Sin Kian Contractor Pte Ltd v Lian Kok Hong and Another

• Jurisdiction: Singapore
• Judgment Date: 31 July 1999
• Date: 31 July 1999
• Docket Number: Suit No 460 of 1999 (Summons in Chambers No 1836 of 1999)
• Court: High Court (Singapore)

Sin Kian Contractor Pte Ltd

Plaintiff

and

Lian Kok Hong and another

Defendant

[1999] SGHC 196

Lim Teong Qwee JC

Suit No 460 of 1999 (Summons in Chambers No 1836 of 1999)

High Court

Civil Procedure–Injunctions–Guarantee issued by contractor–Owner making written demand for payment under guarantee–Whether unconscionable to call on guarantee–Contract–Contractual terms–Express terms–Term requiring guarantee to be issued by contractor–Whether written demand by owner sufficient–Whether necessary to show default

The plaintiff Sin Kian Contractor Pte Ltd (“the contractor”) contracted with the first defendant Lian (“the owner”) to build a two-storey house with a swimming pool. The second defendant (“the guarantor”) issued a guarantee furnished by the contractor pursuant to para 7 of the letter of award. Before completion of the works, the owner gave a written demand for payment under the guarantee. Soon after the architect issued a termination certificate and served it on the contractor. The owner then terminated the contract. The contractor applied for an interim injunction to restrain the owner from calling on the guarantee. It argued that (a) the owner had breached the conditions of the agreement and (b) had acted unconscionably in demanding payment.

Held, dismissing the application:

(1) Under the terms of the guarantee, a written demand was sufficient for the purpose of demanding payment under the guarantee, there being no obligation to allege or prove default: at [12].

(2) The courts would not interfere with the machinery of obligations assumed by the issuer of a performance bond except in cases of fraud and in cases where it was unconscionable for the issuer to pay or the beneficiary to call on or to receive payment under the performance bond: at [23].

(3) On the facts, the contractor had failed to comply with the schedule of defects and did not respond to the architect's notices and directions. The construction of works was not completed despite an extension of time. The contractor had fallen far short of establishing that it would be unconscionable for the owner to call on the guarantee or to receive payment under it: at [25], [27], [28] and [31].

Bocotra Construction Pte Ltd v AG [1995] 2 SLR (R) 262; [1995] 2 SLR 733 (folld)

Brody, White and Co Inc v Chemet Handel Trading (S) Pte Ltd [1992] 3 SLR (R) 146; [1993] 1 SLR 65 (refd)

Cargill International SA v Bangladesh Sugar & Food Industries Corp [1998] 1 WLR 461; [1998] 2 All ER 406 (refd)

Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159 (refd)

Kvaerner Singapore Pte Ltd v UDL Shipbuilding (Singapore) Pte Ltd [1993] 2 SLR (R) 341; [1993] 3 SLR 350 (folld)

New Civilbuild Pte Ltd v Guobena Sdn Bhd [1998] 2 SLR (R) 732; [1999] 1 SLR 374 (refd)

Potton Homes Ltd v Coleman Contractors (Overseas) Ltd (1984) 28 BLR 19 (folld)

Raymond Construction v Low Yang Thong [1996] SGHC 136 (refd)

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

Glenn Cheng (Myint Soe Mohamed Yang & Selvaraj) for the plaintiff

Gan Kam Yuin and Rodney Keong (Bih Li & Lee) for the first defendant.

Lim Teong Qwee JC

1 This is an application by the plaintiff for an interim injunction to restrain the first defendant from receiving $277,000 or any part of it under a guarantee dated 4 September 1997 given by the second defendant and for other orders. It is an ex parte application but it was heard as an opposed application between the plaintiff and the first defendant. At the conclusion of the hearing on 15 April 1999 I made no order save as to costs. The plaintiff has given notice of appeal and these are my written grounds.

Background

2 By a contract contained in or evidenced by articles of contract dated 29 August 1997 incorporating among other documents a letter of award dated 29 August 1997 issued by the first defendant's architect and acknowledged by the plaintiff (which I shall refer to as the “contractor”) the contractor agreed with the first defendant (whom I shall refer to as the “employer”) to carry out, bring to completion and maintain for the employer the building and other works comprising the proposed erection of a two-storey detached house with swimming pool at 809 Holland Rd/Wilby Rd for $2,770,000. Paragraph 7 of the letter of award provides:

Performance Bond

The contractor shall within 14 days from the date of award, furnish the employer, an approved banker's guarantee or insurance bond in accordance with the format in the contract as a security deposit for the due performance and observance of the contract works.

3 On 4 September 1997 the second defendant (which I shall refer to as “the guarantor”) issued a guarantee and it is not disputed that this guarantee was furnished by the contractor in accordance with para 7 of the letter of award. On or about 14 September 1997 the contractor commenced the construction of the works but before completion two events occurred:

(a) on 15 March 1999 the employer wrote to the guarantor to demand payment of $277,000 under the guarantee; and

(b) the architect issued a termination certificate on 17 March 1999. This was served on the contractor on 18 March 1999 and the employer terminated the employment of the contractor on 19 March 1999.

4 The contractor learned of the demand made on the guarantor and on 19 March 1999 an action was commenced and this application was made. The contractor relies on these two grounds stated in the summons:

(a) the employer has breached the conditions of the guarantee; and

(b) the employer has acted unconscionably in demanding payment.

5 The material terms of the guarantee are:

1. 1 In consideration of the employer not insisting on the contractor paying ten percent of the total value of the contract as a security deposit for the contract, the guarantor hereby guarantees the due and faithful performance of the contract by the contractor.

2. 2 In the event of the contractor failing to fulfil any of the terms and conditions of the contract, the guarantor shall indemnify the employer against all losses, damages, costs, expenses or otherwise sustained by the employer thereby up to the sum of Dollars Two Hundred And Seventy Seven Thousand only ($277,000.00) (hereinafter called 'the guaranteed sum'). The guaranteed sum shall be paid to the employer in full immediately upon demand for payment in writing and notwithstanding the existence of any dispute between the employer and the contractor in relation to the contract or any amount payable thereunder.

6 Mr Cheng submitted that to call on the guarantee the employer must:

(a) state in writing that a default has occurred;

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