GHL Pte Ltd v Unitrack Building Construction Pte Ltd and Another

• Jurisdiction: Singapore
• Judge: Lai Kew Chai J
• Judgment Date: 14 August 1999
• Neutral Citation: [1999] SGCA 60
• Citation: [1999] SGCA 60
• Defendant Counsel: Tan King Kai (Tang & Partners),Florence Koh Lee Kheng (Tan & Koh Partnership)
• Published date: 19 September 2003
• Plaintiff Counsel: Chong Yee Leong and Eileen Tay (Rajah & Tann)
• Date: 14 August 1999
• Docket Number: Civil Appeal No 20 of 1999
• Court: Court of Appeal (Singapore)
• Subject Matter: Injunction to restrain enforcement of performance bond,Building and construction related contracts,Given by contractor pursuant to construction contract based on contract sum,Performance bond,Whether unconscionability a ground for restraining enforcement,Contract sum reduced,Building and Construction Law

(delivering the grounds of judgment of the court): This was an appeal against the decision of Rubin J in which he declined to set aside an interim injunction obtained by the first respondents, Unitrack Building Construction Pte Ltd (`Unitrack`), restraining the appellants, GHL Pte Ltd (`GHL`), from seeking or claiming any payment from the second respondents, AGF Insurance (Singapore) Pte Ltd (`AGF`) on the performance bond issued by the latter until further order. We dismissed the appeal and now give our reasons.

Facts

GHL were at all material times the owner and developer of the property known as Lots 331-17 to 331-26 of Mukim 24 situate at Lorong 17 Geylang, Singapore and were desirous of constructing a five-storey boarding house thereon (`the project`). Unitrack were a company engaged in the business of building construction. By a letter dated 14 April 1997 Unitrack tendered for the project and in response Ben Design Architects (`Ben Architects`) on behalf of GHL, by a letter dated 24 April 1997, awarded the project to Unitrack for a lump sum of $5,781,400.00. Following that, a document in the form of articles and conditions of building contract published by the Singapore Institute of Architects (collectively called `the SIA terms`) was executed by Unitrack and GHL. Thus, the contract for the project consisted of the tender by Unitrack dated 14 April 1997, the letter of award dated 24 April 1997 and the SIA terms. We shall refer to these three documents together as `the contract`.

The contract sum for the project was $5,781,400.00 and consisted of the following:

Main Contract Works	$1,900,000.00
Prime costs and provisional
(Sub-contract Works)	$3,820,000.00
Profit and Attendance	$ 61,400.00
Total tender sum	$5,781,400.00

It was then contemplated by the parties that Unitrack would enter into sub-contracts with sub-contractors nominated by Ben Architects in respect of the works under prime costs and provisional sums stated above.

It was a term of the contract that Unitrack would provide GHL with a performance bond for an amount equal to 10% of the contract sum prior to the commencement of the work by Unitrack. Accordingly, pursuant to the contract, on or about 26 June 1997, Unitrack arranged for AGF to issue a performance bond in favour of GHL in the amount of $578,140, which was 10% of the contract sum. The bond provided, inter alia, as follows:

1 In consideration of you not insisting on the Contractor paying ... S$578,140.00 as a security deposit for the Contract, we hereby irrevocably and unconditionally undertake, covenant and firmly bind ourselves to pay to you on demand any sum or sums which from time to time may be demanded by you up to a maximum aggregate of S$578,140.00 (`the said sum`) ....

2 Should you notify us in writing, at any time prior to the expiry of this Bond, by notice purporting to be signed for and on behalf that you require payment to be made of the whole or any part of the said sum, we irrevocably and unconditionally agree to pay the same to you immediately on demand without further reference to the Contractor and notwithstanding any dispute or difference which may have arisen under the Contract or any instruction which may be given to us by the Contractor not to pay the same.

3 We hereby confirm and agree that we shall be under no duty or responsibility to inquire into:

(a) the reason or circumstances of any demand hereunder,

(b) the respective rights, obligations and/or liabilities of yourselves and the Contractor under the Contract,...

After the execution of the performance bond, AGF handed it to Unitrack together with a duplicate copy. However, neither the original bond nor the duplicate copy was ever delivered by Unitrack to GHL, although apparently GHL at some point in time obtained a photocopy of it. The bond at all material times remained in the hands of Unitrack.

Unitrack commenced work on the project at the end of April 1997, and the works progressed quite uneventfully for about a year until 30 April 1998. On that day, Unitrack and GHL executed a written variation of the contract. They agreed that the sub-contractors of the project would receive payment directly from GHL, and that the contract sum would be revised downwards to $1,961,400. It appeared that this sum was arrived at by deducting the total sum of $3,820,000 earmarked for prime costs and provisional sums from the original contract sum of $5,781,400. At that point in time no sub-contracts had as yet been made between Unitrack and the sub-contractors nominated by Ben Architects. Thenceforth, GHL dealt direct with sub-contractors for the project.

Some time in early July 1998, it became clear to the parties that the contractual completion date of 28 July 1998 would not be met. There was disagreement between them as to the cause of the delay and who should be blamed for it. On 13 July 1998, GHL and Unitrack agreed to extend the project completion date to 4 September 1998. However, Unitrack did not complete the construction works by the extended date. At this point in time, the relationship between Unitrack and GHL began to worsen rapidly and became very strained. At the end of September 1998, the dispute came to a head and Unitrack suspended work. On 6 October 1998, Ben Architects informed Unitrack by a letter that if they failed to `rectify the situation` within one month, GHL would issue a `Termination Certificate` under the contract. On the same day, GHL wrote to AGF demanding the payment of the total sum of $578,140 under the performance bond. Also on the same day or thereabouts, Unitrack wrote to Ben Architects informing them that as the contract sum for the project had been revised from $5,781,400 to $1,961,400 the original performance bond issued by AGF to GHL should be cancelled and treated as null and void and should be replaced by a fresh performance bond for $196,140, being 10% of the then contract sum. The letter went on to say that the performance bond which was in their possession would be forwarded to AGF `for cancellation in exchange for a fresh performance bond for $196,140`. Unitrack sent a copy of this letter to AGF, enclosing the original performance bond, which was received by AGF on 13 October 1998.

On 23 October 1998, Unitrack commenced an action against GHL and AGF, claiming (a) a declaration that the performance bond was invalid and unenforceable, (b) a declaration that GHL were not entitled to make any demand on the performance bond, (c) an injunction to restrain GHL from seeking or claiming payment from AGF on the performance bond, and (d) an injunction to restrain AGF from making any payment to GHL on the performance bond.

On 6 November 1998, GHL terminated the contract. On 13 November 1998, they commenced proceedings in Suit No 2080 of 1998 against AGF for the sum of $578,400 under the performance bond.

On 13 January 1999, Unitrack applied for an interim injunction to prevent GHL from claiming payment on the performance bond. The application came first before Lim Teong Qwee JC. The learned judge adjourned the application to a special hearing date and in the meantime granted `an interim injunction` restraining GHL from seeking or claiming any payment from AGF on the performance bond until further order. On 26 January 1999, the application was heard before Rubin J. He made an order in the following terms:

(1) the interim injunction granted by Lim Teong Qwee JC be continued until further order;

(2) that AGF be restrained from cancelling the performance bond until further order;

(3) costs of the application be costs in the cause.

[See [1999] 3 SLR 621.]

The appeal

Before us, two main issues were raised. The first relates to the operation of the performance bond. It was not disputed that the bond was expressed to be executed under seal and that after execution thereof by AGF, it was handed to Unitrack and all throughout it remained with the latter, and it was never delivered to GHL. It was argued on behalf of both Unitrack and AGF that the bond had therefore never been `delivered` to GHL as a deed, and as such it had never come into operation. As this appears to be one of substantive defences which would be raised by Unitrack and AGF in resisting the claim of GHL at the trial, we would leave it to be decided by the trial judge and refrain, at the moment, from expressing any opinion thereon.

We now turn to the second issue. In the court below, the learned judge found that there was no evidence of fraud, and counsel for Unitrack, rightly in our view, did not take issue with this. But the learned judge found that in all the circumstances it was unconscionable on the part of GHL to call on the bond, although the learned judge did not expressly use the word `unconscionable` in relation to the circumstances in which he decided to continue the injunction. He said at [para ] 17:

In my opinion, having regard to the affidavits filed and arguments advanced, it was an undisputed fact that the bond under reference which was issued in June 1997 was not handed over at all to GHL. There was absolutely no explanation in the affidavits filed on behalf of GHL as to why it did not demand its delivery especially when the significance of the original bond had been highlighted in cl 6 therein. The excuse offered by GHL`s counsel that it was due to an oversight, sounded feeble and lacked conviction. In my view, the probabilities were that there was a reluctance on the part of GHL to demand delivery of the bond as issued on account of the substantial reduction of the contract sum. Whilst I was prepared to accept the submissions advanced on behalf of GHL, that the allegations of fraud had no substance, GHL`s inexplicable inactivity and indifference for more than a year to demand and take possession of the bond, led me to conclude that there was substance in the plaintiffs` argument that the parties were content

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