CKR Contract Services Pte Ltd v Asplenium Land Pte Ltd and another

• Jurisdiction: Singapore
• Court: High Court (Singapore)
• Judge: Edmund Leow JC
• Judgment Date: 18 December 2014
• Neutral Citation: [2014] SGHC 266
• Citation: [2014] SGHC 266
• Defendant Counsel: Chuah Chee Kian Christopher, Kua Lay Theng, Lydia Binte Yahaya, Candy Agnes Sutedja and Lim Qian Wen Amanda (WongPartnership LLP),Tham Hsu Hsien (Allen & Gledhill LLP)
• Published date: 22 December 2014
• Date: 18 December 2014
• Subject Matter: Banking,Performance Bonds
• Plaintiff Counsel: Vikram Nair, Seow Wai Peng Amy and Tan Ruo Yu (Rajah & Tann Singapore LLP)
• Hearing Date: 11 November 2014
• Docket Number: Originating Summons No 1025 of 2014

Edmund Leow JC: Introduction

The first defendant, a property developer, engaged the plaintiff as its main contractor for the development of three blocks of residential flats at Seletar Road, Singapore (“the Project”). Pursuant to the terms of the main contract, the plaintiff provided a performance bond of $8,806,383.80 (ie, 10% of the total contract sum) which was issued by the second defendant, a bank.

Dissatisfied with the plaintiff’s performance under the contract, the first defendant issued a notice of termination and called on the performance bond. In response, the plaintiff brought the present application praying for an injunction to restrain the first defendant from calling on the performance bond on the ground that the call was unconscionable.

I heard the application on 11 November 2013 and reserved judgment after hearing the parties.

Background to the dispute

The plaintiff began work on the Project on 21 January 2013. Under the main contract, the scheduled completion date was 20 January 2015. The architect named in the main contract was Mr Chan Soo Khian (“the Architect”).

In September 2014, the Architect issued four notices highlighting the plaintiff’s failure to proceed diligently and its non-compliance with certain directions issued by him.

On 23 October 2014, the Architect issued two termination certificates which corresponded to the plaintiff’s failure to comply with two notices. The next day, the first defendant issued its notice of termination to terminate the plaintiff’s employment under the contract on the basis of the termination certificates.

On 3 November 2014, the first defendant engaged a replacement contractor to rectify existing defects and complete the outstanding work on the Project. The contract sum was $59,941,539.26.

The next day, on 4 November 2014, the first defendant called on the performance bond by issuing a letter of demand to the second defendant.

On 5 November 2014, Vinodh Coomaraswamy J heard the plaintiff’s ex parte application for an interim injunction to restrain payment under the performance bond. After hearing the parties, Coomaraswamy J granted the interim injunction sought.

At the hearing before me, counsel for the plaintiff, Mr Vikram Nair, mentioned in the course of his arguments that arbitral proceedings to determine the dispute between the parties have already been commenced.

The parties’ arguments

The plaintiff argues that the call was unconscionable because: the first defendant had no genuine need to call on the performance bond at the time of the call; the term of the performance bond continues until 2016 and therefore the first defendant could have waited until the conclusion of the arbitration before calling on the bond; the first defendant has no immediate need for funds, and the purpose of the bond is merely to provide security for the plaintiff’s ultimate payment, should the first defendant be successful in the arbitration; the first defendant was aware that the plaintiff would suffer irreparable harm if the performance bond was called on; and the first defendant was aware that its purported termination of the contract was invalid and therefore had no genuine basis for the call.

The plaintiff also argues that cl 3.5.8 of the preliminaries (which were incorporated into the main contract) which attempted to prohibit the plaintiff from seeking the present injunction on the ground of unconscionability is unenforceable for being an attempt to oust the court’s jurisdiction.

The first defendant submits there was no unconscionability in its call on the performance bond because: the performance bond was an unconditional, on-demand bond in which the second defendant was obliged to pay the amount thereunder upon the first defendant’s written demand; the call could have been made anytime and it was not dependent on whether the first defendant had an immediate need for the money secured by the bond; the amount which the first defendant has called under the performance bond represented a reasonable assessment of damages or losses that it had incurred or would likely to incur as a result of the plaintiff’s breaches of contract; the plaintiff’s allegations of wrongful termination do not establish unconscionability; mere contractual breaches are insufficient to prove unconscionability; and the plaintiff has not come with clean hands and has failed to make full and frank disclosure of material facts in its ex parte application.

Issues before this court

Two issues arise for my consideration and they are discussed in the following order: First, is cl 3.5.8 of the preliminaries unenforceable as being an attempt to oust the court’s jurisdiction? Second, assuming cl 3.5.8 is unenforceable, was the first defendant’s call on the bond unconscionable?

My decision Is cl 3.5.8 of the preliminaries unenforceable as being an attempt to oust the court’s jurisdiction?

Clause 3.5.8 of the preliminaries¹ to the main contract provides:

In keeping with the intent that the performance bond is provided by the [plaintiff] in lieu of a cash deposit, the Contractor agrees that except in the case of...