Sin Herh Construction Pte Ltd v Hyundai Engineering & Construction Co Ltd and another [2017] SGHC 03

An appeal has been filed against my decision to refuse to restrain the holder of a performance bond from making a call on it, and to refuse to grant an Erinford Order.

The parties

The party applying for the restraining order is Sin Herh Construction Pte Ltd (“the Plaintiff”). The holder of the performance bond is Hyundai Engineering & Construction Co Ltd (“the 1st Defendant”). The bond is issued by China Taiping Insurance (Singapore) Pte Ltd (“the 2nd Defendant”), which did not play any part in the proceedings.

The underlying facts

The Plaintiff and the 1st Defendant were parties to an agreement dated 8 April 2013 (“the Agreement”), whereby the Plaintiff was engaged by the 1st Defendant to carry out reinforced concrete works in a construction project known as “Punggol Central/Punggol Walk – Waterway Point 2 Watertown”.

Under the terms of the Agreement, the Plaintiff provided a performance bond (“the Bond”) as security for due performance of the contracted works. The Bond was issued by the 2nd Defendant in the sum of $404,035.01, initially to expire on 9 July 2015, and subsequently extended to 9 October 2015. The Bond allowed demand to be made at any time up to 90 days after the expiration of the Bond, which worked out to be 7 January 2016.

The proceedings were set off when the 1st Defendant made a demand on the Bond on 5 January 2016, and the Plaintiff applied for an interim injunction on 8 January 2016 to, inter alia, restrain the 1st Defendant from receiving payment and the 2nd Defendant from making payment. The Plaintiff made its application on the ground that the 1st Defendant’s demand was unconscionable.

The Plaintiff contended that the 1st Defendant’s call on the Bond was unconscionable as the 1st Defendant had: (a) breached an understanding between the Plaintiff and itself to not call on the Bond; and (b) imposed back-charges on the Plaintiff which it was not entitled to, or which were grossly inflated.

The alleged understanding

It is common ground that the contracted works were not carried out by the Plaintiff in compliance with the Agreement. The Plaintiff did not meet the set deadlines for the contracted works and withdrew a substantial number of its workers from the worksite.

This caused concern to the 1st Defendant and led eventually to two meetings between senior officials from the companies on 29 and 30 June 2015, which resulted in a written Supplementary Sub-Contract Agreement dated 30 June 2015 (“the Supplementary Agreement”). Several terms of this agreement bear setting out:

The Plaintiff expanded on the circumstances leading up to the alleged understanding in two affidavits deposed by its director, Pan Zhengwen (“Pan”). Pan deposed that while the Plaintiff submitted progress claims in the course of the works, the 1st Defendant consistently under-valued the works done and this led to the meetings of 29 and 30 June 2015 and the Supplementary Agreement. In his first affidavit, Pan stated that:

And in his second affidavit, he further stated that:

The 1st Defendant responded in an affidavit by its Project Manager, Park Ji Hong (“Park”). He deposed that:

The Plaintiff’s use of the word “understanding” is noteworthy. It did not indicate whether it was a unilateral or bilateral understanding, or whether it was binding, although Pan in his second affidavit stated that it was reached between him and Park. On that basis, there would be an express, oral and binding agreement. If the suspension of demands on the Bond was important enough for parties to have expressly agreed to it, it ought to have been recorded amongst the agreed matters in the Supplementary Agreement. It suffices to state that the “understanding” description, the absence of the understanding in the Supplementary Agreement and the subsequent correspondence between the parties undermine the Plaintiff’s assertion and reliance on the understanding.

The back-charges

The Plaintiff’s complaint of unconscionability with regard to the back-charges arose out of the 1st Defendant’s quantification of back-charges due from the Plaintiff to the 1st Defendant.

In its written submissions, the Plaintiff contended that:

The Plaintiff’s case was that the 1st Defendant’s high back-charges had put the Plaintiff in the negative in the final account, and had created the basis for the 1st Defendant to make a demand on the Bond.

The Plaintiff’s assertion of the 1st Defendant’s unconscionable conduct in imposing and/or inflating the back-charges is ambiguous. It can mean that the 1st Defendant had no right to impose any back-charges, or that it had put up false back-charges. There was no direct assertion in Pan’s affidavits or the Plaintiff’s written submissions that no back-charges could be made. To the contrary, Pan, in his affidavits, referred repeatedly to unjustifiable back-charges in connection with the quantum of back-charges.

The Agreement provided for back-charges in Clause 21.3 as follows:

The dispute is whether the $4,241,305.93 back-charges made in the 1st Defendant’s Final Claim Assessment dated 23 December 2015 which the Plaintiff received on 29 December 2015 (that resulted in $2,574,856.17 being due from the Plaintiff to the 1st Defendant) was unconscionable. The issue is not about the imposition, but about the inflation, of the back-charges.

The Plaintiff has identified the nature of the unconscionability in para 17 of its written submissions (see [13] above). It is that the 1st Defendant, having agreed to pay the $850,000 to the Plaintiff under the Supplementary Agreement, went on to impose the back-charges of $4,241,305.93.

Pan deposed that the Plaintiff attempted in vain to meet the 1st Defendant to talk over the back-charges. Park, in para 81 of his affidavit, denied that there were any attempts to meet until 12 January 2016 (after the present application was made) when the Plaintiff sent an e-mail to have a meeting for “quantity reconciliation”. In his affidavits, Pan stated that the Plaintiff attempted to meet the 1st Defendant on its evaluation of the Plaintiff’s works and back-charges but there was no mention of any protest or outrage over the back-charges nor any written record of any protest or outrage at that time.

The documents produced by the parties show that there were continuous communication and discussion on the state of the works and payments. The contractual documents show that there was no requirement that back-charges be quantified and made known as they arose (so long as that was done at the time of the final assessment). Against this backdrop, while the Plaintiff could seek a quantity reconciliation on the back-charges, it was quite unclear whether the 1st Defendant’s imposition and quantification of the back-charges (and the call on the Bond) was unconscionable conduct.

The law on unconscionability

The law on unconscionability as a basis for restraining the calling on a performance bond is settled, and is set out in the Court of Appeal’s decision in BS Mount Sophia Pte Ltd v Join-Aim Pte Ltd [2012] 3 SLR 352 (“Mount Sophia”) in the following paragraphs:

The Court did not lay down a definition of “unconscionability” because it had explained in Dauphin Offshore Engineering & Trading Pte Ltd v The Private Office of HRH Sheikh Sultan bin Khalifa bin Zayed Al Nahyan [2000] 1 SLR 117 (at [42]) that:

My decision

Keeping in mind the principles set out in Mount Sophia, I find on the evidence before me that there was no recorded express undertaking/agreement not to call on the Bond.

Secondly, I find on the evidence that the parties are in dispute over the quantum of the back-charges. However, the Plaintiff has not established a strong prima facie case of unconscionability taking into consideration that it did not complain of unethical conduct in going against the understanding and putting up trumped-up back-charges when it received the Final Claim Assessment, and had requested quantity reconciliation instead.

An applicant seeking an order against payment under a performance bond has to show circumstances in which a Court finds that it has to intervene to restrain a party because the demand made is unconscionable. The Plaintiff has not established such a case against the 1st Defendant.

Consequently, the Plaintiff’s application was dismissed.

The Erinford application

After the Plaintiff’s application for the restraining order was dismissed, its counsel wrote to court on 12 July 2016 for an Erinford Order. The basis for the order is set out in the letter:

The Erinford Order takes its name from Erinford Properties Ltd and Another v Cheshire County Council [1974] 1 Ch 261. The plaintiff in that case had applied for an interlocutory injunction to restrain the defendant from hearing the plaintiff’s planning application before another planning application was to be heard. After Megarry J dismissed the primary application, the plaintiff applied for an order that the defendant be restrained from hearing the planning application for six days while the plaintiff considered whether to appeal against the decision. The secondary application was also dismissed on the facts. The judgment’s significance is in Megarry J’s declaration of the applicable law (at 267-268) that:

This has been accepted as good law in Singapore: see, for example, Tan Soo Leng David v Wee, Satku & Kumar Pte Ltd and another [1993] 2 SLR(R) 741.

Counsel for the Plaintiff submitted, firstly, that “the Plaintiff would be denied its primary remedy in the event that its appeal is successful”. However, this is not correct because in the event that the appeal is successful, an interim injunction would be granted and any sum received pursuant to demand will have to be paid back.

Secondly, counsel for the Plaintiff submitted that “the Plaintiff will suffer substantial prejudice if an Erinford Order is not granted” because the disclosure of a successful call on the Bond would prejudice its chances of securing other projects. However, this does not justify an application for an Erinford Order. The purpose of an Erinford Order is to ensure that an appellant will not end up with a pyrrhic victory if it succeeds in an appeal. A good example of that would be when a disputed building is scheduled for demolition before the appeal can be heard. For an Erinford Order to be granted, the risk of negation must relate to the appeal or the dispute between the parties. The potential prejudice to the Plaintiff in securing other projects is not related to either.

Consequently, the application for an Erinford Order was also dismissed.