Law and regulation of consequential damages clauses in the energy sector in Singapore

Yes.  The Singapore courts have taken the traditional English law approach, and construed the phrase “consequential loss” as confined to the loss or damage falling within the second rule in Hadley v Baxendale, 1 (1854) 9 Exch. 341.  i.e. losses that do not naturally flow from the breach in the ordinary course of events but may reasonably be supposed to have been in the contemplation of both parties at the time of entering in the contract. 2 The Singapore Court of Appeal in Singtel Telecommunication v Starhub Cable Vision Ltd [2006] 2 SGCA 5 (“Singtel v Starhub”) at [59];the Singapore High Court in Transocean Offshore International Ventures Ltd v Burgundy Global Exploration Corp [2013] SGHC 117 (“Transocean v Burgundy”) at [30]. See CMS Annual Review of developments in English oil and gas law (2016 Edition), page 31.

Yes. The words “consequential loss” are used frequently in contracts concerning various industries in Singapore.

The oil and gas industry governed by Singaporean law will ordinarily use the usual model form contracts that are used in the industry globally, such as the Association of International Petroleum Negotiators and LOGIC model form contracts that routinely contain exclusions for “consequential loss”.

Consequential loss is also excluded in contracts in the power sector. For example, a contract for the delivery and sale of natural gas excluded “consequential losses” which was defined as “loss or deferment of profit or anticipated earnings or savings, loss of goodwill, loss of use, business interruption, increased cost of working and wasted effort or expenditure, together with all reasonable legal costs associated with the exclusion of such heads of loss from recoverable losses in relation to the Agreement.”

In the construction sector, international projects carried out in Singapore may use more bespoke contracts or amended forms of international standard form contract, such as the FIDIC 3 International Federation of Consulting Engineers. The 1999 FIDIC Red Book provides that “neither Party shall be liable to the other for loss of use of any Works, loss of profit, loss of any contract or for any indirect or consequential loss or damage which may be suffered by the other Party in connection with the Contract…” form of contract which excludes liability for consequential loss. The model forms used in local projects, however, do not usually contain clauses excluding consequential loss. 4 The usual standard forms used for Singapore Government sector work, such the Singapore Institute of Architects' (SIA) Building Contract form, the Public Sector Standard Conditions of Contract (PSSCOC), and the Real Estate Developers' Association of Singapore (REDAS) form of contract do not contain clauses excluding consequential loss.  Having said that, the standard terms of a rental agreement by a Singapore Ministry of Manpower approved tower crane provider excludes the owner’s “liability and responsibility for any direct or consequential loss suffered by the Hirer in consequence of any downtime, stoppage of work, compliance with any order or directive from any judicial or governmental authority or by reason of any loss injury or damage suffered by any person from the presence of the Equipment or the delivery possession use operation removal dismantling or return of them or from any defects in the Equipment.” 5 See Kay Lim Construction & Trading Pte Ltd v Soon Douglas (Pte) Ltd and another [2012] SGHC 186 (“Kay Lim v Soon Douglas”).

If no specific definition is provided, the words “consequential loss” in exclusion clauses will normally be interpreted as exempting the party from loss that would otherwise have been recoverable under the second limb of the rule in Hadley v Baxendale. 6 Singtel v Starhub at [59] to [62].  The Singapore Court of Appeal in Singtel v Starhub held that that the purpose of a clause that excludes contractual claims for indirect and consequential losses is “to exclude liability in contract for losses which can only be recovered under the second limb of the rule in Hadley v Baxendale”. 7 Singtel v Starhub at [59.]

This approach has been adopted by the Singapore High Court in subsequent cases: see Transocean v Burgundy and Kay Lim v Soon Douglas. Also, based on this line of authorities the same narrow meaning should be given to the words “any indirect or consequential loss however caused or arising”. 

The courts will interpret an exclusion clause to apply in its “most natural interpretation” 8 PH Hydraulics & Engineering Pte Ltd v Airtrust (Hong Kong) Ltd [2017] SGCA 26 (“PH Hydraulics”), at [146] .  Further, in Transocean v Burgundy, the Singapore High Court accepted that parties may delineate in their contract how  “consequential loss” is to be defined. 9 Transocean v Burgundy at [31].  This may include specific categories of loss that might otherwise be considered direct loss under the first limb of Hadley v Baxendale and would not be excluded if  “consequential” and/or “indirect loss” were used undefined by the parties. 10 See also Kay Lim v Soon Douglas, where Quentin Loh J stated obiter that in the context of building and construction contracts, what may seem in nature to be consequential loss in other contracts, may actually be direct loss or loss falling within the first rule in Hadley v Baxendale (such as damages for delays to work on a critical path may fairly and reasonably be considered as arising naturally and in the usual course of things and were not “consequential loss”).   

However, there are also some relevant rules of interpretation:

1. In Singapore, exemption clauses are construed strictly. In order for a party that is otherwise liable to exclude or limit its liability or to rely on an exemption, it must do so in clear words. Any ambiguity or lack of clarity will be resolved against a party relying on the clause. 11 The Singapore Court of Appeal in Singtel v Starhub, at [52], referring to Lord Hobhouse in Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715 at [144].  
2. The application of such clauses will be restricted to the particular circumstances which the parties had in mind at the time they entered into the contract. For example, in Hong Realty Pt Ltd v Chua Keng Mong (“Hong Realty”), 12 [1994] 2 SLR (R) 90.  the Singapore Court of Appeal found the factual circumstances at the time the respondent agreed to the exclusion clause in a storage contract, exempting the appellants from liability from the negligence and default of their servants, to be central to its decision on the operation of the clause. 13 Any intervening act that occurred after the contract had been entered into will be considered as altering the circumstances in the exemption clauses which ordinarily apply, and would not have been within the contemplation of the parties. Leaking pipes, caused by the appellants’ negligence in carrying out piping works after the contract had been entered into, had damaged the respondents’ goods that were stored at the appellants’ warehouse. The Court of Appeal held that at the time of contracting, it could not have been within the contemplation of either of the parties that the exemption clauses would apply in circumstances other than those in which the warehouse was in prior to the intervening event, i.e. the piping works. Had the leakage been caused by some patent defect in the warehouse, the Court of Appeal had no doubt that the exclusion clauses would be applicable. Prior to the piping works, which the trial judge had found to be an intervening event, the warehouse was a fit place for storage. As a result of the intervening works, the Court of Appeal found that the storage area was unfit as a proper place for storage of goods, and in the circumstances, the exclusion clauses could not operate to relieve the appellants of liability.  In Singtel v Starhub, the Singapore Court of Appeal referred to Hong Realty in deciding that the exclusion clause did not extend to a particular method of transmitting cable television signals that had not been under consideration at the time the contract was entered into, and could not be taken to exclude liability for such act.
3. In interpreting a contractual term, the Singapore courts will utilise the modern “contextual” approach as set out by the Singapore Court of Appeal in Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd. 14 [2008] 3 SLR 1029, and as refined in Sembcorp Marine Ltd v PPL Holdings Pte Ltd. [2013] 4 SLR 193. In Singapore, the admissibility of evidence of background knowledge etc as an aid to contractual interpretation is governed by statute, namely the Evidence Act. Such evidence can only be admitted to interpret the contractual term, and not to contradict, vary, add to or subtract from the contractual terms.  The court may admit evidence in relation to the particular circumstances referred to above in interpreting the term if the evidence is relevant, reasonably available to all contracting parties and relates to a clear or obvious context, which go towards proof of what the parties objectively ultimately agreed. The court will consider the essential attributes of the document being examined and will be more restrained in its examination of standard form contracts and commercial documents. 
4. Where the clause provides a list of excluded losses, the clause will ordinarily be read ejusdem generis, and “construed in the light of the overall genus of losses contemplated in the clause”. 15 Transocean v Burgundy at [33]. See also Singtel v Starhub at [63] and [64];

In order to exclude direct losses or losses that fall within the first limb of Hadley v Baxendale from the scope of the exclusion clause, the courts are in agreement that clear and explicit language is required.  However, the interpretation of the clauses by the courts is a highly fact-sensitive exercise and therefore may not necessarily produce consistent outcomes. 16 In Singtel v Starhub, at [63] and [64], the Court of Appeal, in construing a clause that purported to exclude liability in “indirect, incidental, consequential, or special damages (including…lost revenues, or lost profits)” held that only where lost revenue is indirect or consequential is it excluded. The Court of Appeal referred to the English case Deepak Fertilisers and Petrochemicals Corporation v ICI Chemicals & Polymers Ltd (“Deepak Fertilisers”) [1999] 1 Lloyd’s Rep 387, which purported to rule out liability for “loss of anticipated profits ... or for indirect or consequential damages”. The Singapore Court of Appeal held that the crucial difference between the exclusion clauses in Deepak Fertilisers and in Singtel v Starhub is that in Deepak Fertiliser, loss of profits was explicitly excluded in addition to all indirect or consequential loss due to the use of the word “or”. In PH Hydraulics, the Court of Appeal found that the phrase “any consequential or indirect losses… including but not limited to loss of profits…” in an exclusion clause that excluded loss of profits. In Transocean v Burgundy at [33], Tay Yong Kwang J held that despite the use of the word “or” in defining the term Consequential Loss, “the ostensibly broad scope of the phrase ‘any loss of or anticipated loss of…profit’ should be limited by the context and could not be read in literal terms as a blanket exclusion for any loss that may be labelled as either party’s loss of profit.” Loss of profit was thus not excluded in Transocean v Burgundy.  Parties are advised to carefully consider the type of losses they wish to exclude and explicitly exclude them – instead of, for example, relying on words such as “other” or “or” or the use of parentheses in defining the term “consequential loss”.

There is no jurisprudence directly on point, but if the exclusion clause clearly limited the recoverable damages for breach of contract, and subject to all the considerations stated above and all the criteria in granting an injunction being fulfilled, 17 In order to determine whether an interlocutory injunction should be granted, the test set out in American Cyanamid Co v Ethicon Ltd [1975] AC 396 is applicable, i.e. whether “there is a serious question to be tried” and “that the balance of convenience lies in favour of granting an injunction”.  there is no reason why the courts would not issue an order preventing the occurrence of a breach of the contract or for specific performance of the contract. 18 The case of ABv CD [2014] EWCA Civ 229 may be relevant and have persuasive authority on the Singapore courts.