CAA Technologies Pte Ltd v BHCC Construction Pte Ltd and ABN Amro Bank N.V.

• Jurisdiction: Singapore
• Judge: Lorraine Ho
• Judgment Date: 16 January 2014
• Neutral Citation: [2014] SGDC 25
• Court: District Court (Singapore)
• Docket Number: OSS No. 373 of 2013, RAS No. 173 of 2013
• Published date: 06 May 2014
• Year: 2014
• Hearing Date: 29 November 2013,04 December 2013
• Plaintiff Counsel: Mr Irving Choh / Ms Lim Bee Li [M/s Optimus Chambers LLC] - Plaintiff's counsel
• Defendant Counsel: Mr Lee Mun Hooi [M/s Lee Mui Hooi & Co] - 1st Defendant's counsel,Ms Candice Soh (with intern) [M/s Allen & Gledhill LLP] - 2nd Defendant's counsel
• Citation: [2014] SGDC 25

District Judge Lorraine Ho:

The Plaintiff’s application before me is for a restraining order against the 1st Defendant from calling for and receiving payment in the sum of $200,000 pursuant to a Banker’s Guarantee No. 856-0001628 (“the Guarantee”) issued by the 2nd Defendant in favour of the 1st Defendant. The application is also to restrain the 2nd Defendant from releasing payment for the said sum to the 1st Defendant. In support of the Plaintiff’s application, the Plaintiff filed 2 affidavits on 25 November 2013 (Plaintiff’s 1st affidavit”) and 2 December 2013 (“Plaintiff’s 2nd affidavit”) affirmed by Chen Linhui, their General Manager. The 1st Defendant filed an affidavit on 28 November 2013 affirmed by Chok Chin Chiang, their General Manager (“1st Defendant’s affidavit”).

The 1st Defendant was at all material times the main contractor of the building project at Bukit Panjang Neighbourhood N4C17 for the construction of 264 HDB dwelling units.

Pursuant to the Letter of Award dated 10 February 2012 (but only executed on 27 December 2012), the 1st Defendant engaged the Plaintiff as their sub-contractor for the provision, design, supply, fabrication and delivery of all pre-cast components in respect of the building project. The value of the contract sum was $5,340,799.95. Under Clause 9 of the Letter of Award, the Plaintiff was contractually required to furnish a banker’s guarantee in the form of an advance payment bond, which is equivalent to 10% of the total Sub-Contract amount, to the 1st Defendants as security for advance payment made by the 1st Defendant to the Plaintiff. The down payment will be deducted from the Plaintiff’s progressive claim before the expiry of the Guarantee. The Guarantee in the sum of $534,080 issued to the 1st Defendant on 26 March 2013 by the 2nd Defendant was an unconditional on demand guarantee.

On 25 November 2013, the 1st Defendant called on the Guarantee for the sum of $200,000.00. This is because according to the 1st Defendant, out of the $534,080.00 advanced to the Plaintiff, only $334, 080 had been repaid to the 1st Defendant. It was also the position of the 1st Defendant that based on the value of the works done by the Plaintiff after less the payments received and the retention sums, there was still a negative amount owing to the 1st Defendant. Hence, the Plaintiff would not be able to repay the balance of the $200,000 from the progress claims. It was on the premise of the 1st Defendant’s call on the Guarantee that this application was filed by the Plaintiff to challenge the call.

The counsel for the 2nd Defendant informed the Court that their client is not contesting the application but is agreeable to be bound by the Court’s decision as to whether or not the sum of $200,000 can be released to the 1st Defendant.

ISSUE

The issue here is whether it was unconscionable for the 1st Defendant to have called on the Guarantee to demand for payment of the sum of $200,000 from the 2nd Defendant.

THE LAW

The law on calling on a performance bond or guarantee in the nature of the present case is not controversial. Both the Plaintiff’s counsel and the 1st Defendant’s counsel relied on the Court of Appeal decision of BS Mount Sophia Pte Ltd v. Join-Aim Pte Ltd [2012] 3 SLR 352 for the threshold to be established before the court would exercise its discretion to grant an injunction against the call. In essence, the Court of Appeal held that a high threshold of a strong prima facie case of unconscionability must be met by the applicant before the burden can be discharged. The Court of Appeal gave its reasons at paragraph 24 of the judgment as follows:

“The reasons for requiring a high threshold for unconscionability relate to the need to strike the appropriate balance between the conflicting positions of the obligor and beneficiary of a performance bond, which we have termed the “perennial tension”. Tied up in this balance is the underlying need to preserve the raison d’etre of performance bonds – that they are to provide security for the performance of the obligor’s obligations – which stems from broader policy reasons. If calls on this security by the beneficiary are too liberally subject to injunctive relief from the courts, this security loses its efficacy and the raison d’etre of performance bonds would be eroded or even wholly undermined.”

THE PLAINTIFF’S ARGUMENTS

The Plaintiff first sought to argue that there was no basis for the 1st Defendant to call on the Guarantee when the Plaintiff had already provided for the full deduction of the advance payment sum in respect of the works done by the Plaintiff. Further, the Plaintiff argued that the 1st Defendant acted in bad faith when they abruptly revised their draft Final Accounts to reflect the amount for advance payment to be deducted and returned to the Plaintiff differently as $334,080 instead of $534,080. This difference resulted in the sum of $200,000 being reflected as an outstanding payment due by the Plaintiff to the 1st Defendant in the latter draft so that it would appear that the Plaintiff did not fully repay the advance payment to the 1st Defendant. No reasons were also provided by the 1st Defendant for the revision.

Next, the Plaintiff submitted that the value of the works done is in dispute between the parties. The tabulations of both parties are not the same. However, I note that the tabulation on the value of the work done given by the Plaintiff in the Plaintiff’s written submissions is inconsistent even with the one that was given by the Plaintiff in the Plaintiff’s first affidavit based on the documents exhibited therein. For example, in the table at page 12, paragraph 45 of the Plaintiff’s 1st affidavit, the value of the works done as of 31 October 2013 was stated by the Plaintiff to be $1,501,933.99. However, in progressive claim no. 10 issued by the Plaintiff, the value of the works done stated therein does not seem to add up to the said amount. Plaintiff counsel was unable to explain the reason for the discrepancy. On the other hand, the value of the works done as at 31 October 2013 was stated clearly by the 1st Defendant in their final accounts issued as $1,449,883.52.

In addition, the Plaintiff sought to rely on Clause 9 of the Letter of Award which expressly states that the advance payment amount shall be deducted from the Sub-Contractor’s progress claims before the expiry of the Guarantee. The expiry date of the Guarantee was 29 November 2013. Hence, the Plaintiff say that the 1st Defendant should have deducted the entire sum of the advance payment sum from the amount due to the Plaintiff for the works done before considering the issue of the back charges allegedly owed to the 1st Defendant, as per the earlier draft final accounts prepared. This was also done in the earlier progress claims. Moreover, even if the sum of $200,000 was treated as outstanding down payment, the Plaintiff tried to argue that the alleged amount owing to the 1st Defendant due to the disputed back charges as calculated by the 1st Defendant was incorrect. This was based on the tabulation at page 13 of the Plaintiff’s submissions.

At the hearing, I did point out to the Plaintiff’s counsel that his client’s calculation did not appear to be correct as the valuation of the works done stated did not appear to be consistent with the documents exhibited in the Plaintiff’s 1st affidavit. Secondly, the 5% retention sum amounting to $72,494.18 was not included in the Plaintiff’s calculations. Thirdly, the amount of the agreed back charges provided to the Plaintiff to the 1st Defendant appears to be more than what was stated in the Plaintiff’s calculations.

Finally, the Plaintiff argued that the call on the Guarantee for the sum of $200,000 was misconceived because even based on the 1st Defendant’s own calculations, the amount owing by the Plaintiff to the 1st Defendant that is attributable as advance payment was only the sum of $92,806.29. Hence, to call on the full balance amount of $200,000 was excessive. I note that the 1st...