Gammon Pte Ltd v JBE Properties Pte Ltd

• Jurisdiction: Singapore
• Judgment Date: 28 April 2010
• Date: 28 April 2010
• Docket Number: Suit No 235 of 2009 (Summons No 1224 of 2009)
• Court: High Court (Singapore)

Gammon Pte Ltd

Plaintiff

and

JBE Properties Pte Ltd (SCDA Architects Pte Ltd, third party)

Defendant

[2010] SGHC 130

Chan Seng Onn J

Suit No 235 of 2009 (Summons No 1224 of 2009)

High Court

Credit and security—Performance bond—Developer calling on performance bond to fund completion of rectification work carried out by other contractors—Gross inflation of costs of rectification to support developer's call on performance bond—Whether amounting to unconscionability so as to restrain call on performance bond

The defendant, developer and owner of a building at 6 Handy Road (“the Building”) had engaged the plaintiff to construct the Building and SCDA Architects Pte Ltd (“SCDA”) as the architect and superintending officer for the construction works. During the period between 12 October 2007 and 7 January 2008, the plaintiff was notified of defects in the fa ade cladding of the Building and it undertook to rectify these defects in a letter dated 28 January 2008.

On 12 February 2008, SCDA issued the completion certificate certifying completion on 16 January 2008, enclosing a schedule of 52 outstanding classes of defects. Despite several reminders by the defendant, to date not all the defects had been rectified by the plaintiff and the defendant called on the performance bond on 6 and 27 February 2009 to fund the completion of rectification work carried out by other contractors engaged by the defendant.

The plaintiff applied for an injunction to restrain the defendant from receiving payment from BNP Paribas Singapore on the performance bond.

Held, granting the application:

(1) It was settled law in Singapore that in addition to fraud, an injunction to restrain a call on a performance bond might be granted on the ground of unconscionability. Whether unconscionability could be established largely depended on the factual matrix of each case: at [6].

(2) The plaintiff had shown a strong prima facie case of unconscionability. The defendant had claimed $2,200,800 for the rectification of cladding defects awarded to one Weng Thai Construction (“WTC”), a tender price which was grossly inflated so as to enable the defendant to justify the call on the full sum of the performance bond. The letter of award to WTC did not specify the scope of work, time frame and method of rectification. The address of WTC was an HDB flat. WTC did not appear to have any expertise in design, fabrication and installation of cladding and its incompetence in carrying out the rectification works was confirmed by its intention to appoint another entity to carry out the work. The price for the contract awarded to WTC to repair some relatively minor cladding defects was six times more than the cost of designing, fabricating, supplying and installing the aluminium panel cladding for the whole fa ade of the building, and thus wholly out of proportion to the value of the works: at [10] and [11].

(3) There was gross exaggeration of the costs of rectification of outstanding defects made in support of the defendant's call on the performance bond. The defendant had claimed a total amount in excess of $2.9m (including the $2,200,800 claimed for the rectification of cladding defects) which amounted to more than 25% of the original contract value. It was not likely that SCDA would have issued a completion certificate certifying that the works were in all respects completed (save for 52 minor outstanding works) when some $2.9m worth of rectification works remained outstanding. A call on the performance bond in this fashion was clearly unconscionable, abusive and bordered on being fraudulent: at [13] and [14].

(4) The call on the performance bond was to be deferred until further order. All rectification works had to be completed by the plaintiff within six months and inspection of rectification work was to be carried out in October 2010. Any dispute on the quality of the rectification works in accordance with the warranty would be determined by the court. If the court determined that the rectification works in accordance with the standard set out in the warranty was not satisfied, the court may direct that, subject to call on the performance bond, a joint tender be carried out in order to rectify the balance of the unrectified defects as determined by the court. The completion of the balance of rectification works, through the joint tender, should be deemed to be in accordance with the standard set out in the warranty. The specifications for the contractors for the joint tender should be the original specifications for the works: at [17].

Dauphin Offshore Engineering & Trading Pte Ltd v The Private Office of HRH Sheikh Sultan bin Khalifa bin Zayed Al Nahyan [2000] 1 SLR (R) 117; [2000] 1 SLR 657 (folld)

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

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

Ho Chien Mien and Lim Dao Kai (Allen & Gledhill LLP) for the plaintiff

Edwin Lee Peng Khoon and Dawn Noeline Tan Chen Hue (Eldan Law LLP) for the defendant

Kenneth Choo and Victoria Ho (Shook Lin & Bok LLP) holding watching brief for BNP Paribas Singapore Branch.

Chan Seng Onn J

Introduction

1 This is an application by the plaintiff, Gammon Pte Limited, for an injunction to restrain the defendant, JBE Properties Pte Ltd, from receiving payment from BNP Paribas Singapore on a performance bond.

Background facts

2 The defendant is a developer and the owner of a building at 6 Handy Road (“the Building”). By a letter of award dated 19 January 2006, the defendant engaged the plaintiff to construct the Building for a sum of $11,515,000. SCDA Architects Pte Ltd (“SCDA”) was engaged as the architect and the superintending officer for the works. The contractual completion date was 17 May 2007. However, SCDA certified an extension of the completion date to 16 August 2007.

3 During the period between 12 October 2007 and 7 January 2008, defects with the fa ade cladding of the building were highlighted to the plaintiff through the issuance of superintendent officer instructions (“SOIs”). The plaintiff undertook to rectify these defects in its letter dated 28 January 2008.

4 On 12 February 2008, SCDA issued the completion certificate certifying completion on 16 January 2008 (“completion certificate”). Enclosed with the completion certificate was a schedule of 52 outstanding classes of defects. To date, not all the defects have been rectified by the plaintiff. Owing to the plaintiff's failure to remedy the outstanding defects despite several reminders by the defendant, the defendant called on the performance bond on 6 and 27 February 2009 to fund the completion of the rectification work to be done by other contractors engaged by the defendant.

The performance bond

5 The relevant terms of the on-demand performance bond excerpted in the defendant's submissions are as follows:

Now in consideration of the Employer not insisting on the Management Contractor paying ten (10) percent of the total value of the Contract as a security deposit for the said Contract, we (at the request of the Management Contractor) hereby agree as follows:

1. 1. In the event of the Management Contractor failing to fulfil any of the terms and conditions of the said contract, we shall indemnify the Employer against all losses, damages, costs, expenses or otherwise sustained by the Employer thereby up to the sum of Singapore Dollars One Million, One Hundred and Fifty One Thousand and Five Hundred Only (S$1,151,500.00) ('the Guaranteed Sum') upon receiving your written notice of claim for payment made pursuant to Clause 4 hereof.

2. 2 We shall not be discharged or released from this guarantee by any arrangement between yourself and the Management Contractor with or without our consent or by any alteration in the obligations undertaken by the Management Contractor or by any forbearance whether as to payment, time, performance or otherwise.

...

1. 4 This guarantee is conditional upon a claim or direction as specified herein being made by you by way of a notice in writing addressed to us and the same being received by us at 20 Collyer Quay #04-01 Tung Centre Singapore 049319 within 180 days from the expiry of this guarantee...

...

1. 5 We shall be obliged to effect the payment required under such a claim or direction within 30 business days of our receipt thereof. We shall be under no duty to inquire into...