BWN v BWO

• Jurisdiction: Singapore
• Judge: Ang Cheng Hock JC
• Judgment Date: 12 April 2019
• Neutral Citation: [2019] SGHC 94
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 177 of 2019
• Year: 2019
• Published date: 30 July 2019
• Hearing Date: 11 February 2019
• Plaintiff Counsel: Shankar s/o Angammah Sevasamy, Partheban s/o Pandiyan and Muralli Rajaram (K&L Gates Straits Law LLC)
• Defendant Counsel: Tan Yixun, Benedict (Essex LLC)
• Subject Matter: Building and Construction Law,Building and construction related contracts,Guarantees and bonds,Credit and Security,Performance bond
• Citation: [2019] SGHC 94

Ang Cheng Hock JC: Introduction

This was an ex parte application by the applicant for an interim injunction to restrain the respondent from calling on and/or receiving payment on performance bonds issued by the applicant’s bankers in the context of a dispute over a construction project where there is already an ongoing arbitration between the applicant and respondent. After hearing the applicant on an urgent basis, I granted the order sought. The respondent did not apply to set aside the order but instead appealed against it. I set out herein the grounds of my decision.

Background to the application

The applicant is a construction company specialising in, amongst other things, interior decoration. The respondent is a building and construction company who was appointed as the main contractor for works pertaining to a hotel located at [address redacted] (“the Project”).

The applicant was engaged by the respondent in the capacity of a nominated sub-contractor under two separate sub-contracts (“the Sub-Contracts”): The Nominated Sub-Contract for Hotel Works; and The Nominated Sub-Contract for Retail Podium Works.

Both Sub-Contracts are governed by the Singapore Institute of Architects Conditions of Sub-Contract for use in conjunction with the Main Contract (4th Ed, 2011) (“the SIA Conditions”). The SIA Conditions contain an arbitration clause.

As is usual in the construction industry, the Sub-Contracts required the applicant, as the sub-contractor, to furnish performance bonds from a bank in favour of the respondent of an amount equal to 10% of the Sub-Contract sum. Pursuant to this requirement, the applicant procured its bankers, United Overseas Bank Limited (“UOB”), to issue two performance bonds in favour of the respondent, one for each Sub-Contract (“the performance bonds”).¹ The total guaranteed amount by UOB under the performance bonds is $1,054,637.00.

Both the performance bonds were “on demand” guarantees, which had terms that are in pari materia. It was provided in both performance bonds that:²

[UOB] unconditionally and irrevocably undertakes and covenants to pay in full forthwith upon demand in writing any sum or sums that may from time to time be demanded by [the respondent] up to a maximum aggregate sum of … without requiring any proof that [the respondent] is entitled to such sum or sums under [the Sub-Contract] or that [the applicant] has failed to execute [the Sub-Contract] or is otherwise in breach of [the Sub-Contract]. [original emphasis omitted; emphasis added in italics]

I should add that both performance bonds are valid from 1 April 2016 to 31 August 2019, but will automatically be extended for successive periods of six months each, unless UOB gives the respondent prior notice of its intention not to extend the performance bonds, whereupon the respondent will then be entitled, amongst other things, to call for payment under the bonds: cl 3 of the performance bonds.³

The commencement date of the Project was 1 April 2016 and the contract completion date was 30 November 2017. However, that completion date was extended several times due to various delays in the Project. At the time of the hearing before me, the Project had been substantially completed and the owner was inspecting the work for defects.

Disputes arose between the applicant and respondent in late 2017 over whether the respondent should have granted an extension of time to the applicant for the latter to complete its works. The applicant then commenced arbitration proceedings against the respondent on 25 April 2018, pursuant to the arbitration clauses in the two Sub-Contracts.

By September 2018, the parties had filed all their pleadings in the arbitration.

In January 2019, the applicant filed an application under s 211B(1) of the Companies Act (Cap 50, 2006 Rev Ed) (“Companies Act”) to seek a moratorium for a period of 90 days to, amongst other things, restrain all proceedings against the applicant while it pursued ongoing plans to propose a scheme of arrangement under s 210 of the Companies Act in relation to the amounts that are owed to its creditors (“s 211B application”). On 7 February 2019, I heard the applicant and several of its creditors on that s 211B application. I granted the moratorium sought save that, amongst other things, the arbitration proceedings between the applicant and respondent was permitted to continue. The reason for this was that the scheme to be proposed by the applicant was premised on the continuing of the arbitration. This was because the applicant was said to have a substantial claim against the respondent in the arbitration. Recovery from a successful outcome in the arbitration would go into the pool of assets for distribution to the applicant’s creditors.

Three days before the hearing of the s 211B application, on 4 February 2019, the respondent called on the full amount in the performance bonds by giving notice in writing to UOB.⁴ Both notices simply stated, in its material part, that “[w]e hereby give your office notice that the contractor … is in breach of the contract with our office”.

The applicant only learnt on Thursday, 7 February 2019 after the hearing of the s 211B application that there had been a call on the performance bonds. The preceding two days, 5 and 6 February 2019, were the Chinese New Year public holidays. The applicant then filed this application and its supporting affidavit on Monday, 11 February 2019. Due to the urgency of the matter, the application was filed on an ex parte basis. I acceded to the request of the applicant to hear the application in the evening of the same day.

The hearing on 11 February 2019

Counsel for both the applicant and respondent appeared before me for the hearing of this matter. I was informed by counsel for the applicant, Mr Shankar s/o Angammah Sevasamy (“Mr Shankar”), that the papers for the application had just been served on the respondent’s solicitors. Mr Benedict Tan Yixun (“Mr Tan”), who appeared for the respondent, confirmed that.

Mr Tan informed me that he had his client’s instructions to appear at the hearing and state its objections to the application. Other than that, he had no “detailed instructions” yet. He did not apply for an adjournment nor did he ask for time for the respondent to file an affidavit in reply to the applicant’s affidavit in support of the application. As such, the application proceeded before me as an ex parte hearing, albeit with opposing counsel present.

Mr Shankar’s submission on behalf of the applicant was that the respondent had acted unconscionably in calling on the performance bonds. Several points were made. First, it was argued that, while the strict terms of the performance bonds were complied with when the calls on the bonds were made, the respondent had not sufficiently shown that cl 25.1 of the Supplementary Conditions to both of the Sub-Contracts was applicable. The clause in question provides that the respondent can draw on the performance bonds “in pursuance of any Conditions herein where [the respondent] is entitled to deduct any monies from [the applicant]”.⁵ Mr Shankar argued that the Sub-Contracts thus made it clear that the respondent could call on the performance bonds only when it was entitled to claim a deduction of monies pursuant to a condition of the Sub-Contracts from any sums due to the applicant. However, the respondent had not explained or clarified which condition of the Sub-Contracts it was relying on to assert that it was entitled to claim such deductions of monies from the applicant. As already referred to earlier at [12], its notices to UOB simply stated that the applicant had breached the Sub-Contracts. There was also no explanation as to why the full amount of the bonds were being called upon. In other words, the call on the performance bonds were not substantiated.

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