CEX v CEY and another

• Court: High Court (Singapore)
• Judge: Lee Seiu Kin J
• Judgment Date: 18 May 2020
• Neutral Citation: [2020] SGHC 100
• Citation: [2020] SGHC 100
• Published date: 22 May 2020
• Plaintiff Counsel: Tan Shien Loon Lawrence, Chan Ying Keet Jasmine and Poonaam Bai (Eldan Law LLP)
• Defendant Counsel: Phua Cheng Sye Charles (Comlaw LLC),Yeo Teng Yung Christopher (Legal Solutions LLC)
• Docket Number: Originating Summons No 933 of 2019
• Hearing Date: 15 January 2020
• Date: 18 May 2020
• Subject Matter: Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed),Building and Construction Law,Setting aside adjudication determination,Unconscionability

Lee Seiu Kin J: Introduction

CEY is the unfortunate developer for six strata detached houses at [redacted] (“the Project”). It has faced numerous delays in construction works and the present application is not the first one that it has resisted. Given its misfortunes, CEY could have been forgiven for being anxious, frustrated and even impatient with further delays in the construction. But when it pushed CEX, its main contractor, to proceed with illegal construction works and terminated CEX’s employment for its failure to do so, any sympathy for CEY quickly evaporated. In the circumstances, I found that CEY had let its impatience get the best of it and that it had acted unconscionably in calling on the performance bond. Accordingly I granted CEX an injunction, restraining CEY from calling on the performance bond. Though CEX brought this application on both grounds of fraud and unconscionability, I based my decision primarily on the unconscionability exception. I now set out my reasons in full.

Facts

CEX took over the project as its main contractor on 9 May 2017¹ when it accepted a letter of award dated 4 May 2017.² Pursuant to cl 9.1 of the letter of award,³ CEX procured a performance bond from CEZ in favour of CEY.⁴

It suffices at this juncture to say that the project was beset with delays. CEY took the view that the delays were attributable to CEX’s persistent failure to carry out the contract with due diligence and expedition. CEX argued that many of the delays were beyond its control and pointed to, amongst other things, the hospitalisation and subsequent death of Mr. John Seah, the architectural qualified person for the Project (“Mr. Seah”).

Mr. Seah took ill and was hospitalized on 7 January 2019. ⁵ In a letter dated the same day, he attempted to authorise one Mr. Ng Hoe Theong (“Mr Ng”) to “cover [his] duties”.⁶ On that authority, Mr. Ng issued a notice to proceed with due diligence and due expedition (“the Notice to Proceed”) to CEX. Mr. Seah himself would later pass away on 24 January 2019.⁷ There was no new architectural qualified person formally appointed until 27 February 2019.⁸

Notwithstanding Mr. Seah’s demise on 24 January 2019, Mr. Ng would later issue a termination certificate “on behalf of [Mr. Seah]”⁹ on 19 February 2019, stating that CEX had “failed and [was] still failing to proceed with due diligence or expedition in its Works”. Relying on the termination certificate and on account of “[CEX’s] persistent failure to carry out the Contract works with due diligence and expedition”,¹⁰ CEY issued a notice of termination on 20 February 2019.¹¹ CEX denied any breaches¹² and promptly served a notice of arbitration the following day, claiming that, amongst other things, its employment had been wrongfully terminated.¹³

CEY later sought to recover losses arising from CEX’s alleged breaches of contract. These complaints were collated and conveyed in a letter of demand seeking S$3,921,039.68, such sum being CEY’s estimated expenses for hiring a replacement contractor.¹⁴ CEX refused to pay the sum¹⁵ and CEY subsequently called on the performance bond on 19 July 2019.¹⁶

Issues to be determined

The first issue concerns the statutory interpretation of s 6(5) of the Building Control Act (Cap 29, 1999 Rev Ed) (“the Act”). In particular, the question is whether the holder of a permit to carry out structural works ceases to be a qualified person should the permit holder take ill and become otherwise incapacitated (“The Interpretation Issue”). This is relevant in ascertaining whether it was illegal for CEX to carry on construction works when Mr. Seah took ill on 7 January 2019.

The second issue is whether the call on the performance bond should be restrained (“The Performance Bond Issue”). The nature of the performance bond and its terms were not disputed. This was an on-demand performance bond. There was no contention that the demand was being technically defective. The issue was whether an injunction restraining the call ought to be granted on the ground of unconscionability.

Applicable legal principles The unconscionability exception

For a while, there was some uncertainty about the unconscionability exception in Singapore. Following Bocotra Construction Pte Ltd and others v Attorney-General [1995] 2 SLR(R) 262 at [46], [48] and [53] (“Bocotra”), the authorities splintered into two separate branches. The first line of cases concluded that Bocotra’s reference to unconscionability had simply been a case of loose language and that “unconscionability” had been used as an interchangeable synonym for fraud – the original and only ground for restraining calls on performance bonds: New Civilbuild Pte Ltd v Guobena Sdn CEX and another [1998] 2 SLR(R) 732 at [43] (“New Civilbuild”) and Dauphin Offshore Engineering & Trading Pte Ltd v The Private Office of His Royal Highness Sheikh Sultan bin Khalifa bin Zayed Al Nahyan [1999] SGHC 201 at [36] (“Dauphin HC”). The second line of cases took the view that unconscionability was indeed a separate ground for restraining calls on performance bonds (see for example, Min Thai Holdings Pte Ltd v Sunlabel Pte Ltd and another [1998] 3 SLR(R) 961 at [35] and Raymond Construction Pte Ltd v Low Yang Tong and another [1996] SGHC 136 at [5] (“Raymond Construction”)).

The judicial dichotomy was settled by the Court of Appeal in GHL Pte Ltd v Unitrack Building Construction Pte Ltd and another [1999] 3 SLR(R) 44 (“GHL”) which ruled unequivocally that unconscionability is a separate and distinct ground for granting an injunction to restrain the enforcement of a performance bond. The jurisprudence then developed on the concept and scope of unconscionability. Cases such as Dauphin Offshore Engineering & Trading Pte Ltd v The Private Office of HRR Sheikh Sultan bin Khalifa bin Zayed Al Nahyan [2000] 1 SLR(R) 117 (“Dauphin CA”) and BS Mount Sophia Pte Ltd v Join-Aim Pte Ltd [2012] 3 SLR 352 (“BS Mount Sophia”) clarified and justified the legal threshold for establishing the unconscionability exception. Nothing short of a strong prima facie case suffices (see Dauphin CA at [57] and BS Mount Sophia at [20], [21] and [39]). Others defended the unconscionability exception and explained its rationale (see JBE Properties Pte Ltd v Gammon Pte Ltd [2011] 2 SLR 47 at [10] – [13] (“JBE Properties”) and BS Mount Sophia at [18] – [38]). The main policy concerns guiding restraints of a call on a performance bond, have also been extensively and lucidly canvassed. In summary, they are: respecting the intention of the parties: GHL at [24] and BS Mount Sophia at [25]; upholding the commercially valuable autonomy principle: Peter Ellinger & Dora Neo, The Law and Practice of Documentary Letters of Credit (Hart Publishing, 2010) (“Ellinger & Neo”) at pp 325–326, adopted in BS Mount Sophia at [30]); and preventing abusive and oppressive calls on performance bonds, particularly in the construction industry: GHL at [24] and JBE Properties at [11].

Instructive as these propositions are, uncertainty still lingers in the jurisprudence. The precise scope of unconscionability remains undefined. The courts have of course, sensibly, refused to provide an exhaustive definition: Dauphin CA at [42]. To do so would limit the discretion of the courts to address the multifarious forms that unconscionability may take and, on a more cynical view, provide counsel with an instruction manual for evading the unconscionability exception. But the case law has developed substantially since Dauphin CA. I am therefore of the view that unconscionability may be mapped in more concrete terms than abstract propositions. From an analysis of the authorities, the following framework may be discerned for evaluating whether an injunction restraining a performance bond should be granted on the ground of unconscionability: Identify the nature of the performance bond, applying the principles enumerated in Master Marine AS v Labroy Offshore Ltd and others [2012] 3 SLR 125 at [34]–[42] (“Master Marine”). Ascertain whether the call falls within the terms of the bond (see for example, York International Pte Ltd v Voltas Ltd [2013] 3 SLR 1142 at [39] – [42] (“York International”) and BWN v BWO [2019] 5 SLR 215 at [22] (“BWN”)). Evaluate whether the “overall tenor and entire context of the conduct of the parties support a strong prima facie case of unconscionability” (BS Mount Sophia at [40]), unconscionability having been broadly (but not exhaustively) described to involve elements of unfairness and conduct lacking in good faith: Raymond Construction at [5]. These elements have most commonly manifested in the following manner: calls for excessive sums; calls based on contractual breaches that the beneficiary of the call itself is responsible for; calls tainted by unclean hands, eg, supported by inflated estimates of damages or mounted on the back of selective and incomplete disclosures; calls made for ulterior motives; and calls based on a position which is inconsistent with the stance that the beneficiary took prior to calling on the performance bond.

I pause to clarify three things about the factual matrices I have just described in the paragraph above. First, this is not an exhaustive list of circumstances where unconscionability arises. The list is not and will probably never be closed. Indeed, the present case involves a factor that is not captured by any of the above listed categories (see [68]). These factors are simply circumstances that have recurred often enough. Second, no single factor is dispositive. The weight attached to each factor will vary from case to case depending on the strength of the evidence. Every case must be examined with careful regard to the entire context, rather than devolve into a pedantic inquiry into each and every factor. The corollary to this is that the factors listed above should not be taken as a checklist to be ritually attended to....