice about claiming punitive damages. This is unless they think their case could involve “a particularly outrageous type of breach”.

If you are the aggrieved party in a contractual dispute and would like to discuss the possible claims you may have with a lawyer, feel free to get in touch with one of our corporate and commercial lawyers.