First Construction & Engineering Pte Ltd v Yim Hon Yuen

• Jurisdiction: Singapore
• Judge: Wong Peck
• Judgment Date: 23 June 2021
• Neutral Citation: [2021] SGDC 120
• Court: District Court (Singapore)
• Docket Number: Originating Summons No 2 of 2021, HC/RAS 13 of 2021
• Published date: 30 June 2021
• Year: 2021
• Hearing Date: 20 May 2021,18 May 2021
• Plaintiff Counsel: Patrick Yap and Callie Kwong (BR Law Corporation)
• Defendant Counsel: Lavan Vickneson (Legal Solutions LLC)
• Subject Matter: CREDIT AND SECURITY,Performance bond
• Citation: [2021] SGDC 120

District Judge Wong Peck: Introduction

The plaintiff brought the present action to restrain payment under a performance bond. As ascertained and agreed between parties at the hearing before me on 18 May 2021, the hearing dealt with the final disposal of the Originating Summons and I accordingly made no order as to the prayers in the interim injunction in DC/SUM 11 of 2021.

After hearing parties, my decision was to dismiss the plaintiff’s application for restraining payment under the performance bond. Being dissatisfied, the plaintiff has now appealed against my decision.

Background

The performance bond No DBPFHQ18-000252 issued on 14 September 2018 by EQ Insurance Company Limited (“EQ Insurance”) was made in favour of the defendant who was the employer for the project of construction of a new semi-detached dwelling house (“the house”) located at 87 Braemar Drive, Singapore 559490. The plaintiff was the contractor engaged by the defendant to carry out, complete and maintain the project works. The performance bond was furnished in lieu of the 10% cash deposit that the plaintiff was to provide to the defendant to ensure the plaintiff’s due performance and observance of its contractual obligations as the plaintiff was the contractor tasked with constructing the house.

The original completion date was to be 14 August 2019. However, the works were not completed on that date. On 21 October 2020, the temporary occupation permit (“TOP”) for the house was issued. On 18 January 2021, the architect for the project issued a Liquidated Damages entitlement certificate (“LD certificate”) dated 16 January 2021 which stated that the contract completion date was 21 October 2020 and that there had been a delay of 435 days past the original completion date. As there was an extension of time of 122 working days granted, the revised contract completion date was 21 June 2020. Hence, the default period was 313 days resulting in liquidated damages of $156,500 being payable as the LD rate was $500 per day.

Based on 10% of the contract sum, the bond amount was $105,300. According to the terms of the bond, it was valid till 5 July 2020 and automatically extended for successive period of 90 days unless EQ Insurance notified the defendant to the contrary. On 21 October 2020, the defendant sent an email to EQ Insurance to call on the bond. This was supplemented by a further email of 3 November 2020 to EQ Insurance informing that the defendant was calling on the full bond amount and details of the defendant’s claim totaling ($115,960) were set out in an excel spreadsheet attached to this email to EQ Insurance. The computation comprised of total cost to defendant ($36,990) plus LD of 250 days ($125,000) less the net outstanding ($46,030.3452).

The plaintiff’s arguments to restrain call on performance bond

The plaintiff’s position as stated in their submissions was that the call on the performance bond was tainted with fraud and unconscionability. In the submissions before me, the plaintiff’s counsel made four main arguments. Firstly, they took the position that based on clause 16 of the contract made between the parties, the LD certificate was a condition precedent. When the call on the performance bond was made in October 2020, no LD certificate had been issued by the architect yet. This was because the defendant only made the request for the LD certificate on 16 January 2021. As the LD had not crystalised yet at the time the call on the performance bond was made, the defendant was not entitled to make the call. Hence, the call was made fraudulently by the defendant as he was not concerned with whether the call was correct, or at the very least, unconscionable to do so on his part.

Secondly, the LD certificate was invalid as the plaintiff claimed that there were five errors made in the certificate. The errors were as follows: Wrong completion date was stated. It should be 14 August 2019 and not 21 October 2020 as it was a 12-month contract to build the house. 21 October 2020 was the TOP date. Architect failed to state the last interim certificate as he had only attached this certificate. 435 days of delay was wrong. Architect had wrongly stated the extension of time which was not necessary as construction was completed before the COVID-19 pandemic. As the number of days of delay was wrong, it followed that the LD sum was wrong. It should be $56,000 and not $156,000.

Thirdly, the defendant has claimed a sum lesser than what the architect had certified in the LD certificate. Although the defendant had justified doing so out of goodwill, the plaintiff claimed that the reason was because the defendant had substantially completed the works. The final argument was that only $9,750 worth of works was not certified by the architect and this amounted to less than 1% of the original contract sum on which the bond was based.

The plaintiff also claimed that the architect was employed by the defendant and not an independent third party as he was paid by the defendant for his services. The Singapore Institute of Architects (“SIA”) contract also provided that the architect was an agent of the employer.

The defendant’s arguments not to restrain call on performance bond

The defendant counsel’s preliminary objection was that the plaintiff did not complain of fraud in its supporting affidavit. Therefore, it was not fair for the plaintiff now to allege fraud in their written submissions. Counsel also submitted that in this hearing, the Court was not to embark on minute examination of facts and circumstances but to focus on lack of bona fides. Further, the plaintiff had acknowledged in its supporting affidavit that they owed liquidated damages but were only disputing the quantum.

There had been numerous documents showing outstanding works and repeated reminders and warnings issued by the architect. An example given was the warning letter issued by the architect on 26 March 2020 for outstanding works. Another example was the architect’s instruction dated 13 April 2020 where he stated the works that were severely late. Other examples were the Whatsapp messages of 30 January 2020 and 19 August 2020 that were exhibited showing that works were still outstanding. This was further proven by the notes of meeting taken for site meeting number 23 dated 10 October 2019 stating outstanding works when all parties were present.

The defendant submitted that based on case law, where there are genuine disputes, this does not go towards fraud or unconscionability. Instead, such matters should be resolved at trial or arbitration. In the present case, evidence of outstanding works had been exhibited and this was sufficient for the beneficiary to call on the performance...