Back
2020 MarsdenLR 388
COURT OF APPEAL SINGAPORE
DENKA ADVANTECH PTE LTD AND ANOTHER – Appellant
Versus
SERAYA ENERGY PTE LTD AND ANOTHER AND OTHER APPEALS – Respondent
[Civil Appeal Nos: 37 of 2019 38 of 2019 100 of 2019 & 101 of 2019]
The Penalty Rule applies only to breaches of contract, allowing LD clauses to operate as genuine pre-estimates of loss rather than penalties, reaffirming party autonomy in commercial agreements.
Headnote:(A) Contract Law – Penalty Rule – Breach of Contract – The court established that the Penalty Rule applies only when there has been a breach of contract, clarifying that LD clauses serve as secondary obligations. The 40% multiplier in LD clauses was found to be a genuine pre-estimate of loss rather than a penalty. (Paras 1-328)
(B) Liquidated Damages – The LD clauses imposed by one party were subject to the Penalty Rule, but upon analysis, were determined not to be penalties under the established criteria. (Paras 250-309)
(C) Mitigation of Loss – The court found that the opposing party had no obligation to accept the offer to continue purchasing electricity, assessing the legal framework and reasonableness of the offer. (Paras 311-320)
(D) Costs – The court awarded costs to the successful party in the appeal against the initial ruling that both parties bear their own costs, reflecting the significant sum awarded under the LD clauses. (Paras 325-328)
JUDGMENT
Introduction
[1] For almost a century, the law relating to contractual penalties (hereafter the "Penalty Rule") was regarded as being very well-established across the Commonwealth. The leading statement of principles was that famously laid down by Lord Dunedin in the House of Lords decision of Dunlop Pneumatic Tyre Company, Limited v. New Garage and Motor Company, Limited [1915] AC 79 ("Dunlop"); indeed, these principles have been described as having "been treated in Australia as holy writ for over 100 years" (see N C Seddon & R A Bigwood, Cheshire & Fifoot Law of Contract - Eleventh Australian Edition (LexisNexis Butterworths Australia, 2017) at p 1230). This was in 1914. Nearly a century later, in 2012, the High court of Australia, in Andrews and Others v. Australia and New Zealand Banking Group Limited (2012) 247 CLR 205 ("Andrews"), extended the scope of the law in this area in a rather radical fashion (specifically by holding that a breach of contract was no longer a prerequisite to the application of the Penalty Rule). Shortly thereafter, in 2015, the UK Supreme court, in Cavendish Square Holding BV v. Makdessi [2016] AC 1172 ("Cavendish Square Holding"), not only disagreed with Andrews but also restated the substantive criteria (previously laid down in Dunlop) for ascertaining whether a particular clause was a penalty clause. The present appeal affords this court the opportunity of considering these developments in the context of the Penalty Rule in Singapore.
[2] Not surprisingly, much academic ink has been spilt on the Penalty Rule in recent years - in particular, with regard to both Andrews and Cavendish Square Holding. In addition to the numerous articles and case notes, both the aforementioned cases have also been considered in two learned (and recent) treatises (see Roger Halson, Liquidated Damages and Penalty Clauses (Oxford University Press, 2018) ("Halson") and Nicholas A Tiverios, Contractual Penalties in Australia and the United Kingdom - History, Theory and Practice (The Federation Press, 2019) ("Tiverios")). Indeed, the first treatise comes from the pen (or, perhaps more appropriately in these more modern times, keyboard) of a leading contract scholar whilst the second is based on a doctoral thesis (which is, in the nature of things, the scholarly fruit of many years of extremely focused academic labour (see also, by the same author, Nicholas A Tiverios, "A Restatement of Relief Against Contractual Penalties (I): Underlying Principles in Equity and at Common Law" (2017) 11 J Eq 1 and "A Restatement of Relief Against Contractual Penalties (II): A Framework for Applying the Australian and English Approaches" (2017) 11 J Eq 185)).
[3] What is interesting, in our view, is that the various academic views have in fact diverged (often quite radically). Hence, whilst these views are useful in setting out as well as illustrating the various controversies and arguments, we are best served by going back to first principles. In this regard (and as we shall see), we will need to examine not only the past in terms of the history of the Penalty Rule but also the present in relation to the logic and coherence of the (doctrinal) rules and principles proffered in the various cases. Finally, we will also need to consider the theoretical underpinnings of the aforementioned rules and principles which (by their very nature) transcend both space and time. All three aspects (also present in the sub-title of Tiverios) reflect the interactive elements of the law in general and the Penalty Rule in particular. The historical aspect is particularly important in the context of ascertaining the scope of the Penalty Rule, whilst the doctrinal and theoretical aspects are of special importance in ascertaining the content of that rule.
[4] However, before proceeding to set out the issues as well as our decision on what ought to be the applicable law in relation to co
