Long Rise Pte Ltd v Logistics Construction Pte Ltd and AXA Insurance Singapore Pte Ltd

• Judge: Dorothy F M Ling
• Judgment Date: 17 January 2019
• Neutral Citation: [2019] SGDC 9
• Citation: [2019] SGDC 9
• Court: District Court (Singapore)
• Published date: 26 February 2019
• Docket Number: Originating Summons No. 160 of 2018
• Plaintiff Counsel: Nakoorsha Bin Abdul Kadir & Teo Sher Min (Nakoorsha Law Corporation)
• Defendant Counsel: Choa Sn-Yien Brendon & Zachariah Chow Jie Rui Chew (ACIES Law Corporation),and Wu Lennon Leong Chong (Gurbani & Co LLC)
• Subject Matter: Construction contracts,Performance Bond,Injunction to restrain call on bond
• Hearing Date: 14 December 2018

District Judge Dorothy F M Ling: BACKGROUND

This is an application by the Plaintiff to restrain the 1st Defendant from calling on a Performance Bond, LBP P1580568, dated 5 February 2015 (“Performance Bond”).

The 1st Defendant was the main contractor of a project, “Part A: Building Works at Bukit Merah Contract 19C and 19D (Total: 418 Dwelling Units) [and] Part B: Contingency Works” (“the Project”).¹ By way of a letter of award of 14 July 2014,² the 1st Defendant awarded to the Plaintiff the “Sub-Contract for RC Works Labour Sub Contract for Block 110A”, which are works related to the Project (“the Works”). The sub-contract for the Works amounted to S$1,350,000.00.

It was a condition of the sub-contract that the Plaintiff issued to the 1st Defendant a performance bond in the amount of 5% of the sub-contract sum. A Performance Bond of S$67,500 was therefore executed by the 2nd Defendant in favour of the 1st Defendant on 5 February 2015.³

On 3 August 2018, the 1st Defendant wrote to the 2nd Defendant. It cited clause 3 of the Performance Bond and requested that the 2nd Defendant make payment to them of “the Guaranteed Sum of S$67,500… within 30 days from the date of this letter”.⁴

Hence, the Plaintiff’s present application to restrain the 1st Defendant from calling on the Performance Bond.

THE PLAINTIFF’S CASE

In restraining the 1st Defendant from calling on the Performance Bond, the Plaintiff argued that – the procedure for calling on the Performance Bond had not been complied with; the Performance Bond had been discharged or terminated; and alternatively, it was unconscionable for the 1st Defendant to call on the Performance Bond.

Procedure for calling on the Performance Bond had not been complied with

The Plaintiff submitted that the 1st Defendant did not comply with “the standard industry practice” when it called on the Performance Bond. This “standard industry practice”, according to the Plaintiff, requires that the party calling on a performance bond produces the original performance bond to the insurer before the latter would release the sums pursuant to the bond. Since the Plaintiff has the original Performance Bond – which was not disputed – and the 1st Defendant was not able to produce that, the S$67,500 pursuant to the Performance Bond should not be released to the 1st Defendant.

The Performance Bond had been Discharged / Terminated

It was the Plaintiff’s case that the Performance Bond had terminated when the contract between the 1st Defendant and its client – and not the contract between the Plaintiff and the 1st Defendant – completed. The Plaintiff argued that the contract had completed since the 1st Defendant had not produced evidence that “it has not performed and completed all of its conditions in the main contract.”⁵ Besides, the defects liability period was also likely to have ended around 28 September 2017.

In putting forth this argument, the Plaintiff made a distinction between the terms “Contract” used in Clause 1 of the Performance Bond, and “Sub-contract”, the latter being a term used in the preamble of the Performance Bond to refer to the contract between the 1st Defendant and the Plaintiff. Clause 1 of the Performance Bond reads:

“The Insurer [2nd Defendant] hereby unconditionally undertakes and covenants to pay on demand any sum or sums which may from time to time be demanded in writing by the Contractor [1st Defendant] up to a maximum of… (S$67,500.00)…… to be held by the Contractor as security for and until the performance and completion by the Contractor of all the conditions of the Contract in all respects.”

By the use of the word “Contract” in Clause 1 of the Performance Bond, the Plaintiff suggested that Clause 1 takes care of the ambiguity that is introduced by Clause 3 of the Performance Bond, or the appearance, on the face of it, that the Performance Bond is to continue perpetually.⁶

The Plaintiff argued in the alternative that the Performance Bond had been discharged or terminated at the end of the Defects Liability Period. Reference was made to Clause 5(3) of the Standard Conditions for Domestic Sub-contract & Appendices⁷ (“Standard Conditions”) which conditions, according to the Plaintiff, formed part of the agreement between the Plaintiff and the 1st Defendant. Clause 5(3) reads:

“The Performance Bond for Sub-contract shall be released to the Sub-Contractor, or alternatively, be terminated at the end of the Defects Liability Period or when all shrinkages, defects and other faults in the Sub-Contract Works which the Contractor shall be liable to make good under the Main Contract shall be made good by the Sub-Contractor in accordance with the Sub-Contract whichever is the later.”⁸

The Plaintiff, however, admitted that the 1st Defendant had sued for backcharges and liquidated damages, except that the Plaintiff disclaimed that they are liable for these. The judgment in default of appearance obtained at the High Court⁹ in favour of the 1st Defendant for these should therefore not prejudice the Plaintiff’s case as it was not given on the merits of the 1st Defendant’s case.

Alternative Argument: Unconscionable of 1st Defendant to call on the Performance Bond

If the Performance Bond was still valid, the Plaintiff relied on the concept of unconscionability and urged the Court to still restrain the 1st Defendant from calling on the Performance Bond.

While the Plaintiff recognized that there is “no pre-determined categorisation” of unconscionability¹⁰, it relied on case authorities and raised some actions of the 1st Defendant which was “tantamount to unconscionable conduct”:¹¹ the 1st Defendant made the call on the Performance Bond more than a year after the Defects Liability Period when it could have done so during that period (see: Global Façade (S) Pte Ltd v Eng Lim Construction Company Private Limited [2001] SGDC 325); the 1st Defendant breached Clause 28(1) of the Standard Conditions when it took out court proceedings against the Plaintiff¹² instead of resolving disputes by way of arbitration, which was the prescribed mode of resolution. The Plaintiff went on to suggest that by the court proceedings and their obtaining judgement in fault of appearance, it was the 1st Defendant’s scheme to bypass a decision based on merits by an Arbitrator; the 1st Defendant exaggerated its claims and imposed backcharges without basis (see: Newtech Engineering Construction Pte Ltd v BKB Engineering Constructions Pte Ltd & Ors [2003] 4 SLR(R) 73; and Gammon Pte Ltd v JBE Properties Pte Ltd [2010] 3 SLR 799); the backcharges were earlier already disputed by the Plaintiff in adjudication proceedings¹³ and yet, the 1st Defendant’s call on the Performance Bond was based on these disputed backcharges; and the 1st Defendant had earlier conceded at the adjudication proceedings that the Sub-contract was fully completed sometime in April 2016, but had now made a u-turn and alleged that there were still backcharges and based the call on the Performance Bond on these.

For the above reasons, the Plaintiff had prayed for order in terms of its application for an injunction to restrain the 1st Defendant from calling on the Performance Bond.

THE 1ST DEFENDANT’S CASE The Performance Bond is “valid and subsisting”

It was the 1st Defendant’s case that the Performance Bond is “valid and subsisting”,¹⁴ and it had not terminated or been discharged, as alleged by the Plaintiff. Contrary to the Plaintiff’s position¹⁵ that Clause 5(3) of the Standard Conditions governed the Performance Bond, the 1st Defendant argued that the Performance Bond was a separate contract from the Sub-contract which included the Standard Conditions. The 1st Defendant relied on Clause 2 of the Performance Bond which reads:

“The liability of the Insurer under this Deed shall not be discharged or impaired by reason of any modification(s) or variation(s)… in any of the stipulations or provisions of the Sub-contract or the works, acts or things to be executed, performed or done under the Sub-contract, or by reason of any breach or breaches of the Sub-Contract by the Sub-contractor or by reason of any forbearance whether as to time, payment, performance or any other matter accorded by the Contractor to the Sub-contractor.”

However, even if it could be argued that Clause 5(3) of the Standard Conditions was a term of the Performance Bond, which term was not complied with by the 1st Defendant, Clause 5(3) made no provision for any automatic termination or release of the Performance Bond. It was further submitted by the 1st Defendant that the Plaintiff had no locus standi to apply for an injunction to restrain the 1st Defendant’s call on the Performance Bond when they were not a party to the Performance Bond.

The 1st Defendant urged the Court to consider Clause 3 of the Performance Bond which suggests that the Performance Bond subsists until notice as prescribed herein was given. Clause 3 reads:

“The Insurer’s liability under this Deed shall continue and this Deed shall remain in full force and effect from 28/01/2015 until 14/07/2016 provided always that the expiry date of this Deed and the Insurer’s liability there under shall be automatically extended for successive periods of 12 months unless the Insurer gives the Contractor 90 days’ written notice prior to the expiry of its liability of the Insurer’s intention not to extend this Deed in respect of any future extension and provided further that the Contractor shall be entitled, upon receiving such notice of the Insurer’s intention (and within the period specified in Clause 4 hereof), either to: a make a claim under this Deed; or b direct the Insurer to pay such amount (not exceeding the Guaranteed Sum) to the Contractor; or c direct the Insurer to extend the validity of the Deed for a further period not exceeding 12 months (and this Deed shall then expire at the end of such further period).”...