Star Engineering Pte Ltd v Pollisum Engineering Pte Ltd and another

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 19 August 2024
• Neutral Citation: [2024] SGCA 30
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 9 of 2024
• Hearing Date: 10 June 2024
• Citation: [2024] SGCA 30
• Year: 2024
• Plaintiff Counsel: Wong Hin Pkin Wendell, Tay Eu-Yen, Lee Pei Hua Rachel and Hsu Bi-Wei Timothy Homer (Drew & Napier LLC)
• Defendant Counsel: Isaac Tito Shane, Chong Yi Mei, Tan Youliang and Yeo Cai Yun Kimberly (Tito Isaac & Co LLP),Julia Emma Dcruz and Li Shunhui Daniel (Ramdas & Wong)
• Published date: 19 August 2024

Sundaresh Menon CJ (delivering the judgment of the court): Introduction

This is an appeal that arises out of a dispute between the appellant, Star Engineering Pte Ltd (“Star Engineering”), and the first respondent, Pollisum Engineering Pte Ltd (“Pollisum Engineering”), in HC/OA 1135/2023 and in a related appeal, HC/RA 4/2024 (“OA 1135” and “RA 4” respectively). The second respondent in OA 1135 and RA 4 is Great Eastern General Insurance Ltd (“Great Eastern”).

Pollisum Engineering engaged Star Engineering as its contractor for the design, construction, and maintenance of the works for a construction project. As required under the terms of the contract, Star Engineering furnished Pollisum Engineering an unconditional on-demand performance bond that was issued by Great Eastern. Arising from disputes between the parties, Pollisum Engineering made a demand for payment under the bond. In response, Star Engineering commenced OA 1135, seeking, amongst other things, an order that Pollisum Engineering be restrained from receiving payment pursuant to the demand it had made under the performance bond and from making any further demand for payment under the bond. In HC/SUM 3408/2023 (“SUM 3408”), an application made without notice to Pollisum Engineering, Star Engineering obtained a temporary restraining order. In response to this, Pollisum Engineering commenced HC/SUM 3431/2023 (“SUM 3431”), seeking a stay of OA 1135 in favour of arbitration. We will return to this later, but note here that Pollisum Engineering did not attempt to set aside the temporary restraining order and press its demand for immediate payment under the bond. The learned assistant registrar (the “AR”) dismissed the stay application. Pollisum Engineering then filed RA 4, appealing against the decision of the learned AR in SUM 3431. In his grounds of decision given on 24 May 2024 (the “GD”), the High Court judge below (the “Judge”) allowed that appeal and granted a stay of OA 1135 in favour of arbitration in relation to the dispute between Star Engineering and Pollisum Engineering and a case management stay of OA 1135 in relation to Great Eastern. The present appeal is brought by Star Engineering against the decision of the Judge.

Facts Background facts

Star Engineering and Pollisum Engineering are both companies incorporated in Singapore.

On or around 25 September 2019, Pollisum Engineering engaged Star Engineering for the design, construction, and maintenance of a construction project.

The engagement was based on the REDAS Design and Build Conditions of Contract (3rd Ed, October 2010) (the “REDAS Conditions”) with agreed variations found in the Particular Conditions of Contract (the “Particular Conditions”) (collectively, the “Contract”).

Under cl 2.1.1 of the REDAS Conditions, Star Engineering was to provide “an unconditional on-demand bond … in lieu of the cash deposit” for the sum of $856,000. Star Engineering duly provided Pollisum Engineering with an unconditional on-demand performance bond, namely Performance Bond No 2019-A0688351-GPB dated 15 November 2019 (the “PB”), which was issued by Great Eastern.

The Contract and the PB each contained different dispute resolution clauses: Clause 9 of the PB provided that “the parties agree to submit to the non-exclusive jurisdiction of the Singapore Courts”. The Contract contained a typical widely worded arbitration agreement between Star Engineering and Pollisum Engineering. Clause 33.2.1 of the REDAS Conditions stated that “[i]n the event of any dispute between the [p]arties in connection with or arising out of the Contract or the execution of the [w]orks … the [p]arties shall refer the dispute for arbitration”. Clause 2.1.3C.2 of the Particular Conditions was added to provide that “[a]ny dispute which the Contractor has in relation to such call, demand, receipt, payment … shall be resolved in accordance with clause 33 [of the REDAS Conditions]”. Accordingly, any disputes between Star Engineering and Pollisum Engineering relating to the PB were also to be referred to arbitration.

After disputes had arisen between the parties, on 28 March 2023, Pollisum Engineering gave notice to terminate the Contract.

On 30 October 2023, Pollisum Engineering made a demand for payment under the PB (the “Payment Demand”) on the basis that it had incurred rectification costs and significant losses and expenses due to alleged breaches of the Contract by Star Engineering. Pollisum Engineering alleged that there were substantial and numerous defects in Star Engineering’s works, and that Star Engineering had failed to obtain the Temporary Occupation Permit on time.

We digress to make some observations here in relation to the nature of the PB, which we will return to later, and which in our judgment was regretfully overlooked by the parties in this case: There is no real dispute between the parties that the PB was an unconditional bond payable on demand. There was certainly no argument or suggestion at any time that the presence of cl 2.1.3C.2 of the Particular Conditions, that has been referred to at [7(b)] above, had the effect of rendering the bond something other than an on-demand bond or somehow affected the principles that governed attempts to interfere with the payment obligation under the PB as an on-demand bond. Pollisum Engineering refers to the bond as an unconditional on-demand bond in its submissions, and Star Engineering does not contest this. Star Engineering’s essential contention is that the Payment Demand had been made fraudulently. On a true construction of the PB, we are satisfied that it was an unconditional bond payable on demand and that Great Eastern as the issuer of the PB was not under any duty to inquire into the circumstances underlying the demand. The key inquiry in this context was not in relation to any disputes that might exist in relation to the Contract but rather with the substance of the parties’ rights and obligations under the PB. In coming to the correct interpretation of the PB, it is relevant to consider its contractual context, and that may be found in cl 2.1.1 of the REDAS Conditions, which states that “[t]he Employer may (but shall not be obliged to) consider accepting an unconditional on-demand bond from a Bank in lieu of the cash deposit”. Clause 2.1.3 further specifies that

The Employer may utilise the cash deposit or the cash proceeds of any or all demands on the Bond to set-off any loss or damage incurred or likely to be incurred by him as a result of the Contractor’s failure to perform or observe any of the stipulations, terms and/or conditions under the Contract. If the amount of the cash proceeds utilised by the Employer to set-off any such loss or damage is found to be greater than the amount of loss or damage actually incurred by the Employer, then the Employer shall pay the balance to the Contractor or the bank, as the case may be, upon issue of the Maintenance Certificate.

It is evident from this that the proceeds of a demand made on the PB is intended to operate as the equivalent of the cash deposit. In line with this, the Particular Conditions insert additional clauses, including the following: 2.1.3B. Where the Contractor has provided the Employer with a Bond pursuant to clause 2.1.1 above, the Contractor agrees that except in the case of fraud, it shall not, for any reason whatsoever, be entitled to enjoin or restrain: 2.1.3C.1: the Employer from making any call or demand on the Bond or receiving any cash proceeds under the Bond; and/or 2.1.3C.2: the bondsman under the Bond from paying any cash proceeds under the Bond to the Employer,

on any other ground including the ground of unconscionability. Any dispute which the Contractor has in relation to such call, demand, receipt, payment or the Employer’s utilisation of the cash proceeds shall be resolved in accordance with clause 33 below. In the event that it is subsequently determined by any arbitrator or court that the Employer has received cash proceeds greater than the amount of loss or damage actually incurred by the Employer, the Employer shall refund the over-payment to the Contractor but shall not, for any reason whatsoever, be liable for any interest on the over-payment, including but not limited to any interest under Section 12 of the Civil Law Act (Cap. 43).

It is evident from this that the parties had in fact contractually limited the grounds on which a demand on the PB could be restrained to fraud only, and had excluded unconscionability, which, as we later note (see [33] below), is an additional ground for interference that may otherwise have been available under Singapore law for restraining a demand for payment under such a bond. In this light, we turn to consider the effect of cl 2.1.3C.2 of the Particular Conditions, which as we have noted (see [7(b)] above), states that any dispute which the Contractor has in relation to a call or demand on the PB, receipt, payment or the Employer’s utilisation of the cash proceeds shall be resolved in accordance with cl 33 of the REDAS Conditions, meaning arbitration. In our judgment, this did not change or alter the character of the PB such that it became a conditional bond. Indeed, the correct interpretation of all the provisions taken together is that interference with a demand for payment under the PB was only permitted on the ground of fraud and any such interference should be sought from the court pursuant to the dispute resolution clause in the PB. However, as between Star Engineering and Pollisum Engineering, if there were disputes as to the amounts to which the latter was entitled, having regard to the differences between the parties in relation to the Contract, this would be resolved by arbitration, and if it should subsequently be determined that there was any over-payment, then there would be repayment of such amount to Star Engineering. In short,...