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

• Jurisdiction: Singapore
• Judge: Woo Bih Li J
• Judgment Date: 11 March 2015
• Neutral Citation: [2015] SGHC 63
• Plaintiff Counsel: Tan Chee Meng SC, Josephine Choo and Charmaine Neo (WongPartnership LLP)
• Date: 11 March 2015
• Docket Number: Suit No 730 of 2012 consolidated with Suit No 784 of 2012
• Hearing Date: 21 February 2014,19 March 2014,01 July 2014,27 February 2014,30 June 2014,02 July 2014,19 February 2014,05 September 2014,26 February 2014,18 February 2014,20 February 2014,25 February 2014
• Subject Matter: Banking,Fraud exception,Demand guarantees,Unconscionability exception
• Published date: 19 January 2017
• Citation: [2015] SGHC 63
• Defendant Counsel: K Muralidharan Pillai, Sim Wei Na and Ryan Tan (Rajah & Tann Singapore LLP)
• Court: High Court (Singapore)
• Year: 2015

Woo Bih Li J: Introduction

This dispute is between the Arab Banking Corporation (“ABC”) and its customer, Boustead Singapore Limited (“Boustead”). ABC is a Bahrain bank and Boustead is a Singapore public-listed infrastructure company that is involved in construction developments internationally. The dispute arises out of credit facilities that ABC extended to Boustead for a construction project in Libya. The central issue is whether Boustead is required to pay ABC sums of money that ABC alleges are due pursuant to ABC’s demand under a credit facilities agreement (“the FA”).

Background

In 2007, Boustead, acting through a joint venture (“the JV”) with a Libyan company, was employed by the Organisation for Development of Administrative Centres (“ODAC”) to construct a housing development in Al-Marj, a city in north-eastern Libya. While it does appear that one of Boustead’s wholly-owned subsidiaries, and not Boustead, was the actual party to the JV,¹ this distinction is immaterial for present purposes and I will not address it further. According to Boustead, ODAC was a Libyan entity involved in public projects throughout the country and was controlled by the regime of the late Muammar Muhammad Abu Minya al-Gaddafi, better known as Muammar Gaddafi.

The JV’s contract with ODAC (“the Public Works Contract”) was on ODAC’s standard terms. The Public Works Contract required the JV to furnish a performance bond (“the PB”) and an advance-payment guarantee (“the APG”) in favour of ODAC.

The issuance of the PB and APG in favour of ODAC was done through two intermediary banks. First, Boustead instructed ABC to issue two counter-guarantees in favour of a Libyan bank, the Bank of Commerce and Development (“BCD”). I shall refer to these counter-guarantees as “CG38” and “CG39”, or collectively as “the CGs”. Second, ABC instructed BCD to issue the PB and APG in favour of ODAC against the issuance of the CGs in BCD’s favour. The sums counter-guaranteed under CG38 and CG39 corresponded with the sums guaranteed under the PB and APG respectively. They were, to that extent, granted on a back-to-back basis. At the material time, both CG38 and the PB secured the sum of US$3,760,387.95 and expired on 28 July 2011. CG39 and the APG secured the sum of US$15,021,093.25 and expired on 30 June 2011.

The CGs, the PB and APG were demand guarantees (also known as on-demand guarantees or demand bonds). All required payment on demand as opposed to payment on proof of loss, although each instrument had different requirements for a valid demand for payment.

Boustead’s banking relationship with ABC was governed by the FA. Under the FA, Boustead was obliged to reimburse or indemnify ABC on ABC’s first demand for any amounts demanded or paid under the CGs. The FA stipulated that any demand from ABC was to be conclusive evidence of the amount owing from Boustead to ABC under the FA.

A diagrammatic representation of the parties and their relation to each other is set out below:

Unrest in Libya

Unrest broke out in Libya in 2011 while the Al-Marj construction project was still underway. The unrest bloomed into a full-scale civil war. According to Boustead, the Al-Marj project site was looted and pillaged. Boustead’s plant and equipment was destroyed. Boustead’s staff was evacuated from the Al-Marj project site, and subsequently from Libya on 23 February 2011 with the assistance of International SOS. The United Nations Security Council (“UNSC”) passed Resolutions 1970 (2011) and 1973 (2011) on 26 February and 17 March 2011 respectively, imposing asset freezes on the assets of Muammar Gaddafi, his inner circle, and entities under their control.

Boustead took the position that the Public Works Contract was discharged by the war and subsequent evacuation of Boustead’s staff from the Al-Marj project site. Boustead wrote to ODAC on 13 June 2011 stating that a force majeure event had occurred, and that the JV was no longer required to perform its obligations under the Public Works Contract.² It is in this context that the dispute currently before the court began to take root.

Notices or demands in respect of the PB or APG and the CGs

After unrest in Libya broke out in early 2011, various notices or demands were sent by ODAC to BCD and by BCD to ABC in respect of the PB and CG38 and the APG and CG39. I will set out the sequence in respect of the APG and CG39 first and then the sequence in respect of the PB and CG38.

On 25 May 2011, after Boustead’s staff had been evacuated from Libya, BCD sent a Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) message to ABC. (SWIFT messages were the primary mode of communication between ABC and BCD, and unless I mention to the contrary, any communication or correspondence between ABC and BCD was by SWIFT message.) BCD requested that the expiry of CG39 be extended to 31 December 2012, or that the full sum secured under CG39 be paid.³

The first extend or liquidate request from BCD to ABC was followed by a second on 20 June 2011.⁴ On 23 June 2011, BCD made a demand on ABC for payment under CG39 (“the CG39 Demand”).⁵ ABC informed Boustead of the CG39 Demand on the same day. As it turned out, Boustead had commenced Originating Summons No 503 of 2011 (“OS 503/2011”) against ABC on 22 June 2011. Boustead obtained an ex parte injunction restraining ABC from extending the validity of or making payments under the CGs on 23 June 2011, perhaps before having knowledge of the CG39 Demand already made on ABC. Boustead wrote to ABC on 23 June 2011 informing the latter of the injunction.⁶ ABC relayed the message to BCD on 28 June 2011.⁷

BCD adopted the same approach in respect of CG38 notwithstanding the injunction restraining ABC from making payment under both CGs. BCD sent ABC a first extend or liquidate request for CG38 on 30 June 2011,⁸ followed by a second request on 3 July 2011.⁹ On 11 July 2011, BCD made a demand on ABC for payment under CG38 (“the CG38 Demand”).¹⁰

The basis of both the CG38 and CG39 Demands were stated by BCD to be demands from ODAC under the PB and APG respectively. When Boustead was informed of the earlier CG39 Demand, it asked ABC to provide a copy of the ODAC demand on which the CG39 Demand was based. ABC relayed Boustead’s request to BCD. BCD obliged, and on 14 July 2011 (which was after the CG38 Demand had been made), BCD sent to ABC copies of both the purported demands from ODAC which formed the basis for BCD’s CG38 and CG39 Demands.¹¹ These turned out to be letters from ODAC to BCD dated 16 May and 19 June 2011. I shall refer to them as “the ODAC Notices”. ABC forwarded copies of the ODAC Notices to Boustead on 18 July 2011.¹²

Proceedings in Singapore gain momentum

It will be recalled that Boustead commenced OS 503/2011 and obtained an ex parte injunction restraining ABC from making payment to BCD under the CGs on 23 June 2011. On 24 April 2012, ABC successfully challenged the jurisdiction of the Singapore court in OS 503/2011 before an assistant registrar. This was about ten months after the injunction was first granted. The assistant registrar set aside the order granting leave for service of the originating process out of jurisdiction, but did not discharge the injunction. Boustead appealed against the assistant registrar’s decision. A judge of the High Court dismissed the appeal on 29 August 2012 on the ground that Boustead had commenced the action with an incorrect originating process. The judge also discharged the injunction.

Boustead commenced Suit No 730 of 2012 (“S 730/2012”) against ABC the next day, on 30 August 2012. Boustead also made an ex parte application for a second interim injunction to the same effect as the first. The second injunction was granted on the same day by the same judge who had discharged the first injunction. In S 730/2012, Boustead seeks a declaration that it is discharged from all liabilities and obligations to ABC under the FA insofar as they relate to the CGs. Boustead also seeks a permanent injunction restraining ABC from making payment to BCD under the CGs.¹³

While proceedings in Singapore were unfolding, ABC continued to receive requests from BCD to extend or liquidate the CGs. On 23 August 2012, BCD wrote to ABC stating that ODAC requested an extension or liquidation of the APG. In the same message, BCD further stated that if an extension was not forthcoming, BCD “shall be grateful ... if [ABC] would consider this SWIFT as an official claim for liquidation of the value of [CG39]”.¹⁴ ABC responded on 27 August 2012 acknowledging BCD’s message, and reminding BCD of the injunction.¹⁵

ABC makes a demand on the FA and issues an event-of-default notice

On 3 September 2012, ABC made a consolidated demand for payment of US$18,781,481.20 under the FA. I shall refer to this as “the FA Demand”. The FA Demand was for the aggregate of the sums demanded by BCD under the CGs.¹⁶ The FA Demand was made more than a year after BCD’s demands for payment under the CGs. An injunction restraining ABC from making payment to BCD under the CGs was and still continues to be in place from when it was first granted on 23 June 2011 (save for the narrow one-day window when the first injunction was discharged, which is described at [15]–[16] above).

Boustead responded to ABC’s FA Demand by email on 4 September 2012.¹⁷ The email reminded ABC that it was restrained from making payment under the CGs. The email also set out Boustead’s position that it disputed the validity of the CG Demands and the ODAC Notices, and that Boustead would not be making any payment to ABC.

ABC responded by serving an event-of-default notice (“the EOD Notice”) on Boustead under the FA on 10 September 2012.¹⁸ The ground for the EOD Notice was that ABC had not received payment from Boustead. ABC’s position is that the EOD Notice terminated the FA with immediate effect.

ABC subsequently commenced Suit No 784 of 2012 (“S...