Skip to content
laws.sgby aturio
Grounds publishedDecided 29 Feb 2008
Contents

Court of Appeal

Robertson Quay Investment Pte Ltd v Steen Consultants Pte Ltd and Another

Feedback & support

[2008] SGCA 8Case no. CA 36/2007

What happened, in plain English

There is no plain-English summary of this judgment yet.

Ask about this judgment

Laws this judgment relies on

Grounds of decision

Official text from eLitigation

  1. [1] This is an appeal by Robertson Quay Investment Pte Ltd (“RQI”), the plaintiff in Suit No 324 of 2005 in the court below (“the originating suit”), against the decision of the trial judge (“the Judge”) in Robertson Quay Investment Pte Ltd v Steen Consultants Pte Ltd [2007] SGHC 30 (“Robertson Quay”). Essentially, Robertson Quay concerned cross-appeals by the respective parties to this appeal against the award of damages made by the learned assistant registrar (“the AR”) in her oral judgment delivered on 7 December 2006 following an assessment of damages hearing (“the AD hearing”).

  2. [2] The facts of this case are largely undisputed. RQI is the owner and developer of the Gallery Hotel (“the Hotel”), a commercial development located at 76 Robertson Quay, Singapore 238254, consisting of a ten-storey hotel, basement car parks and adjourning commercial units in the form of restaurants and entertainment outlets.

  3. [3] The first respondent, Steen Consultants Private Limited (“Steen Consultants”), which was the first defendant in the originating suit, is the company that was engaged by RQI to provide civil and structural engineering services for the construction of the Hotel (“the Project”). The second respondent, Mr Shahbaz Ahmad (“Shahbaz”), who was the third defendant in the originating suit, was at all material times a director of Steen Consultants as well as the civil and structural engineer who was responsible for the design, planning and supervision of the Hotel’s structural works. (We will refer to Steen Consultants and Shahbaz collectively as “the respondents” in this judgment.)

  4. [4] The structural drawings of the Hotel were done in 1996 by Shahbaz, but the accredited checker employed by RQI, Mr Goh Joon Yap (“Goh”), the second defendant in the originating suit (although the action against him was discontinued prior to the AD hearing), found the drawings to be underdesigned. The drawings were therefore corrected and submitted to the relevant building authorities in 1997. Unfortunately, the respondents gave the building contractor the uncorrected 1996 version of the drawings instead (see Robertson Quay at [1]).

  5. [5] As a result of the above mistake (“the respondents’ mistake”), there were structural deficiencies in the Hotel, which required additional remedial and strengthening works (“the repairs”). The repairs delayed the completion of the Project by 101 days from 1 September 1999 to 10 December 1999 (“the period of delay”). The temporary occupation permit for the Hotel, which was originally to be issued at the end of December 1999, was eventually issued only in March 2000 instead.

  6. [7] On 10 May 2005, RQI filed its writ of summons (“the original writ”) and commenced the originating suit against Steen Consultants and Goh for loss and damage suffered and expenses incurred during the period of delay. RQI subsequently filed an amended writ of summons (“the amended writ”) on 4 July 2005 which added Shahbaz as a defendant. The statement of claim (“the SOC”) was filed and served on 19 September 2005.

  7. [8] For the purposes of this appeal, it would be helpful to set out in full RQI’s various heads of claim in the originating suit (as reflected in the SOC). They are as follows:

  8. No

  9. Item

  10. Figure

  11. i.

  12. Main contractors’ preliminaries

  13. $117,915.22

  14. ii.

  15. Management fee and remuneration for the executive directors overseeing the Project

  16. $49,612.77

  17. iii.

  18. Consultant’s charges

  19. $19,935.48

  20. iv.

  21. Salaries of management staff of the Hotel

  22. $88,147.37

  23. v.

  24. Clerk of works’ salary

  25. $29,386.61

  26. vi.

  27. Interest on loans from RQI’s shareholders and other related parties (“the Shareholder Loans”)

  28. $279,363.82

  29. vii.

  30. Interest on a term loan and an overdraft facility (collectively referred to as “the Bank Loans”)

  31. $215,859.84

  32. viii.

  33. Loss of profits and/or loss of rental in respect of the Hotel (including the adjoining commercial units)

  34. To be assessed

  35. [9] Subsequently, the respondents admitted liability and interlocutory judgment was entered by consent against them on 9 November 2005 for item (i) (ie, main contractors’ preliminaries), item (v) (ie, clerk of works’ salary) and other damages to be assessed.

  36. [10] At the AD hearing, RQI claimed the remaining items set out in [8] above (ie, items (ii), (iii), (iv), (vi), (vii) and (viii)), but, in respect of item (viii), it did not pursue its original claim for loss of profits. RQI submitted that these items constituted the proximate and natural damages arising from the respondents’ breach, and were thus within the first limb of the rule in Hadley v Baxendale (1854) 9 Exch 341; 165 ER 145 (“Hadley”) (see [52] below for an elucidation of the first limb of this rule (“the first limb of Hadley”)). After considering the arguments of both parties, the AR awarded RQI a total sum of $699,429.41, comprising the following items:

  37. No

  38. Item

  39. Figure

  40. i.

  41. Management fee and remuneration for the executive directors overseeing the Project

  42. $49,612.77

  43. ii.

  44. Consultant’s charges

  45. $19,935.48

  46. iii.

  47. Salaries of management staff of the Hotel

  48. $88,147.37

  49. iv.

  50. Interest on the Shareholder Loans

  51. $279,363.82

  52. v.

  53. Interest on the Bank Loans

  54. $215,859.84

  55. vi.

  56. Loss of rental income in respect of the Hotel’s adjoining commercial units

  57. $46,516.13

  58. Interest was also awarded on these damages at the rate of 6% per annum from the date of the original writ to the date of judgment.

  59. [11] It would appear clear from the preceding paragraph that the AR allowed most of RQI’s claims, save the claim for loss of rental income in respect of the Hotel itself. Dissatisfied with the AR’s assessment, the respondents appealed against her decision, while RQI cross-appealed against the dismissal of its claim for $276,882.00 for loss of rental income in relation to the Hotel. At the hearing of these registrar’s appeals, counsel for RQI, Mr Chua Sui Tong (“Mr Chua”), informed the Judge that RQI would proceed with its cross-appeal only if the respondents succeeded in their appeal (see Robertson Quay ([1] supra) at [3]).

  60. [12] The Judge affirmed the AR’s award of damages for most of the heads of claim, but set aside (at [8] of Robertson Quay) her award of $495,223.66 (viz, the sum of $279,363.82 and $215,859.84 (see [10] above)) for the interest which RQI had allegedly incurred on the Shareholder Loans and the Bank Loans (collectively referred to as “the Loans”). Given that the respondents succeeded on these two items, the Judge proceeded to consider RQI’s cross-appeal on the loss of rental income in respect of the Hotel. He eventually dismissed that cross-appeal on the ground that the loss claimed was too remote (see Robertson Quay at [9]). The Judge further ordered that the interest of 6% per annum was to run from the date of service of the SOC (ie, 19 September 2005) instead of from the date of the original writ (ie, 10 May 2005): see Robertson Quay at [10]. As a result of the Judge’s decision, the total monetary amount recovered by RQI was significantly reduced.

  61. [13] RQI thus appealed to this court against the following aspects of the Judge’s decision:

  62. (a) the setting aside of the AR’s award of $495,223.66 for the interest incurred by RQI on the Loans;

  63. (b) in the event of the appeal on item (a) failing, the Judge’s affirmation of the AR’s dismissal of RQI’s claim for $276,882.00 for loss of rental income in respect of the Hotel; and

  64. (c) the Judge’s order that interest on damages was to run from 19 September 2005, instead of from 10 May 2005.

  65. The respondents, on the other hand, did not file a cross-appeal against the Judge’s decision to affirm the AR’s award of damages for the other heads of claim (as set out at [10] above).

  66. [14] At the hearing of the present appeal, counsel for RQI, Mr Chou Sean Yu (“Mr Chou”), informed us that RQI was no longer proceeding with its claim for loss of rental income in relation to the Hotel (we should add that, in any event, we find the decisions by the AR and the Judge on this particular issue to be unimpeachable). The appeal by RQI is thus limited to two aspects of the Judge’s judgment, and since there has been no cross-appeal by the respondents, the two issues for the court’s decision in this appeal (which we will refer to hereafter as “the first issue” and “the second issue”, respectively) are:

  67. (a) whether RQI is entitled to damages for the interest which it incurred on the Loans during the period of delay; and

  68. (b) whether the interest on the damages awarded to RQI should run from the date of the original writ (ie, 10 May 2005), as ordered by the AR, or only from the date of service of the SOC (ie, 19 September 2005), as ordered by the Judge.

  69. [15] Since the claim for interest comes up to a substantial sum of $495,223.66, the first issue forms the crux of this appeal. Before addressing the issue, it is necessary to explain briefly how the Loans arose.

  70. [16] In a nutshell, RQI averred that it had borrowed money from its shareholders and United Overseas Bank Limited (“UOB”) to finance the Project. Under a facility agreement dated 18 September 1997 (“the Facility Agreement”), UOB agreed to extend to RQI the Bank Loans, consisting of a principal term loan facility (“the Term Loan”) and an overdraft facility (“the Overdraft”), for that purpose. The Term Loan was to be repaid by 9 May 2002, while the Overdraft was repayable on demand. In addition to the Bank Loans, RQI also obtained the Shareholder Loans for the apparent purpose of financing the Project. For the Shareholder Loans, there was no specified repayment date.

  71. [17] RQI’s claim for interest incurred on the Loans is premised on the ground (according to the affidavit of evidence-in-chief (“AEIC”) of Mr Ngo Soo Hiong (“Ngo”), a director of RQI) that:[note: 1]

  72. [21] On appeal, the Judge reversed the AR’s award of damages in respect of the interest incurred on the Loans. The Judge was of the view that the mere capitalisation of interest did not change its nature from interest to capital, and capitalisation alone could not prove that RQI had suffered an actual loss. Before commenting further on the Judge’s decision on this particular issue, it would be helpful to set out his decision on this point in full, as follows (see Robertson Quay ([1] supra) at [7]–[8]):

  73. [22] We note that the Judge commenced his analysis in the extract quoted above by stating that the claim before him was a claim for “interest payments that [RQI] had to make on shareholder loans and bank loans respectively” (see Robertson Quay at [7]). However, his conclusion, after discussing the concept of capitalisation, was (id at [8]):

  74. [25] Given the parties’ arguments as set out briefly above, the first issue raises two further questions for our consideration, namely:

  75. (a) whether RQI could prove that it had indeed incurred additional interest as a result of the delay in the completion of the Project; and

  76. (b) whether such additional interest was recoverable as damages in law.

  77. [27] In most claims for damages in contract or tort, the issue of proof of damage either rarely poses problems for the parties or is generally taken for granted by the parties. If liability and causation are established, the legal battle usually turns on issues such as remoteness of damage, mitigation of damage or even special topics such as recovery of damages for mental distress at the stage of assessment of damages. That said, it is fundamental and trite that a plaintiff claiming damages must prove his damage. The learned author of McGregor on Damages (Sweet & Maxwell, 17th Ed, 2003) provides (at para 8-001) a succinct explanation of this requirement, as follows:

  78. Put simply, until damage is proved, there is no need to even discuss topics such as remoteness of damage and mitigation because they are potentially relevant only after there is proof of damage to begin with. That this particular issue – viz, proof of damage – usually receives only very brief consideration is not surprising in the least. The process of proving damage is an intensely factual one. The same may be said, to some extent at least, where proving mitigation of loss (or a failure in that regard) is concerned, but, even so, the proof of damage depends wholly on the factual matrix concerned. In the circumstances, it is impossible to lay down any general rules or principles as to what constitutes adequate proof of damage since the particular factual circumstances can take, literally, a myriad of forms.

  79. [28] The law, however, does not demand that the plaintiff prove with complete certainty the exact amount of damage that he has suffered. Thus, the learned author of McGregor on Damages continues as follows (at para 8-002):

  80. [29] In this regard, we find that the following observations by Fletcher Moulton LJ in the English Court of Appeal decision of Chaplin v Hicks [1911] 2 KB 786 (“Chaplin”) (at 793–795) are also instructive:

  81. [30] Accordingly, a court has to adopt a flexible approach with regard to the proof of damage. Different occasions may call for different evidence with regard to certainty of proof, depending on the circumstances of the case and the nature of the damages claimed. There will be cases where absolute certainty is possible, for example, where the plaintiff’s claim is for loss of earnings or expenses already incurred (ie, expenses incurred between the time of accrual of the cause of action and the time of trial), or for the difference between the contract price and a clearly established market price. On the other hand, there will be instances where such certainty is impossible, for example, where the loss suffered by the plaintiff is non-pecuniary in nature, or is prospective pecuniary loss such as loss of prospective earnings or loss of profits (see generally McGregor on Damages at paras 8-003–8-064). The correct approach that a court should adopt is perhaps best summarised by Devlin J in the English High Court decision of Biggin & Co Ld v Permanite, Ld [1951] 1 KB 422 (“Biggin”), where he held (at 438) that:

  82. This is in fact the approach that this court has adopted (see Raffles Town Club Pte Ltd v Tan Chin Seng [2005] 4 SLR 351 at [17]–[19], where both Chaplin and Biggin were cited with approval and the above observation by Devlin J emphasised by this court).

  83. [31] To summarise, a plaintiff cannot simply make a claim for damages without placing before the court sufficient evidence of the loss it has suffered even if it is otherwise entitled in principle to recover damages. On the other hand, where the plaintiff has attempted its level best to prove its loss and the evidence is cogent, the court should allow it to recover the damages claimed. Reverting to the facts of the present case, the issue of proof boils down essentially to this: On the facts of this case, has RQI adduced sufficient evidence to prove that it had suffered damage inasmuch as it had incurred additional interest?

  84. [34] Before this court, RQI clarified that capitalisation was merely a way of illustrating or presenting the loss which it had suffered as a result of the additional interest paid over a period of delay. The real basis of its claim for the additional interest was that if the Project had been completed on time, RQI would have generated income from the operations of the Hotel and the resultant income would have been utilised to make early repayment of the Loans, such that RQI would not have become liable to pay the additional interest in question (“RQI’s analysis”). Therefore, RQI submitted that the 101 days of delay caused by the respondents’ mistake had a direct effect on its ability to repay the Loans. This point was stated in the written case which RQI had filed for this appeal[note: 3] as follows:

  85. [36] We are of the view, in fact, that in a case such as the present, more has to be done by the owner to prove the loss suffered in terms of the interest incurred on construction loans during the extended construction period. What would amount to sufficient proof would depend on the circumstances of each case and it is not possible to lay down a general rule (see also [27] above). The only guideline, as noted above (at [30]–[31]), is that the owner must adduce before the court the most cogent evidence of loss available in the given circumstances. Unfortunately, we do not think that RQI adduced the most cogent evidence of loss in the present case, and we are of the view that it could have done more in the given circumstances. Let us elaborate.

  86. [37] Firstly, we note that the evidence before this court showed only that the Bank Loans were taken out for the purpose of financing the Project; this was not, however, the case in so far as the Shareholder Loans were concerned. Clause 3 of the Facility Agreement stated clearly that the purpose of the Bank Loans was to finance the Project:

  87. In contrast, the loan agreements for the Shareholder Loans were not produced by RQI. Mr Chou also admitted at the hearing before this court that there was no evidence to show that those loans (or part thereof) had been utilised to finance the Project. Without any such evidence, we cannot see how RQI’s claim for the interest incurred on the Shareholder Loans during the period of delay can possibly succeed, given that those loans may very well have been utilised for other purposes that had no relationship whatsoever with the Project. We note that the AR found that “[Jacob had] accepted that the interest on the shareholder loans attributable [sic] to the construction of the [Hotel]” [emphasis added] (see [11] of the AR’s grounds of decision reproduced at [20] above). This would seem to suggest that there was, at least, evidence from Jacob that the Shareholder Loans had been utilised for the Project, such that the interest incurred on those loans was directly attributable to the Project. With respect, we are afraid that we are unable to agree with this view. In his expert report on, inter alia, RQI’s capitalisation of the interest incurred during the period of delay as part of the costs of constructing the Hotel, Jacob had commented on the Shareholder Loans as follows:[note: 4]

  88. The same view was expressed by Jacob during his cross-examination by Mr Chua at the AD hearing, as follows:[note: 5]

  89. Given the lack of evidence as to what the Shareholder Loans were utilised for, it is not possible for this court to attribute the interest incurred on the Shareholder Loans during the period of delay as a loss suffered by RQI as a result of the delay caused by the respondents’ mistake. On this point alone, RQI’s claim for such interest cannot succeed.

  90. [38] Where the Bank Loans are concerned, although those loans were taken out for the purpose of financing the Project, it appears that the Overdraft was also utilised to pay the interest incurred on the Shareholder Loans. In particular, Jacob, in his expert report, made the following observation:[note: 6]

  91. Given (as we have demonstrated above) that the Shareholder Loans were not taken out for the purpose of financing the Project, it would naturally follow that the interest incurred on the Overdraft as a result of using that credit facility to service the Shareholder Loans cannot be recovered as well, as such interest is, strictly speaking, not a loss suffered by RQI as a result of the delay caused by the respondents’ mistake.

  92. [39] Secondly, the main difficulty with RQI’s case both in the court below and before this court, in so far as proof of actual damage was concerned, is this: RQI’s case was based on an automatic shift from the premise that the respondents were responsible for the delay in the completion of the Project to the necessary conclusion that the respondents were therefore also responsible for the additional interest incurred as a result of the delay. However, this shift is not a necessary or an automatic one. In particular, such a conclusion could only be arrived at if it is proved, to the satisfaction of this court, that there is a factual link between the delay in the Project’s completion on the one hand and the additional interest in question on the other. As noted briefly at [33] above, the mere fact of payment by RQI of the amount of additional interest without more is insufficient, in and of itself, to fix liability on the respondents. There are, in fact, other scenarios in which RQI might have had to pay additional interest even in the absence of any contractual breach on the part of the respondents in the first instance. For example, as mentioned earlier (at [33]), the respondents could have completed the Project on time (in which case there would, of course, have been no breach of contract by the respondents), but, for whatever reason, RQI might have had to continue paying interest on the Loans even after the scheduled completion date. In the circumstances of the present appeal, therefore, a plaintiff in RQI’s shoes would need to go further and prove that, had the Project been completed on time, full (or, more likely, partial) repayment of the Loans would have been made using the income generated from the Hotel’s operations. Such proof would establish the necessary link between the breach of contract (as evidenced by the late completion of the Project) and the loss alleged by RQI (ie, additional interest incurred during the period of delay). This, in turn, entails RQI adducing (concrete) evidence of how repayment of the Loans was to have been made upon the timely completion of the Project. In other words, RQI cannot simply assert that the Loans would have been repaid upon the completion of the Project using income generated from the Hotel’s operations and that the late completion of the Project thus resulted in it incurring additional interest. Instead, RQI must prove the existence of an actual system of repaying the Loans using income generated from the Hotel that would lead the court to the logical conclusion that such repayment would, in fact, have been made upon the completion of the Project.

  93. [40] Alternatively, RQI could recover additional interest if it could demonstrate that, as a result of the delay, the interest rates on the Loans had increased, and/or it had to borrow further sums of money to finance the Project or extend the existing period of the Loans (which would, in turn, entail additional interest payments by RQI; see also [44] below). However, none of these situations was in fact present on the facts of the instant appeal.

  94. [42] The only evidence that RQI intended to use income from the Hotel’s operations to repay the Loans, if any, would be cl 9.2(b) of the Facility Agreement, which stated that RQI could prepay the principal amounts owing under the Term Loan without having to pay the contractual prepayment fee of 0.25% of the amount prepaid “if the prepayment [was] effected with moneys generated from the operations of the [H]otel and/or the Rental Proceeds of [the commercial units adjoining the Hotel]”. However, this clause merely demonstrated RQI’s intention to repay the Term Loan (but not the rest of the Loans) using income generated from the Hotel’s operations, and, even in so far as the Term Loan is concerned, the above evidence does not in any way indicate that RQI had intended to make repayment immediately upon the completion of the Project (ie, RQI might still have incurred interest on the Term Loan after the original completion date even if the Project had been completed on time). Accordingly, no damage can in fact be said to have been suffered by RQI.

  95. [43] Even if we were to accept that RQI had indeed intended to repay the Loans (and the interest thereon) upon the timely completion of the Project, RQI has not satisfied us as to the quantum of its actual loss arising from the delay in the Project’s completion. Logically, RQI’s assertion that the best quantifiable proxy for its loss consisted of the actual interest incurred during the period of delay (see [34] above) would only hold true if RQI would have made full repayment of the Loans upon the commencement of the Hotel’s operations. It is important, at this juncture to reiterate the link that needs to be established between the delay in the completion of the Project on the one hand and the alleged loss suffered by RQI on the other. Hence, on the assumption that RQI had intended to repay the Loans (and the interest thereon) upon the timely completion of the Project, this would entail that RQI must correspondingly demonstrate that, on its timely completion, the Hotel would have instantaneously generated the necessary sums required to repay the Loans in their entirety and the corresponding interest. Needless to say, to even hope for a successful demonstration to this effect would be highly unrealistic, given that the Loans involved rather large sums, such that it would have been impossible for RQI to generate sufficient income right at the start of the Hotel’s operations to repay the Loans in full. In Senate Electrical Wholesalers Ltd v Alcatel Submarine Networks Ltd [1999] 2 Lloyd’s Rep 423, the plaintiff was denied recovery of damages for breach of contractual warranties as it failed to prove the relevance of the quantum of damages which it was claiming. The facts of the case were complex, but, in essence, the defendant sold to the plaintiff a business which turned out to be less profitable than what the former had warranted. The amount claimed as damages by the plaintiff was calculated by applying a profits/earnings ratio to the difference between the warranted profit and the actual profit. The English Court of Appeal rejected this quantification on the ground, inter alia, that such a method of assessing the loss would result in an “absurd conclusion” (at [35]) and observed as follows (ibid):

  96. Likewise, in the present case, the method of quantification put forward by RQI would lead to the absurd conclusion that RQI could magically generate sufficient income to repay the Loans in full right at the outset of the Hotel’s operations (see also [48] below).

  97. [44] We pause to observe (leaving aside the question of remoteness for the time being (see [84]–[93] below for the discussion of remoteness in respect of additional interest)) that the situation in the present appeal is quite different from that in cases where as a result of a delay in the construction project concerned, there is a clear extension of an existing construction loan that results in additional interest charges which are equally clearly stated to be the “price” of such an extension.

  98. [46] A similar case is the Missouri Court of Appeals decision of Herbert & Brooner Construction Co v Golden 499 SW 2d 541 (1973) (“Herbert & Brooner”). There, the construction loan had matured on 1 November 1969 and the owner had to obtain an extension of the loan to 15 December 1969 as a result of the delay caused by the contractor. The court allowed the owner to recover the extension fee and the interest paid for the extended construction period, given that the precise amounts paid by way of such extension fee and interest were clearly established. The owner was not, however, awarded the full amount of the extension fee and the interest paid. Instead, a sum was deducted from each of these components to reflect the fact that part of the construction loan had been utilised on projects unrelated to the construction project concerned. Thus, the court held at 550–551:

  99. The above cited passage also emphasises and buttresses our earlier point (see [37]–[38] above) that only interest incurred on loans directly related to the delayed construction project can be recovered as damages.

  100. [47] We note that the facts of the present case are quite different from those in Roanoke Hospital Association and Herbert & Brooner in that RQI did not extend the period of either the Bank Loans or the Shareholder Loans (at least, no evidence was adduced in this respect).

  101. [49] As emphasised by Fletcher Moulton LJ in Chaplin ([29] supra), perfect mathematical accuracy for proof of damage is not possible in all cases, and the law does not impose an absolute or impossible standard either. However, in the present appeal, the burden of proof was clearly on RQI to establish the necessary link between the breach by the respondents (in not completing the Project in a timely manner) and its alleged loss in the manner set out above. Mere assertion, without more, that such a link existed is insufficient. Evidence should have been adduced by RQI to show how the Shareholder Loans were attributable to the Project (if this was possible in the first place). Ideally, like the owner in Roanoke Hospital Association, RQI should also have calculated the interest which it paid in excess of the interest that it would have paid if completion of the Project had taken place on time and if at least partial repayment of the Loans had been made. If this was not possible, RQI should have, at the very least, furnished some evidence as to any plausible repayment plans for the Loans, as well as the estimated proceeds from the Hotel’s operations (or other income or funds) that were available for such repayment, so that it would perhaps then be possible for this court to arrive at some form of quantification of the interest incurred by RQI during the period of delay (but only with respect to the Term Loan and that part of the Overdraft used to finance the Hotel’s construction (see [37]–[38] above)). Unfortunately, no such evidence was forthcoming from RQI. On the contrary, what evidence there was demonstrated, in fact, that the Hotel was not profitable during its first nine months of operation (cf also [43] above). We are therefore of the view that RQI has not proved its damage. We cannot help but feel that RQI’s analysis was an afterthought which was put forward after the fallacy of relying upon the concept of capitalisation was exposed by the Judge in the court below. Perhaps, the misplaced reliance on this concept lured RQI into the (erroneous) belief that as long as it could adduce bank statements, payment vouchers and receipts showing the actual amount of interest paid on the Loans during the period of delay, it would have satisfied the requirement of proof. This, however, as we have demonstrated, was insufficient in the present circumstances. These documents show, at most, the quantum that had been paid as interest, but not the fact that such payment had been made as a result of the delay in the completion of the Project.

  102. [50] Given our conclusion on the question of proof, it follows that RQI’s claim for additional interest must fail, and we do not, strictly speaking, need to consider the next legal hurdle that RQI would have had to cross, viz, to demonstrate that its claim under this head is not too remote. However, for completeness, and in the light of the fact that both parties have made substantial arguments on the issue of remoteness as well as the fact that the question of whether interest incurred on construction loans is recoverable in law as damages is before the local courts for the first time, we thought it would be appropriate to consider the question of remoteness as well. There is another reason why clarification of the law relating to remoteness of damage in contract law is appropriate here: There has been a relatively recent New Zealand decision as well as some academic literature which have sought to cast doubt upon – and even advocate the abrogation of – one of the most well-established decisions in the history of the common law of contract in general and of remoteness of damages in contract in particular, viz, Hadley ([10] supra). We therefore take this opportunity to clarify the position in the Singapore context.

  103. [51] To prove that the interest RQI incurred was not too remote to be recoverable as damages, Mr Chou cited various textbooks and cases to support RQI’s contention that such loss was recoverable under the first limb of Hadley. Before this court, Mr Chou admitted that there appeared to be little case law concerning the assessment of the owner’s loss arising from delay in construction projects where the rule of remoteness laid down in Hadley applied, as most construction contracts contained liquidated damages clauses to cover the contingency of delay. However, Mr Chou submitted that the loss of the nature suffered by RQI in this case (viz, additional interest) had been recognised as legally recoverable in various building and construction textbooks. Before we examine the authorities cited by RQI, we turn, first, to consider the applicable law governing remoteness of damages in contract.

  104. [52] In many common law jurisdictions, the rule governing remoteness of damage in contract continues to be that laid down by Alderson B in the much celebrated (and seminal) decision of Hadley ([10] supra), the material part of which reads as followsat 354–355; 151) (hereafter referred to as “the rule in Hadley”):

  105. [53] Indeed, the leading Commonwealth textbooks bear testimony to the fact that Hadley is still very much a part of the legal landscape in so far as the law relating to remoteness in contract is concerned: see, for example, M P Furmston, Cheshire, Fifoot and Furmston’s Law of Contract (Oxford University Press, 15th Ed, 2007) at pp 751–763; Sir Guenter Treitel, The Law of Contract (Sweet & Maxwell, 11th Ed, 2003) at pp 965–974; Chitty on Contracts (Sweet & Maxwell, 29th Ed, 2004) in vol 1 at paras 26-045–26-056; J W Carter & D J Harland, Contract Law in Australia (Butterworths, 4th Ed, 2002) at paras 2123–2128; N C Seddon & M P Ellinghaus, Cheshire and Fifoot’s Law of Contract – Eighth Australian Edition (LexisNexis Butterworths, 2002) at para 23.36; John Burrows, Jeremy Finn & Stephen Todd, Law of Contract in New Zealand (LexisNexis, 3rd Ed, 2007) (“Burrows, Finn & Todd”) at pp 687–692; and G H L Fridman, The Law of Contract in Canada (Carswell, 4th Ed, 1999) (“Fridman”) at pp 752–757. Indeed, in the last-mentioned work, Prof Fridman observed (at p 753) that “[t]he principles stated in this case [viz, Hadley] have long been accepted by the courts in Canada”. It is true that there have been suggestions that Hadley may need to be revisited (see, for example, S M Waddams, The Law of Contracts (Canada Law Book Inc, 5th Ed, 2005) at paras 731–739), but there has been no suggestion (with the exception of one particular decision and, not surprisingly, some academic literature (considered at [62]–[66] and [67]–[69] infra, respectively)) that it no longer represents the prevailing law. Indeed, even the noted American legal scholar, Prof Grant Gilmore, has, in his classic study, The Death of Contract (Ohio State University Press, reprint, 1995), observed (at p 92) that “Hadley v. Baxendale is still, and presumably always will be, a fixed star in the jurisprudential firmament”. To be sure, there may be at least one aspect of the rule in Hadley which may engender some difficulty, but the fact that a legal rule or principle is not perfect is not something which is unexpected. The larger issue is whether or not that particular legal rule or principle continues, on balance, to be both theoretically coherent as well as practically functional.

  106. [54] The rule in Hadley was laid down more than 150 years ago. In the circumstances, some elaboration and refinement are not unexpected. Indeed, the rule was reformulated, most notably, by Asquith LJ in the leading English Court of Appeal decision of Victoria Laundry (Windsor) Ld v Newman Industries Ld [1949] 2 KB 528 (“Victoria Laundry”), where, delivering the decision of the court, the learned lord justice observed, as follows (at 539–540):

  107. The learned lord justice’s restatement, as quoted above, is widely regarded as the classic modern exposition of the rule in Hadley. Indeed, Prof Fridman observed thus (see Fridman at p 753):

  108. [55] Turning to the Singapore context, there is no doubt that the rule in Hadley, as restated by Asquith LJ in Victoria Laundry (as set out in the preceding paragraph), represents the law in relation to remoteness of damage in contract. In the Singapore High Court decision of CHS CPO GmbH v Vikas Goel [2005] 3 SLR 202 (“CHS CPO GmbH”), for example, a summary of the law in this particular area was furnished, as follows (at [81]–[85]):

  109. The above statement of principle was, in fact, endorsed by this court in Jet Holding Ltd v Cooper Cameron (Singapore) Pte Ltd [2006] 3 SLR 769, where it was held (at [106]) that “the Singapore High Court decision of CHS CPO GmbH … reaffirms the fact that the principles established in Hadley … continue to be the law in the Singapore context”.

  110. [56] However, as alluded to above, the rule in Hadley (like most common law rules) is not perfect inasmuch as it is not free of all difficulties whatsoever (indeed, this is rarely the case for common law rules). In this regard, the leading House of Lords decision of Koufos v C Czarnikow Ltd [1969] 1 AC 350 (“The Heron II”) is both relevant and instructive.

  111. [57] The principal difficulty encountered in The Heron II centred on the precise degree of probability required pursuant to the rule in Hadley. Put simply, the learned law lords were unable to reach a general consensus on the requisite degree of probability, although they were unanimous in rejecting the phrase “on the cards” which was utilised by Asquith LJ in Victoria Laundry ([54] supra). If anything, it would appear that the phrase “liable to result” (see The Heron II at, inter alia, 399–400 and 410–411) seemed to be most acceptable to their Lordships as describing the degree of probability required. A helpful summary of the various phrases considered by the House can, in fact, be found in the Singapore High Court decision of Tang Kin Hwa v Traditional Chinese Medicine Practitioners Board [2005] 4 SLR 604 (“Tang Kin Hwa”), as follows (at [44]):

  112. [58] As mentioned in the preceding paragraph, the House in The Heron II was critical of the terminology used by Asquith LJ in Victoria Laundry (a point which we deal with in more detail later (at [72] below)). Notwithstanding this, however, the House was generally of the view that the learned lord justice’s restatement of the rule in Hadley was a sound pronouncement of the law. Lord Morris of Borth-y-Gest, for instance, regarded “the illuminating judgment of the Court of Appeal in Victoria Laundry ... as a most valuable analysis of the rule [in Hadley]” (see The Heron II at 399). Lord Pearce was of the view (id at 417) that “[t]he language of the judgment in the Victoria Laundry case was a justifiable and valuable clarification of the principles which Hadley … was intending to express”. We are of the view that the overall effect of the decision of the House in The Heron II is that expressed by Donaldson J in the English High Court decision of Aruna Mills Ltd v Dhanrajmal Gobindram [1968] 1 QB 655 (at 668):

  113. Reference may, in this regard, also be made to the observations of Prof Fridman (as reproduced at [54] above).

  114. [59] We wish to add here that the criterion of “reasonable contemplation” applies to both limbs of the rule in Hadley, although a difference exists between its application with respect to each of the two limbs. For the first limb of Hadley, the horizon of contemplation is confined to loss which arises naturally in the usual course of things and which is therefore presumed to have been within the contemplation of the parties. For the second limb of the rule in Hadley (“the second limb of Hadley”), by reason of the special knowledge possessed by the party who breaches the contract (“the contract-breaker”), the horizon of contemplation is extended to loss that does not arise in the usual course of things (see The Heron II at 415–416). We pause to observe, parenthetically, at this juncture, that there might, on occasion at least, be some haziness between these two limbs – a point which, however, does not arise for analysis or decision in the present appeal (for a discussion of this particular point, see the recent House of Lords decision of Sempra Metals Ltd v Inland Revenue Commissioners [2007] 3 WLR 354 (“Sempra Metals”) at [215] (per Lord Mance) as well as the (also) House of Lords decision of Jackson v Royal Bank of Scotland plc [2005] 1 WLR 377 (“Jackson”) at [46]–[49] (per Lord Walker of Gestingthorpe)). In relation to this point, there have also been some cases that have commented that the rule in Hadley should be treated as a composite whole and viewed as stating a single principle (see, for instance, per Christopher Clarke J in The Achilleas [2007] 1 Lloyd’s Rep 19 at [49] (whose decision was affirmed, but without any apparent discussion of this particular issue, by the English Court of Appeal (see [2007] 2 Lloyd’s Rep 555)), as well as per Robert Goff J in The Pegase [1981] 1 Lloyd’s Rep 175 at 182). These cases, however, recognise that the application of the rule in Hadley depends on the degree of knowledge held by the contract-breaker at the time of the contract (see The Achilleas at [51] and The Pegase at 182). In the circumstances, it is clear, in our view, that these cases are not suggesting, in any way, anything that is different, in substance, from our interpretation of the rule in Hadley (as set out at [55] above). On a separate note, there is also the possible ramification of distinguishing between the type and the extent of loss arising from a breach of contract (see, in this regard, the perceptive case note by Demetrios H Hadjihambis, “Remoteness of Damage in Contract” (1978) 41 MLR 483 at 484–485, commenting on one of several issues raised by the somewhat controversial English Court of Appeal decision of H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 791, where Lord Denning MR also sought to apply the tortious rules on remoteness to a contractual claim for physical injury or damage (see also the Ontario Court of Appeal decision of Kienzle v Stringer (1981) 130 DLR (3d) 272 at 276 (per Zuber JA) as well as the English Court of Appeal decision of Brown v KMR Services Ltd [1995] 4 All ER 598)).

  115. [60] What is significant, however, is that the rule in Hadley continues to be endorsed (in, inter alia, Sempra Metals as well as Jackson) as good law. We also wish to state that we do not see the point in embarking on an exegesis of the precise degree of probability required to satisfy the threshold of “reasonable contemplation” as to do so would be to engage in the “semantic hairsplitting” referred to in Tang Kin Hwa (([57] supra) at [44]). Indeed, the assessment of damages is “not an exact science” to begin with (per Lord Upjohn in The Heron II at 425). We agree with Sellers LJ’s comments in the English Court of Appeal decision of C Czarnikow v Koufos [1966] 2 QB 695 (which was the immediate precursor to The Heron II) at 722 that:

  116. [61] However, notwithstanding the lengthy and established pedigree of the rule in Hadley across Commonwealth jurisdictions in general and in Singapore in particular, it has, as alluded to above, come under some criticism in recent times. We will briefly consider the various critiques of this rule, if only to demonstrate why they are, in the final analysis, unfounded. We will next proceed to explain why, based on first principles, the rule in Hadley is undergirded by a firm foundation in logic as well as by justice and fairness. This would, in fact, go a long way in explaining why it has been an established part of the legal landscape for over 150 years.

  117. [62] Turning, first, to judicial decisions, there has, to the best of our knowledge, been only one major precedent in which the rule in Hadley has been subject to significant criticism. We refer, in particular, to the New Zealand Court of Appeal decision of McElroy Milne v Commercial Electronics Ltd [1993] 1 NZLR 39 (“McElroy Milne”), where the majority of the court expressed serious doubts about the viability of the rule in Hadley. We pause here to observe that the decision in McElroy Milne, emanating from the jurisdiction as well as the level of court which it did, carries very strong prima facie weight. However, as we shall explain below, this particular decision, as it turns out, is an isolated one, even in the New Zealand context; but, more of that later. It is appropriate to first examine briefly the various views expressed in McElroy Milne itself.

  118. [63] In McElroy Milne, Hardie Boys J was of the view that the rule in Hadley did not deal adequately with the question of remoteness in all situations. The learned judge observed (at 45) as follows:

  119. Even more scathing criticisms were made by Cooke P, who went as far as to describe (McElroy Milne at 42) the rule in Hadley as a mere “ritual incantation”. Because of their significance, the learned judge’s observations (id at 42–43) are now set out in full, as follows:

  120. [64] According to Cooke P, a better approach to remoteness of damage in contract would be a discretionary approach based on a consideration of several factors (depending on the facts of each case), in which reasonable foresight and/or contemplation would be an important consideration (“the alternative discretionary approach”). The learned judge observed, in this regard, thus (McElroy Milne at 43):

  121. The alternative discretionary approach was in fact advanced, in an extrajudicial context, in an article written by Cooke P some 15 years earlier: see Sir Robin Cooke, “Remoteness of Damages and Judicial Discretion” [1978] CLJ 288 (“Cooke”). In that article, he explained (at 300) the rationale underlying the alternative discretionary approach, as follows:

  122. [65] However, the alternative discretionary approach is, with respect, not without difficulties, and it has been questioned if matters would indeed be improved if, instead of a single familiar criterion, the courts are faced with the task of balancing an indeterminate number of novel considerations of uncertain weight: see Rex Ahdar, “Remoteness, ‘Ritual Incantation’ and the Future of Hadley v Baxendale: Reflections from New Zealand” (1994) 7 JCL 53 (“Ahdar”). In his article, Prof Ahdar points pertinently to the resultant uncertainty that would be engendered by the alternative discretionary approach as well as to various difficulties with the specific factors themselves. In this last-mentioned regard, the learned author raised the following important questions of both principle as well as application (at 68):

  123. In a similar vein, it was also observed, a little later in the same article, thus (at 73):

  124. Finally, Prof Ahdar observed as follows (at 74):

  125. We find the above reasoning of the learned author to be both logical as well as persuasive. Further, Prof Ahdar also observed (at 60) that “[t]he origins of Sir Robin’s multi-criteria discretionary approach might well have something to do with New Zealand’s ad hoc codification of contract law in the last couple of decades”. If this is so, we are of the view that this is a further reason for Singapore not to adopt the alternative discretionary approach, given that we do not have a similar programme of codification and given that our contract law remains (instead) very much grounded in the common law. We also do not, with respect, share Hardie Boys J’s and Cooke P’s view in McElroy Milne that the test of remoteness in contract and that in tort should be the same and that the existing distinction between the two is unjustified. In fact, we find the reasons proposed for the distinction by Lord Reid, Lord Upjohn and Lord Pearce in The Heron II ([56] supra), which are reproduced below at [71], persuasive. Briefly put, the learned law lords explained that the test of remoteness in tort is different from that in contract because the relationship between the parties to a tort is different from that between the parties to a contract. This is an important – indeed, a fundamental – point, which we will therefore elaborate upon in more detail in the next section of this judgment.

  126. [66] Finally, and very significantly, we note that McElroy Milne itself has not found favour in New Zealand. As was observed in CHS CPO GmbH ([55] supra) at [87]:

  127. In particular, in the leading New Zealand contract textbook (referred to in the preceding quotation), it has, in fact, been observed thus (Burrows, Finn & Todd ([53] supra) at p 692):

  128. The position in New Zealand is therefore still premised on the rule in Hadley. As such, we do not think it is appropriate for Singapore to depart from the prevailing English law and adopt the alternative discretionary approach advanced by the majority, in particular, by Cooke P in McElroy Milne.

  129. [68] A closer inspection of the approach adopted by Prof Eisenberg would appear to suggest, at first blush, that it is, in fact, essentially based on the same criterion as the rule in Hadley, ie, foreseeability, although the time to apply the criterion of foreseeability is different. In Prof Eisenberg’s own words (see Eisenberg at 598–599), “proximate cause is based on the scope of the risks that were foreseeable at the time of the wrong” [emphasis added] (cf the rule in Hadley, where it is the point at which the contract is made) and “the principle of proximate cause … would be a default rule” (id at 600). However, it is admitted that his principle of proximate cause is, on closer examination, quite different from the principles enunciated in Hadley (the standard of foreseeability required varying according to the nature of the interest invaded and the wrong involved) and is (whilst adhering to the concept of foreseeability) not, in substance, dissimilar to the (discretionary) approaches adopted by both Cooke P and Prof Tettenborn. It will thus be seen that Prof Eisenberg’s approach is also subject to the difficulties canvassed above (at [65]–[66]). Further, his suggested principle of proximate cause, whilst being a default rule, also allows for contractual allocation of loss, although such contractual allocations are enforceable only if they have been fairly disclosed to the affected party. He also concludes thus ([67] supra at 613):

  130. His conclusion (as quoted above), especially his suggestion that a loss need only be “reasonably foreseeable” in order to be recoverable, seems to suggest that the rules and principles relating to remoteness in contract should be the same as those in tort, and fails to recognise and give effect to the distinction between contract and tort, which is elaborated upon below (at [71]–[75]).

  131. [69] In so far as the approaches advocated by Cooke P and by Prof Tettenborn are concerned, in addition to the difficulties already canvassed above (at [65]–[66]), we note that both authors have admitted that their approaches would probably not make much of a difference to the decision in individual cases, but would have the advantage of making the law on remoteness more principled and would also allow judges to articulate clearly the reasons for allowing the recovery of certain types of damages: see Cooke ([64] supra) at 300 and Tettenborn (at 147). We are not certain if it would be prudent for a court to sacrifice certainty for a supposedly more principled regime. The present legal regime based on Hadley has served common law jurisdictions well for more than 150 years; a court should therefore think twice before departing from it. In this respect, the following observations by Prof Ahdar are pertinent (see Ahdar ([65] supra) at 64):

  132. Further, the present regime based on Hadley is not indefensible in principle. In fact, there is a strong rational basis for its existence. As Prof Atiyah pointed out in his textbook (P S Atiyah, An Introduction to the Law of Contract (Clarendon Press, 5th Ed, 1995)) at pp 465–466:

  133. Indeed, so important is the argument (in favour of retaining the rule in Hadley) from first principles that we will deal with it separately in the next section of this judgment.

  134. [70] The rule in Hadley is not entirely problem-free, as we noted earlier at [54] and [56] above and as the House of Lords decision of The Heron II ([56] supra) has demonstrated (see above at [56]–[58]), but it has served as a useful guiding principle for many courts for many years. As we recognised in a recent decision of this court in Sunny Metal & Engineering Pte Ltd v Ng Khim Ming Eric [2007] 3 SLR 782 at [56], the concept of remoteness of damages is essentially a necessary limitation imposed by the law to protect the contract-breaker from infinite damages since “the consequences of an act theoretically … can … stretch into infinity”. The question of remoteness is ultimately an inquiry in which (ibid):

  135. The nature of such an inquiry necessarily entails an element of discretion, and it may not be wise (or even possible) for a court to pronounce on the precise degree of probability required for “reasonable contemplation” or the exact reasons and/or factors in arriving at a decision on the issue of remoteness. The rule in Hadley, as reformulated by Asquith LJ in Victoria Laundry ([54] supra), is a “flexible policy tool for judges” (per Katherine Swinton, “Foreseeability: Where Should the Award of Contract Damages Cease?” in Studies in Contract Law (Barry J Reiter and John Swan eds) (Butterworths, 1980), Study 3 at p 63), and we continue to affirm it as good law in Singapore, especially given the argument from first principles (which is set out below at [71]–[83]). Indeed, whilst there have been attempts to locate the origins of the rule in Hadley in both the civil law (see A W B Simpson, “Innovation in Nineteenth Century Contract Law” (1975) 91 LQR 247 at 273–276) as well as in the broader social and economic context prevailing at the time Hadley was decided (see Richard Danzig, “Hadley v. Baxendale: A Study in the Industrialization of the Law” (1975) 4 JLS 249 (Prof Danzig, incidentally, disagrees (ibid at 257–259) with Simpson’s thesis, at least as a complete explanation of the origins of the rule in Hadley)), these attempts are, with respect, somewhat speculative (see, especially, the admission by Prof Danzig (id at 284)) and, more importantly, do not address the more general point relating to the rationality and functionality of the rule itself – an important point to which our attention, therefore, now turns.

The judgment continues past this page. Read the rest at eLitigation.