AES Façade Pte Ltd v Wyse Pte Ltd and another

• Jurisdiction: Singapore
• Judge: Lee Seiu Kin J
• Judgment Date: 20 July 2018
• Neutral Citation: [2018] SGHC 163
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 1245 of 2017
• Published date: 04 August 2018
• Year: 2018
• Hearing Date: 28 February 2018
• Plaintiff Counsel: De Vaz Ian Marc Rosario, Tay Bing Wei and Chek Xinwei Liana (WongPartnership LLP)
• Defendant Counsel: Philip Antony Jeyaretnam SC, Melissa Thng Huilin and Amogh Nallan Chakravarti (Dentons Rodyk & Davidson LLP),The second defendant unrepresented
• Subject Matter: Building and Construction Law,building and construction related contracts,guarantees and bonds,Credit and security,performance bond,whether call on performance bond was unconscionable
• Citation: [2018] SGHC 163

Lee Seiu Kin J:

The plaintiff filed the originating summons in this case to seek an injunction restraining the first defendant from demanding payment under a performance bond issued by the second defendant, until the conclusion of the ongoing arbitration proceedings between the plaintiff and the first defendant. The main issue for determination was whether the first defendant had acted unconscionably in making the call. After hearing submissions from both parties, I found that the plaintiff had failed to discharge its burden of proving that the first defendant had acted unconscionably, and I accordingly dismissed the application. I now give the reasons for my decision.

Background facts

The first defendant was engaged by WyWy Development Pte Ltd (“the employer”) as the main contractor for the proposed erection of a block of 19-storey commercial development at 140 Robinson Road (“the Project”).

On 28 November 2014, the plaintiff and the first defendant entered into a subcontract wherein the plaintiff agreed to carry out the design, supply, installation and maintenance of the building façade works to the Project.

In compliance with cl 4.8 of the subcontract, the plaintiff procured from the second defendant, an insurance company, a performance bond in favour of the first defendant, amounting to 10% of the subcontract sum (“the Performance Bond”). The validity of the Performance Bond was extended twice, and was at the time of the hearing due to expire on 12 April 2018.

The date of completion stipulated in the main contract for the Project was 12 April 2016, but the works were only certified by the architect to be completed on 15 November 2016. The plaintiff took the position that the works under the subcontract were substantially completed by 12 April 2016, save for some minor defects.¹

On 25 November 2016, the plaintiff submitted a payment claim (“PC20”) in the sum of $1,280,179.92 to the first defendant, for which the first defendant failed to serve a payment response until 28 December 2016. It was determined via adjudication with the Singapore Mediation Centre (AA495/2016) that the payment response purportedly served on 28 December 2016 was out of time and as such was invalid under s 11 of the Building and Construction Industry Security of Payment Act (“SOPA”) (Cap 30B, 2006 Rev Ed). The adjudicator found for the plaintiff in the total sum of $1,077,151.37 including costs but excluding interests. The adjudication determination was dated 17 February 2017 and served on the parties on the same day.

The plaintiff’s solicitors wrote to the first defendant on 21 February 2017 to demand payment of the adjudication amount. The first defendant refused to pay on the ground that it was entitled to set-off certain sums owed. The plaintiff’s solicitors issued another letter on 24 February 2017 demanding payment, following which they applied for and obtained an enforcement order for the first defendant to pay the sums awarded under the adjudication determination (“the enforcement order”). The enforcement order was obtained on 28 February 2017 and served on the first defendant on 3 March 2017.

The first defendant commenced arbitration proceedings against the plaintiff on 3 March 2017 by filing a notice of arbitration for the sum of $1.55m in liquidated damages for late completion of the subcontract. The arbitration proceedings were still pending at the time of the hearing.

The first defendant also filed an application on 17 March 2017 to set aside the enforcement order. The application was dismissed after the hearing on 24 May 2017, and on 8 June 2017 the plaintiff received $1,072,519.20 which was the sum that the first defendant had paid into court. There was further correspondence after this point as to whether the first defendant was liable for further payments of interest.²

On 2 October 2017, by way of a letter to the second defendant, the first defendant made a demand for immediate payment under the Performance Bond for the full guaranteed sum of $496,500.00. Taking the position that the first defendant was not entitled to make a call on the Performance Bond, the plaintiff applied for and obtained an interim injunction on an ex parte basis pending the disposal of this present application for an injunction. It is the legitimacy of this call on the Performance Bond that forms the crux of the present dispute.

Parties’ cases The plaintiff’s case

The plaintiff’s position was essentially that the circumstances leading to the first defendant’s call on the Performance Bond were such that the call was unfair and oppressive, and as such it should be restrained on grounds of unconscionability.³

The plaintiff argued that the call on the Performance Bond was an unfair attempt to “claw back” the monies paid out following the adjudication determination, and relied on the abruptness of the first defendant’s call on the Performance Bond some 19 months after the contractual completion date of 12 April 2016,⁴ and the fact that the first defendant had resisted payment of the amount in PC20 until all avenues were exhausted.⁵ The plaintiff also submitted that the first defendant’s conduct was premised on the improper purpose of limiting the plaintiff’s cash flow, and as such undermined the purpose behind the SOPA.⁶ Further, the plaintiff also characterised the first defendant’s call as an attempt to circumvent the pending arbitration proceedings by recovering approximately one-third of the arbitration claim amount prior to the hearing.⁷ Lastly, the plaintiff also argued that the first defendant’s call was unconscionable as the first defendant had failed to give evidence of it having suffered genuine loss.⁸

The first defendant’s case

Unsurprisingly, the first defendant took the opposite stance that the circumstances were not sufficient to justify a finding of unconscionability. It relied on case law stating that the threshold for a finding of unconscionability is a high one, since the performance bond represents a contractually bargained allocation of risk that courts should be slow to disturb.⁹

In counter to the plaintiff’s arguments, the first defendant submitted that it is not necessary for a party to prove its claim before calling on a performance bond, as the nature of an unconditional bond was such that it was a substitute for cash security deposit.¹⁰ The first defendant pointed to the fact that it has consistently asserted its claim for liquidated damages since August 2016, such as via set-off against prior progress payments to the plaintiff, to show that its claim for liquidated damages was a bona fide one. According to the first defendant, it had chosen to make the call on the Performance Bond after having considered the plaintiff’s defence and counterclaim filed on 22 September 2017 in the arbitration proceedings, and that it is not obliged to explain its legal strategy for doing so.¹¹

The first defendant also denied that it had behaved in an unfair or oppressive manner, and argued that what the plaintiff characterised as obstructionist conduct in avoiding payment of the adjudication amount was merely an assertion of the first defendant’s contractual right of set-off.¹² In any case, the adjudication determination pertained to the narrow issue of the first defendant’s failure to submit a payment response to PC20 in time, and should not affect the rights and obligations of parties on other issues not adjudicated upon.¹³ In fact, the first defendant suggested that it was the plaintiff who behaved unfairly in seizing upon the first defendant’s inadvertent failure to submit a timely payment response to PC20 over the Christmas period in 2016, and that the plaintiff had not challenged the first defendant’s claim for liquidated damages in its earlier payment responses.¹⁴

The legal principles

It is now settled law in Singapore, and parties did not dispute this, that a call on a performance bond can be restrained on the basis that it was...