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Grounds publishedDecided 11 Mar 2015
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High Court

Boustead Singapore Ltd v Arab Banking Corp (B.S.C.)

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[2015] SGHC 63Case no. Suit No 730 of 2012 consolidated with Suit No 784 of 2012

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  1. Woo Bih Li J:

  2. Introduction

  3. [1] This dispute is between the Arab Banking Corporation (“ABC”) and its customer, Boustead Singapore Limited (“Boustead”). ABC is a Bahrain bank and Boustead is a Singapore public-listed infrastructure company that is involved in construction developments internationally. The dispute arises out of credit facilities that ABC extended to Boustead for a construction project in Libya. The central issue is whether Boustead is required to pay ABC sums of money that ABC alleges are due pursuant to ABC’s demand under a credit facilities agreement (“the FA”).

  4. Background

  5. [2] In 2007, Boustead, acting through a joint venture (“the JV”) with a Libyan company, was employed by the Organisation for Development of Administrative Centres (“ODAC”) to construct a housing development in Al-Marj, a city in north-eastern Libya. While it does appear that one of Boustead’s wholly-owned subsidiaries, and not Boustead, was the actual party to the JV, this distinction is immaterial for present purposes and I will not address it further. According to Boustead, ODAC was a Libyan entity involved in public projects throughout the country and was controlled by the regime of the late Muammar Muhammad Abu Minya al-Gaddafi, better known as Muammar Gaddafi.

  6. [3] The JV’s contract with ODAC (“the Public Works Contract”) was on ODAC’s standard terms. The Public Works Contract required the JV to furnish a performance bond (“the PB”) and an advance-payment guarantee (“the APG”) in favour of ODAC.

  7. [4] The issuance of the PB and APG in favour of ODAC was done through two intermediary banks. First, Boustead instructed ABC to issue two counter-guarantees in favour of a Libyan bank, the Bank of Commerce and Development (“BCD”). I shall refer to these counter-guarantees as “CG38” and “CG39”, or collectively as “the CGs”. Second, ABC instructed BCD to issue the PB and APG in favour of ODAC against the issuance of the CGs in BCD’s favour. The sums counter-guaranteed under CG38 and CG39 corresponded with the sums guaranteed under the PB and APG respectively. They were, to that extent, granted on a back-to-back basis. At the material time, both CG38 and the PB secured the sum of US$3,760,387.95 and expired on 28 July 2011. CG39 and the APG secured the sum of US$15,021,093.25 and expired on 30 June 2011.

  8. [5] The CGs, the PB and APG were demand guarantees (also known as on-demand guarantees or demand bonds). All required payment on demand as opposed to payment on proof of loss, although each instrument had different requirements for a valid demand for payment.

  9. [6] Boustead’s banking relationship with ABC was governed by the FA. Under the FA, Boustead was obliged to reimburse or indemnify ABC on ABC’s first demand for any amounts demanded or paid under the CGs. The FA stipulated that any demand from ABC was to be conclusive evidence of the amount owing from Boustead to ABC under the FA.

  10. [7] A diagrammatic representation of the parties and their relation to each other is set out below:

  11. Unrest in Libya

  12. [8] Unrest broke out in Libya in 2011 while the Al-Marj construction project was still underway. The unrest bloomed into a full-scale civil war. According to Boustead, the Al-Marj project site was looted and pillaged. Boustead’s plant and equipment was destroyed. Boustead’s staff was evacuated from the Al-Marj project site, and subsequently from Libya on 23 February 2011 with the assistance of International SOS. The United Nations Security Council (“UNSC”) passed Resolutions 1970 (2011) and 1973 (2011) on 26 February and 17 March 2011 respectively, imposing asset freezes on the assets of Muammar Gaddafi, his inner circle, and entities under their control.

  13. [9] Boustead took the position that the Public Works Contract was discharged by the war and subsequent evacuation of Boustead’s staff from the Al-Marj project site. Boustead wrote to ODAC on 13 June 2011 stating that a force majeure event had occurred, and that the JV was no longer required to perform its obligations under the Public Works Contract. It is in this context that the dispute currently before the court began to take root.

  14. Notices or demands in respect of the PB or APG and the CGs

  15. [10] After unrest in Libya broke out in early 2011, various notices or demands were sent by ODAC to BCD and by BCD to ABC in respect of the PB and CG38 and the APG and CG39. I will set out the sequence in respect of the APG and CG39 first and then the sequence in respect of the PB and CG38.

  16. [11] On 25 May 2011, after Boustead’s staff had been evacuated from Libya, BCD sent a Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) message to ABC. (SWIFT messages were the primary mode of communication between ABC and BCD, and unless I mention to the contrary, any communication or correspondence between ABC and BCD was by SWIFT message.) BCD requested that the expiry of CG39 be extended to 31 December 2012, or that the full sum secured under CG39 be paid.

  17. [12] The first extend or liquidate request from BCD to ABC was followed by a second on 20 June 2011. On 23 June 2011, BCD made a demand on ABC for payment under CG39 (“the CG39 Demand”). ABC informed Boustead of the CG39 Demand on the same day. As it turned out, Boustead had commenced Originating Summons No 503 of 2011 (“OS 503/2011”) against ABC on 22 June 2011. Boustead obtained an ex parte injunction restraining ABC from extending the validity of or making payments under the CGs on 23 June 2011, perhaps before having knowledge of the CG39 Demand already made on ABC. Boustead wrote to ABC on 23 June 2011 informing the latter of the injunction. ABC relayed the message to BCD on 28 June 2011.

  18. [13] BCD adopted the same approach in respect of CG38 notwithstanding the injunction restraining ABC from making payment under both CGs. BCD sent ABC a first extend or liquidate request for CG38 on 30 June 2011, followed by a second request on 3 July 2011. On 11 July 2011, BCD made a demand on ABC for payment under CG38 (“the CG38 Demand”).

  19. [14] The basis of both the CG38 and CG39 Demands were stated by BCD to be demands from ODAC under the PB and APG respectively. When Boustead was informed of the earlier CG39 Demand, it asked ABC to provide a copy of the ODAC demand on which the CG39 Demand was based. ABC relayed Boustead’s request to BCD. BCD obliged, and on 14 July 2011 (which was after the CG38 Demand had been made), BCD sent to ABC copies of both the purported demands from ODAC which formed the basis for BCD’s CG38 and CG39 Demands. These turned out to be letters from ODAC to BCD dated 16 May and 19 June 2011. I shall refer to them as “the ODAC Notices”. ABC forwarded copies of the ODAC Notices to Boustead on 18 July 2011.

  20. Proceedings in Singapore gain momentum

  21. [15] It will be recalled that Boustead commenced OS 503/2011 and obtained an ex parte injunction restraining ABC from making payment to BCD under the CGs on 23 June 2011. On 24 April 2012, ABC successfully challenged the jurisdiction of the Singapore court in OS 503/2011 before an assistant registrar. This was about ten months after the injunction was first granted. The assistant registrar set aside the order granting leave for service of the originating process out of jurisdiction, but did not discharge the injunction. Boustead appealed against the assistant registrar’s decision. A judge of the High Court dismissed the appeal on 29 August 2012 on the ground that Boustead had commenced the action with an incorrect originating process. The judge also discharged the injunction.

  22. [16] Boustead commenced Suit No 730 of 2012 (“S 730/2012”) against ABC the next day, on 30 August 2012. Boustead also made an ex parte application for a second interim injunction to the same effect as the first. The second injunction was granted on the same day by the same judge who had discharged the first injunction. In S 730/2012, Boustead seeks a declaration that it is discharged from all liabilities and obligations to ABC under the FA insofar as they relate to the CGs. Boustead also seeks a permanent injunction restraining ABC from making payment to BCD under the CGs.

  23. [17] While proceedings in Singapore were unfolding, ABC continued to receive requests from BCD to extend or liquidate the CGs. On 23 August 2012, BCD wrote to ABC stating that ODAC requested an extension or liquidation of the APG. In the same message, BCD further stated that if an extension was not forthcoming, BCD “shall be grateful ... if [ABC] would consider this SWIFT as an official claim for liquidation of the value of [CG39]”. ABC responded on 27 August 2012 acknowledging BCD’s message, and reminding BCD of the injunction.

  24. ABC makes a demand on the FA and issues an event-of-default notice

  25. [18] On 3 September 2012, ABC made a consolidated demand for payment of US$18,781,481.20 under the FA. I shall refer to this as “the FA Demand”. The FA Demand was for the aggregate of the sums demanded by BCD under the CGs. The FA Demand was made more than a year after BCD’s demands for payment under the CGs. An injunction restraining ABC from making payment to BCD under the CGs was and still continues to be in place from when it was first granted on 23 June 2011 (save for the narrow one-day window when the first injunction was discharged, which is described at [15]–[16] above).

  26. [19] Boustead responded to ABC’s FA Demand by email on 4 September 2012. The email reminded ABC that it was restrained from making payment under the CGs. The email also set out Boustead’s position that it disputed the validity of the CG Demands and the ODAC Notices, and that Boustead would not be making any payment to ABC.

  27. [20] ABC responded by serving an event-of-default notice (“the EOD Notice”) on Boustead under the FA on 10 September 2012. The ground for the EOD Notice was that ABC had not received payment from Boustead. ABC’s position is that the EOD Notice terminated the FA with immediate effect.

  28. [21] ABC subsequently commenced Suit No 784 of 2012 (“S 784/2012”) on 19 September 2012, claiming the sums due under the FA Demand, or alternatively, seeking a declaration that Boustead is liable to pay ABC on the sums demanded in the FA Demand. ABC also seeks the discharge of the second injunction restraining payment to BCD. The trial before me was for the two consolidated suits, S 730/2012 and S 784/2012.

  29. [22] There was also some further correspondence between ABC and BCD in 2012. These were mainly updates from ABC to BCD on the legal proceedings in Singapore. ABC on two occasions invited BCD to instruct counsel in Singapore and to be joined as defendants to the Singapore proceedings. BCD twice declined. This correspondence will be addressed in greater detail below.

  30. The relevant agreements

  31. [23] It will be helpful to provide an outline of the terms of the relevant agreements before turning to the various allegations and claims. I will give only a brief overview of the agreements in this section. I will discuss them in greater detail as and when necessary in the course of my analysis.

  32. The FA

  33. [24] The FA is an agreement between ABC and Boustead. The FA comprises two documents: a facility agreement dated 4 July 2008; and a supplemental facility agreement dated 27 July 2009, which varied the terms of the earlier facility agreement. It is needless to draw a distinction between these two documents. Any reference to “the FA” is to the original facility agreement as varied by the supplemental facility agreement. The FA is governed by Singapore law. There are three provisions in the FA that are relevant to these proceedings, cll 6.6, 6.8 and 6.9:

  34. (a) Clause 6.6 provides that Boustead is to indemnify ABC against any loss it might suffer with respect to the issuance of the CGs.

  35. (b) Clause 6.8 states that ABC shall not have any obligation to make factual determinations as to the validity or genuineness of any document delivered to it under the CGs.

  36. (c) Clause 6.9 requires Boustead to “reimburse and/or indemnify [ABC] for any amounts demanded or paid under [the CGs]”. The reimbursement or indemnity is to be provided “upon [ABC’s] demand (which demand shall, in the absence of manifest error, be conclusive evidence of the amount owing)”. Clause 6.9 further states that Boustead’s obligation to pay the amounts demanded by ABC “shall be absolute and unconditional irrespective of any ... disputes of [Boustead] concerning the merits or validity or propriety of any such demands or claims or any payment made”. The FA Demand (see [18] above) was made pursuant to cl 6.9.

  37. The CGs

  38. [25] The CGs are demand guarantees that were issued by ABC in favour of BCD. They were issued by ABC in accordance with Boustead’s instructions and pursuant to the FA.

  39. [26] The CGs were concluded through SWIFT messages between ABC and BCD. The terms of both are largely similar. Both are stipulated to be “subject to the [ICC] uniform rules for demand guarantees ... and ... as to matters not governed by the uniform rules ... be governed by and construed in accordance with English law.” This is accepted to be a reference to the International Chamber of Commerce Uniform Rules for Demand Guarantees (ICC Publication No 458) (“URDG 458”). Disputes arising from the CGs are also to be submitted to the non-exclusive jurisdiction of the English courts.

  40. [27] Both CGs contain the same requirements for a conforming demand for payment. A demand for payment under the CGs must have a supporting written statement specifying that BCD had received a demand for payment from ODAC in accordance with the terms of the PB or APG, as the case may be. These requirements will be examined below in the analysis of whether BCD’s demands for payment under the CGs on ABC were conforming demands.

  41. The PB and APG

  42. [28] BCD granted the PB and APG in favour of ODAC against the CGs. Both the PB and APG are in Arabic, but English translations of the documents were made available for the purposes of the trial. The terms of both the PB and APG are largely similar. Both are demand guarantees and are stipulated to be governed by Libyan law and subject to the non-exclusive jurisdiction of the Libyan courts.

  43. [29] Clause 2 of the PB requires a demand for payment from ODAC to state: (a) the amount that was due to ODAC; (b) that Boustead was in breach of its obligations under the Public Works Contract; and (c) the respect in which Boustead was in breach.

  44. [30] In the same vein, cl 2 of the APG requires a demand for payment from ODAC to state: (a) that Boustead has failed to repay the advance payment in accordance with the conditions of the Public Works Contract; and (b) the amount which the JV has failed to repay.

  45. The arguments and issues

  46. Boustead’s position

  47. [31] Boustead’s main contention is that it should be discharged from all obligations owed to ABC under the FA that are in relation to the CGs. This contention is made on four separate grounds: fraud, conspiracy, unconscionability and contract.

  48. [32] Boustead’s fraud argument is that ABC’s claim against Boustead is dishonest because it has “no basis in fact and ... law”. Boustead’s allegation of dishonesty has two separate bases: first, ABC turned a blind eye to the fraud perpetrated by BCD, ODAC, or both, against Boustead; or second, ABC turned a blind eye to the lack of authority, validity, genuineness, accuracy or correctness of BCD’s demands for payment under the CGs.

  49. [33] Boustead’s conspiracy argument is that there are circumstances which show that ABC conspired with BCD, ODAC, or both, to perpetrate a fraud on Boustead.

  50. [34] Boustead’s unconscionability argument is that the CG Demands and ODAC Notices were made or issued unconscionably. The FA Demand was therefore also made unconscionably. ABC should accordingly be precluded from claiming for the demanded sum.

  51. [35] Boustead’s contract argument is cast in two ways. First, that cll 6.6, 6.8 and 6.9 of the FA are unreasonable exclusions of liability for negligence and therefore invalid under the Unfair Contract Terms Act (Cap 396, 1994 Rev Ed) (“the UCTA”). Second, that there were implied terms in the FA that ABC will not make a demand against Boustead unless there have been valid or genuine claims made under the CGs.

  52. ABC’s position

  53. [36] ABC does not dispute the proposition that fraud on its part will disentitle it from seeking payment under cl 6.9 of the FA. ABC’s position is that Boustead has not crossed the high threshold required to establish fraud. In the first place, BCD’s demands were valid and sufficient to trigger ABC’s liability to pay BCD under the CGs. ABC’s claim against Boustead was therefore not made fraudulently. ABC argues that the FA Demand was not made unconscionably, and that this aspect of unconscionability was, in any event, not pleaded.

  54. [37] On the contract ground, ABC argues that cll 6.6, 6.8 and 6.9 of the FA (see [24] above) are not exclusions of liability for negligence. Even if they are, they are valid because they pass muster under the reasonableness test in the UCTA. ABC disputes the existence of the implied terms which Boustead contends for.

  55. The issues

  56. [38] In the context of the positions described above, the following issues arise for determination:

  57. (a) Whether ABC’s claim against Boustead is brought fraudulently with no basis in fact or law because:

  58. (i) BCD made the CG Demands fraudulently and ABC had knowledge of BCD’s fraud; or

  59. (ii) BCD’s CG Demands were invalid for failing to conform to the requirements stipulated in the CGs and ABC had knowledge of such non-conformity.

  60. (b) Whether ABC conspired with BCD, ODAC, or both to perpetrate a fraud on Boustead.

  61. (c) Whether it will be unconscionable for ABC to obtain payment from Boustead against the FA Demand.

  62. (d) Whether cll 6.6, 6.8 and 6.9 of the FA are invalid under s 2(2) of the UCTA as unreasonable exclusions of liability for negligence.

  63. (e) Whether ABC’s claim against Boustead is precluded by terms that are implied in the FA.

  64. [39] The latter two contract issues fall squarely to be decided under Singapore law, which is the proper law of the FA.

  65. [40] The fraud issue is also to be decided under Singapore law. ABC’s claim is brought in Singapore under the FA that is governed by Singapore law. The fraud issue, however, raises subsidiary issues that may engage elements of foreign law. ABC’s legal position with respect to BCD under the CGs is a question of English law. The validity of BCD’s demands under the CGs would therefore have to be determined according to English law. Libyan law, which is the proper law of the PB and APG, may also be applicable. It would be relevant to the extent that the validity of the ODAC Notices are in question.

  66. [41] Determining whether there is a conspiracy or unconscionability will also require an examination of the entire context, including the positions of the parties under the CGs, the PB and APG, as well as the Public Works Contract.

  67. [42] Three experts on foreign law were called to give evidence at the trial. Stuart Isaacs QC and Sir Royston Miles Goode QC (who is also known as Professor Roy Goode, and was referred to as Sir Roy during the trial) were called by Boustead and ABC respectively to give evidence on English law. Mr Isaacs is a commercial silk at the English bar with over 30 years of experience in practice. Sir Roy is an emeritus professor of law at the University of Oxford and an emeritus fellow of St John’s College, Oxford. The third expert was Mohamed Abdulkader Tumi. Dr Tumi was called by Boustead to give evidence on Libyan law. Dr Tumi is a Libyan lawyer who has been admitted to appear before the Libyan Supreme Court for more than 15 years. ABC elected not to call a Libyan law expert.

  68. Whether ABC’s claim against Boustead is fraudulent

  69. [43] Boustead asserts that ABC’s claim is fraudulent because it has “no basis in fact and in law”. Boustead’s argument is that ABC makes the claim against Boustead despite ABC knowing that it does not have any liability to BCD under the CGs because: (a) BCD made the CG Demands fraudulently; or (b) the CG Demands were not made in conformity with the terms of the CGs.

  70. [44] BCD’s demands for payment under the CGs are said to be fraudulent because both the CG38 and CG39 Demands stated:

  71. It is clear that the ODAC Notices which formed the basis of the CG38 and CG39 Demands were not made in accordance with the terms of the PB and APG (see [68]–[69] below).

  72. [45] Dr Tumi, Boustead’s Libyan law expert, gave unchallenged evidence that under Libyan law (which is the governing law of the PB and APG), the ODAC Notices did not constitute valid demands in accordance with the terms of the PB and APG. The ODAC Notices would therefore not have triggered BCD’s liability to ODAC under the PB and APG.

  73. [46] The CG Demands therefore made false statements that BCD had “received ... demand[s] for payment ... in accordance with [the] terms [of the PB or APG, as the case may be]”. Boustead argues that BCD made the false statements knowing they were false, or recklessly, without caring as to its truth or falsity. BCD was therefore acting fraudulently in making the CG Demands. Boustead also alleges that BCD’s demands were themselves, non-compliant with the terms of the CGs. These allegations of non-compliance are detailed, and I will address them further below.

  74. [47] As a preliminary point, I address ABC’s submission that Boustead did not plead that ABC made a fraudulent claim against Boustead. ABC argues that Boustead merely stated that ABC’s commencement of S 784/2012 was a “wrongful act”. While Boustead’s pleadings are convoluted, it is my view that the allegation is sufficiently pleaded.

  75. [48] In paragraph 48 of Boustead’s amended statement of claim, Boustead avers that ABC has committed a “wrongful act” against Boustead. At sub-paragraph (i) of the particulars to paragraph 48, Boustead refers to ABC having turned a blind eye to ODAC’s or BCD’s fraud, or to the lack of validity of documents which include a reference to the ODAC Notices and the CG Demands. It is not necessary to allege in the pleading that turning a blind eye amounts to fraud. The factual allegation has been made. With that, I will turn to the evidence on English law in respect of demand guarantees.

  76. English law on demand guarantees

  77. [49] The English law experts, Mr Isaacs for Boustead and Sir Roy for ABC, each filed an expert report on the English law applicable to demand guarantees. This was followed by a joint expert report that was filed pursuant to a direction by the court. After the joint expert report was filed, each expert filed a supplementary report that addressed various areas of disagreement in the first round of reports and the later joint report.

  78. [50] The experts agreed that three fundamental principles of demand guarantee law were applicable:

  79. (a) that the demand guarantee is autonomous from the counter-guarantee, which is, in turn autonomous from the underlying contract;

  80. (b) that the issuer of a demand guarantee (or counter-guarantee) is concerned with documents and not external facts; and

  81. (c) that the issuer of a demand guarantee (or counter-guarantee) is only concerned with apparent conformity.

  82. [51] These three principles also find expression in the URDG 458 which was incorporated into the CGs. Article 2(b) of the URDG 458 states that the duty of a guarantor under a guarantee (or counter-guarantee) is to pay the sum stated on the presentation of a written demand for payment and other documents specified in the guarantee, which appear on their face to be in accordance with the terms of the guarantee. Article 2(c) stipulates the same conditions in relation to payments on counter-guarantees. It further states that counter-guarantees are by their nature separate transactions from the guarantees to which they relate and from any underlying contract. Counter-guarantors are in no way concerned with or bound by such guarantees or contracts.

  83. [52] The principle of autonomy posits that the underlying contract (in this case, the Public Works Contract) is independent from the guarantee (in this case, the PB and APG issued by BCD in favour of ODAC). The guarantee is, in turn, independent from the counter-guarantee (in this case, the CGs issued by ABC in favour of BCD).

  84. [53] The corollary of the principle of autonomy is the second principle that the issuer is concerned with documents and not external facts. This means that the guarantor or counter-guarantor pays against and only against a demand for payment accompanied by the presentation of specified documents. Precisely what is required of a conforming demand for payment depends on the terms of the guarantee under which the demand is made. Apart from the conformity of the demand or documents, the guarantor or counter-guarantor is not concerned with the truth or accuracy of the statements contained within those documents.

  85. [54] Closely related is the third principle—that of apparent conformity. Under this principle, the guarantor or counter-guarantor is concerned only with whether documents presented appear on their face to conform to the terms of the guarantee or counter-guarantee, as the case may be.

  86. [55] The effect of these principles is that ABC will be under an obligation to pay on the demands made by BCD under the CGs as long as BCD’s demands conform with the requirements of the CGs and the URDG 458. Payment must be made regardless of how unfair it may be in the circumstances: see Edward Owen Engineering Limited v Barclays Bank International Limited [1978] QB 159 (“Edward Owen v Barclays Bank”) at 169.

  87. [56] The thread that ties these three principles together, despite the possible unfairness of payment on demand, is the commercial role that a demand guarantee serves. Demand guarantees under English law are treated as the equivalent of cash; they provide a promptly and assuredly realisable security when the prescribed event occurs: Siporex Trade SA v Banque Indosuez [1986] 2 Lloyd’s Rep 146 at 158.

  88. [57] The only exception (under English law) that unravels the tight weave of the three principles described above is fraud. In Edward Owen v Barclays Bank, Lord Denning MR stated at 169 that the bank “ought not to pay under the credit if it knows that the documents are forged or that the request for payment is made fraudulently in circumstances when there is no right to payment” [emphasis added]. A bank may (or on some authorities, must: see United City Merchants (Investments) Ltd and Glass Fibres and Equipment Ltd v Royal Bank of Canada and others [1983] 1 AC 168) refuse to pay on a demand where: (a) the beneficiary to the guarantee (or counter-guarantee) is a party to the fraud; (b) the bank has knowledge of the fraud by a particular time; and (c) the beneficiary has been given an opportunity to answer the allegation of fraud.

  89. [58] The English law experts also agreed that there is a relatively high evidential threshold in order for the fraud exception to be made out. Various phrases have been used by the English courts to describe this standard:

  90. (a) “clearly established” in Edward Owen v Barclays Bank at 173;

  91. (b) “particularly cogent evidence” in Enka Insaat Ve Sanayi AS v Banca Popolare dell'Alto Adige SpA [2009] EWHC 2410 (Comm) at [25]; and

  92. (c) “the only realistic inference” in United Trading Corporation SA and Murray Clayton Ltd v Allied Arab Bank Ltd and others [1985] 2 Lloyd’s Rep 554 at 561 (“United Trading”).

  93. [59] One must be careful, however, not to overstate the narrowness of the fraud exception. The English Court of Appeal observed in United Trading at 561:

  94. [60] I have laid out the English law on demand guarantees broadly. I now turn to consider whether BCD’s demands under the CGs were made fraudulently, or were invalid because they did not conform to the terms of the CGs.

  95. Whether BCD made the CG Demands fraudulently and if so whether ABC had knowledge of the fraud

  96. [61] The fraud exception requires establishing first, that BCD made the demands under the CGs fraudulently; and second, that ABC had knowledge of BCD’s fraud at the relevant time. The experts differed on when exactly this relevant time was.

  97. Whether BCD made the CG38 and CG39 Demands fraudulently

  98. [62] It is not disputed that the statements made by BCD in the CG Demands, that BCD had received demands from ODAC in accordance with the terms of the PB and APG, were false. The ODAC Notices clearly did not comply with the terms of the PB and APG. But the mere fact that BCD made false statements in the CG38 and CG39 Demands does not, without more, amount to fraud.

  99. [63] The classic statement of fraud is found in the English House of Lords case of Derry v Peek (1889) 14 App Cas 337 (“Derry v Peek”). Lord Herschell stated at 374 that fraud is proved when a false representation has been made either knowingly, without belief in its truth, or recklessly, careless as to whether it be true or false. Fraud therefore requires that BCD made the false statements in the CG Demands either knowing that they were false, or recklessly without caring as to their truth or falsity.

  100. [64] The English law experts both expressed views on whether the evidence would lead to the conclusion that BCD was acting fraudulently, but they did so with reticence. Both maintained that it was not for them to say whether or not there was fraud on the part of BCD. That is a question of fact which is the sole province of the trier of fact and not an expert witness.

  101. [65] Nevertheless, Mr Isaacs did say that there was a good arguable case of fraud in the sense of recklessness, based on a few factors stated in his expert opinion:

  102. (a) BCD would have drafted the PB and the APG and so, would have been aware of the requirements (described at [29]–[30] above) for a valid demand under the PB and the APG.

  103. (b) The requirements for a valid demand under the PB and the APG were very short and straightforward.

  104. (c) The ODAC Notices were very obviously non-compliant with the requirements of the PB and the APG. There was no reference in either letter to any failure to pay or other breach of the underlying Public Works Contract by Boustead or the JV.

  105. (d) It would be surprising if BCD had not sought to check that it had received valid demands.

  106. (e) ABC had informed BCD that the latter’s initial demand under CG39 dated 20 June 2011 was non-compliant because it did not contain a statement specifying that it had received a demand under the APG in accordance with its terms. (I will elaborate more on this point below.)

  107. (f) There was no evidence of communication between BCD and ODAC which suggests that BCD attempted to establish that the requirements for demands under the PB and the APG had been met.

  108. [66] Sir Roy, on the other hand, expressed the view that the circumstances above did not necessarily lead to the conclusion that there was fraud. There were other equally credible possibilities that amounted to mere negligence or carelessness, but not recklessness.

  109. [67] Considering the evidence as a whole, it is my view that the “only realistic inference” (United Trading at 560) that can be drawn is that BCD made the false statements in the CG38 and CG39 Demands recklessly. I base this conclusion on four reasons.

  110. [68] First, the ODAC Notices were obviously non-compliant with the terms of the PB and APG. It bears repeating that cl 2 of the PB required a demand from ODAC under the PB to state:

  111. (a) the amount that was due to ODAC;

  112. (b) that the JV was in breach of its obligations stipulated in the Public Works Contract; and

  113. (c) the respect in which the JV was in breach.

  114. Clause 2 of the APG required a demand from ODAC under the APG to state:

  115. (d) that the JV has failed to repay the advance payment in accordance with the conditions of the Public Works Contract; and

  116. (e) the amount which the JV has failed to repay.

  117. [69] The ODAC Notices, which related to the PB and the APG were similar in all material respects. Both ODAC Notices merely stated:

  118. The ODAC Notices did not satisfy any of the requirements for a valid demand under the PB and APG. The non-conformity of the ODAC Notices would have been apparent to anyone that read and considered what was required in the PB and APG against what was stated in the ODAC Notices. It is my view that the obvious non-conformity of the ODAC Notices is relevant to the question of BCD’s state of mind at the time it made the CG Demands.

  119. [70] Second, and as Mr Isaacs pointed out, ABC had put BCD on notice of the importance of a complying demand prior to BCD making the CG39 Demand and subsequently, the CG38 Demand. It will be recalled that before the CG39 Demand was made, BCD had made requests to extend or liquidate CG39. On 20 June 2011, BCD made the second extend or liquidate request on CG39 (see [11]–[12] above). In the second extend or liquidate request, BCD stated that “we shall be grateful therefore if you [ABC] would consider this SWIFT as an official claim for liquidation of the value [secured by CG39]”.

  120. [71] ABC responded to BCD on 22 June 2011, informing BCD that its request “[did] not constitute a complying demand as per the terms of [CG39]”. ABC further stated that in order for a demand under CG39 to be valid, the demand had to “confirm that [BCD had] received claim [sic] from [ODAC] in accordance with the terms of the [APG] ...”. It was only after this reminder that BCD made the CG39 Demand which stated falsely that BCD had received a demand from ODAC in accordance with the terms of the APG.

  121. [72] This is not a situation where BCD made a demand which happened to contain false statements. As mentioned above, when BCD made the second extend or liquidate request which purported to be a demand, ABC drew the specific requirements of a valid demand under the CGs to BCD’s attention on 22 June 2011. BCD was therefore reminded that CG39 required a demand from BCD to state that it had received a conforming demand from ODAC under the APG.

  122. [73] Despite being put on notice of the requirement to state that it had received a conforming demand from ODAC under the APG, BCD nevertheless went on to falsely assert in the CG39 Demand on 23 June 2011, and thereafter in the CG38 Demand on 11 July 2011, that it had received conforming demands from ODAC.

  123. [74] Sir Roy’s view was that these circumstances did not necessarily lead to the conclusion that there was fraud. Sir Roy explained that there was another equally credible explanation. The clerk at BCD who was unfamiliar with the requirements of demand guarantees could have mechanically followed the requirements that ABC laid out in its SWIFT message of 22 June 2011, without realising the effect of those requirements or what exactly they entailed. Sir Roy stated that it was therefore quite possible that the employee concerned did not even appreciate that ODAC’s demands on the PB and the APG were non-conforming.

  124. [75] I accept that a clerk at BCD could have done as Sir Roy suggests. I also accept that that would not amount to fraud in the sense of dishonesty. But it could amount to fraud in the sense of recklessness.

  125. [76] This brings me to the third reason, that in the context of demand guarantees, the very concern of the banks is with the documents presented to it. If the same slip occurred in the context of a consumer or retail transaction, then perhaps it would not have amounted to recklessness. But this is a formal banking transaction. It is no answer to suggest that BCD was unfamiliar with the requirements of demand guarantees and what they entail, and therefore it did not examine the documents presented to it before making the CG38 and CG39 Demands. Although BCD was not required to be concerned with external facts, its core duty was to examine the documents presented to it.

  126. [77] If BCD had indeed made the CG38 and CG39 Demands mechanically without checking the requirements of the PB and APG which formed the basis for its demands, then I am of the view that BCD acted recklessly, in the sense that it was careless as to whether its statements were true or false. Furthermore, this was not an accidental slip arising from some inadvertent misdescription or spelling error, and the false statement was made twice in respect of both CGs. Quite clearly, BCD did not care whether its statement was true or false. This was all the more so when we remember that BCD was informed by ABC that BCD’s own demand had to state that BCD had received a demand from ODAC in accordance with the terms of the PB or APG (as the case may be).

  127. [78] Fourth, the allegations of fraud which have been made against BCD have been left unanswered. In United Trading, the English Court of Appeal observed at 561 that a failure to explain conduct may add to the finding of fraud:

  128. [79] The facts and holding in United Trading provide a convenient starting point for the discussion of this final reason. In United Trading, the plaintiffs, which comprised European and South American corporations from the same corporate group, supplied foodstuff to an Iraqi entity known as Agromark. Agromark was controlled by the Iraqi Ministry of Agriculture. The plaintiffs were required to secure performance of their obligations to Agromark by procuring performance bonds in favour of Agromark from Rafidain, which was an Iraqi state bank. The plaintiffs did not approach Rafidain directly for the procurement of the performance bonds. They did so through a chain of banks, much like the arrangement in the present case.

  129. [80] War broke out between Iran and Iraq, giving rise to considerable disruption in the performance of the plaintiffs’ contracts with Agromark. Agromark subsequently called on the performance bonds. The plaintiffs took the view that the calls were “manifestly fraudulent”. The plaintiffs sought and obtained ex parte injunctions against the banks, including Rafidain, restraining payment. The injunctions were, however, discharged at inter partes hearings. The plaintiffs appealed to the English Court of Appeal.

  130. [81] The appeal was dismissed because the plaintiffs had not produced sufficient evidence to show that “the only realistic inference [was] that the demands were fraudulent”. In the course of argument before the English Court of Appeal, counsel for the plaintiffs placed “considerable reliance on Agromark’s failure to disclose its defence to the charge of fraud” (United Trading at 564). To this, the English Court of Appeal had a pointed response: Agromark had legitimate reasons for not responding to the allegations of fraud. The English Court of Appeal was therefore not prepared to hold Agromark’s silence against it on the facts of that case (United Trading at 565):

  131. [82] ABC in its closing submissions makes an argument along similar lines. It says that BCD had a legitimate reason to decline to participate in legal proceedings in Singapore because the Public Works Contract, the PB and the APG were subject to the jurisdiction of the Libyan courts and governed by Libyan law. Therefore, the suggestion was that BCD had a legitimate reason for not explaining its conduct.

  132. [83] I do not accept ABC’s submission. BCD may not have wanted to be a party to the Singapore proceedings, and understandably so. But that did not preclude BCD from giving an explanation in a manner that did not amount to a submission to the jurisdiction of the Singapore court. BCD had an opportunity to do so on at least two occasions in 2012, but did not.

  133. [84] First, on 17 January 2012, ABC wrote to BCD by letter. ABC informed BCD about the proceedings Boustead had commenced against ABC in Singapore. Further, that Boustead had obtained an interim injunction restraining ABC from making payment to BCD. The letter also stated that one of Boustead’s allegations was that BCD had made an “abusive call”. ABC went on to state that the proceedings are “in substance between Boustead on one hand, and BCD and/or ODAC on the other”. ABC was a neutral party and would “[not be] in a position to lead evidence on the substantive issues”. ABC concluded by “strongly [urging] BCD to engage lawyers in Singapore to make the necessary court application to be added as a defendant”.

  134. [85] BCD’s response to ABC was by a letter dated 19 January 2012. BCD addressed some concerns raised by ABC relating to whether the Public Works Contract was still subsisting, and whether the UNSC Resolutions 1970 (2011) and 1973 (2011) prevented payment from being made to BCD. BCD also added that the Public Works Contract was governed by “Libyan law and no disputes concerning it can be heard except by the Libyan law courts”. BCD went on to state that it was not a party to the relationship between ABC and Boustead, and that BCD had “no right to be involved in any litigation with [Boustead]”.

  135. [86] BCD had a second opportunity to explain its position in November 2012. On 22 November 2012, BCD wrote to ABC asking for an update on the Singapore court proceedings. ABC provided a lengthy response on 28 November 2012. The response detailed the progress of the Singapore litigation until that point. ABC also summarised Boustead’s statement of claim in S 730/2012 stating clearly that one of the allegations was that “ABC had turned a blind eye to the fraud [perpetrated] against Boustead by BCD and/or ODAC” [emphasis added]. ABC again reiterated that the dispute was in substance between Boustead and BCD and/or ODAC and urged BCD to engage Singapore counsel and apply to be added as a defendant in the Singapore proceedings.

  136. [87] BCD responded on 3 December 2012, stating that the dispute was a matter between Boustead and ABC, and that BCD did not consider itself as having a right to be involved in the proceedings. BCD further stated that ABC was “fully responsible” to BCD on CG38 and CG39, and that BCD would help ABC in the Singapore litigation by “providing any necessary documntation [sic] or information” regarding CG38 and CG39.

  137. [88] There is no evidence that BCD was specifically informed that the allegation of fraud was in the context of BCD falsely stating that it had received a demand for payment from ODAC in accordance with the terms of the PB and APG respectively, when both ODAC Notices were obviously not in accordance with the said terms. Nevertheless, BCD could and ought to have made further inquiries as to the specific allegations of fraud that were made against it if it was truly unaware of and concerned about the specificity of the allegations.

  138. [89] BCD was, after all, presumably still seeking payment on the CG Demands, which had been made more than a year ago. BCD was aware of the fact that Boustead had obtained an order to restrain ABC from making payment, and that ABC was involved in litigation in Singapore. BCD was also aware that Boustead had made allegations of fraud against BCD in the proceedings in Singapore. BCD could have explained its position through SWIFT message or letter. That would not have resulted in BCD “submitting to the jurisdiction [or] being indirectly drawn into litigation” in Singapore (United Trading at 565). BCD did not do so. Neither did BCD say that it chose not to state its position out of a fear of being construed to have submitted to the jurisdiction of the Singapore court. Furthermore, if the fear of submitting to the jurisdiction of another court is accepted, without more, as a valid explanation for a non-response, then it would generally be easy for a foreign party to justify a non-response.

  139. [90] I add that the absence of a satisfactory explanation is not necessary before a court may draw a conclusion of fraud in the reckless sense. In United Trading, the plaintiffs’ allegation of breach of contract by the beneficiary of the bond was not clearly established. Hence the plaintiffs relied heavily on the absence of a satisfactory response to the allegation to establish its allegation of breach.

  140. [91] On the facts before me, the falsity of the statements in the CG Demands is obvious. Boustead does not need to rely heavily on the absence of a satisfactory response from BCD to establish that BCD acted recklessly in view of the factors I mentioned above. It is therefore my view that the only realistic inference to draw is that BCD made the CG38 and CG39 Demands recklessly, without caring as to the truth or falsity of the assertions within them.

  141. Whether ABC had knowledge of BCD’s fraud

  142. [92] The next issue is whether ABC had knowledge of BCD’s fraud at the relevant time. For analytical clarity, I will put the issue another way, in the form of four questions:

  143. (a) First, what are the facts which establish that BCD made the CG Demands fraudulently?

  144. (b) Second, did ABC have knowledge of those facts such that it knew (or ought to have known) that BCD made the CG Demands fraudulently?

  145. (c) If the second question is answered in the affirmative, then third: when did ABC acquire knowledge of those facts?

  146. (d) Fourth, was ABC’s acquisition of those facts within the relevant time?

  147. The second question focuses on the state or quality of ABC’s knowledge. The third and fourth questions focus on the time ABC acquired such knowledge and whether it was within the relevant time for the fraud exception. I should point out at this juncture that the English law experts disagreed as to what the relevant time was for the purposes of the fourth question. I will come back to this disagreement further below.

  148. [93] In relation to the first question, I have stated my reasons for concluding that BCD made the CG Demands fraudulently in the reckless sense at [68]–[91] above. There were four reasons that led me to that conclusion, which I will summarise. First, the ODAC Notices were very clearly not conforming demands in accordance with the terms of the PB and APG. Second, ABC had put BCD on notice of the importance of a complying demand prior to BCD making the CG39 Demand and the CG38 Demand. Third, in the context of demand guarantees, BCD’s very concern would have been the documents presented to it, namely the ODAC Notices. Fourth, BCD failed to provide a satisfactory answer to the allegations of fraud.

  149. [94] I turn to the second question of whether ABC had knowledge of these facts and whether ABC therefore had knowledge that BCD made the CG Demands fraudulently.

  150. [95] Boustead commenced OS 503/2011 on 22 June 2011. Mr Koh Nghee Kwang, a project director of Boustead, filed an affidavit dated 22 June 2011 in OS 503/2011 (“Mr Koh’s first OS 503/2011 affidavit”). Mr Koh also was one of Boustead’s witnesses in the proceedings before me. Mr Koh’s first OS 503/2011 affidavit exhibited copies of the PB and APG. ABC was served with a copy of Mr Koh’s affidavit (and therefore the PB and the APG) probably soon after 22 June 2011, because Ms Nehad Alkazmawi filed a reply affidavit in OS 503/2011 dated 21 July 2011. Ms Nehad was an ex-employee of ABC, and the first vice-president of the Bank’s Global Trade Finance & Forfaiting Department at the material time. Ms Nehad also gave evidence for ABC at the trial. Ms Nehad’s reply affidavit made express reference (at paragraph 8) to Mr Koh’s first OS 503/2011 affidavit and addressed the points raised therein.

  151. [96] ABC received copies of the ODAC Notices on 14 July 2011 (see [14] above). ABC forwarded the ODAC Notices to Boustead on 18 July 2011. By 14 July 2011, ABC would therefore have had (a) copies of the PB and APG; (b) the ODAC Notices; and (c) the CG Demands made by BCD on 28 June and 11 July 2011.

  152. [97] The fact that ABC possessed these three documents alone did not necessarily mean that ABC knew that BCD had been fraudulent in the sense of being reckless. However, the first three of the four facts I mentioned above (at [93]) would have been obvious to ABC, leaving aside for the time being the point that BCD had not given any satisfactory explanation why it had made the false statements. The non-conformity of the ODAC Notices was manifest. ABC was aware of the necessity of conforming demands in the context of demand guarantees. I reiterate that ABC sent BCD a reminder on 22 June 2011 that BCD’s extend or liquidate requests were not valid demands, and of the requirements for a conforming demand. ABC itself was a bank that dealt in demand guarantees. ABC would have been alive to the concern of the primacy of documents in such transactions.

  153. [98] In view of these circumstances, I find that by 14 July 2011, ABC must have known, or ought to have known, based on the documents in its possession, that BCD made the CG Demands recklessly, without caring as to their truth or falsity.

  154. [99] If that finding is incorrect, and ABC did not have knowledge of BCD’s fraud on 14 July 2011, then it is my view that ABC must have known of BCD’s fraud, at the latest, on 24 September 2012. That was when Boustead filed its statement of claim in S 730/2012. In the statement of claim, Boustead alleged at paragraphs 37(b) and (c) that the ODAC Notices did not comply with the requirements of a valid demand under the PB or APG, and the statements that BCD made in its CG Demands were therefore untrue or incorrect. These allegations, coupled with the fact that ABC already had in its possession copies of the ODAC Notices, the PB and APG, as well as BCD’s CG Demands, must have resulted in ABC knowing that BCD made the CG Demands recklessly.

  155. [100] That brings me to the fourth question, of whether ABC acquired knowledge of BCD’s fraud within the relevant time. Both Boustead and ABC disagreed over when the relevant time was for the purpose of the fraud exception under English law.

  156. [101] Boustead’s position is that under English law, the fraud exception is triggered as long as ABC has knowledge of BCD’s fraud at any time prior to its having made payment. ABC has not made payment to BCD. It has been restrained from doing so by a court order since 23 June 2011 (save for the narrow window between 29 and 30 August 2011 when the first injunction was discharged and a second injunction was granted). Boustead’s submission is that ABC must have been put on notice of BCD’s fraud—at the latest—by the time of the trial in early to mid-2014. ABC would accordingly be discharged from its obligation to pay BCD under the CG38 and CG39 Demands from the time it acquired such knowledge.

  157. [102] ABC’s position is that the relevant time is when the bank has taken an irrevocable step in reliance on the apparent conformity of the demands presented, and in ignorance of any fraud. ABC claims that that occurred when ABC made the FA Demand against Boustead on 3 September 2012 and, following Boustead’s failure to pay, issued the EOD Notice to terminate the FA on 10 September 2012. Accordingly, if ABC subsequently acquired knowledge of BCD’s fraud, the fraud exception would not be satisfied, as ABC’s knowledge only arose after the relevant time.

  158. [103] Both parties’ positions on the relevant time are predicated on an implicit factual premise: that ABC only acquired knowledge of BCD’s fraud after it issued the EOD Notice on 10 September 2012. If my finding above at [98] above is correct, and ABC knew or ought to have known of BCD’s fraud on 14 July 2011, then that factual premise is removed. The issue of the relevant time falls away because ABC’s knowledge of BCD’s fraud would have been acquired before what ABC itself was contending as the cut-off date for the relevant time (10 September 2012).

  159. [104] If that finding is incorrect, and ABC only knew of BCD’s fraud on 24 September 2012 (when Boustead filed its statement of claim in S 730/2012), then the issue of the relevant time is engaged. If ABC is right in its submission that the relevant time stopped running on 10 September 2012, then ABC’s subsequent acquisition of knowledge of BCD’s fraud on 24 September 2012 would not have triggered the fraud exception. ABC’s liability to BCD under the CG would have crystallised as at the relevant time. I will therefore turn to address the issue of the relevant time.

  160. [105] There was considerable evidence from Mr Isaacs and Sir Roy on the issue of the relevant time. Each party also made substantial closing submissions asserting the correctness of their positions of the relevant time under English law.

  161. [106] Mr Isaacs relied on two cases in support of his (and Boustead’s) position:

  162. (a) Balfour Beatty Civil Engineering v Technical & General Guarantee Co Ltd [2000] CLC 252; and

  163. (b) Solo Industries UK Ltd v Canara Bank [2001] 1 WLR 1800.

  164. [107] Sir Roy (supporting ABC’s position), on the other hand, relied on two other cases:

  165. (a) United Trading; and

  166. (b) European Asian Bank AG v Punjab & SindBank (No 2) [1983] 1 WLR 642.

  167. [108] Both Mr Isaacs and Sir Roy agreed that no clear approach to the relevant time of fraud had been established by existing case law. They agreed that a bank would not be affected by fraud which comes to its knowledge only after it has made payment (which was the holding in United Trading). Their opinions diverged as to when the relevant time would be in a situation where the bank had not yet made payment.

  168. [109] From the cases, Sir Roy extrapolated a principle which he said governed the relevant time for the bank’s knowledge. He stated that once the bank has acted irrevocably in reliance on the apparent conformity of the presentation and in ignorance of any fraud, it would be quite unfair to deprive the bank of its right to be indemnified by its customer. In Sir Roy’s view, ABC took the irrevocable step when, after having made the FA Demand on Boustead which was not complied with, ABC terminated the FA by issuing the EOD Notice on 10 September 2012.

  169. [110] Mr Isaacs, on the other hand, gave evidence that the better view was that the relevant time was any time prior to the bank having made payment. Since ABC has not made payment, it would have definitely have knowledge of fraud within the relevant time.

  170. [111] It seems to me that the disagreement between Mr Isaacs and Sir Roy is not as great as it appears. The evidence of Mr Isaacs and of Sir Roy may be reconciled in the following proposition: that if the bank has taken an irrevocable step in reliance on the apparent conformity of the demands, and in the absence of knowledge of fraud, this would stop the relevant time running. They disagreed as to what amounts to an irrevocable step. To Mr Isaacs, only payment by ABC on the CG Demands would suffice. To Sir Roy, the subsequent issuance of the EOD Notice after the FA Demand was made constituted an irrevocable step even though ABC had not made payment yet.

  171. [112] Even if I accept Sir Roy’s proposition that some other act apart from payment may amount to an irrevocable step, my view is that ABC’s issuance of the EOD Notice (and thus purported termination of the FA) is no more an irrevocable step than its FA Demand on Boustead. In cross-examination, it was suggested to Sir Roy that ABC’s termination of the FA was not an irrevocable step. Sir Roy explained:

  172. But ABC’s termination of the FA simply means that it is no longer obliged to make the facilities under the FA available to Boustead. It does not mean that ABC cannot exercise other accrued rights, if any.

  173. [113] Therefore, the fraud exception would still be satisfied even if I am incorrect in my finding that ABC knew or ought to have known of BCD’s fraud on 14 July 2011 at [98] above. ABC would, in any event have known of BCD’s fraud on 24 September 2012 (see [99] above) which was within the relevant time based on the English law evidence which I have heard.

  174. Whether the CG Demands conformed to the terms of the CGs and if not whether ABC had knowledge of the non-conformity

  175. [114] I turn now to Boustead’s alternative argument, that BCD’s demands for payment under the CGs are invalid because they did not conform with the terms of the CGs. In view of my conclusion above, this question is no longer a live one. I will nonetheless address the extensive arguments and evidence on the alternative argument in case I am wrong.

  176. [115] Under English law, a demand for payment under the CGs must comply strictly with the requirements in the CGs for the demand to be valid. Further, since the CGs incorporate the URDG 458, the demands also have to comply with the requirements stipulated in the URDG 458.

  177. [116] Before going into the alleged grounds of non-conformity, it will be helpful to set out in full the terms of the CGs, which were issued by ABC in favour of BCD, as well as the CG38 and CG39 Demands.

  178. [117] CG38 and CG39 are substantially similar to each other and stipulate the same requirements for a conforming demand. The only differences are: (a) the CG reference numbers; (b) the sums secured under the CGs; and (c) the name of the guarantee (the PB or the APG) to which the CGs relate. I have underlined the differences for convenience. CG38 reads:

  179. CG39 reads:

  180. [118] The CG38 and CG39 Demands also bore a striking similarity to each other. I have marked up in double-underline the phrases in the CG38 and CG39 Demands which Boustead says are non-conforming. The CG38 Demand reads:

  181. The CG39 Demand reads:

  182. [119] It will be recalled that the demand on CG39 (that relates to the APG) was made before the demand on CG38 (that relates to the PB). It appears that BCD simply reproduced the earlier CG39 Demand for the subsequent CG38 Demand, making only amendments to the sum demanded and the reference numbers. BCD apparently omitted to make changes to the description of the guarantee to which CG38 related to (hence the reference to “advance payment guarantee” instead of “performance bond” in the CG38 demand).

  183. [120] The non-conformity that Boustead complains of falls into three categories:

  184. (a) First, the CG38 Demand refers to the advance payment guarantee and advance guarantee, when the underlying guarantee to which CG38 relates is the “performance bond”. The CG39 Demand refers to an advance guarantee when the underlying guarantee to which CG39 relates is the “advance payment guarantee”. I will refer to this as the “incorrect description” issue.

  185. (b) Second, the CG38 and CG39 Demands refer to instruments with reference numbers of No 10/21/LG00008/2007 and No 10/21/LG00009/07 respectively. The reference numbers are incorrect, because the reference numbers of the PB and APG are 10/21/LG008/2007 and 10/21/LG009/2007 respectively. The non-conformity is alleged to arise from the insertion of two additional zeros in the reference numbers of the PB and APG. I will refer to this as the “incorrect reference number” issue.

  186. (c) Third, both the CG38 and CG39 Demands do not state that BCD has received demands [ie, the ODAC Notices] in accordance with Art 20(b) of the URDG 458, as is required by Art 20(b). I will refer to this as the “Art 20(b)” issue.

  187. [121] Before I address these issues, I set out the evidence given by the English law experts on the conformity of a demand under English law.

  188. English law on the conformity of a demand

  189. [122] The English law experts in their joint report agreed that whether a demand is conforming is purely a question of construction of the demands. Both agreed that two principles of construction were applicable: (a) that the demands must be read as a whole and (b) in a manner which avoids absurdity or inconsistency. Mr Isaacs, however, disagreed with Sir Roy’s position that a third principle was applicable: (c) that the demand must be construed, where possible, in such a way as to uphold its validity rather than render it ineffective.

  190. [123] Mr Isaacs’ supplementary expert report, which was prepared subsequent to the joint expert report, stated that the question was “more correctly to be one of construction of [the CG] and not of [the demand]: what did [the CG] require in order for there to be a conforming demand thereunder?” Mr Isaacs considered this to be consistent with the approach adopted by Teare J in Sea-Cargo Skips AS v State Bank of India [2013] 2 Lloyd’s Rep 477 (“Sea-Cargo Skips”). In Sea-Cargo Skips, the question that Teare J posed at [30] in determining whether a demand made under a performance bond was conforming was: “what type of demand did the parties intend would trigger the bank’s liability to pay?” Mr Isaacs maintained this position in cross-examination.

  191. [124] It also appears from Sir Roy’s oral evidence that his approach was the same as that of Mr Isaacs’. Sir Roy stated in cross-examination that:

  192. [125] It is apparent then, that the common ground between the experts was that the issue of conformity turned on two distinct questions of construction. The prior question being one of construing the CG to determine what was required for a demand to be conforming. The subsequent question was that of construing the demand to determine whether it complied with what was required by the CG.

  193. [126] I am mindful of the difficulties with considering expert evidence on the correct construction of a document governed by foreign law. First, the construction of documents is an inherently technical exercise. At times the distinctions that the English experts were attempting to draw were so fine that they bordered on being, as counsel for ABC put it, “distinction[s] without a difference”. The second difficulty is drawing the line between “where proof of foreign law ends and application of the foreign law begins”: Yeo Tiong Min, Halsbury’s Laws of Singapore vol 6(2) at para 75.297. Principles of construction have to be proven as foreign law, but the application of those principles to the facts is a question of forum procedure in the adjudication process: Pacific Recreation Pte Ltd v S Y Technology Inc [2008] 2 SLR(R) 491 at [81].

  194. The incorrect description issue

  195. [127] Boustead submits that both the CG38 and CG39 Demands were non-conforming because they made reference to an incorrect underlying guarantee. I note that the severity of the alleged non-conformity in the CG38 Demand is greater than that in the CG39 Demand. The CG38 Demand describes the underlying guarantee incorrectly (it refers to “advance payment guarantee” and “advance guarantee” instead of “performance bond”). The CG39 Demand merely omits the word “payment” towards the end of the CG39 Demand; further, “advance payment guarantee” is used earlier on in the demand.

  196. (1) The CG38 Demand

  197. [128] Adopting the approach described above, the first step is to construe CG38 to determine what is required from a demand made under it. It will be helpful to reproduce for convenience the operative portion of CG38:

  198. [129] What does CG38 require of a conforming demand? Does CG38 require a written statement that a demand for payment has been received in accordance with the terms of an instrument expressly described to be the “performance bond”? Or does CG38 merely require a written statement conveying the information that a demand for payment has been received in accordance with the terms of the PB?

  199. [130] I am of the view that all CG38 requires is that the demand convey the information that a demand for payment has been received in accordance with the terms of the PB. I am of the view that the parties would have intended a demand which stated the receipt of “a demand for payment under the above guarantee in accordance with its terms” and which mentioned the reference numbers of CG38 and the PB, would have been conforming. Put the other way, the failure to mention “performance bond” is not fatal. It would have been sufficient for the recipient to have known that the demand was made under CG38.

  200. [131] The second question of construction is whether the CG38 Demand complied with the requirements of CG38. In line with the analysis above, the demand must conform strictly with the requirement that it convey the information that a demand had been received in accordance with the terms of the PB. It will be helpful to set out again the relevant portions of the CG38 demand:

  201. [132] Applying the principles of construing the demand as a whole, and reading the demand in such a manner as to avoid absurdity and inconsistency (the two principles of construction agreed on by the English law experts), I am of the view that the demand conveys the information that a demand has been received in accordance with the terms of the PB. The CG38 Demand is therefore not invalidated by the incorrect reference to the “advance guarantee” or “advance payment guarantee”.

  202. [133] Mr Isaacs made the point that an incorrect description in the CG38 Demand created ambiguity as to whether or not the demand was made under CG38 to begin with. However, stacked against that are three other factors that would lead a reader of the CG38 Demand to the conclusion that it was in fact made under CG38, and that the incorrect description of the instrument was merely a slip. First, under “Transaction Reference Number” heading, the reference number of the PB is indicated. Second, under the “Related Reference” and “Narrative” headings, the reference number of CG38 is indicated. Third, the sum demanded was the precise amount covered by CG38 down to the last cent.

  203. [134] Mr Isaacs further expressed the view that “the correct question” was whether “it’s apparent on its face that the demand is compliant”. While Mr Isaacs stressed that the mention of an incorrect instrument immediately rendered the demand non-compliant, he perhaps glossed over the first question of construction as to what “compliance” meant under the terms of the CG38. His assertion that the CG38 Demand’s reference to the incorrect instrument rendered it non-compliant also does not cohere with his subsequently expressed opinion that neither CG38 nor the URDG required the nature of the guarantee to be stated in a demand under CG38.

  204. [135] Ms Nehad, an ex-employee of ABC gave evidence on this point. In cross-examination, Ms Nehad was asked whether she agreed that the reference to “advance payment guarantee” was wrong, and that it must have been immediately obvious to anyone looking at it. She agreed. While Ms Nehad subsequently also agreed that there was no strict compliance, that in my view, was a legal conclusion, which could not be answered by a witness of fact. It would have been apparent to any reader that the use of the label “advance payment guarantee” or “advance guarantee” was a mistake. The CG38 demand therefore complied with what was required of a demand under CG38.

  205. [136] There remain two other points raised by the English law experts which I should address. First, they disagreed as to whether the principle of construction in favour of upholding the validity of an instrument applied to the construction of demands. I too share the unease expressed by Mr Isaacs about the principle’s compatibility with that of strict compliance.

  206. [137] Second, Sir Roy also expressed the opinion that, at the time of the CG38 Demand, a demand under CG39 for US$15,021,093.25 had already been made. He stated that the CG38 Demand could therefore only have referred to the PB. He considered this the “context” which could properly be relied on while construing the CG38 Demand. That would, in his view, have removed any ambiguity that would have arisen from the incorrect description of the instrument. His approach, however, does not sit comfortably with the principle of autonomy, and that the bank is only concerned with documents and not facts, which Sir Roy had earlier placed such great emphasis on.

  207. [138] I therefore did not take into account these two points in coming to my conclusion that the CG38 Demand was made in accordance with the terms of CG38.

  208. (2) The CG39 Demand

  209. [139] As mentioned above, the severity of the incorrect description in the case of the CG39 Demand is not as great as that in the case of the CG38 Demand. I set out the CG39 Demand again for convenience:

  210. [140] Boustead’s objection to the incorrect description in the CG39 Demand is the reference to the “advance guarantee” (in double-underline) instead of “advance payment guarantee”. It should be noted, however, that “advance payment guarantee” in full is mentioned on two instances (in underline) prior to the mention of the “advance guarantee”. It would therefore be apparent that the omission of the word “payment” was a slip. The omission does not create any ambiguity that renders the CG39 Demand non-conforming to the terms of CG39. In any event, the incorrect description issue in relation to CG39 was not pleaded by Boustead nor raised in the course of the trial. The point was raised for the first time in its closing submissions.

  211. The incorrect reference number issue

  212. [141] Boustead relies on the additional zeros referred to in the CG38 and CG39 Demands and argues that this rendered the demands non-conforming (see above at [120(b)]). Boustead relies on the Singapore Court of Appeal case of Indian Overseas Bank v United Coconut Mills Inc [1992] 3 SLR(R) 12 (“Indian Overseas Bank v United Coconut Mills”) in support of its argument.

  213. [142] I do not accept that the CG38 and CG39 Demands were non-conforming for including additional zeros. That, in my view, was an immaterial error and would not have affected the conformity of the demands. It also bears mention that Boustead’s English law expert, Mr Isaacs, agreed with ABC’s position and Sir Roy that the additional zeros were immaterial.

  214. [143] Boustead’s reliance on the Singapore case of Indian Overseas Bank v United Coconut Mills is misplaced. First, the conformity of the CG38 Demand is an issue to be decided under English law. There was extensive English law evidence led on the point. The utility of a Singapore case is therefore questionable.

  215. [144] Second, Indian Overseas Bank v United Coconut Mills raised quite different facts from the facts presently before me. There, one of the supporting documents made a reference to measurements of “oleic acid” instead of “lauric acid” as was required under the letter of credit. The Court of Appeal was of the view that although it was a widely known fact in the industry that oleic and lauric acid could be used interchangeably, it would not have been apparent to an ordinary and reasonably competent banker that this was the case.

  216. The Art 20(b) issue

  217. [145] The final ground of non-conformity that Boustead relies on is the failure of the CG38 and CG39 Demands to mention that ODAC’s Notices were made in accordance with the terms of Art 20(b) of the URDG 458.

  218. [146] Article 20 of the URDG 458 stipulates the documentary requirements for a conforming demand. It has separate requirements for demands made under a demand guarantee on one hand, and a counter-guarantee on the other. Article 20(a) lists the requirements for a conforming demand under a guarantee (the PB and the APG). It requires that a demand for payment under a guarantee must be supported by a written statement stating that: (i) the principal (the JV) is in breach of its obligation(s) in the underlying contract (the Public Works Contract); and (ii) the respect in which the principal is in breach.

  219. [147] Art 20(b) applies to counter-guarantees. Art 20(b) states:

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