Nailing down defects: Recovery of the cost of cure even if no repairs will be done

Defects are a common issue in construction projects. This is increasingly so in the energy sector where rapid technological advancements have made defects more complex and costly to fix, and defect rectification needs to be considered and planned for alongside operational requirements. It is therefore not always the case that a project owner will look to repair a defect immediately or at all. This raises the question: What measure of damages should be awarded? Should damages be limited to the reduced value of the asset, or should damages extend to the cost of fixing a defect even if there is no current intention to repair it?

The issue was recently addressed by the Appellate Division of the Singapore High Court in Terrenus Energy SL2 Pte Ltd v Attika Interior + MEP Pte Ltd and another case [2025] SGHC(A) 4.  The Court clarified that in principle a party can claim the cost of rectification works even if it does not intend to perform them, so long as this is reasonable and proportionate. The Court's observations help to resolve a long-standing uncertainty under Singapore law and brings the position in closer alignment with that under Australian law.

Facts

Terrenus Energy SL2 Pte Ltd (Terrenus) and Attika Interior + MEP Pte Ltd (Attika) entered into an agreement for the construction of a solar power generation facility in Changi Business Park. We summarised the underlying dispute in our article on the Singapore High Court's earlier decision, against which both parties appealed. Although the appeals concerned various claims, this article focuses on Terrenus' claim for defect rectification costs.

Terrenus alleged that Attika's work was substantially defective as it did not embed solar panel mounting structure rods to a contractually specified depth of at least 500mm below ground. Whilst Terrenus did not plan to rectify this defect, it claimed the cost of rectification, arguing that Attika's default risked structural failure of the solar panels during high winds. 

At first instance, the High Court found that, although Attika did not fully comply with the agreed standards, Terrenus had not proved the extent of that non-compliance or the risk of structural failure as a result of that non-compliance. Terrenus' claim for rectification costs was dismissed, and it was awarded nominal damages only. 

Findings on Appeal

These findings were upheld on appeal, with the Court emphasising that Terrenus failed to prove that the non-compliance presented a structural risk. The Court nevertheless considered what Terrenus could have recovered if the substantial defect had been proven and observed that: 

• A claimant is generally to be compensated for its expectation loss, i.e. the gap between what was actually received and what was promised under the contract. The two main methods of compensating expectation loss are (i) diminution in value of the delivered outcome; or (ii) "cost of cure", such as the cost of performing repairs. 
• An intention to repair is neither a prerequisite nor a weighty factor for awarding the cost of cure. The court is not concerned with how a claimant uses damages awarded.
• Rather, such intention is just one of several factors to evaluate the reasonableness and proportionality of awarding the cost of cure, which includes the: 
  • proportionality between the cost of cure and the benefit of repairs to the claimant; 
  • extent and seriousness of the damage or defect and its consequences; 
  • nature and purpose of the contract, and the degree to which the contractual objective has been substantially achieved; and 
  • claimant's subjective value for what had been promised under the contract. 

In Terrenus, awarding the cost of cure would be unreasonable and disproportionate since the alleged non-compliance did not create a structural risk in the works and Terrenus did not intend to rectify the defect. Nominal damages were more appropriate in these circumstances, i.e. minor sums awarded where a contract is breached but the claimant has not suffered any substantial loss.

Commentary 

Terrenus weighs in on an apparent conflict under Singapore law. Before Terrenus, Singapore law took three differing approaches towards awarding the cost of cure: 

• First, an award of the cost of cure required an intention to cure (MCST Plan No 1166 v Chubb Singapore Pte Ltd [1999] SGHC 192);
• Second, such intention was not a prerequisite for claiming the cost of cure (Chia Kok Leong v Prosperland Pte Ltd [2005] SGCA 12, applying Lord Griffiths' "broader ground" in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85). This was the opposite of the first approach; and
• Third, and most recently, the intention to cure was a weighty factor in assessing the reasonableness of granting the cost of cure. The absence of an intention to cure would, absent very special countervailing factors, result in the claim for the cost of cure being disallowed (JSD Corporation Pte Ltd v Tri-Line Express Pte Ltd [2022] SGHC 227). In JSD, the High Court noted the abovementioned conflict between Chubb and Chia Kok Leong and preferred the Chubb position, finding that the position in Chia Kok Leong was limited to cases involving contracts for the benefit of third parties.

Terrenus clarifies that the Court of Appeal's position in Chia Kok Leong should be preferred. Although these aspects of Terrenus were obiter, the decision nevertheless lends appellate support for Chia Kok Leong, aligning Singapore more closely with other common law jurisdictions, including Australia and, to some degree, England (although, the Court in Terrenus noted that the English position is unsettled).

The Court in Terrenus regarded the position in Australia as being “more settled”. The Court referred to the High Court of Australia’s decision of Bellgrove v Eldridge [1954] HCA 36 and two decisions of the Supreme Court of South Australia (De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28 and Unique Building Pty Ltd v Brown [2010] SASC 106) as supporting the view that, in the context of defective building cases in Australia, intention to cure is generally less relevant, and at most a factor, in deciding whether to award the cost of cure. The Australian position can therefore serve as guidance on how the principles in Terrenus are to be applied.

• In Bellgrove, the High Court of Australia held that damages for the cost of work to rectify a defect were recoverable subject to it being necessary to produce conformity to what was required and a reasonable course to adopt. Damages were awarded on that basis for the cost of demolishing and rebuilding the house in question because its defective foundations seriously threatened the house’s stability. The High Court of Australia viewed the suggestion the owner may not undertake the work as being “immaterial” to the proper measure of damages. However, Australian courts have not interpreted this to mean that such an intention can never be relevant. 
• In Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253, for instance, Giles JA of the New South Wales Court of Appeal explained that whether or not the plaintiff intends to carry out the rectification work is of no significance in itself, but “[t]he significance will lie in why the plaintiff intends or does not intend to carry out the rectification work, for the light it sheds on whether the rectification is necessary and reasonable”. Giles JA explained further: “…if the reason for the intention is that the property is perfectly functional and aesthetically pleasing despite the non-complying work, for example, it may well be found that the rectification is out of all proportion to achievement of the contractual objective or to the benefit to be thereby obtained”. 
• Westpoint was not discussed in Terrenus, but it was considered in Unique Building to which Terrenus referred and aligns broadly with the conclusion in Terrenus that an intention to cure is only one factor to consider in assessing whether cost of cure damages can be awarded. This will come down to the facts of each case.

Following Terrenus, there is greater support for a party to recover the cost of repairs, even if – subject to the reasons – these have yet to be undertaken or are not planned to be executed when the claim is pursued. This allows project owners the flexibility to adopt rectification strategies to match the operational needs of the project, which can evolve over time depending on business needs and the complexity of the defects involved, without losing remedies for the defects in the works. At the same time, whilst Terrenus provides helpful clarification as to an owner’s intention to rectify, this does not mean that contractors will be required to bear damages for the cost of unreasonable and disproportionate repairs: for example, where the cost of substantially demolishing a building to replace technically non-compliant but otherwise functional components that have been incorporated into the structure outstrips the value of the whole building. This is a welcomed practical outcome.