Case Update: Fundamental Investors Pte Ltd v Palm Tree Investment Group Pte Ltd [2020] SGHC 73: The Prevention Principle
For our construction clients, the phrase “prevention principle” is often heard when discussing liquidated damages and the employer’s ability to impose liquidated damages. However, the Singapore High Court in the recent decision of Fundamental Investors Pte Ltd v Palm Tree Investment Group Pte Ltd [2020] SGHC 73 (“Fundamental v Palm Tree”) made clear that this principle is not limited to liquidated damages alone.
The argument. In Fundamental v Palm Tree, one of the issues raised was that the defendant argued that the “prevention principle” applied such that the “time for repayment of [a loan] was “set at large” and had not yet fallen due at the time of the commencement” of the proceedings in Fundamental v Palm Tree ([132] Fundamental v Palm Tree).
In response, the plaintiff submitted that “the prevention principle is only applicable to cases where a party is making a claim for liquidated damages or penalties flowing from a failure by the other party to complete performance of works by a stipulated contractual deadline” ([133] Fundamental v Palm Tree).
Prevention principle applies generally to all contracts. The High Court held at [134] Fundamental v Palm Tree that “the prevention principles applies generally to all contracts, regardless of their nature or subject matter”, and endorsed the holding by the High Court in Chua Tian Chu and another v Chin Bay Ching and another [2011] SGHC 126 that this principle is a doctrine “derived from the well established legal maxim that no man shall take advantage of his own wrong” as well as the judgment in Evergreat Construction Co Pte Ltd v Presscrete Engineering Pte Ltd [2006] 1 SLR(R) 634 that this principle is “wedded to notions of fair play and commercial morality”.
At [135] Fundamental v Palm Tree, the High Court noted that this principle has been applied to lease agreements, share purchase agreements, and contracts for sale of property, and hence there was “no practical or principled justification for restricting the applicability of the prevention principle to contractual claims of a specific nature.”
Relevance. The decision of Fundamental v Palm Tree is a timely reminder from the High Court that notions of fair play and commercial morality can have practical legal effects.
This is especially relevant in the present climate because should employers and contractors implement measures that would “prevent, impede or otherwise make more difficult for a contractor to complete the works by the date stipulated in the contract” in light of the COVID-19 situation, they should ask themselves the question of whether they are setting up a situation where the contractor or sub-contractor may argue that the prevention principle applies so as to render the time to complete the works at large.
Of course, at the end of the day, the contract matters. Most comprehensive construction contracts would generally cater for acts of prevention by making it an event which a contractor or sub-contractor can claim for an extension of time. However, as Fundamental v Palm Tree makes clear, this principle applies to all contracts, and it cannot be assumed that “extension of time” clauses would always be present.
Tags: Prevention principle; No man shall take advantage of his own wrong
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