27 February 2020

Smile Inc Dental Surgeons Pte Ltd v OP3 International Pte Ltd [2019] SGHC 265

In Smile Inc Dental Surgeons Pte Ltd v OP3 International Pte Ltd, the Singapore High Court provided guidance on the calculation of damages flowing from breaches of contract. This decision follows the earlier decision of Smile Inc Dental Surgeons Pte Ltd v OP3 International Pte Ltd [2017] SGHC 246 (“Liability Judgment”) where the court found the defendant liable for the plaintiff’s losses.

Facts

The plaintiff, Smile Inc Dental Surgeons Pte Ltd, is a company which provides dental services and operates several dental clinics in Singapore. The defendant, OP3 International Pte Ltd, is a company which provides interior design and fitting-out works.

The plaintiff engaged the defendant to carry out fitting-out works (“Works”) at the plaintiff’s Suntec City Mall clinic (“Clinic”). The Works were to be completed by
11 September 2013 in order for the opening of the Clinic to coincide with the grand opening of the refurbished Suntec City Mall on 12 September 2013. Unfortunately, the defendants only handed the clinic over on 31 October 2013, and the plaintiff could only operate the Clinic from 1 November 2013 instead of the planned 12 September 2013. The defendant’s delayed completion of the Works therefore caused the Clinic to remain closed for 50 days (“First Blackout Period”).

The defendant’s work scope included designing and constructing a plumbing system that would drain waste water from the dental chairs and equipment in the Clinic. In the Liability Judgment, the court found that the defendant owed the plaintiff a duty of care and a duty to ensure the Works were designed and performed such that the Clinic would be fit for its intended purpose. The court also found that the plumbing system created by the defendant was defective in design and had features which increased the risk of flooding needlessly. The defective design and construction of the plumbing system resulted in the Clinic flooding, which caused the Clinic to be closed for 51 days, from 17 January 2014 to 8 March 2014 for rectification works (“Second Blackout Period”).

During the Second Blackout Period while the defendant was carrying out rectification works to the Clinic, the defendant did not modify the design of the plumbing system to prevent the recurrence of flooding. A second flood occurred in July 2014 and the court found the defective design of the plumbing system to be the primary cause. As a result of the flooding, the Clinic was closed for 220 days, from 29 July 2014 to 5 March 2015 (“Third Blackout Period”).

Following the three Blackout Periods, the plaintiff entered a settlement agreement with the landlord, which included a term for the early termination of the Clinic lease.

In the Liability Judgment, the court found the defendant liable for the losses relating to the Blackout Periods, which lasted a total of 321 days. The present judgment dealt with the assessment of the extent of damages due from the defendant to the plaintiff, and the court awarded the plaintiff the majority of its claims.

Judgment

When there are two causes for a contractual breach

One of the plaintiff’s claims against the defendant was for compensation following the landlord’s claim against the plaintiff for a breach of the Clinic lease agreement.

There were two effective causes of the breach of the lease agreement: first, the plaintiff’s failure to pay rent timeously to the landlord, and second, the plaintiff’s ceasing to operate the Clinic following the second flood. Only the second cause flowed from the defendant’s breach of providing defective Works which caused the second flood, while the first cause was caused solely by the plaintiff. The court found that both were operative causes, with nothing indicating that one cause was more efficacious than the other, and therefore the defendant’s breach of contract was an effective cause of the plaintiff’s breach of the lease.

Although the defendant’s breach was not the sole cause of the plaintiff’s breach, it was an effective cause, and the defendant was hence liable for the plaintiff’s loss.

Claim for both expectation and reliance loss

Expectation loss refers to the value of the benefit that would have been obtained but for the breach of contract, and reliance loss refers to the costs and expenses incurred in reliance on the contracted-for performance but which were wasted due to the breach of contract. Claims for expectation losses and reliance losses are generally alternative claims, to avoid putting the claimant in a better position than he would have been in had the contract been wholly performed.

In the present case, the court permitted the plaintiff to claim both expectation and reliance loss. This appears contrary to the general principle that a plaintiff must elect between expectation losses and reliance losses which flow from the defendant’s breach

However, the court found that this general principle only applies when the loss of profits are claimed on a gross basis, and does not apply where the loss of profits are claimed on a net basis. Where the claimant claims for both net loss of profits and the costs incurred to enable the claimant to earn the net profits, there would be no double-counting and therefore no need to elect between a claim on expectation basis for the loss of net profit, and a claim for reliance loss for wasted expenditure.

Practical impact

This case provides clarification on two points. First, even when a defendant’s breach of contract is only one of two equally operative and efficacious causes of the plaintiff’s contractual breach, the defendant will be liable for the entirety of the damages claimed by the plaintiff. Second, a claimant may claim damages for both his wasted expenditure incurred up to the date of contract termination, and the net loss of profit which he would have made but for the breach.

Allen & Gledhill Partner Ho Chien Mien represented the successful plaintiff in these proceedings.

Reference materials

The Court of Appeal judgment is available on the Supreme Court website www.supremecourt.gov.sg or by clicking here.

 

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