BINTAI KINDENKO PTE LTD V SAMSUNG C&T CORP [2019] SGCA 39
In the recent Court of Appeal decision of Bintai Kindenko Pte Ltd v Samsung C&T Corp [2019] SGCA 39 (“Bintai v Samsung”), the Court of Appeal upheld the discharge of an interim injunction restraining the Main Contractor’s call on a performance bond.
Background. The appellant, Bintai Kindenko, was the mechanical and engineering sub-contractor appointed by the first respondent, Samsung C & T Corp. The appellant was required to provide a performance bond for 5% of the sub-contract sum under the sub-contract. A banker’s guarantee was furnished by the appellant, which was issued by the second respondent.
Subsequently, disputes arose, and the first respondent called on the banker’s guarantee.
The appellant obtained an ex parte interim injunction to restrain the first respondent from calling on the banker’s guarantee and the second respondent from paying out.
Subsequently, the first respondent applied to discharge the interim injunction and the application was granted.
Dissatisfied, the appellant appealed.
Did sub-contract exclude the unconscionability ground? It is well known that under Singapore law, calls on on-demand performance bonds can only be restrained on the grounds of fraud or unconscionability. Singapore law also allows parties to exclude the unconscionability ground contractually.
In this case, one issue was whether the unconscionability ground had been excluded under the sub-contract, as the exclusion clause was contained in separate documents.
Exclusion clause found in other documents. The Sub-Contract provided that “the Sub-Contract shall be SIA Conditions of Sub-Contract 4th Edition 2010, including all Particular Conditions as set out in the Main Contract”.
As it turned out, the “Particular Conditions as set out in the Main Contract” could refer to the “Particular Conditions of Main Contract”, or the “Particular Conditions of Sub-Contract”. Both contained a clause excluding the unconscionability ground.
Deciding the incorporation issue – burden and standard of proof. The Court of Appeal clarified that preliminary conclusions reached on the incorporation issue were only for the purposes of determining the outcome of the interlocutory application, and would not bind a court or tribunal adjudicating the substantive claims ([54] Bintai v Samsung).
The Court of Appeal also clarified that it is for the first respondent to show credible evidence that the exclusion clause was incorporated into the Sub-Contract ([53] Bintai v Samsung).
The Court of Appeal disagreed with the High Court that the burden was on the appellant to prove that it was not disentitled from relying on the unconscionability ground. This was because it was the burden should be on the first respondent who sought to rely on the exclusion clause ([49] Bintai v Samsung).
Exclusion clause was incorporated by reference. The High Court decided that the exclusion clause had been incorporated into the sub-contract by reference to the Particular Conditions of Sub-Contract.
The Court of Appeal upheld the outcome. Further, the outcome would have been the same regardless of burden of proof, and which Particular Conditions was referred to ([56] – [57] Bintai v Samsung).
It was not relevant that the Particular Conditions were not provided to the appellant as the appellant bears the risk of failing to request for the terms ([62] Bintai v Samsung). As stated by the Court of Appeal, “… All that the Appellant needed to do was to request a copy… or to ask what terms were being incorporated by reference. If it signed the contract without doing so, then it had to bear the risks and consequences of its omission.”
Are such exclusion clauses inherently unreasonable? The appellant also tried to argue that clauses excluding the unconscionability ground were inherently unreasonable and thus unenforceable pursuant to the Unfair Contract Terms Act (“UCTA”).
The Court of Appeal was not inclined to accept the argument, observing that reasonableness under the UCTA was a fact-centric enquiry. As this argument had not been raised in the High Court by the appellant, the first respondent had been deprived of the opportunity to adduce evidence as to the relevant circumstances at the time of contracting ([69] – [71] Bintai v Samsung).
Poor conduct not amounting to fraud. Yet another issue was whether the first respondent’s call on the bond was fraudulent. Both the appellant and first respondent agreed that a strong prima facie case of fraud was required.
The appellant argued that the first respondent’s counterclaims were contrived due to the lateness and inconsistencies of the claims, and the proximity of the call to the outcome of the adjudication application ([40] Bintai v Samsung). The relevant background facts were:
· The employer had not formally claimed liquidated damages against the first respondent ([30] Bintai v Samsung);
· The first respondent did not raise claims for liquidated damages in payment responses PR56, 57, 58 and 59 ([22] – [23] Bintai v Samsung);
· After the appellant commenced adjudication for the release of the first half of retention monies, the first respondent issued a delay certificate and imposed liquidated damages of $26 million in the next payment response PR60 ([24] – [26] Bintai v Samsung);
· The first respondent called on the performance bond the same day the appellant sought to enforce the adjudication determination ([28] – [29] Bintai v Samsung);
· Subsequently when the appellant pointed out the first respondent’s erroneous calculation of liquidated damages, the first respondent “re-assessed” the liquidated damages at $3 million ([27] Bintai v Samsung).
The Court of Appeal remarked that there was “some merit” in the appellant’s arguments about the validity of the first respondent’s counterclaims, and that the first respondent’s claims for liquidated damages “reflected very poorly” on the first respondent as “… [t]he fact that there was no evidence of the Employer making any claims against the First Respondent for delays as well as the First Respondent’s “errors” in computing some of the periods of delay… suggested that the First Respondent had simply made up its liquidated damages in haste. Such lackadaisical attitude could lead a sub-contractor like the Appellant to suspect, and understandably so, that the First Respondent’s claims were being concocted to justify its call…”([77] Bintai v Samsung).
However, the High Court was not persuaded of fraudulent conduct, as liquidated damages had been raised before the call on the bond, and the Court of Appeal saw no “compelling reason” to interfere with the decision.
Full and frank disclosure. Lastly, the appellant had failed to draw the Court’s attention to the incorporation issue, the relevant clauses and particular conditions, and an adjudication determination that the Particular Conditions of Sub-Contract were incorporated into the Sub-Contract. This raised the issue of whether the appellant had failed to fulfil its duty of making full and frank disclosure of material facts.
While the High Court accepted that these omissions were innocent, the Court of Appeal held that these were material facts which significantly affected the initial decision to grant the interim injunction, so the injunction would also be discharged for the failure to make full and frank disclosure ([80] – [83] Bintai v Samsung).
In particular, the Court of Appeal emphasized that “… The Exclusion Clauses were obviously highly material… and would have affected significantly the Judge’s decision to grant an interim injunction. The Judge granted the injunction on the ground of unconscionability when that ground was apparently excluded by agreement already.”
Significance. This case highlights the importance of obtaining the full terms and conditions of the contract, including the other documents that are referred to in the contract terms, so that one would not be caught unaware by exclusion clauses “hidden” in these separate documents.
In this regard, we would commend readers to the results of the UK Supreme Court decision in MT Højgaard A/S v. E.ON Climate & Renewables UK Robin Rigg East Limited and another [2017] UKSC 59, which highlights the importance of being clear what clauses are incorporated, no matter where they are found in the contract.
This case also highlights that parties need to be consistent in their claims, to avoid inviting unnecessary suspicions as to good faith and genuine belief in the claims, such as, e.g., when the time comes to defend a call on the performance bond in court.
Tags: Interim injunction; Performance bond; Unconscionability exception; Unfair contract terms; Liquidated damages
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