Tech-System Design & Contract (S) Pte Ltd v WYWY Investments Pte Ltd

Judgment Date31 March 2014
Date31 March 2014
Docket NumberOriginating Summons No 785 of 2013
CourtHigh Court (Singapore)
Tech-System Design & Contract (S) Pte Ltd
Plaintiff
and
WYWY Investments Pte Ltd
Defendant

Edmund Leow JC

Originating Summons No 785 of 2013

High Court

Banking—Performance bonds—Unconscionability—Contract for construction works—Disputes arising sent for arbitration—Whether defendant employer entitled to call on performance bond as security for claims against plaintiff contractor—Whether defendant's conduct was unconscionable

The plaintiff was a contractor engaged by the defendant property developer for a residential project. In lieu of a deposit as security for performance of its obligations, the plaintiff provided two performance bonds for the sum of $988,888.80, being 10% of the total contract price.

Subsequently, disputes broke out between the parties on two issues: first, whether the defendant was entitled to liquidated damages in respect of over one year in delay of completion; and second, over the extent of the plaintiff's obligations under the contract to remedy defects that arose during the one-year defects liability period.

The disputes had been sent to arbitration which was yet to commence when the defendant called on the full sum secured by the performance bonds. The plaintiff applied for an injunction to restrain the call until the determination of the arbitration proceedings, claiming that the calls were unconscionable.

Held, denying the application:

(1) The sole issue was whether the plaintiff was able to make out a strong prima facie case that there was unconscionable conduct such that an injunction should be granted. The court was bound to consider thoroughly the entire context of the case, and only if the entire context of the case was particularly malodorous would an injunction be granted: at [18] .

(2) Mere allegations and hearsay evidence could not go towards making out a strong prima facie case. The substantive determination of the disputes was better left to the pending arbitration or failing which a proper trial where the witnesses could be called and their evidence tested: at [22] to [25] and [29] .

(3) The amount called for by the defendant under the performance bonds was around the sum total claimed against the plaintiff in respect of liquidated damages and the defects. While the parties submitted differing accounts as to how much should be owing to or from each other, there was nothing to demonstrate to the level of a strong prima facie case that there was unconscionability so as to justify limiting the call to a partial call: at [28] , [29] and [33] to [35] .

(4) The plaintiff's allegation that it would be put to hardship if the injunction was not granted was irrelevant. A beneficiary of a performance bond should not be denied its right to call on the bond simply because this resulted in hardship to the obligor. Whether the beneficiary was actually entitled to those sums would be determined only after arbitration or litigation had run its course; whether a call should be denied depended on the beneficiary's alleged unconscionable conduct rather than the effect on the obligor: at [39] to [41] .

(5) The defendant's argument that the plaintiff had brought the action in bad faith because it had no real intention of proceeding to arbitration was a ground for denying equitable relief but it was not made out on the evidence before the court: at [42] and [43] .

[Observation: The present situation was exactly the kind of situation envisaged when the parties contracted for performance bonds to be provided. A performance bond was security for the secondary obligation of the obligor to pay damages if it breached its primary obligations to the beneficiary. The beneficiary's entitlement should generally be protected; even if it was mistaken in adopting a position that it was entitled to a certain sum, the call would still be legitimate so long as the position was genuinely adopted. It was not the court's role to appraise the merits of the parties' decisions, merely to be alive to any lack of bona fides in those decisions: at [36] and [37] .]

BS Mount Sophia Pte Ltd v Join-Aim Pte Ltd [2012] 3 SLR 352 (folld)

Eltraco International Pte Ltd v CGH Development Pte Ltd [2000] 3 SLR (R) 198; [2000] 4 SLR 290 (refd)

JBE Properties Pte Ltd v Gammon Pte Ltd [2011] 2 SLR 47 (refd)

Lee Chay Pin Victor (Chambers Law LLP) for the plaintiff

Tay Wei Heng Terence (Terence Tay) for the defendant.

Edmund Leow JC

Introduction

1 The defendant is a property developer. On 29 October 2009 it engaged the plaintiff as its main contractor for the development of three blocks of apartments at Oei Tiong Ham Park. Under the main contract, the plaintiff was required to and did provide two performance bonds for the sum of $988,888.80 (10% of the total contract price) in lieu of a deposit as security for performance of its obligations.

2 Adispute arose between the parties, which was subsequently referred to arbitration. Arbitration had not yet begun when on 14 August 2013 the defendant issued demands to the insurer for the total amount of the performance bonds. The plaintiff claimed the calls were unconscionable and filed this application for an injunction to restrain the defendant from calling on the performance bonds ‘until the determination or outcome of the arbitration hereto’.

3 I heard the application on 1 November 2013 and dismissed it the same day with costs of $10,000 to the defendant. On 5 November 2013 the plaintiff wrote in to request for further arguments to be made. I agreed and heard the plaintiff's further arguments on 20 January 2014 but saw no reason to disturb my earlier decision.

4 I thereupon dismissed the application and awarded costs of the hearing of $4,000 to the defendant. The plaintiff has now appealed and these are the grounds for my decision.

Background to the dispute

5 Under cl 41 of the main contract, the plaintiff was required to pay 10% of the contract price to the defendant as security deposit for the due performance and observation of its obligations under the contract. In lieu of the security deposit, the plaintiff procured two performance bonds from EQ Insurance Company (‘the insurer’): the first, for the sum of $542,128.80 was dated 16 November 2009; and the second dated 4 February 2010 was for the remaining sum of $446,760, for a total of $988,888.80.

6 The plaintiff commenced work under the main contract in November 2009. The original completion date was set for 3 July 2011. However, in the course of excavation works, there was an incident of soil slippage which resulted in the Building and Construction Authority (‘the BCA’) issuing a stop work order on 15...

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1 cases
  • CKR Contract Services Pte Ltd v Asplenium Land Pte Ltd and another
    • Singapore
    • High Court (Singapore)
    • 18 December 2014
    ...the calling of a performance bond (see, for a few examples, Tech-System Design & Contract (S) Pte Ltd v WYWY Investments Pte Ltd [2014] 2 SLR 1309 (“Tech-System Design v WYWY Investments”); BS Mount Sophia Pte Ltd v Join-Aim Pte Ltd [2012] 3 SLR 352 (“BS Mount Sophia v Join-Aim”); Anwar Sir......
1 books & journal articles
  • Banking Law
    • Singapore
    • Singapore Academy of Law Annual Review No. 2014, December 2014
    • 1 December 2014
    ...applied for on the grounds of unconscionability, and refused, was Tech-System Design & Contract (S) Pte Ltd v WYWY Investments Pte Ltd[2014] 2 SLR 1309 (Tech-System System Design). Here, Edmund Leow JC took guidance from the Court of Appeal decision in BS Mount Sophia Pte Ltd v JoinAim Pte ......

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