Case Commentary

Restraining Calls on Performance Bonds

Case Commentary
[Contract Law / Performance Bonds / Evidence]

In the decision by the #Singapore Court of Appeal (the “SCA“) in Bintai Kindenko P/L v Samsung C&T Corp and Anor [2019] SGCA 39 (the “Judgment“) the SCA upheld the High Court’s decision to discharge an interim *preventing* a party from calling on a performance bond (a “PB“), i.e. the interim injunction was upheld.

Under Singapore law, the following principles are settled:

First, that the Singapore Courts will uphold a call on a PB unless it is proven that the call was fraudulent or unconscionable.

Second, that the parties to the PB may expressly exclude the ground of unconscionability as a basis on which to rely on in preventing the call on the PB.

The SCA decision is relevant as it clarifies/confirms the following:

  1. Where unconscionability is contractually excluded, the party seeking to enjoin the other party from relying on the contractual exclusion bears the burden of proof. On this point, the SCA departed from the HC judgment.

    At [2] of the Judgment, Tay Yong Kwang JA observed:

    In recent years, it is becoming more common for parties to agree to exclude the right of the provider of the performance guarantee to rely on the unconscionability exception to prevent the beneficiary’s call on the performance guarantee. In CKR Contract Services, this Court held that the parties could do so, subject to the ordinary legal constraints on exclusion clauses (at [23]). The Court also observed that it would be open to parties to argue that such an exclusion clause was not incorporated into the contract in the first place (CKR Contract Services at [22]).

    [emphasis added in underline and bold]

    On this point, the SCA disagreed with the decision in the court below, stating that if the burden of proof was on the party seeking to rely on the express contractual term excluding unconscionability as a ground for resisting a call on a PB, this would be “impracticable” as it would require the party to “prove a negative“: see [52] of the Judgment.

  2. Terms in a document may be incorporated by reference in a separate contract, even if a party did not read those terms at the time of contracting. The doctrine of incorporation of terms in a contract by reference has consistently been the legal position in Singapore: see the Singapore High Court decision in Press Automation Technology Pte Ltd v Trans-Link Exhibition Forwarding Pte Ltd [2003] 1 SLR(R) 712,where Justice Judith Prakash (as she then was) held at [39] of her judgment as follows:

    Having considered the authorities, I am of the opinion that the fact that the incorporating clause here was contained in a document that was signed by [the owner], resulted in the conditions being incorporated as part of the contract between the parties notwithstanding that [the owner] did not have a copy of them and had not read them. I hold that the conditions were incorporated as a whole and that the line of authorities that decides that onerous and unusual conditions cannot be incorporated unless the attention of the party sought to be bound has been specifically drawn to them does not apply to a case like this where there is a signed contract with an explicit incorporating clause.

    Although this legal position has long been settled in Singapore, the Judgment is the first time the SCA has applied the doctrine.

The practical takeaway from the Judgment is that parties must be meticulous when reviewing a contract or an agreement before agreeing to the same. If the contract or agreement incorporates terms and conditions (“TnCs“) in another separate contract or agreement, it would be prudent for the party signing the agreement or contract to review the TnCs in that separate contract or agreement.

 

**At the time of writing, the author is a non-practising member of the Singapore Bar. The contents of this article represent the views and observations of the author alone from a Singapore law perspective and are subject to copyright protection under the laws of the Republic of Singapore (as may from time to time be amended). No part of this article may be reproduced, licensed, sold, published, transmitted, modified, adapted, publicly displayed and/or broadcast (including storage in any medium by electronic means whether or not transiently for any purpose save as permitted herein) without the prior written permission of the author.

**Please note that whilst the information in this article is correct to the best of the author’s knowledge and belief at the time of writing, it is for academic reference, does not constitute legal advice and is only intended to provide a general guide to the subject matter. It should therefore not be treated as a substitute for specific professional advice for and/or in respect of any particular course of action as such information may not suit your specific business, operational and/or commercial requirements. You are therefore urged to seek legal advice for your specific situation. All the author’s rights are expressly reserved and nothing herein shall be construed as a waiver thereof.

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