CKR Contract Services Pte Ltd v Asplenium Land Pte Ltd

• Jurisdiction: Singapore
• Judgment Date: 22 April 2015
• Date: 22 April 2015
• Docket Number: Civil Appeals Nos 204 and 206 of 2014 and Summons No 197 of 2015
• Court: Court of Appeal (Singapore)

CKR Contract Services Pte Ltd

Plaintiff

and

Asplenium Land Pte Ltd and another and another appeal and another matter

Defendant

[2015] SGCA 24

Sundaresh Menon CJ

,

Chao Hick Tin JA

and

Andrew Phang Boon Leong JA

Civil Appeals Nos 204 and 206 of 2014 and Summons No 197 of 2015

Court of Appeal

Credit and Security—Performance bonds—Unconscionability exception—Contractor instructed bank to furnish on-demand performance bond in favour of developer pursuant to underlying contract—Whether clause in underlying contract preventing contractor from restraining call on performance bond on ground of unconscionability was void and unenforceable because it was contrary to public policy as ouster of jurisdiction of court

Asplenium Land Pte Ltd (‘Asplenium’), a property developer, employed CKR Contract Services Pte Ltd (‘CKR’) as the main contractor for the construction of a condominium. The main contract between Asplenium and CKR required CKR to furnish a performance bond for 10% of the contract sum in Asplenium's favour. The main contract also contained a clause (‘cl 3.5.8’) which stated, inter alia, that CKR was not (except in the case of fraud) entitled to restrain a call on the performance bond on any ground, including the ground of unconscionability.

Asplenium subsequently made a call on the performance bond. CKR applied for an injunction to restrain payment from being made to Asplenium, relying on the ground of unconscionability. CKR argued that cl 3.5.8 was void and unenforceable because it was contrary to public policy as an ouster of the jurisdiction of the court.

The court below held that cl 3.5.8 was void and unenforceable because it was contrary to public policy as an ouster of the jurisdiction of the court. However, the high threshold for the grant of injunctive relief on the ground of unconscionability was held not to have been satisfied. The court below therefore did not grant the injunction. CKR appealed against the court's finding that there was no unconscionability on the facts. Asplenium cross-appealed against the court's holding that the clause was void and unenforceable.

Held, allowing the cross-appeal and dismissing the appeal:

(1) One category of contracts which was contrary to public policy was contracts that ousted the jurisdiction of the courts. Courts, however, had to be careful not to apply this particular category of illegality and public policy to every (or even most) contracts in which there were limitations placed on the rights and remedies of the contracting parties concerned, given the fact that contracts would be held to be void and contrary to public policy on only rare occasions: at [17] and [18] .

(2) Limitations placed on the rights and remedies available to the parties had not been treated as an ouster of the court's jurisdiction. Where such clauses were concerned, neither party had been denied access to the court as such: at [19] .

(3) Clause 3.5.8 was not void and unenforceable for being contrary to public policy. It sought to limit the right to an equitable remedy and was therefore not an ouster of the jurisdiction of the court: at [24] .

(4) The development of the doctrine of unconscionability in the context of (abusive) calls on performance bonds centred on considerations of policy. However, that particular conception of policy was quite different from the concept of public policy which underpinned the category of contracts which was void and unenforceable as being contrary to public policy as contracts that sought to oust the jurisdiction of the court: at [40] and [41] .

(5) As cl 3.5.8 did not oust the jurisdiction of the court and given the fact that there was no suggestion by CKR that there was any fraud involved in the call on the performance bond by Asplenium, the effect of cl 3.5.8 was that Asplenium could indeed call on the performance bond and that the argument from unconscionability was, in light of that particular clause, immaterial for the purposes of the present case. In the circumstances the cross-appeal was allowed and the appeal was dismissed: at [42] .

[Observation: Clause 3.5.8 was more in the nature of an exclusion or exception clause, which might have been subject to common law restrictions or the Unfair Contract Terms Act (Cap 396, 1994 Rev Ed), although this particular point was not raised in the court below: at [23] and [24] .]

AV Asia Sdn Bhd v Measat Broadcast Network Systems Sdn Bhd [2014] 3 MLJ 61 (distd)

Bateman Project Engineering Pty Ltd v Resolute Ltd [2000] WASC 284 (distd)

Bennett v Bennett [1952] 1 KB 249 (refd)

Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643 (refd)

First Health Group Corp v National Prescription Administrators, Inc 155 FSupp 2 d 194 (2001) (distd)

GHL Pte Ltd v Unitrack Building Construction Pte Ltd [1999] 3 SLR (R) 44; [1999] 4 SLR 604 (refd)

Hyman v Hyman [1929] AC 601 (refd)

JBE Properties Pte Ltd v Gammon Pte Ltd [2011] 2 SLR 47 (refd)

Jet Print Inc v Cohen [1999] OJ No 2864 (distd)

Koh Lin Yee v Terrestrial Pte Ltd [2015] 2 SLR 497 (refd)

Lee v The Showmen's Guild of Great Britain [1952] 2 QB 329 (refd)

Leigh v National Union of Railwaymen [1970] Ch 326 (refd)

Scott v Avery (1856) 5 HLC 811; 10 ER 1121 (refd)

Warner Brothers Pictures, Inc v Nelson [1937] 1 KB 209 (refd)

Unfair Contract Terms Act (Cap 396, 1994 Rev Ed) ss 3, 13 (1) (b)

NSreenivasan SC, Shankar AS, Vithyashree and Lim Min (Straits Law Practice LLC) for the appellant in CA 204/2014 and the first respondent in CA 206/2014

Christopher Chuah, Kua Lay Theng, Candy Agnes Sutedja, Lydia Bte Yahaya and Amanda Lim Qian Wen (Wong Partnership LLP) for the first respondent in CA 204/2014 and the appellant in CA 206/2014

Tham Hsu Hsien (Allen&Gledhill LLP) for the second respondent in CA 204/2014 and CA 206/2014.

Andrew Phang Boon Leong JA

(delivering the grounds of decision of thecourt):

Introduction

1 These appeals arose out of an application by a main contractor (‘CKR’) to restrain a call on an on-demand performance bond by a developer (‘Asplenium’) on the ground that the call was made unconscionably. The contract between Asplenium and CKR (‘the main contract’), however, contained a clause stipulating, inter alia,that CKR was not (except in the case of fraud) entitled to restrain a call on the performance bond on any ground, including the ground of unconscionability. The central question before us was whether this clause was invalid and unenforceable because it was contrary to public policy as an ouster of the jurisdiction of the court.

2 The judge in the court below (‘the Judge’) held that the clause was unenforceable because it ousted the jurisdiction of the court. He held, however, that the high threshold necessary to invoke a restraint on the ground of unconscionability was not satisfied on the facts. He therefore dismissed CKR's application to restrain Asplenium's call. Both CKR and Asplenium appealed against the Judge's decision in CKR Contract Services Pte Ltd v Asplenium Land Pte Ltd[2015] 1 SLR 987 (‘the Judgment’). CKR appealed against the Judge's finding that Asplenium did not make the call unconscionably. Asplenium cross-appealed against the Judge's holding that the clause was unenforceable.

3 We held that the clause was enforceable and allowed Asplenium's appeal. As there was no suggestion that there was any fraud involved in the call on the performance bond by Asplenium, we dismissed CKR's appeal. We now give the detailed grounds for our decision.

Background

The main contract and performance bond

4 Asplenium employed CKR as the main contractor for the construction of a condominium along Seletar Road. The main contract was for a two-year period commencing 21 January 2013. The completion date was 20 January 2015. The contract sum was $88,063,838.00. The main contract was based on the amended Singapore Institute of Architects Articles and Conditions of Building Contract (9th Ed, Reprint, August 2011).

5 The main contract required CKR to furnish an on-demand performance bond in Asplenium's favour for 10% of the contract sum. Clause 3.5.8 of the preliminaries to the main contract (‘the Preliminaries’) stated that CKR was not entitled to restrain Asplenium from calling on the performance bond on any ground, except in the case of fraud. There was no dispute that the Preliminaries were incorporated into and formed part of the main contract. We set out the material portions of cl 3.5 for ease of reference:

1. 3.5 Performance bond

2. 3.5.1 Within fourteen days from the date of the Letter of Award, the Contractor shall at his own expense provide a cash payment as a security deposit or in lieu of the cash deposit, an on-demand performance bond which shall be in the form attached as an Appendix to the Contract Documents ... as security for the proper and due performance and observance by the Contractor of his obligations under the Contract. ... Should any performance bond issued pursuant to this Clause cease in any way to be valid, the Contractor shall immediately deposit with the Employer the cash deposit or procure that a new performance bond be issued in the same form prescribed by and in accordance with the terms of this Clause. ...

3. 3.5.2 The Employer may use the Security Deposit to make good any cost, expense, loss or damage sustained or likely to be sustained as a result of any breach of or default under the Contract by the Contractor, or in satisfaction of any liquidated damages payable under the...