Damages in Arbitration: A Perspective from Singapore

Singapore treats damages for contractual claims, including both heads and quantification, as a substantive law issue governed by the proper law of the contract, rather than the law of the forum.

That said, it is common to find a contract that provides for disputes to be referred to arbitration in Singapore to also be governed by the laws of Singapore. The remainder of this article, therefore, explores the different aspects of damages under Singapore law.

A Core Principle: Compensatory Damages  

In Singapore, damages are meant to compensate the claimant for actual loss suffered, instead of measuring loss by the defendant’s gain. 

Generally, a claim for compensatory damages will engage the principles of causation, remoteness, mitigation, and proof of loss. The claimant must prove, with cogent evidence, actual loss that has been suffered as a result of the breach, that such loss suffered was not too remote, and that it had taken reasonable steps to mitigate its losses. 

It is worth noting that, under Singapore law, remoteness of damage is generally governed by the two-limb test in Hadley v Baxendale, and the Singapore courts have rejected the broader assumption of responsibility approach set out in Transfield Shipping Inc v Mercator Shipping Inc [2009] 1 AC 61.

Damages are generally assessed as at the date of breach, unless doing so would be unjust. Another date may also be selected where the date of breach was unknown or where mitigation was impossible.

Non-Compensatory Damages

Contractual Penalties

Contractual penalties are viewed as being “contrary to public policy and unenforceable, no matter how freely or willingly entered into at the time of contracting”.

In Singapore, the test for finding a penalty clause is whether the sum stipulated to be paid upon breach in that clause is a genuine pre-estimate of the likely loss in general. Where the stipulated sum is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach, the clause is likely a penalty clause. Notably, the Singapore courts have decided not to adopt the “legitimate interest” test applied by the English courts in Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67.

Liquidated Damages

Unless a liquidated damages clause is deemed to constitute a penalty, it will be enforceable upon proof that it has been breached (e.g., take or pay provisions in long-term energy supply contracts). Actual damage generally need not be shown.

Punitive Damages

Punitive damages typically refer to additional damages which extend beyond compensation towards the claimant; instead, they are punitive in nature, intended to punish the defendant for its conduct. In Singapore, punitive damages are generally not awarded for contractual breaches, but the Singapore courts have left room for punitive damages to be awarded in "truly exceptional" cases, such as those involving fraud or deception.

Restitutionary Damages

Restitutionary damages that seek to strip the actual gain made by the breaching party, rather than to compensate the claimant for a loss do not function as a compensatory remedy and are generally not available in Singapore unless exceptional circumstances justify their use (e.g. where the breach involves a wrongful gain that cannot otherwise be addressed).

Tribunal’s Power to Award Damages

A tribunal conducting an arbitration seated in Singapore is generally empowered to award any remedy available under the substantive law, subject to any restrictions or other terms agreed upon between the parties to the proceedings (as specified in the arbitration agreement or otherwise). 

Interest on Damages

In Singapore, an arbitral tribunal has broad powers to grant remedies akin to those which can be awarded by the court. 

Further, the power to award interest may also be found in the arbitration agreement itself. Indeed, it is not uncommon to see the arbitration agreement expressly include a clause to the effect that the arbitration award shall include interest and, in certain cases, further specify the period during which such interest should accrue and at what rate. 

Subject to the parties’ agreement, interest is a matter of discretion for the tribunal. Absent a prior agreement between the parties on the applicable rate, a tribunal may award based on parties’ submissions or even apply rates put forward by appointed experts with a view to compensating the actual interest loss incurred by the claimant (e.g. their internal working capital costs). 

Non-pecuniary Losses

Generally, losses for reputational harm or emotional distress from a breach of contract are not recoverable under Singapore law. 

However, if the purpose of the contract is “to provide peace of mind or freedom from distress” such that the loss arising from the breach of contract is one that can lead to some foreseeable financial loss, damages may be recovered in such a narrow situation. That said, tribunals in Singapore-seated arbitrations do have power to grant non-monetary remedies, e.g. to grant a “constructive remedy” compelling cooperation and facilitation of a share sale.

Conclusion

Singapore’s approach to damages for breaches of contracts is clear and generally rooted in compensatory principles. Parties arbitrating contractual disputes in Singapore can expect a commercially focused, rule-bound regime on remedies, reinforcing Singapore’s reputation as a reliable arbitral seat.

Singapore