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  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

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 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  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

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  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

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 .  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  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   

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  
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  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  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  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

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  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  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