York International Pte Ltd v Voltas Ltd

JurisdictionSingapore
Judgment Date01 July 2013
Date01 July 2013
Docket NumberOriginating Summons No 123 of 2013
CourtHigh Court (Singapore)
York International Pte Ltd
Plaintiff
and
Voltas Ltd
Defendant

Andrew Ang J

Originating Summons No 123 of 2013

High Court

Credit and Security—Performance bond—Plaintiff seeking injunction restraining defendant from receiving payment from issuing bank unless and until plaintiff was adjudged to be liable in arbitration proceedings between plaintiff and defendant—Underlying purchase agreement obliging plaintiff to provide unconditional performance bond—Performance bond not containing language expressly stating that performance bond was unconditional—Whether performance bond unconditional in nature

The plaintiff (‘the Plaintiff’), York International Pte Ltd, and the defendant (‘the Defendant’), Voltas Limited, entered into a Purchase Agreement under which the Plaintiff was to supply, deliver, test and commission five chillers for a district cooling plant in Sentosa.

Clause 26 of Appendix 2 of the Purchase Agreement obliged the Plaintiff to provide a guarantee (‘the Guarantee’) that was ‘unconditional, without any demur, without recourse to [the Plaintiff] and with a provision for automatic renewal’. The Plaintiff and the Defendant discussed the terms of the Guarantee which was then to be executed, culminating in the Defendant vetting and correcting the terms. The written terms of the Guarantee did not explicitly state that it was to be unconditional, and instead merely stated that the issuing bank ‘shall indemnify [the Defendant] against all losses, damages, costs, expenses or otherwise sustained by [the Defendant] ... up to the sum of [$523,000.00]’.

In May 2011, the chillers ceased to function. On the Defendant's request, the Plaintiff undertook major repairs. The Plaintiff and the Defendant got into a dispute over two issues: first, the Plaintiff alleged that a remaining 10% of the purchase price had not been paid. Second, the parties could not agree on the cause of the chillers' failure, with the Plaintiff alleging that the Defendant was liable for the cost of repairs. Both issues became the subject of arbitral proceedings.

On 19 October 2012, the Defendant requested for a renewal of the Guarantee as it was then due to expire on 31 January 2013, taking the position that the Plaintiff had agreed to automatic renewal of the Guarantee. The Plaintiff refused to extend the Guarantee, taking the contrary position that the Guarantee would only be extended if the warranty period for the chillers was extended. The Defendant repeated the request on 24 January 2013, and was again refused. On 29 January 2013, the Defendant invoked the Guarantee in a letter to the issuing bank stating: ‘Please be notified that [the Plaintiff] has failed to fulfill certain terms and conditions of the Purchase Agreement dated April 3, 2008 and we therefore invoke the guarantee.’

The Plaintiff filed this originating summons seeking an injunction restraining the Defendant from receiving payment from the issuing bank unless and until the Plaintiff was adjudged to be liable in arbitration proceedings between the Plaintiff and the Defendant.

Held, granting the application:

(1) Performance bonds were broadly of two types: conditional performance bonds and on demand performance bonds. Performance bonds were conditional where the guarantor only became liable to the beneficiary on proof of breach of the terms of the underlying contract, or on proof of both breach and loss as a result of the breach. Bonds were on demand where, on a true construction of the words used in the bond, the guarantor was made liable to pay the beneficiary the bonded sum when the demand was made in the manner provided for in the bond, without the need for the beneficiary to prove breach of the underlying contract or damage or both: at [17].

(2) Performance bonds were a type of document where the court should be restrained in its examination of the external context and extrinsic evidence. This was for two reasons. First, the primary role of the performance bond was to ensure expediency in payment, without the need for either the beneficiary or the bank to cross-refer to the underlying contract. Second, parties were more often than not experienced commercial men who appreciated that the underlying contract and the bond were independent contracts with different obligations vis-à-vis different parties. The bottom-line: it would be reasonable to expect that parties ordinarily intended all the terms of the agreement to be contained in the performance bond: at [19].

(3) The Court of Appeal cases of Master Marine AS v Labroy Offshore Ltd[2012] 3 SLR 125 (‘Master Marine’) and JBE Properties Pte Ltd v Gammon Pte Ltd[2011] 2 SLR 47 (‘JBE’) were reconcilable. In JBE, the court compared the language of the underlying contract to the language used in the performance bond, and held that the omission of the phrase ‘likely to be sustained’ in the performance bond indicated that it was conditional in nature. However, Master Marine stated that in situations where the wording of the bond instrument was patently ambiguous, and it could not be readily determined from the internal context of the document how the disputed provision was to be read, the court's only recourse was to refer to extrinsic evidence for a better understanding of the parties' objective intentions and/or commercial purpose. JBE was a case where the wording of the performance bond was patently ambiguous: at [19] to [24].

(4) The language of the Guarantee was identical in all material respects to that of the performance bond in JBE; it went without saying that the words used in the Guarantee were also patently ambiguous. In accordance with Master Marine, resort had to be had to the underlying Purchase Agreement. The omission of the word ‘unconditional’ was an even stronger indicator than the absence of the equivocal phrase in JBE that the Guarantee was conditional in nature: at [25] and [26].

(5) The underlying commercial purpose of a performance bond was to provide a security which was readily, promptly and assuredly realisable when the prescribed event occurred. More than a payment mechanism, a performance bond was also a risk redistributing device which redistributed the risk of default, insolvency and negotiating power. While benefits undoubtedly accrued to both the procurer of the performance bond and the beneficiary, the benefits were mostly one-sided in favour of the beneficiary. Due to this mismatch, any ambiguity in the language of a performance bond should be construed against the beneficiary; this was also in line with the contra proferentem rule. For a performance bond to be construed to be on demand in nature, clear and unequivocal language should be used. The Guarantee was conditional in nature: at [31] to [33], [35] and [38].

(6) The doctrine of strict compliance applied to performance bonds. Assuming arguendo that the Guarantee was not conditional in nature, the Guarantee was, at the bare minimum, of a type whereby the written claim had to assert a breach of the underlying contract and state the loss incurred. This was not done. This constituted an additional ground on which to grant an injunction: at [39] to [42].

(7) Unconscionability was (apart from fraud) a separate and independent ground for the court to grant an interim injunction, and was a label applied to describe unsatisfactory conduct tainted by bad faith. The Defendant genuinely believed that it had a right to ask for the guarantee to be renewed. It was also not commercially realistic for the Defendant qua seller to readily admit to the ultimate end-buyer that the chillers were defectively designed or sub-standard. On the evidence, the Defendant had not acted unconscionably: at [43] to [45].

Asia Star, The [2010] 2 SLR 1154 (refd)

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

Cherry, The [2003] 1 SLR (R) 471; [2003] 1 SLR 471 (refd)

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

Esal (Commodities) Ltd v Oriental Credit Ltd [1985] 2 Lloyd's Rep 546 (not folld)

Frans Maas (UK) Ltd v Habib Bank AG Zurich [2001] Lloyd's Rep Bank 14 (folld)

IE Contractors Ltd v Lloyds Bank plc [1990] 2 Lloyd's Rep 496 (not folld)

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

Marzetti v Williams (1830) 1 B & Ad 415; 109 ER 842 (refd)

Master Marine AS v Labroy Offshore Ltd [2012] 3 SLR 125 (folld)

Robertson Quay Investment Pte Ltd v Steen Consultants Pte Ltd [2008] 2 SLR (R) 623; [2008] 2 SLR 623 (refd)

Tay Eng Chuan v Ace Insurance Ltd [2008] 4 SLR (R) 95; [2008] 4 SLR 95 (folld)

Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR (R) 1029; [2008] 3 SLR 1029 (folld)

Arbitration Act (Cap 10, 2002 Rev Ed) s 31 (1) (d)

Ng Kim Beng, Hazel Tang and Zheng Sicong (Rajah & Tann LLP) for the plaintiff

Nakul Dewan and Loong Tse Chuan (Allen & Gledhill LLP) for the defendant.

Andrew Ang J

Introduction

1 This was an application by the plaintiff, York International Pte Ltd, pursuant to s 31 (1) (d) of the Arbitration Act (Cap 10, 2002 Rev Ed), for an injunction to restrain the defendant, Voltas Limited, from receiving payment from Citibank NA, Singapore (‘the Bank’) on a performance bond until (and unless) the plaintiff is adjudged to be liable in the arbitration proceedings between the plaintiff and the defendant. I granted the plaintiff's application. Inow set out the grounds for my decision.

Background

2 The plaintiff and the defendant entered into a purchase agreement dated 3 April 2008 (‘the Purchase Agreement’) under which the plaintiff was to supply, deliver, test and commission five chillers for a district cooling plant in Sentosa Island.

3 Clause 26 of Appendix 2 of the Purchase Agreement (‘Clause 26’) obliged the plaintiff to provide a performance bank guarantee. I set out the relevant parts of Clause 26:

  1. 26. Performance Bond:

  2. ...

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8 cases
  • CEX v CEY and another
    • Singapore
    • High Court (Singapore)
    • 18 May 2020
    ...Marine”). Ascertain whether the call falls within the terms of the bond (see for example, York International Pte Ltd v Voltas Ltd [2013] 3 SLR 1142 at [39] – [42] (“York International”) and BWN v BWO [2019] 5 SLR 215 at [22] (“BWN”)). Evaluate whether the “overall tenor and entire context o......
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    ...following the Singapore cases of JBE Properties Pte Ltd v Gammon Pte Ltd [2011] 2 SLR 47 CA and York International Pte Ltd v Voltas Ltd [2013] 3 SLR 1142. Consequently, it is MCCO’s contention that the material facts that justify the demand must be proved via arbitration before a demand aga......
  • E-Tech Building Services Pte Ltd v Foreign Domestic Worker Association for Social Support and Training (FAST)
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    ...Singapore Ltd [2016] 3 SLR 557; Bocotra Construction Pte Ltd v AG [1995] 2 SLR(R) 262 at [25]; York International Pte Ltd v Voltas Ltd [2013] 3 SLR 1142 at [19]. That said, it has also been recognised what while benefits undoubtedly accrue to both the beneficiary and the account party, such......
  • AXA Insurance Pte Ltd v Chiu Teng Construction Co Pte Ltd
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    ...materia with the bonds in JBE Properties Pte Ltd v Gammon Pte Ltd [2011] 2 SLR 47 (“JBE”) and York International Pte Ltd v Voltas Ltd [2013] 3 SLR 1142 (“York International”) (see the GD at [13]–[14]). The Judge found that the prior cases had left open the question of how a party calling on......
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3 books & journal articles
  • Banking Law
    • Singapore
    • Singapore Academy of Law Annual Review No. 2020, December 2020
    • 1 December 2020
    ...Eltraco International Pte Ltd v CGH Development Pte Ltd [2000] 1 SLR(R) 198 at [36]. 107 [2020] SGHC 234. 108 [2011] 2 SLR 47. 109 [2013] 3 SLR 1142. 110 Chiu Teng Construction Co Pte Ltd v AXA Insurance Pte Ltd [2020] SGHC 234 at [13], reproducing the reasoning in JBE Properties Pte Ltd v ......
  • Building and Construction Law
    • Singapore
    • Singapore Academy of Law Annual Review No. 2020, December 2020
    • 1 December 2020
    ...in Master Marine AS v Labroy Offshore Ltd [2012] 3 SLR 125 at [34]–[42]. 37 Referring to York International Pte Ltd v Voltas Ltd [2013] 3 SLR 1142 at [39]–[42]; BWN v BWO [2019] 5 SLR 215 at [22]. 38 Referring to BS Mount Sophia Pte Ltd v Join-Aim Pte Ltd [2012] 3 SLR 352 at [40]. 39 Raymon......
  • Banking Law
    • Singapore
    • Singapore Academy of Law Annual Review No. 2013, December 2013
    • 1 December 2013
    ...beneficiary may not be able to obtain payment under the bond unless those conditions are met. In York International Pte Ltd v Voltas Ltd[2013] 3 SLR 1142, the plaintiff, York International Pte Ltd, agreed to supply, deliver, test and commission five chillers for a district cooling plant on ......

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