Lloyd's Maritime and Commercial Law Quarterly
Injunctions restraining calls on performance bonds—is fraud the only ground in Singapore?
(GHL
v. Unitrack
)
Quentin Loh * and Tang Hang Wu †
This paper traces the divergence of Singapore law from English law with regard to the grounds upon which a call on a performance bond can be restrained, in particular the recent recognition of the Singapore Court of Appeal’s ruling that “unconscionability” is a separate ground to restrain the call of a performance bond. This article examines the legal nature of an on demand performance bond and seeks to challenge the assumption that a performance bond is a mirror image of a letter of credit. This paper also discusses the recent case of
Cargill International v.
Bangladesh Sugar and Food Industries Corp. The paper will also seek to investigate the ambit of the notion of “unconscionability” and the general principles that can be drawn from a line of Singapore High Court decisions which presage this landmark ruling.
1. Introduction
It is heartening to note that the Lord Chancellor’s foot is still large enough (albeit acting through the Supreme Court of Singapore which inherited his jurisdiction in equity)1
to stop the door closing on an oppressed party whose on demand performance bond has been unfairly called upon. There has been a distinct but growing practice for parties to consider calling on performance bonds, not because they have suffered some damage, but because a dispute is imminent and calling on the bond is a tactical step that will bring the opposing party to his knees. Practitioners today are increasingly met with clients who blithely say: “Let’s call on the performance bond!” as if it were some kind of pre-emptive strike option available to them as a matter of right. Parties will now find that they have no untrammelled right in Singapore to call on a performance bond in their possession irrespective of the merits of their case. On 14 August 1999, the Singapore Court of Appeal, consisting of two judges hearing an interlocutory appeal, published its judgment in GHL Pte Ltd
v. Unitrack Building Construction Pte Ltd
2
and ruled that “unconscionability” was a separate ground from fraud that entitled a court to restrain the call on a performance bond.
2. Terminology
For the sake of clarity and consistency, the terminology used by the ICC Uniform Rules of Demand Guarantees ICC Publication No. 458 (“the URDG”)3
will be adopted. The
* Senior Counsel, Cooma, Lau & Loh, Singapore.
† Assistant Professor of Law, National University of Singapore.
1. Supreme Court of Judicature Act (Cap. 322).
2. [1999] 4 S.L.R. 604.
3. URDG, Art. 2.
INJUNCTIONS RESTRAINING CALLS ON PERFORMANCE BONDS
349