BS Mount Sophia Pte Ltd v Join-Aim Pte Ltd

• Judge: Chao Hick Tin JA
• Judgment Date: 09 May 2012
• Neutral Citation: [2012] SGCA 28
• Published date: 10 November 2014
• Year: 2012
• Hearing Date: 07 February 2012
• Citation: [2012] SGCA 28
• Defendant Counsel: Tan Chee Meng SC and Quek Kian Teck (WongPartnership LLP)
• Docket Number: Civil Appeal No 143 of 2011
• Court: Court of Three Judges (Singapore)
• Plaintiff Counsel: Lawrence Teh, Melvin See and Daniel Tay (Rodyk & Davidson LLP)
• Subject Matter: Credit and security

Andrew Phang Boon Leong JA (delivering the grounds of decision of the court):

This was an expedited appeal against the decision of the first instance judge (“the Judge”), ordering that an interim injunction restraining the Appellant from calling on a performance bond provided by the Respondent, which was granted on an ex parte basis, was to stand pending arbitration between the parties. The appeal was expedited because the performance bond was due to expire on 26 February 2012, before the arbitration between the parties, which was scheduled for late April 2012. The Judge had ordered the interim injunction to stand pending arbitration in Originating Summons No 643 of 2011 (“OS 643/2011”) on the basis that the Appellant’s call on the bond was unconscionable. The Judge’s decision can be found in Join-Aim Pte Ltd v BS Mount Sophia Pte Ltd and another [2012] SGHC 3 (“the GD”). After hearing the parties on 7 February 2012, we dismissed the appeal and allowed the injunction to remain. However, our reasons for so doing differed somewhat from those of the Judge. We now set out the detailed grounds for our decision.

The background

The Appellant was a property developer and the Respondent was a contractor. Pursuant to a building contract dated 28 February 2008 (“the Contract”), the Appellant employed the Respondent to construct a residential condominium development at 95 Sophia Road, Singapore. The contract had a value of $9,688,800. As required by the Contract, the Respondent provided the Appellant with a performance bond (“the Bond”) to secure the performance of the Respondent’s obligations under the Contract. The Bond was for the sum of $484,440, or 5% of the value of the Contract, and was provided by Liberty Insurance Pte Ltd (“Liberty”) who was not a party to the present appeal. The Bond was addressed to the Appellant from Liberty, and the relevant provisions of the Bond are as follows:1Appellant’s Core Bundle vol II (“2ACB”), p 59. 1. In consideration of you [the Appellant] not insisting on the [Respondent] paying SINGAPORE DOLLARS FOUR HUNDRED EIGHTY FOUR THOUSAND FOUR HUNDRED AND FORTY ONLY (S$484,440/-) as a security deposit for the Contract, we [Liberty] hereby irrevocably and unconditionally undertake[s] ... to pay to you on demand any sum or sums which from time to time may be demanded by you up to a maximum aggregate of SINGAPORE DOLLARS FOUR HUNDRED EIGHTY FOUR THOUSAND FOUR HUNDRED AND FORTY ONLY (S$484,440/-)... 2. Should you notify us in writing, at any time prior to the expiry of this Bond, by notice purporting to be signed for and on behalf that you require payment to be made of the whole or any part of the said sum, we irrevocably and unconditionally agree to pay the same to you immediately on demand without further reference to the [Respondent] and notwithstanding any dispute or difference which may have arisen under the Contract or any instruction which may be given to us by the [Respondent] not to pay the same. 3. We hereby confirm and agree that we shall be under no duty or responsibility to inquire into: (a) the reason or circumstances of any demand hereunder, or (b) the respective rights, obligations and/or liabilities of yourselves and the [Respondent] under the Contract...

[emphasis added]

The parties did not dispute that the Bond was in the nature of an on-demand performance bond (hereafter, all references to “performance bonds” will be to such bonds, viz, on-demand performance bonds), and we agreed that this was so based on the true construction of the instrument. As was held by this court in JBE Properties Pte Ltd v Gammon Pte Ltd [2011] 2 SLR 47 (“JBE”) at [17]:

The threshold question for the purposes of ascertaining the nature of the Bond is whether, on a true construction of that instrument, the Bank was liable to pay on demand, or only later, upon proof of breach by [the contractor-obligor] and loss by [the employer-beneficiary]. The construction process looks to the substance of the parties’ rights and obligations under the Bond; the label adopted by the parties is inconclusive. [emphasis added]

The substance of the parties’ rights and obligations under the Bond was that Liberty was obliged to pay the Bond sum immediately upon demand by the Appellant, and was not under a duty to inquire into the circumstances underlying the demand. In particular, Liberty would not concern itself with any instruction given by the Respondent to withhold payment on the Bond. Therefore, the only way the Respondent could restrain a call on the Bond was to apply to the court for an injunction.

The Appellant made a partial call on the Bond for the sum of $360,084.62 on 27 July 2011, and the Respondent applied in OS 643/2011 for an injunction pending arbitration. Before this application was heard, the Respondent successfully applied for an ex parte interim injunction by way of Summons No 3360 of 2011 on 2 August 2011, to restrain the Appellant from calling on the Bond until the hearing of OS 643/2011. On 11 October 2011, OS 643/2011 was heard inter partes, and on the same day the Judge ordered that the interim injunction be allowed to stand pending arbitration of certain contractual disputes between the parties, which order was the subject of the present appeal.

The circumstances surrounding the Appellant’s call on the Bond and the contractual disputes between the parties related to the time for completion of the construction works under the Contract (“the works”) and the consequent alleged liability of the Respondent to pay the Appellant liquidated damages.

The framework contained in the Contract for determining the time for completion was as follows. The Contract provided that the Respondent had to complete the works by 1 January 2010 (“the contractual completion date”). The Architect engaged for this project was Ronny Chin & Associates, and it was the Architect who would determine if the Respondent had completed the works, and the date the works were completed (“the actual completion date”). The Architect would then issue a Completion Certificate. The Respondent could be entitled to extensions of time to complete the works if it sought the Architect’s approval, and, if the Architect granted such extensions, the contractual completion date would be modified to take the extensions into account. Crucially, it was the Architect who determined both the actual completion date and the grant of any extensions of time.

If the actual completion date was later than the contractual completion date (taking into account periods of extension), then the Architect would issue a Delay Certificate which would certify that the Respondent was in default. This Delay Certificate would entitle the Appellant to recover liquidated damages at the rate of $6,000 from the Respondent for every day of delay.

The Appellant called on the Bond on 27 July 2011 because it allegedly believed that it was entitled to liquidated damages from the Respondent for delay in the completion of the works allegedly caused by the Respondent.

The proceedings below

Before the Judge, the Respondent’s case was that the Appellant’s call on the Bond was unconscionable because the Appellant called on the Bond despite not being entitled to any liquidated damages. The Respondent relied on its interpretation of the events prior to the call on the Bond in support of its claim. The sequence of events just prior to the Appellant’s 27 July 2011 call on the Bond, in so far as it was supported by documentary evidence, was as follows; and, in summary, there were three strands to the sequence which could be teased out from the longer yarn.

The first strand relates to the parties’ dispute on the completion date. The Architect issued a Delay Certificate2Ibid, p 104. dated 4 March 2011 (it should be noted that the Delay Certificate was only sent by the Architect to the parties on 24 June 2011)3The Respondent claims that this was so at Respondent’s Case (“RC”), pp 14–15. The Architect admits to this in his affidavit reproduced in 2ACB, p 116. certifying that the Respondent was entitled to 93 days’ extension time and that the contractual completion date was to be extended to 4 April 2010. The Delay Certificate further stated that the Respondent was in default for not having completed the works by 4 April 2010. The Architect also issued a Completion Certificate dated 4 March 201142ACB, p 105. certifying that the works had been completed on 27 August 2010. However, the Respondent disputed the Architect’s findings. In a letter dated 31 March 2011 to the Architect, the Respondent stated that it did not agree that the works had been completed on 27 August 2010.5Ibid, p 77. The Architect responded by letter on the same day and stated that it maintained that the works had been completed on 27 August 2010 because the works had only been cleared by the authorities on that date.6Ibid, p 108.

The Respondent later made a further request for an extension of time. In a letter dated 24 May 2011 to the Architect, 7Ibid, p 78. the Respondent requested an extension of 298 days, which, if granted, would bring the extended contractual completion date to 27 August 2010, indicating that the Respondent would not need to pay liquidated damages. The Architect denied this request, and replied in a letter dated 22 June 20118Ibid, p 79. that the “revised completion date shall indicatively be 4th April 2010”.

On 15 July 2011, the Respondent referred the dispute on the completion date and the extension of time to arbitration, pursuant to cl 37(1) of the Contract which stated, inter alia, that all disputes arising out of the Contract or relating to the Architect’s directions, instructions and certificates shall be referred to arbitration. There was no response to this from the Appellant, and on 27 July 2011 the Appellant called on the Bond.

The second strand relates to the Respondent’s...