Breach of Contract – The Limited Horizon of Damages Out of the Box Pte Ltd v Wanin Industries Pte Ltd

26 February 2013

Cassandra Ow

An important aspect that a Court needs to consider in every case that involves a breach of contract is the extent of damages to be awarded.

However the obligation to pay damages is not an unlimited liability. Although on the face of it, a liability to pay damages arises once the threshold of showing that the damages are causally connected to the breach has been crossed, there are some limits to the extent of such liability.

In the recent case of Out of the Box Pte Ltd v Wanin Industries Pte Ltd [2013] SGCA 15, the Singapore Court of Appeal examined the limits of such liability as well as the circumstances to be considered in determining the damages to be awarded.

Brief facts

Sometime in early 2007, the appellant company, Out of the Box Pte Ltd (OOTB) conceptualised and developed a new sports drink, “18 for Life” (18). On 11 June 2008, OOTB entered into a Contract Manufacturing Agreement (the Contract) with the respondent company, Wanin Industries Pte Ltd (WI). The Contract was a relatively simple document and there was nothing in the Contract that would have given WI any indication or hint of OOTB’s plans for 18.

Sometime in 2008, a shipment of 18 supplied by WI changed colour. On inspection, the bottled drink was also found to be contaminated with insects. As a result, OOTB had to recall all stock of 18 from the market. OOTB also had to abandon its marketing campaign and discontinue the planned venture altogether.
On 22 April 2009, OOTB commenced Suit No 317 of 2009 against WI for breach of the Contract. On 9 September 2009, the High Court granted summary judgment in favour of OOTB and ordered WI to pay damages to be assessed. At the assessment of damages, the Assistant Registrar (the AR) assessed OOTB’s damages in the sum of $655,280.70. WI appealed and OOTB cross appealed against the AR’s decision.

The net result of the appeal was a reduction of the AR’s award to $329,254.30. OOTB appealed against the decision of the High Court Judge to award only nominal damages in relation to the two largest components of OOTB’s claims. This was the sole issue that was before the Court of Appeal.

Holdings

The Court of Appeal held that there are at least two limitations on the extent of a contract breaker’s liability for damages:

a) Where the parties have expressly agreed to allocate the risk of certain losses in their contract eg. exclusion or limitation provisions.

b) Where the law imposes limits on the extent of the contract breaker’s liability by rules that help a court decide whether the particular type of damages claimed is too remote and hence irrecoverable.

In determining the extent of damages to be awarded in this case, the Court of Appeal held that it is important to segregate the question of the interpretation of the contract from the question of remoteness. In order to ascertain whether the contract breaker should be held liable to pay the particular damages claimed, the Court should look at whether the contract breaker had such knowledge of the facts that bore upon that risk as to render it just that he be held liable to pay such damages.

In applying the law to the facts, the Court of Appeal held that the Contract was a bare-bones document that appeared to be nothing more than a routine contract for the supply of modest quantities of a generic sports drink. There was nothing in the Contract which suggested that the parties had together applied their minds to the sort of advertising efforts or strategy that OOTB was planning to launch. While WI would be taken to have known that the launch of any new product would likely be accompanied by some measure of advertising expenses and effort, it was not privy to OOTB’s grand plans for 18. Without knowledge of these additional facts, WI could not possibly have foreseen these losses and there was no basis upon which WI could fairly be held liable for these losses. For these reasons, the Court of Appeal dismissed OOTB’s appeal.

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