Client Update

November 2011

Dispute Resolution

Delays In Completion: When Is Time Set At

Large And When Do Liquidated Damages
Provisions Survive Termination Of
Contract?

Introduction
In construction related disputes, issues relating to delays in completion and liquidated damages
oftentakecenterstage.TheSingaporeHighCourthadtoconsidertwosuchimportantquestionsin
the related cases of Lim Chin San Contractors Pte Ltd v LW Infrastructure Pte Ltd [2011] SGHC 162
(Appeal #1) and LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd [2011] SGHC 163
(Appeal#2).Bothwereappealsonquestionsoflawarisingoutofanarbitralaward,whichdealt
withaclaimfordamagesforlatecompletionofworks.

Thesubcontractoronabuildingproject(LCS)failedtocompleteworksbytheagreedcompletion
date. Approximately 6 months after the completion date had passed, the main contractor (LW)
terminateditscontractwithLCS.

Ingeneral,timeforcompletionissetatlargewhenthecontractorispreventedfromcompletingthe
worksandthecontractdoesnotprovideforanextensionoftime.InAppeal#1,LCSarguedthatfor
timetobesetatlarge,itwasnotnecessaryfortheretobeadelayinthecompletionoftheworks;a
meredelayintheprogressoftheworkswouldbesufficient.ThiswasrejectedbytheCourt.

InAppeal#2,theCourthadtodeterminewhetherLWwasentitledtorelyonaliquidateddamages
clauseeventhoughthecontracthadbeenterminatedbeforecompletion.JudithPrakashJheldthat
termination of the contract does not affect a claim to liquidated damages in respect of the period
beforethetermination.Therighttoliquidateddamagesarisesonceworkshavenotbeencompleted
bythecompletiondate,andthisrightisnotnegatedbythefactthatcompletionwasneverachieved.

Brief Facts
(1) LWwasthemaincontractoronabuildingproject,andhiredLCSassubcontractor.

a. Thesubcontractworksweretobecompletedbytheagreedcompletiondateupon
receiptofaTemporaryOccupationPermit(TOP).

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b. The agreement also contained a liquidated damages clause, which provided for
paymentof$5,000perdayfortheperiodbetweentheCompletionDateandthe
dateofPracticalCompletion.

(2) LCS failed to complete works by the agreed completion date. About 6 months after the
completiondate,LCSadmittedthatitwouldnotbeabletocontinuetoapplyforTOP.LW
promptlyterminatedtheagreement,andsubsequentlyengagedvarioussubcontractorsto
completetheproject.

(3) LW brought its claim for damages before an arbitrator, who determined that LW was
entitledtogeneraldamages,butnotliquidateddamages.BothLWandLCSappealedtothe
Courtonquestionsoflawarisingfromtheaward.

Issues
The first appeal was brought by LCS (Appeal #1) against the arbitrators holding that time for
completionwouldnotbesetatlargebecauseLCShadnotproventhatLWhadcausedadelayinthe
completionoftheworks.LCSsubmittedthatitwassufficientthatLWsactionshadcausedadelayin
theprogressoftheworks.

The second appeal was brought by LW (Appeal #2) against the arbitrators holding that the
liquidateddamagesclausedidnotapplyasthesubcontractagreementhadbeenterminatedbefore
LCShadcompletedtheworks.LWsoughttoarguethatitpossessedtherighttoliquidateddamages
despiteitsterminationoftheagreement.

Appeal #1
Thearbitratorsfindings

Whereacontractorispreventedfromcompletingworksbyaprescribeddatebytheemployersacts
ofprevention,andthecontractdoesnotprovideforextensionoftime,thenthecontractualdatefor
completionceasestoapply,andtimeissetatlarge.

Here,thearbitratorfoundthattherewasdelaytotheprogressoftheworksduetolateandunder
allocationofManYearEntitlementsbyLWtoLCS,andalsoduetolatepaymentsbyLW.However,
he held that LCS failed to prove that these incidents had caused a delay in the completion of the
works.Therefore,timeforcompletionwouldnotbesetatlarge.

TheCourthadtoconsiderwhetheritwassufficientthatadelaytotheprogressoftheworkshadbeen
shown.

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Requirementsoftimebeingsetatlarge

TheCourtheldthatfortimetobesetatlarge,thedelaymusthaveresultedindelayedcompletionof
the works, and not just delayed progress. This conclusionwas unanimously supportedby case law
andacademiccommentary.

Allowingtimetobesetatlargeuponmeredelaystotheprogressofworkswouldnotbeinkeeping
withitsunderlyingprinciple.

(i) The reason for setting time at large is to prevent liquidated damages for delays in
completionwherethepersonclaimingthosedamagescontributedtothatdelay.

(ii) Thereisnoreasontoextendthatprincipletosituationswherethereisameredelayin
theprogressoftheworks,whichcannotgiverisetoaclaiminliquidateddamagesin
thefirstplace.

(iii) The employerwould not be taking advantage of his ownwrong because hisconduct
wasnotproventocausethecompletionofworkstobedelayed.

Further,thereisawellestablisheddistinctionbetweenadelayinprogresswhichdoesnotconstitute
anactofprevention,andadelayincompletionwhichdoesconstituteanactofprevention.

(i) Adelaytoprogressisanadverseshiftintheintendedtimingofthestartorfinishofa
discreteactivity,andcanoccuratanytime.

(ii) Adelaytocompletionoccursonlywhenthecompletiondatehaspassedandcanonly
be caused by a delay to the progress of an activity which is on the critical path to
completion.

Therefore,LCSsappealwasdismissed.

Appeal #2
Thearbitratorsfindings

The arbitrator held that liquidated damages only apply where the contractor had completed the
contract,andnotwheretheiremployment hadbeenterminatedandcontrolofthecontractpassed
outoftheirhands.

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Here, LCS had not completed the contract. LW had terminated the agreement and contracted the
works to other subcontractors. Therefore, the arbitrator found that LW was not entitled to
liquidateddamages,andcouldonlyclaimforgeneraldamages.

LWagreedthatitcouldnotclaimforliquidateddamageswhichaccruedaftertheterminationofthe
agreement,butarguedthatitcouldclaimliquidateddamagesfortheperiodbeforetermination.

Liquidateddamages

The Court agreed with LW that liquidated damages may still apply even where the contract has
beenterminatedorcontrolofthecontracthaspassedoutofthehandsofthecontractor,aslongas
theliquidateddamagesarefortheperiodbeforetermination.

(i) Itisawellestablishedprinciplethattheterminationofacontractdoesnotaffectrights
whichhaveaccruedbeforetermination,includingrightsofpayment.

(ii) A claim for liquidated damages cannot be brought in respect of the period after
termination.However,intheabsenceofexpressprovisionstothecontrary,liquidated
damagesalreadyaccrueduptothedateofterminationwillberecoverable.

LCSarguedthatliquidateddamagesshouldnotapplywhenthecontracthasbeenterminatedbefore
completion due to the uncertainty as to the exact completion date according to which the total
amountofliquidateddamageswillbecalculated.

(i) Liquidated damages are payable in respect of the period the works remain
uncompleted.Thisperiodcannotbedetermineduntilworksareactuallycompleted,or
ifthecontracthascometoanend.

(ii) Extensionsoftimemayoccuraslongasthecontractremainsinforce.Therefore,any
periodofdelaymayinfactbeshorteruponcompletionthanatthetimeoftermination
(eg.ifextensionoftimewasallowedafterthedateoftermination).

TheCourtrejectedLCSsargument.Whileeventsafterterminationmayaffectthequantumofaclaim
forliquidateddamagesfortheperiodbeforetermination,theydonotipsofactonegatetheexistenceof
therighttorecoverliquidateddamages.

(i) It is true that the total quantum of liquidated damages is subject to alteration by
subsequenteventssuchasextensionsoftime,whichmayreducetheeffectiveperiodof
delay.

(ii) However,therighttoliquidateddamagesarisesthemomenttheworkshavenotbeen
completed by the agreed completion date. It is the quantum which will continue to

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increasewitheverydaythatactualcompletionisnotachieved,subjecttoextensionsof
time.

LCSsoughtto relyontheprovisionsoftwostandardformswidelyusedinSingaporethePublic
Sector Standard Conditions of Contract for Construction Works and the Singapore Institute of Architects
Articles and Conditions of Building Contract: Lump Sum Contract to support its proposition that
furtherdelayarisingbetweenterminationandactualcompletionhastobetakenintoaccountbefore
the right to liquidated damages arises. However, the Court found that these provisions did not
support LCSs proposition, as it again conflated the conditions for the existence of a right to
liquidateddamageswiththequantumtowhichthecontractorisentitled.

TheCourtallowedLWsappealonitsquestionsoflaw,findingthatitsclaimforliquidateddamages
was not excluded by termination or the fact that control over the works had been passed out of
LCSshands.ItremittedtheawardtothearbitratorforreconsiderationofwhetherLWwasentitled
toliquidateddamages.

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Contacts

ChuaKeeLoon NgKimBeng
Partner Partner
D(65)62320767 D(65)62320182
F(65)64282055 F(65)64282056

kee.loon.chua@rajahtann.com kim.beng.ng@rajahtann.com

Please feel free to also contact the Knowledge and Risk Management Group at eOASIS@rajahtann.com

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