How is the loss measured?
Given that the basic aim is to put you in the position you would have been in if the contract had been carried out properly, the sum that you can recover as compensation (also known as “damages”) is typically the difference between what you were promised and what you actually got. This formulation is also known as expectation loss. For example, if you bought goods that never arrived, you can generally claim the extra cost of buying substitute goods elsewhere at the market price. Or, if you agreed to sell goods to a buyer who wrongly refused to accept the goods, you can claim the shortfall if you had to sell the same goods to someone else for less.
You can also claim for knock-on losses, but only if they were the kind of loss both sides could reasonably have expected when the contract was made.
Where your expected gains are too speculative to prove, you may instead claim wasted expenditure (i.e., costs thrown away in reliance on the contract). However, you cannot recover both expectation loss and wasted expenditure for the same loss – you will have to choose one approach.
Damages are compensatory, not punitive. Singapore’s Court of Appeal has confirmed (in PH Hydraulics & Engineering Pte Ltd v Airtrust (Hong Kong) Ltd and another appeal [2017] 2 SLR 129) that, as a general rule, punitive damages (i.e., damages intended to punish) cannot be awarded for a breach of contract – so the focus is always on proving what you actually lost.
What types of losses are too remote?
A loss is recoverable if, at the time of contracting, it arose naturally from the breach or was within the parties’ reasonable contemplation given what the breaching party knew. Ordinary lost profits on the transaction usually qualify. However, an exceptional downstream contract that the other side knew nothing about usually does not – unless you told them, which is why telling the other side in writing, when the contract is made, about any unusual losses a breach would cause you expands your protection.
Check the contract itself before counting consequential losses: exclusion clauses commonly carve out “indirect and consequential loss”, and caps commonly limit everything to the contract price. These clauses are generally enforced between businesses, subject to Singapore’s Unfair Contract Terms Act 1977 reasonableness test where it applies.
What does mitigation actually require of me?
You need to take reasonable steps, not extraordinary ones. For instance, you should source for substitute supply at market terms where your supplier has breached your contract, find a new tenant where your tenant has moved out early in breach of the lease, or generally make a sensible replacement arrangement. You recover the costs of mitigating, even if the attempt fails. What reduces your recovery is doing nothing for months while losses mount – losses that you could reasonably have avoided are not recoverable. You should keep records of every mitigation step and quote obtained.
What about liquidated damages clauses, interest and costs?
A liquidated damages clause in your contract, which fixes a pre-agreed sum to be paid in the event of breach, is enforceable if the sum was a genuine pre-estimate of the likely loss when the contract was made (Denka Advantech Pte Ltd and another v Seraya Energy Pte Ltd and another and other appeals [2021] 1 SLR 631). It will be struck down as a penalty if, for example, the sum is extravagant and unconscionable compared with the greatest loss that could conceivably result from the breach. A valid liquidated damages clause spares you from having to prove your actual loss, but if the clause is struck down as a penalty, you are left to claim ordinary damages for the loss you can prove.
On top of damages, the court can order interest on the amount awarded. The losing side usually has to pay part of the winner’s legal costs too, but rarely all of them. Even if you win, you will probably still carry some of your own legal bills, so factor that in when deciding whether to settle or commence formal legal proceedings.
What to do now
- Preserve the evidence of loss from day one (e.g., costings, margin calculations, substitute quotes, correspondence).
- Mitigate visibly and keep records. Obtain comparative quotes even when choosing the obvious substitute.
- Re-read the contract for exclusion clauses, caps, liquidated damages and notice-of-claim time bars.
- Calculate the claim both ways (lost expected benefit and wasted costs) before starting proceedings.
- Issue a demand setting out the computation – a precise schedule settles more cases than a threatening letter.
Frequently asked questions
Can I recover damages for management time spent dealing with the breach?
Internal staff time is potentially recoverable where it was significantly diverted to remedying the breach and can be evidenced – keep timesheets or other records made at the time.
Can I force the other side to perform the contract instead of paying me damages?
Forcing the other side to perform its contractual obligation instead of paying damages (also known as specific performance) is the exception rather than the rule. It is generally granted only where damages would not be an adequate remedy, classically for unique subject matter such as land. For ordinary goods and services, damages are usually the remedy awarded.