If you’ve breached a contract and are being sued, you might be worried about whether the Court is going to levy additional damages to punish you for not honouring your contract. If you’re suing someone else, I suppose the opposite is true – your hopes are that the judge sides with you, and throws the book (and gavel) at the other party!
In contract law, the main purpose for damages is compensation, rather than punishment. The Singapore Courts generally shy away from awarding punitive damages. However, there are exceptional cases when punitive damages will be awarded in Singapore. These circumstances involve “malicious, oppressive and high-handed” behaviour, although the bar to qualify for such behaviour is set relatively high. We discuss this, and other matters, in this guide.
- What are punitive damages in contract law?
- Can punitive damages be awarded for breach of contract?
- Are there exceptions where punitive damages might be awarded for contract breaches?
- How can I protect myself from punitive damages, or damages in general?
What are punitive damages?
Under civil law, a plaintiff (the person suing) can initiate a lawsuit against a defendant (the person being sued) for breach of contract. If the Court agrees with the plaintiff, the Court can award two kinds of damages:
- Compensatory damages: This is the amount of money that the Court orders someone to pay, to compensate another party for a loss.
- Punitive damages: Punitive damages are a sum of money that the Court orders someone in a lawsuit to pay, over and above compensation damages.
Punitive damages are used to achieve three main purposes:
- To punish the defendant for reprehensible behaviour
- To deter the defendant from committing the same wrong again, and deterring others in society from committing similar acts
- To signal that society will not tolerate such amoral behaviour
Can punitive damages be awarded for breaches of contract in Singapore?
Punitive damages generally are not levied in breaches of contract. Punitive damages can be awarded, if the breach of contract is “exceptional”. The breach of contract has to be generally “arrogant”, and demands “compensation [or punishment] by the Court”.
Later in this guide, we’ll talk about one such “exceptional” case that serves as a good example for when punitive damages can be awarded.
Tip: Punitive damages are actually common in many lawsuits for personal injury (e.g. someone assaulted you), or property damage (e.g. someone smashed your car). It’s only for breach of contracts that punitive damages are uncommon.
Here are the key reasons why punitive damages are generally not awarded for breach of contract:
#1. Punishment, as a legal concept, is not a central part of contract law
When two parties enter into a contract, they do so voluntarily. Both parties would have willingly set out the roles and responsibilities that each should bear. If the contract is breached, the Court should not retroactively interfere in the contract, and make opinions about what additional responsibilities one or another party should have. Such actions would not be legally, or logically, sound.
The primary purpose of contract law is really to make good any losses that a party has suffered. If a party has suffered $100,000 in lost profit due to breach of contract, then contract law is designed to compensate the party for that lost $100,000. Punishing the party who caused the loss is not, generally speaking, the purpose of contract law. Therefore, in most cases, the Court’s role should be to judge the degree of harm caused, and then award the right amount of damages to compensate the party that’s been harmed.
#2. It is not easy to specify exact criteria when punitive damages should be awarded
Case law – the compendium of previous lawsuits, whose judgements help judges make decisions – is well-established for personal injury/property damage lawsuits. Therefore, judges can make relatively straightforward decisions for punitive damages in such cases. However, the case law for punitive damages for breach of contracts is not well-established. This makes it more difficult for punitive damages to be awarded.
Without a large body of previous cases to reference, it is not straightforward to decide when someone who’s breached a contract has acted in an “[exceptionally] malicious, oppressive, and high-handed” manner. These terms can be interpreted differently from one case to another.
#3. Frequently awarding punitive damages for contract breaches may have adverse policy effects
If punitive damages are commonly awarded for contract breaches, plaintiffs might inflate the quantity and seriousness of their claims. They may do this because they know they will stand a higher chance of getting punitive damages from the Court. This may lead to an imbalance of justice, and also make court processes longer and costlier. This would contribute to additional strain on the legal system, which needs to be efficient.
Also, punitive damages may be used as leverage by plaintiffs to pressure the other party in inflated settlements, lest they be made to face a costly and difficult Court trial.
These key reasons, among others, are why punitive damages are generally not awarded for breach of contract, unless the case meets the “exceptional” standards that we described earlier.
What might constitute an “exceptional” breach of contract deserving punitive damages?
In 2017, the Court of Appeal published published a landmark ruling. In this ruling, the Court of Appeal overturned a previous decision made by the High Court in 2015, that had originally granted punitive damages to a litigant. This decision to overturn the High Court’s original judgement reinforced the notion that punitive damages are generally not awarded in breach of contract lawsuits.
This landmark case was Airtrust (Hong Kong) Ltd v PH Hydraulics & Engineering Pte Ltd.
The case involved a marine engineering firm, PH Hydraulics & Engineering Pte Ltd, that sold a Reel Drive Unit (RDU) to a customer, Airtrust (Hong Kong) Ltd. The RDU was a large 300-tonne machine, used to lay undersea cables. The customer installed this machine onto their ship, so they could lay cables in the ocean. Soon after the customer began to of the machine, the machine broke down. Parts of the machine even came apart. The machine suffered a fair amount of damage, and the customer had to bear financial losses to repair the defective equipment, amongst other costs. The customer sued the PH Hydraulics & Engineering, claiming breach of contract for selling them an inherently defective machine.
Upon investigation, it was revealed that the marine engineering firm failed to design the machine to the specifications that the customer required.
The marine engineering firm:
- Used an RDU design from another project, without performing the required engineering calculations to make sure that the new RDU would safety fit the customer’s needs
- Assigned a junior engineer to design a complex piece of equipment
- Misled an engineering certification agency to gain the necessary approvals for the RDU
- Installed defective or improper components into the RDU
Although these actions could be considered fraudulent, the Court of Appeal wrote that even fraud is not sufficient to garner punitive damages.
How can I determine whether I am eligible for punitive damages?
Your best bet is to speak with a qualified lawyer. If you are suing someone else, a legal professional will be best placed to advise you on whether the other party’s conduct is likely to win you punitive damages. If you’re being sued, your lawyer can advise you on whether damages assessed against you are likely to include a punitive element, and therefore be higher than normal.
How can I protect myself from punitive damages, or damages in general?
Lawsuits are terribly expensive. Lawyers cost a bomb. If you have to negotiate a settlement, or if the Court rules against you, you could potentially have to pay huge sums in settlement fees. The exact amount will really depend on the specific case, but could easily be hundreds of thousands, or millions. For example, when Fish & Co. sued Manhattan Fish Market, Manhattan Fish Market was ordered to pay almost $800,000 in damages to Fish & Co.!
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