Significance: Singapore Court of Appeal clarifies the legal and conceptual basis for awarding and quantifying damages pursuant to a breach of a lease agreement. Court held that claims for expectation and reliance losses as damages for breach of contract are mutually exclusive.
Brief facts: landlord prematurely terminated 2-year lease (with option to renew another 2 years) 1 year into lease as it wanted to renovate the premises. The tenant thus had to find new premises for his business in a short span of time. The tenant had to first move into interim premises before it could find more suitable permanent premises.
The first instance court, the High Court (HC), awarded the tenant damages on the following heads (at ):
(a) $150,000 for wasted costs, ie, the costs the Appellant incurred in renovating the Original Premises, but which was wasted in part because of the premature termination of the Lease Agreement;
(b) $20,000 for the inconvenience of finding and moving into new premises;
(c) $62,654.39 for the increased rent paid per square foot for the Current Premises as compared to the Original Premises, calculated on the basis of the total area of the Original Premises (ie, 5,685 square feet), and on the basis that the Lease Agreement would have been renewed for two years at a 20% increase in rent; and
(d) $83,962 for the costs of relocating to the Interim Premises. The Judge held it was unreasonable to award the Appellant the costs of two relocations – first to the Interim Premises, and then to the Current Premises.
The tenant appealed against the HC’s decision on 3 aspects:
1. that he should have been compensated for increased rent incurred due to excess area of the new premises and increased rent payable during the period he was occupying the interim premises;
2. he should have been compensated for costs of relocation from the interim premises to the new premises, i.e. the costs of the second relocation. The HC found that the tenant could have avoided relocating twice by staying on in the original premises until the new premises were ready (instead of going to the interim premises for only a short period of time);
3. he should have been awarded more for wasted costs: that the HC should have preferred his expert’s estimates rather than the landlord’s.
The CA dismissed the appeal and found that the HC had awarded more damages to the tenant than he should have had.
First, the CA found that there was no evidence that the tenant had made any effort to find premises with similar dimensions to those of the original premises, it found that the tenant had failed to mitigate his losses. It was unreasonable to require the landlord to compensate the tenant for the costs of renting premises which were approximately 50% bigger than the original premises: at .
Second, the CA found that it was not unreasonable for the tenant to have moved out of the original premises early, i.e. before 1 March 2012, even though the permanent new premises he found were not ready. The tenant cited issues of safety for his handicapped employees, noise, inconvenience, and the lack of parking space to explain why he could not stay on in the original premises after renovations thereto commenced: . Further, the CA noted at  that the landlord had initially demanded that the tenant vacate the original premises by 29 February 2012 and confirmed that it was terminating the Lease Agreement prematurely. This was a repudiator breach of the Lease Agreement, giving the tenant an immediate right to terminate.
Thus, the CA held that the tenant ought to have been awarded the extra rent incurred during the short period when he occupied the interim premises, and the costs of relocating from the interim premises to the new premises: .
However, the CA found that it was unreasonable and unforeseeable that the tenant would spend $59,000 on the purchase and installation of individualised air-conditioning units in the new premises even though the new premises had central air-conditioning: .
Third, the CA could not accept the claim for wasted costs incurred on the original premises. The CA opined that it was important the legal principle that the Court should not award both expectation and reliance losses: .
When a contract is terminated pursuant to a repudiatory breach and damages are awarded, the court seeks to place the innocent party in the position he would have been in if the contract had been performed: .
Following this principle, damages for breach of contract are ordinarily assessed in terms of the claimant’s expectation loss, which refers to the value of the benefit that the claimant would have obtained but for the breach of contract, or, to put it another way, the gains the claimant expected as a result of the full performance of the contract: Andrew Phang Boon Leong, The Law of Contract in Singapore (Academy Publishing, 2012) (“The Law of Contract”) at para 21.033. On occasion, damages for breach of contract may be quantified in terms of the claimant’s reliance loss – that is, the costs and expenses the claimant incurred in reliance on the defendant’s contracted-for performance, but which were wasted because of the breach of contract. The basis for awarding reliance loss is the assumption that were the contract performed, the claimant would have at least fully recovered the costs and expenditure incurred. Indeed, in cases where a claimant enters into a bad bargain and would not have recovered all his costs/expenditure even if the contract had been performed, his losses may not be quantified by reference to his reliance expenditure: C & P Haulage v Middleton  1 WLR 1461 at 1468. Thus, the underlying principle, even in cases where reliance loss is awarded, is to place the innocent party in the position he would have been in had the contract been performed: .
Claims for expectation losses and reliance losses are generally alternative claims. A plaintiff cannot claim wasted expenditure and loss of profit at the same time. The reason is that a claim for profit is made on the hypothesis that the expenditure had been incurred. Indeed, if a court awards a claimant both expectation and reliance losses following a breach of contract, the claimant would have been put in an even better position than he would have been in if the contract had been wholly performed. He would effectively have obtained the gains he expected as a result of the full performance of the contract, yet would not have had to incur the necessary costs in securing those gains. The claimant would thus be over- compensated: .
In this case, the problem with the award of wasted costs made by the HC was that it would be over-compensating the tenant. Had the Lease Agreement been performed by the landlord, the tenant would still have incurred the “wasted costs”, ie, the costs of renovating the Original Premises, to render them suitable for his purposes: .
The landlord suggested that the tenant ought to have been awarded wasted costs rather than relocation costs (ie, reliance rather than expectation loss). The CA did not think that this suggestion would be in accord with principle. Conceptually, and in the circumstances here, an award of relocation costs would, as opposed to wasted costs, better achieve the law’s aim of placing the tenant in the position he would have been in had the Lease Agreement been performed: .