SISV: ENFORCING (AND SETTING ASIDE) LIQUIDATED DAMAGES CLAUSES

Overview:

In the recent decision of Denka Advantech Pte Ltd v Seraya Energy Pte Ltd, the Court of Appeal has definitively clarified the test for assessing the enforceability of liquidated damages clauses in Singapore, by preferring the century-old “Dunlop” test that a liquidated damages clause must be a genuine pre-estimate of damages, over the wider, more flexible “legitimate interest” test proffered in the UK Supreme Court case of Cavendish Square Holding BV v Makdessi. Counsel in the Seraya case, Thio Shen Yi SC and Melvin Chan will examine the implications of the Court of Appeal’s decision on contracting parties intending to enforce (or set aside) liquidated damages clauses, especially when the event of default entitling a party to claim liquidated damages, also gives rise to a contractual right to terminate the contract.