Scada Solutions Pte Ltd v Anderco Pte Ltd

• Jurisdiction: Singapore
• Judge: Karolyn Gin
• Judgment Date: 05 August 2013
• Neutral Citation: [2013] SGDC 237
• Court: District Court (Singapore)
• Docket Number: Originating Summons Suit No. 6 of 2013, RAS No. 91 of 2013
• Year: 2013
• Published date: 22 August 2013
• Hearing Date: 26 June 2013,22 February 2013,23 April 2013
• Plaintiff Counsel: Brendon Choa (M/s Acies Law Corporation)
• Defendant Counsel: Sathinathan (M/s TJ Cheng Law Corporation)
• Citation: [2013] SGDC 237

District Judge Karolyn Gin:

The Plaintiffs applied for an order to restrain the Defendants until after the arbitration of the disputes between the parties, or until further order, from receiving the sum of S$188,000 or any part thereof under the Performance Bond Policy No: DBPFHQ11-000085-PP dated 3 March 2011 (“the Performance Bond”) issued by EQ Insurance Company Ltd (“EQ Insurance”) in favour of the Defendants. I granted the application in part by ordering that the Defendants be restrained from receiving the sum of $156,616.08 under the Performance Bond until after arbitration of the disputes between the parties, or until further order. As the Defendants have appealed, I set out the grounds for my decision.

Background

The Plaintiffs entered into a written agreement dated 27 January 2011 (“the Agreement”) to carry out certain works for the Defendants, the main contractors engaged by the Housing Development Board (“employer”) for the construction of additional parking decks of 5 multi-storey car parks in Tampines and Pasir Ris. The Plaintiffs were involved in works for Block 180A Pasir Ris Street 11, Block 158A Pasir Ris Street 13 and Block 500A Pasir Ris Street 52. Pursuant to the Agreement, the Plaintiffs furnished to the Defendants the Performance Bond which stated, inter alia:

“…

In consideration for the Contractor not insisting on the Sub contractor paying cash as a Security Deposit for the Contract the Guarantor hereby undertakes as follows:

1 The Guarantor unconditionally and irrevocably undertakes and covenants to pay in full forthwith upon demand in writing any sum or sums that may from time to time be demanded by the Contractor up to a maximum aggregate sum of Singapore dollars One Hundred and Eighty Eight Thousand Only (S$188,000) without requiring any proof that the Contractor is entitled to such sum or sums under the Contract or that the Sub contractor has failed to execute the Contract or is otherwise in breach of the Contract. Any sum or sums so demanded shall be paid notwithstanding the existence of differences or disputes between the Contractor and the Sub contractor arising under or out of or in connection with the Contract or the carrying out of work thereunder or as to any amount or amounts payable thereunder and notwithstanding that such differences or disputes have been referred to arbitration or are the subject of proceedings in Court or is in the midst of any other means of dispute resolution.

…”

By way of letter dated 21 December 2012 from the Defendants to EQ Insurance, the Defendants made a formal call on the Performance Bond.

The Issues

It was not in dispute that the Performance Bond is an “on-demand bond” and that, apart from fraud, “unconscionability” is a separate and independent ground on which an injunction could be justified to restrain a call on an “on-demand bond”. The issue that arose was whether the Plaintiffs had demonstrated a strong prima facie case of unconscionability justifying restraint of the call made by the Defendants on the Performance Bond.

The Plaintiffs’ Argument

Counsel for the Plaintiffs argued that the call on the bond by the Defendants was unconscionable as the nett amount of $195,680.51 which was alleged as due from the Plaintiffs to them was an arbitrary figure that had not been properly and fairly substantiated and/or had no rational basis or reasonable justification whatsoever. This amount was set out in the Defendants’ letter of 17 January 2013 and was derived by setting off “backcharges and liquidated damages” against the total value of work done by the Plaintiffs and/or their sub-contractors. Two big items went towards the making of this nett sum: “Subcontract Works” of $299,250.25, listed as an item under “Materials On/Off Site”; and “Damages” amounting to $174,986.66.

“Subcontract Works” of $299,250.25

Clause 8 of the Agreement states:

“The Contractor shall notwithstanding anything in this Sub-Contract contained be entitled to withhold, deduct from or set off against any money due or to be due from him to the Sub-Contractor (including any Retention Money) any sum (whether disputed or not) which the Sub-Contractor is or may be liable to pay to the Contractor under this Sub-Contract, or at law or in equity. It shall be a condition precedent for such set-off by the Contractor that: (a) The set-off has been quantified in detail with particulars and with reasonable accuracy; (b) The Contractor has given to the Sub-Contractor written notice specifying his intention to set-off the amount so quantified together with the required details under Sub-Clause 8(a)hereof and the grounds on which such set-off is made; (c) And, such notice shall be given to the Sub-Contractor not less than 7 days before the date of issuance of the payment response which includes in the amount stated as payable, the amount due to the Sub-Contractor from which the Contractor intends to make the set-off.”

Counsel for the Plaintiffs pointed out that no breakdown or details of “Materials On/Off Site” was given until the letter of 17 January 2013. Hence, the Defendants had failed to satisfy the “condition precedent for such set off” under clause 8, by not having this item quantified in detail with particulars and with reasonable accuracy and giving written notice to the Plaintiffs specifying their intention to set-off the amount, together with the requisite details, not less than 7 days before the date of issuance of their payment response. It was particularly important that this item be “quantified in detail with particulars and with reasonable accuracy” as the Defendants, Plaintiffs and Seong Construction (“SC”) had, on 3/1/2012, agreed that the Plaintiffs would bear the cost of SC taking over the balance of the sub-contract works from the Plaintiffs at a sum of $168,000 . The Plaintiffs would be relieved of their remaining obligations under the Agreement though they would continue to have their staff at the site to carry out some minor works : see Final Account for month ending 1 July 2012 (“FA of July 2012”) in which was stated “SEONG CONSTRUCTION take over SCADA’s balance of work”. Subsequently, the Defendants had imposed a much larger amount of $299,250.25 in their letter of 17 January 2013 without giving a breakdown.

Damages amounting to $174,986.66

This item referred to the purported set-off for the liquidated damages (“LD”) that were imposed on the Defendants by their employer. This was allegedly attributable to the Plaintiffs’ delay in the works. No breakdown or details were given as to how the quantum was derived. Neither was there evidence of when LD began to run or cease or of any delay certificate or practical completion certificate being issued by the employer with a clear ‘start’ or clear ‘end’ date. Hence, the Defendants had failed to satisfy the “condition precedent for such set off” under clause 8 of the Agreement. It was of particular importance for details to be given in accordance with clause 8 as it was apparent from the Defendants’ affidavit that they had relied on a totally wrong set of completion dates to calculate the delay periods attributable to the Plaintiffs. When reference is made to paragraph C of Schedule 1 of the Agreement, it was clear that: for Block 180A, the contractual completion date was 26 November 2011 and not 17 June 2011 as alleged by the Defendants; for Block 158A, the contractual completion date was 26 August and not 17 June 2011 as alleged by the Defendants; for Block 500A, the contractual completion date was 24 November 2011 and not 23 August 2011 as alleged by the Defendants;

As the Defendants had wrongly brought forward the completion dates in their calculation of LD, their claim for the LD was a clear non-starter and had not been fairly substantiated.

Counsel relied on paragraph 11.868(a) of Chow Kok Fong’s “Law and Practice of Construction Contracts” :“A call may be unconscionable if it demands the payment of a sum greater than the sum which the beneficiary is entitled to”. Since the sum of the “Subcontract Works” and “damages” in dispute was more than the amount that had been called in, the Plaintiffs had shown a strong prima facie case of unconscionability.

As regards case law suggesting that a mere breach of contract would not satisfy the test of unconscionability, the failure to satisfy the condition precedent set out in clause 8 was not a mere breach of contract. A “condition precedent” was a “contingent” term and a failure to satisfy it meant that a certain state of affairs would not arise in relation to the contract. In such a situation there could be no breach of contract as there was nothing to be breached (see [17.085], pp. 1207 in ‘The Law of Contract in Singapore’ (Academy Publishing, 2012) and Multiplex Construction Pte Ltd v Sintai Enterprises Pte Ltd [2005] 2 SLR (R) 530).

Counsel further argued that the Defendants exhibited unfairness amounting to unconscionable conduct by only setting...