Arab Banking Corp (B.S.C.) v Boustead Singapore Ltd

• Judge: Sundaresh Menon CJ
• Judgment Date: 21 April 2016
• Neutral Citation: [2016] SGCA 26
• Citation: [2016] SGCA 26
• Docket Number: Civil Appeal No 70 of 2015
• Published date: 26 April 2016
• Hearing Date: 19 October 2015
• Plaintiff Counsel: Pillai K Muralidharan, Sim Wei Na, Foo Ming-En Mark and Tan Yehna, Andrea (Rajah & Tann Singapore LLP)
• Date: 21 April 2016
• Defendant Counsel: Tan Chee Meng SC, Josephine Choo and Charmaine Neo and Ng Shu Ping (WongPartnership LLP)
• Court: Court of Appeal (Singapore)
• Subject Matter: Demand guarantees,Unconscionability exception,Banking,Fraud exception

Sundaresh Menon CJ (delivering the judgment of the court):

This appeal arises out of the decision of the High Court judge (“the Judge”) in two consolidated suits. The dispute concerns the issue of whether a demand for payment made by the appellant bank, Arab Banking Corporation (“Arab Bank”), on its customer, the respondent, Boustead Singapore Limited (“Boustead”), pursuant to a credit facility entered between them was made fraudulently and/or unconscionably.

The Judge found that Arab Bank had made the demand for payment fraudulently and unconscionably. He granted the injunction sought by the Boustead to restrain Arab Bank from receiving payment from Boustead and further to restrain it from making payment to another bank further up the banking chain that was in place.

Arab Bank has appealed against the Judge’s decision. In essence it claims there was insufficient evidence to find that the demand was made fraudulently or unconscionably. It also contends in any event, that it would be more appropriate in the circumstances of this case if the court were to grant a conditional injunction even if it was satisfied that the demand was improperly made.

Background

The complexity in this matter stems from the involvement of multiple entities operating in different jurisdictions on the basis of multiple agreements variously expressed to be governed by different national laws. It is therefore helpful to begin by setting out the parties and the various agreements that bound them before turning to the sequence of events that have led to the present appeal.

The parties and the agreements

Boustead is a public-listed infrastructure company incorporated in Singapore and involved in construction developments internationally. In 2007, Boustead, acting through a joint venture (“the JV”) with General Buildings and Constructions Co, a Libyan company, was employed by a Libyan entity, the Organisation for Development of Administrative Centres (“ODAC”), to construct a housing development in Al-Marj, Libya. Under cll 6 and 10 of the contract between the JV and ODAC (“the Public Works Contract”), the JV was obliged to procure the issuance of a Performance Bond (“the PB”) and an Advanced Payment Guarantee (“the APG”) in ODAC’s favour. The PB was intended to “guarantee [the JV’s] proper execution” of the Public Works Contract while the APG was intended to guarantee the JV’s repayment of an advanced payment that ODAC had made to the JV upon the latter taking possession of the work site.

At Boustead’s request, the Bank of Commerce and Development (“C&D Bank”), a Libyan Bank, issued the PB and the APG in ODAC’s favour. The PB was issued on 28 August 2007 in the sum of US$3,760,387.95 and was due to expire on 28 July 2009. Its validity period was extended on 18 August 2009 and then again on 22 July 2010. Following the last of those extensions, the PB was valid until 28 July 2011. The APG was issued on 10 September 2007. It was initially for a sum of US$18,331,891.37 and was due to expire on 28 July 2009. Its validity period was extended on 9 September 2009, 22 July 2010 and then again on 5 January 2011 after which it was valid till 30 June 2011. The secured sum was eventually reduced to US$15,021,093.25. The PB and the APG are governed by Libyan law and subject to the non-exclusive jurisdiction of the Libyan courts.

Boustead also entered into a facilities agreement (“the FA”) with Arab Bank, a Bahraini bank, pursuant to which the latter agreed, among other things, to issue bank guarantees for sums specified by Boustead in favour of those Boustead nominated. The FA is governed by Singapore law and subject to the non-exclusive jurisdiction of the Singapore courts.

Pursuant to the FA, Boustead requested Arab Bank to issue C&D Bank two counter-guarantees (“CG38” and “CG39”; collectively “the CGs”). CG38 was issued on 17 August 2009 and was for the same sum as that secured by the PB. CG38 was due to expire on 28 July 2010 but it was extended on 19 July 2010 whereupon it was valid till 28 July 2011 (ie, the date the PB was due to expire). CG39 was issued on 8 September 2009 and was due to expire on 28 July 2010. Its validity period was extended on 19 July 2010 and then again on 29 December 2010 to 30 June 2011 (ie, the date the APG was due to expire). CG39 initially secured a sum of US$18,331,891.37, but this was reduced to the same sum as that under the APG (ie, US$15,021,093.25). In short, the sums guaranteed under the two CGs and their respective validity periods corresponded with the sums guaranteed under the PB and APG and their respective validity periods. The CGs are governed by English law and subject to the non-exclusive jurisdiction of the English courts.

It is common ground that the PB, the APG and the CGs are all demand guarantees. In other words, C&D Bank was obliged to make payment to ODAC upon receipt of conforming demands under the PB or the APG. Similarly, Arab Bank was obliged to make payment to C&D Bank upon receipt of conforming demands under the CGs.

Obligations under the demand guarantees and the credit facility

C&D Banks’s obligation to pay ODAC under the PB is stated in the following terms:

We [ie, C&D Bank] agrees (sic) to make immediate payment to [ODAC] of [any sum not exceeding US$3,760,387.95]…upon receipt of [ODAC’s] first written demand that this amount is due to [ODAC] stating that [Boustead] is in breach of [its] obligations stipulated in the [Public Works Contract] and the respect in which [Boustead] is in breach.

To put it plainly, C&D Bank’s obligation to make payment to ODAC under the PB would be triggered upon its receipt from ODAC of a written demand which stated: that the demanded sum is due to it (such sum not exceeding the amount guaranteed under the PB); that Boustead was in breach of its obligations under the Public Works Contract; and the respect in which Boustead was in breach of the said obligations.

C&D Bank’s obligation to pay ODAC under the APG is expressed in similar terms as follows:

We [ie, C&D Bank] agrees (sic) to make immediate payment to [ODAC] of [any sum not exceeding US$18,331,891.37] on receipt of [ODAC’s] first written demand stating that [Boustead] has failed to repay the advance payment in accordance [with] the conditions of the [Public Works Contract], and the amount which [Boustead] has failed to repay.

Thus, C&D Bank’s obligation to make payment to ODAC under the APG would be triggered upon its receipt from ODAC of a written demand which stated: that Boustead had failed to repay the advance payment in accordance with the conditions of the Public Works Contract; and the amount which Boustead had failed to repay.

Arab Bank’s obligation to pay C&D Bank under CG38 is stated in the following terms:

In consideration of your issuing [the PB], we hereby unconditionally and irrevocably undertake to reimburse you on your first written demand communicated through authenticated SWIFT message or registered mail, despite any contestation on the part of [Boustead]…provided you confirm that you have received claim from [ODAC] in accordance with the terms of [the PB]… Such demand shall be supported by a written statement specifying that you have received a demand for payment under [the PB] in accordance with its terms.

Arab Bank’s obligation to C&D Bank under CG39 is expressed in terms which are identical to those found in CG38 except that it contains references to the APG rather than to the PB and the sum secured is also different. At this stage, we only note that a necessary condition to trigger Arab Bank’s liability under the CGs was a written statement by C&D Bank that it had received a demand for payment from ODAC under and in accordance with the terms of either the PB or the APG as the case might be.

Insofar as the FA is concerned, we need only be concerned with the parties’ obligations under cll 6.8 and 6.9. Clause 6.8 provides that Arab Bank shall not have any obligation to make factual determinations as to the validity or genuineness of any document delivered to it with respect to any bank guarantee it shall issue before making payment under it. It provides as follows: 6.8 No Liability: [Arab Bank] shall have no obligation whatsoever to make any factual determinations as to the validity or genuineness or notice or accuracy or correctness of any certificate or statement or notice or other document delivered with respect to or under any [bank guarantee Arab Bank shall issue pursuant to Boustead’s request] (whether by the beneficiaries of the [bank guarantee] thereof or otherwise) or as to any other matters before making payment under any [bank guarantee].

Clause 6.9 requires Boustead to put Arab Bank in funds immediately upon demand. It states:

… [Boustead] hereby undertakes and agrees with [Arab Bank] that it shall immediately and upon demand from [Arab Bank] (which demand shall, in the absence of manifest error, be conclusive evidence of the amount owing), reimburse and/or indemnify [Arab Bank] for any amounts demanded or paid under any [bank guarantee Arab Bank shall issue pursuant to Boustead’s request]… [Boustead’s] obligations to pay such amount demanded by [Arab Bank] shall be absolute and unconditional irrespective of any…disputes of [Boustead] concerning the merits or validity or propriety of any such demands or claims or any payment made …

Taken together, the effect of these clauses is that Arab Bank may demand payment from Boustead upon it receiving a demand for payment from a beneficiary to which it had issued a bank guarantee at Boustead’s request. Arab Bank is not contractually required to ascertain the truth or falsity of the facts which are represented in the demand that it receives from a beneficiary. On its part, Boustead has an unconditional obligation to make immediate payment to Arab Bank upon receipt of such a demand irrespective of any disputes it may have concerning...