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Note: To secure its performance under two related construction subcontracts, BWN (Subcontractor/Applicant) obtained two performance bonds cumulatively valued SGD 1,054,637 issued by United Overseas Bank Ltd. (Issuer) in favor of BWO (Contractor/Beneficiary). The subcontracts were subject to the Singapore Institute of Architects Conditions of Subcontract and included arbitration clauses.

Subsequently, a dispute arose and Subcontractor/Applicant initiated arbitration proceedings against Contractor/Beneficiary. After all initial pleadings were filed in the tribunal, Subcontractor/Applicant sought a 90-day moratorium from the High Court of Singapore to “restrain all proceedings against [Subcontractor/Applicant] … while it pursued ongoing plans to propose a scheme of arrangement…in relation to the amounts … owed to its creditors”. Although the moratorium was granted, Contractor/Beneficiary had made full demands for payment on the performance bonds three days before the moratorium hearing. After Subcontractor/Applicant learned of the demands and that Issuer intended to honor, Subcontractor/Applicant applied for an ex parte interim injunction to restrain Contractor/Beneficiary from “calling on and/or receiving payment” on the bonds. The High Court of Singapore, Ang Cheng Hock, J., granted the injunction.

As to Subcontractor/Applicant’s claim of unconscionability, the Judge noted that the law “acknowledges that conduct exhibited by the beneficiary other than fraud might be sufficiently reprehensible to justify intervention by way of equitable relief”. Subcontractor/Applicant argued that Contractor/Beneficiary had acted unconscionably by demanding payment on the bonds, even though Subcontractor/Applicant conceded that “the strict terms of the performance bonds were complied with”. Subcontractor/Applicant cited a provision of the subcontract providing that Contractor/Beneficiary could draw on the bonds “in pursuance of any Conditions” listed in the subcontract entitling Contractor/Beneficiary to payment from Subcontractor/Applicant. Subcontractor/Applicant also pointed to the timing of the demands being “on the eve of the Chinese New Year”, and that Contractor/Beneficiary had not “apprise[d] the court of the call on the bonds” at the moratorium hearing.

The Judge agreed that Subcontractor/Applicant demonstrated a strong prima facie case of unconscionability, accepting that “the contractual basis for…[Contractor/Beneficiary]’s entitlement to call on the bonds” had not been satisfied. The Judge noted that Contractor/Beneficiary’s demand stating that Subcontractor/Applicant was in breach “may be sufficient for the purposes of the terms of the bonds, but that is certainly not sufficient…in the context of this application for interim relief.” The Judge also agreed that the timing of the demands called into question “the bona fides” of Contractor/Beneficiary. In granting the injunction, the Judge stated that it “should subsist only until any further order by the arbitral tribunal to vary, discharge or affirm the injunction.”

Comment: Despite being “on demand” performance bonds, there was no discussion regarding independent undertakings. It is worth mentioning, however, that the Judge who granted the injunction also presided over the moratorium hearing. In any event, while the application was made on an ex parte basis, counsel for Contractor/Beneficiary was present but made no substantive arguments.

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