HOW DO YOU MEASURE DAMAGES FOLLOWING A DELAY IN COMPLETION?
In Crescendas Bionics Pte Ltd v Jurong Primewide Pte Ltd [2023] SGHC(A) 9, a key issue before the Appellate Division of the High Court was the measure of damages due to a developer as a result of a contractor’s delay to completion.
The dispute. Crescendas Bionics Pte Ltd (‘Crescendas’) engaged Jurong Primewide Pte Ltd (‘JP’) as the management contractor to build a multi-tenanted business park development named ‘Biopolis 3’.
Under the contract, JP was obliged to complete Biopolis 3 in 18 months, ie, by 22 January 2010. However, the time taken for completion exceeded the 18 months stipulated in the contract, and Biopolis 3 was only completed on 22 December 2010.
Crescendas commenced a court action against JP.
It suffices to say that in the first tranche of the suit, which determined issues of liability, it was held that both parties were responsible for a portion of the delay – Crescendas was responsible for 173 days of delay, while JP was responsible for 161 days of delay.
In the second tranche of the suit, which concerned the assessment of damages, Crescendas claimed for, amongst other things, damages for the loss of net rental revenue during the 161 days of delay for which JP was responsible amounting to $10.2m.
The appeal. At first instance in the High Court, Crescendas was awarded $1,789,398.82 for net rental revenue loss. This quantum was derived by way of a ‘Single-Year Model’ as opposed to the ‘Multi-Year Model’ as argued for by Crescendas.
On appeal, Crescendas argued that it should instead have been awarded for net rental revenue loss on a Multi-Year Model instead of the Single-Year Model.
The different models. Both models were similar in that they compensated Crescendas for the difference between:
The net rental revenue that Crescendas would have earned if the delay had not occurred (the “No-Delay Scenario”); and
The net rental revenue that Crescendas would have earned had it taken reasonable mitigatory steps in light of the delay (the “Delay Scenario”).
However, the computation under the Single-Year Model as preferred by the trial judge focused solely on the net rental revenue that Crescendas would have earned in the No-Delay Scenario during the period of delay in 2010.
On the other hand, the Multi-Year Model computed the difference between the projected net rental revenue Crescendas would have earned had there been no delay and the actual net rental revenue Crescendas had earned, over the span of multiple years stretching from the period of the delay to the years thereafter.
The Multi-Year Model had been rejected by the trial judge as:
It was too speculative;
It was dependent on factors outside of JP’s control; and
It could possibly yield illogical outcomes.
Crescendas’s case. On appeal, Crescendas claimed claiming for lost net rental revenue as a result of JP’s delay through the following method:
First, determine the loss in net rental revenue suffered by Crescendas as a result of the delay;
Secondly, apply a discount factor to the figure at (a) above to account for uncertainties;
Thirdly, apportion the loss in net rental revenue to reflect JP’s share of the delay.
In the first step, Crescendas argued that the court should not have used the Single-Year Model, and instead, should have used the Multi-Year Model. Crescendas claimed that the Single-Year Model led to under-compensation as the delay had caused Crescendas to “… lose the pre-commitment tenants, and given that tenancies span over several years, the loss of these tenants alone meant that Crescendas missed out on a multi-year revenue stream over the term of each tenancy. Even if Crescendas subsequently secured other tenants to mitigate its loss, it would still suffer a multi-year loss because Biopolis 3 was a multi-tenanted building that would take time to fill up. Until stabilised occupancy was reached, there would still be “excess” capacity in Biopolis 3 which would otherwise have been filled up earlier if not for the Combined Delay.” ([132]).
Further, all the experts that had been called to give evidence in the trial had proposed a form of the Multi-Year Model to compute Crescendas’s loss of net rental revenue.
In relation to the reasons for the trial judge’s rejection of the Multi-Year Model, Crescendas argued that the judge had erred by foregoing full compensation for greater certainty. Crescendas argued that the uncertainties could have been dealt with by applying a discount.
JP’s defence. JP argued that the trial judge “correctly found that the evidence did not show that JP was liable for the extent of loss claimed, given that the Multi-Year Model used highly speculative variables outside JP’s control” ([134]), and that Crescendas had not demonstrated that the post-completion net rental revenue loss was a result of the delay rather than Crescendas’ own marketing and pricing strategies.
In its arguments, JP emphasised that “… anything could happen following the completion of Biopolis 3, and venturing into what could happen and what Crescendas could have done to mitigate its loss would be to venture into the realm of speculation over several years.” ([134])
The Court’s decision – existence of damage. Woo Bih Li JAD, delivering the judgment of the court, first noted that even if the Multi-Year Model computations involved speculative variables outside JP’s control, that was a point going towards quantification of damage, which was distinct from the existence of damage (at [136]).
In relation to the question of whether Crescendas had indeed suffered post-completion net rental revenue loss over multiple years, the Court found that, based on the expert evidence before it:
Biopolis 3 was a multi-tenanted development which would have taken four years to attain stabilised occupancy under both the Delay Scenario and No-Delay scenario, as it was a large development which could only be leased out to a very specific type of tenant;
Each tenancy ran on a multi-year cycle which supplied Crescendas with a multi-year rental revenue stream, such that the loss of a prospective starting tenant caused by the combined delay from Crescendas and JP would lead to net rental revenue loss throughout the multi-year term of the lost prospective tenancy; and
Such multi-year loss would result even if Crescendas had taken reasonable efforts to mitigate its loss (at [147] – [148]).
Therefore, the Court held that the Parties’ combined delay caused Crescendas to suffer post-completion net rental revenue loss over multiple years. As a result, the Single-Year Model was defective in that it only reflected Crescendas’ loss during the period of the Parties’ combined delay in the year 2010 (at [149]).
The Court’s decision – quantification of damage. As to the trial judge’s opinion that the Multi-Year Model was too speculative, the Court noted that a claimant must satisfy the court as to the fact of damage and its amount to justify an award of substantial damages.
In this matter, the Court held that the fact that there would be a wider range of variables when assessing post-completion net rental revenue loss over multiple years was not a good reason by itself for preferring the Single-Year Model, as:
Crescendas had “… put forward a copious amount of empirical data relating to Biopolis 3, market data of comparable buildings and island-wide market trends, which collectively provided a foundation upon which multi-year projections of net rental revenue in both the Delay and No-Delay Scenarios could be rationally made” ([170]);
The expert evidence had proved the existence of the loss which Crescendas was claiming for ([172]);
The uncertainty in this case was not unique and “[s]imilar uncertainty arises for many loss of profit claims where the extent of the loss is not based entirely on existing facts, but by reference to projected earnings which are influenced by market conditions” ([173]); and
The issue of inadequate mitigation “… only made a workable Multi-Year Model more difficult but did not render it unworkable” ([173]).
Further, the Court also found that:
The fact that “… the quantum of contractual loss is influenced by variables beyond the contract-breaker’s control does not by itself preclude recovery…” (at [181]); and
The potential “illogical and inequitable” outcome identified by the trial judge was not attributable to any particular defect in the Multi-Year Model, and was, in fact, consistent with settled legal principles which require that a claimant’s “… overall position in the breach and hypothetical no-breach positions to be taken into account …” (at [183] – [187]).
Therefore, the Court allowed Crescendas’ appeal and endorsed the use of the Multi-Year Model to calculate Crescendas’ damages.
Further, the Court agreed with the parties that a compounded discount of 8% per year from January 2010 to January 2015 should be applied, and that the apportionment of the damages should be based on JP being responsible for 161 out of 355 days of delay.
On this basis, the Court found that JP was liable for $4,185,802.60 in damages in respect of Crescendas’ net rental revenue loss from January 2010 to January 2015 (at [197]).
Conclusion. When quantifying damages suffered as a result of another party’s delay to completion, the Court is open to considering a quantification model that looks at the consequence of the delay over a longer period of time, and awarding damages to the principal for losses that span several years.
However, if such a ‘Multi-Year Model’ is to be used to quantify damages, the party seeking damages should provide the Court with certainty as the quantum of damage suffered across those years. This can be done by, for example, providing sufficient empirical data to the court, including market data and market trends, to allow the Court to make a sensible and rational multi-year projection of damage suffered as a result of a delay to completion.
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