Labroy Offshore Ltd v Master Marine AS and others

• Jurisdiction: Singapore
• Judge: Andrew Ang J
• Judgment Date: 27 October 2011
• Neutral Citation: [2011] SGHC 234
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 305 of 2011
• Published date: 23 April 2012
• Year: 2011
• Hearing Date: 19 May 2011,06 June 2011
• Plaintiff Counsel: Steven Lim (Clasis LLC), and Prakash P Mulani and Bhaskaran Sivasamy (M&A Law Corporation)
• Defendant Counsel: Chan Leng Sun and Joanne Chia (Ang & Partners),Lee Eng Beng SC and Lynette Koh (Rajah &Tann LLP)
• Subject Matter: Banking,Contractual Interpretation
• Citation: [2011] SGHC 234

Andrew Ang J: Introduction

The plaintiff, Labroy Offshore Ltd (“Labroy”) entered into a construction contract dated 28 March 2007 (“the Construction Contract”) with the first defendant, Master Marine AS (“MM”) under which Labroy was to construct a self-elevating offshore unit (“the Rig”) for MM. Under the Construction Contract, MM was to pay the contract price in six instalments according to certain milestones. The first five instalments were deemed to be “advances” to Labroy, with the sixth and final instalment due upon delivery. Labroy was obliged to provide Refund Guarantees for repayment of each of the first five instalments, which it did by arranging banker’s guarantees from the second, third and fourth defendants in MM’s favour (“the Refund Guarantees”) to guarantee the refund of MM’s advances upon certain contingencies. The second, third and fourth defendants are Oversea-Chinese Banking Corporation Ltd, United Overseas Bank Ltd and DBS Bank Pte Ltd respectively (collectively, “the Banks”). MM later purported to rescind the Construction Contract under various articles thereof and issued demands for payment under the Refund Guarantees to the Banks. Labroy applied for an injunction to restrain the Banks from paying MM and to enjoin MM from receiving payment thereby.

After hearing the submissions of Labroy, MM and the Banks, I granted Labroy’s application for an injunction against MM. There was no need to make an order against the Banks because they adopted the same position as Labroy. On MM’s request, I reserved my decision on the question of costs. I set out below my reasons for allowing Labroy’s application against MM.

Background facts

As the factual matrix of this case is fairly complex, it will be helpful to explain first the relevant provisions of the Construction Contract and the Refund Guarantees respectively, before explaining the genesis of the dispute.

The Construction Contract and the Refund Guarantees

As explained above at [1], under Art 3.8 of the Construction Contract, the contract price was to be paid in six instalments, the first five of which were deemed “advances”. In respect of these advances, Labroy was obliged to provide Refund Guarantees for its repayment upon certain contingencies. The Refund Guarantees were initially set to expire one month following the original delivery date, ie, 31 September 2010. However, if Labroy anticipated that delivery of the Rig would be delayed, the Refund Guarantees were to be extended at least 14 working days before the Refund Guarantee(s) expired. The extension was to be “for a further thirty (30) days, always ensuring that the Refund Guarantee(s) is valid until the date falling thirty (30) days beyond the delivery of the rig” [emphasis added]. Failure to extend the Refund Guarantees at least 14 working days before the expiry of the Refund Guarantees is itself an event of default under the Construction Contract, entitling MM to rescind the Construction Contract and demand a refund of the advances.

The “demands” under the Refund Guarantees

The Refund Guarantees (and not the Construction Contract) provide for three types of “demands”, ie, three sets of circumstances in which MM may demand for a refund of the relevant advances. While each of the advances is secured by three Refund Guarantees by the Banks (each as to one-third of the advance), the Refund Guarantees are in identical terms pertaining to the “Demands” as set out below.

The first type of “demand” is the “Initial Demand”: under sub-para (b) of the first sub-para of para 3 of the Refund Guarantees – the sub-clauses are unfortunately not numbered – the Banks are obliged to make payment to MM within 14 Singapore banking days following the receipt of a written demand from MM for refund, such demand stating that the Construction Contract has been cancelled or rescinded by MM.

However, if within five Singapore banking days from the date of the receipt of an Initial Demand the Banks receive notification from MM that Labroy disputes MM’s claim for refund and that the matter has been referred to arbitration, the Banks are entitled to defer payment of the sum claimed under the Initial Demand. The Banks would then only be liable to make payment of the sum eventually adjudged to be due to MM pursuant to an arbitration award or agreed pursuant to a settlement agreement. The sum would be payable immediately upon receipt from MM of a further written demand for such a sum. This is the second type of “demand”, ie, a “Deferred Demand”, referred to in the second sub-para of para 3 of the Refund Guarantees.

The third type, the “New Demand”, is that which gave rise to the contention between the parties. The fourth sub-para of para 3 of the Refund Guarantees set out the circumstances in which a New Demand may be made, and they are linked to Labroy’s obligation to provide replacement guarantees to MM. Under the Refund Guarantees, MM was entitled to request replacement guarantees from Labroy: in the event of any possible delay in the delivery of the Rig; or if an Initial Demand has been made and MM’s claim for a refund of its advances was disputed and referred to arbitration but the said arbitration could not reasonably be expected to conclude 30 Singapore banking days before the Refund Guarantees expired. The replacement guarantees were: (a) to be issued by the Banks on similar terms; (b) had to carry an expiry date 30 calendar days from the new anticipated date of delivery of the Rig or the conclusion of the arbitration, as the case may be; and (c) had to be furnished to MM no later than 14 Singapore banking days before the expiry date of the existing Refund Guarantees. If Labroy did not comply, MM was entitled to make a written demand to have its advances refunded (ie, a New Demand). Under this New Demand, the entire sum claimed by MM had to be paid immediately by the Banks.

I pause here to clarify that although the language of Art 3.8 of the Construction Contract and the language of the Refund Guarantees differ in that Art 3.8 refers to “extensions to the Refund Guarantee” while the latter refer to “replacement guarantees”, all parties used the expressions “extensions to Refund Guarantee” and “replacement guarantees” interchangeably. When asked, all parties accepted that in effect the two were the same, ie, extending the validity period of the Refund Guarantees.

The genesis of the dispute MM’s request for replacement guarantees

Upon realising that there would be a delay in the delivery of the Rig, MM sent letters to Labroy (dated 12 and 28 January, 14 February, 6 and 17 March and finally 6 April 2011) stating that given the anticipated delay in the delivery of the Rig, the validity period of the Refund Guarantees would have to be extended. While the content of these letters varied, they each ultimately contained some variation of the following: a statement that, given the anticipated delay in the delivery of the Rig, a later validity/expiry date of the Refund Guarantees was necessary and, accordingly, that the recently procured extensions to the Refund Guarantees were not in accordance with the Construction Contract/Refund Guarantees; and a request for Labroy to issue valid replacement guarantees in accordance with the terms of the Refund Guarantees and the Construction Contract. Labroy disputed (a) and argued that the validity/expiry dates were extended in accordance with Art 3.8 and that MM had reached the above conclusion through an erroneous interpretation of Art 3.8.

All parties agreed that the final day for Labroy to procure extensions of the validity period of the Refund Guarantees from 30 April to 31 May 2011 was 12 April 2011. Labroy applied for the said extensions on 6 April 2011; on 8 April 2011 the Banks duly extended the Refund Guarantees to 31 May 2011. However, MM was only informed of these extensions on 12 April 2011.

MM rescinds the Construction Contract and invokes the Refund Guarantees

On 11 April 2011, at 9.48pm, Pal Are Sund (“Pal”) from MM wrote to Ms Pearl Ann Jeyaraj of Labroy (“PAJ”) enquiring why Labroy had not sent MM “new [replacement guarantees] within the time frame given in the [Construction Contract]”. PAJ replied on the same day at 10.17pm informing Pal that she was told “that [Replacement Guarantees] will be issued tomorrow (14 working days prior to 30th April)” (ie, 12 April 2011).

On 12 April 2011, MM sent Labroy a Notice of Rescission, purporting to rescind the contract on two grounds: That Labroy had failed to secure replacement guarantees by 7 April 2011 in accordance with the Construction Contract, and by 11 April 2011 in accordance with the original guarantee; and That Labroy had failed to deliver the Rig for a period in excess of 180 days after the delivery date and failed to deliver the Rig for a period in excess of 270 days after the delivery date, such number of days being the maximum allowable as the total accumulated delay of non-permissible delay and force majeure delay under the Construction Contract.

Later that day, after the purported rescission, MM served letters of demand to the Banks, seeking payment under the Refund Guarantees. These letters of demand stated that the Construction Contract had been rescinded pursuant to Labroy’s failure to provide extensions to and/or replacement of the Refund Guarantees and to deliver the Rig on the agreed delivery date. Specifically, two types of demands were made by MM: New Demands on the ground that Labroy had failed to provide replacement guarantees at least 14 Singapore banking days before the expiry of the Refund Guarantees; Further, or in the alternative, Initial Demands on the basis that the Construction Contract had been validly rescinded. Later that night, at 9.42pm, Labroy responded to the Notice of Rescission by e-mail asserting that the Refund Guarantees had been...