Eltraco International Pte Ltd v CGH Development Pte Ltd

• Judgment Date: 23 June 2000
• Date: 23 June 2000
• Docket Number: Suit No 214 of 2000
• Court: High Court (Singapore)

Eltraco International Pte Ltd

Plaintiff

and

CGH Development Pte Ltd

Defendant

[2000] SGHC 114

Woo Bih Li JC

Suit No 214 of 2000

High Court

Banking–Performance bonds–Call on performance bond by beneficiary–Interlocutory injunction to restrain payment–Whether beneficiary entitled to make call on performance bond–Whether beneficiary having to establish breach of contract first –Whether contractual terms precluding call on performance bond–Whether unconscionable to call on performance bond

The defendant engaged the plaintiff as the main contractor in a building project. Pursuant to the main contract between the parties, the plaintiff had procured a performance bond to be issued by QBE Insurance in favour of the defendant for the sum of about $2.43m. Seeking to recover the costs of rectifying outstanding defects in the building project, the defendant made a demand on the bond for the full sum. The plaintiff objected to the call. The defendant then brought a High Court action (Suit No 129 of 2000) against QBE Insurance for the sum under the bond. Thus, the plaintiff commenced the present action (Suit No 214 of 2000) against the defendant, seeking an injunction to restrain the defendant from receiving the $2.43m or any part thereof under the bond and also for the action against QBE Insurance to be stayed. The plaintiff argued that the defendant had to prove a breach of contract before calling on the bond. It was further argued that certain terms of the main contract between the parties dictated that the defendant was not entitled to call on the bond as yet. Finally, it was contended that it was unconscionable for the defendant to call on the bond.

Held, allowing the application in part:

(1) Whether a beneficiary had to establish a breach before calling on a performance bond depended on the terms of the bond. In the present case, the terms of the bond did not require the defendant to establish a breach by the plaintiff before calling on the bond: at [27].

(2) Clause 42 of the main contract pertained only to urgent rectification works and did not apply to the present facts. In any event, the terms of the bond should be construed independently from the terms of the main contract between the parties: at [33], [34] and [39].

(3) When a beneficiary called on a performance bond in circumstances where there was prima facie evidence of fraud or unconscionability, the court should intervene at the interlocutory stage until the whole of the circumstances of the case had been examined. Although a beneficiary under a performance bond should be protected as to the integrity of his security, a temporary injunction would not prejudice or adversely affect the security but would merely delay the realisation of the security: at [43].

(4) There were genuine disputes between the plaintiff and the defendant over outstanding defects and the cost of rectification works. Although the extent of the disputes was not clear at this point, it was not surprising bearing in mind the technical and complex nature of the disputes. In the circumstances, it was not unconscionable for the defendant to receive moneys under the bond: at [76].

(5) As the defendant was still holding about $600,000 as part of the retention moneys and there was about $200,000 worth of variation works due to the plaintiff that was not disputed, $800,000 was deducted from the $2.4m claimed by the defendant under the bond. Accordingly, the defendant was restrained from receiving more than $1.6m pending final resolution of the disputes: at [77] and [78].

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

Min Thai Holdings Pte Ltd v Sunlabel Pte Ltd [1998] 3 SLR (R) 961; [1999] 2 SLR 368 (refd)

Raymond Construction Pte Ltd v Low Yang Tong [1996] SGHC 136 (refd)

Royal Design Studio Pte Ltd v Chang Development Pte Ltd [1990] 2 SLR (R) 520; [1990] SLR 1116 (refd)

Sin Kian Contractor Pte Ltd v Lian Kok Hong [1999] 2 SLR (R) 1085; [1999] 3 SLR 732 (refd)

Christopher Chuah (Drew & Napier) for the plaintiff

Stanley Wong (Jing Quee & Chin Joo) for the defendant

Zaheer Merchant (Madhavan Louis Partnership) for the insurer.

Woo Bih Li JC

Background

1 By a letter of award dated 20 May 1996 from the defendants' architect, the plaintiffs were engaged by the defendants as the main contractors in respect of a proposed superstructure for proposed service apartments cum shops at first storey with two basement car parks on Lots 30-1, 30-2 and 31 TS No 20 at Killiney/Lloyd Road at a contract sum of $24,388,000 (“the project”).

2 The main contract between the parties (“the contract”) incorporated the Articles and Conditions of Building Contract (Measurement Contract) Fourth Edition, reprint March 1990 issued by the Singapore Institute of Architects (“the SIA Conditions”) with amendments.

3 The architect of the project was originally Mr Eric Huay Kwok Meng of Ong & Ong Architects and subsequently, one Mr Steven Low of Ong & Ong Architects (“the architect”). The quantity surveyor of the project was WT Partnership (“the quantity surveyor”).

4 On 28 August 1999, the plaintiffs submitted Progress Claim No 32 for an amount of $1,605,574.43 being all work done as at the date of completion. The progress claim included the balance of variation works which the quantity surveyor had assessed as approximately $200,000 due to the plaintiffs but not yet included in the previous payment certificates issued by the architect.

5 The project was completed on 29 August 1998 according to the completion certificate issued by the architect. The maintenance period commenced on 30 August 1998. The maintenance period was stipulated to be 12 months and “ [f]or defects which occurred [sic]at more than two complaints of the same trade over at different place, such liability to extend for a further period of 6 monthly [sic]”. Hence, the maintenance period for defects should have expired on 29 August 1999 or 29 February 2000.

6 Under cl 27 (2) of the SIA Conditions, the architect was to deliver a schedule of defects not later than 14 days after the expiry of the maintenance period and on receipt of directions or instructions to do so, the plaintiffs are to rectify all remaining defects.

7 Under cl 27 (4), the architect was entitled to require that the contract sum be reduced, such reduction to be assessed by the quantity surveyor, in lieu of rectification work.

8 Under cl 27 (5), when the defects had been rectified or had been dealt with under cl 27 (4), the architect was to issue a maintenance certificate.

9 The plaintiffs were placed under judicial management on 21 January 2000 and Mr Chee Yoh Chuang and Mr Lim Lee Meng were appointed judicial managers pursuant to an order of court.

10 As at the date of completion of the project, the defendants had retained a total sum of $1,219,400 being retention moneys up to 5% of the contract sum. During the maintenance period, the first half of the retention moneys was released in tranches to the plaintiffs. The defendants retained the second half of the retention moneys amounting to $609,700.

11 By a letter dated 4 October 1999, the plaintiffs requested the quantity surveyor to recommend a payment certificate for the balance of variation works assessed by the quantity surveyor to be approximately $200,000.

12 The plaintiffs alleged that notwithstanding various requests from them, the architect did not certify the plaintiffs' progress claim No 32.

13 By a letter dated 21 March 2000, the quantity surveyor wrote a letter to the architect stating that the plaintiffs' claim No 32 could not be recommended because the final accounts had yet to be finalised and that the defective works had not been fully rectified. This letter was forwarded to the plaintiffs vide the architect's letter dated 22 March 2000. The plaintiffs replied to the quantity surveyor's letter in its letter dated 31 March 2000 to the architect alleging that the interim payment sought had nothing to do with the final account as it was for work carried out before the issuance of the completion certificate.

Performance Bond No 01-6501802 for $2,438,800

14 Pursuant to the main contract, the plaintiffs had procured Performance Bond No 01-6501802 to be issued by QBE Insurance (International) Limited (“QBE”) dated 17 July 1996 for the sum of $2,438,800 in favour of the defendants (“the bond”).

15 By a letter dated 18 February 2000, the defendants through their solicitors, M/s Jing Quee & Chin Joo made a demand on the bond for $2,438,800. The plaintiffs, through its former solicitors, M/s Lourdes Chen & Lee objected to the call on the bond through their letters dated 21 February 2000 and 25 February 2000.

Action against QBE

16 On 7 April 2000, the defendants commenced an action in the High Court in Suit 129/2000 against QBE for the sum of $2,438,800 under the bond.

Plaintiffs' action

17 On 27 April 2000, the plaintiffs commenced the present action, ie Suit 214/2000 against the defendants. The primary relief sought was a permanent injunction...