Eltraco v CGH: Performance Bond Call & Unconscionability in Construction Contract

Eltraco International Pte Ltd, the appellant, appealed against the High Court's decision regarding CGH Development Pte Ltd's, the respondent, call on a performance bond. The Court of Appeal of Singapore, on 18 September 2000, partially allowed the appeal, reducing the amount CGH could claim under the bond from $1.6 million to $600,000, citing unconscionability. The case concerned a building contract and disputes over defective works.

1. Case Overview

1.1 Court

Court of Appeal

1.2 Outcome

Appeal allowed in part.

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Eltraco appealed against CGH's call on a performance bond. The court partially allowed the appeal, reducing the amount CGH could claim, citing unconscionability.

1.7 Decision Date

2. Parties and Outcomes

Party NameRoleTypeOutcomeOutcome TypeCounsels
Eltraco International Pte LtdAppellantCorporationAppeal allowed in partPartial
CGH Development Pte LtdRespondentCorporationPartial LossPartial

3. Judges

Judge NameTitleDelivered Judgment
Chao Hick TinJustice of the Court of AppealYes
L P TheanJustice of the Court of AppealNo

4. Counsels

Counsel NameOrganization
Christopher ChuahDrew & Napier
Lawrence TanDrew & Napier
Stanley Wong Hoong HooiJing Quee & Chin Joo

4. Facts

  1. Eltraco was the main contractor for superstructure works on a service apartment cum shops development.
  2. The contract sum was $24,388,000, and the contract incorporated the 1990 Singapore Institute of Architects Conditions.
  3. The project was completed on 29 August 1998, and a completion certificate was issued.
  4. A dispute arose regarding defective works.
  5. CGH called on a performance bond for $2,438,800 due to the defective works.
  6. Eltraco sought an injunction to restrain CGH from receiving payment under the bond.
  7. The architect issued a schedule of defects, which Eltraco claimed to have mostly rectified.

5. Formal Citations

  1. Eltraco International Pte Ltd v CGH Development Pte Ltd, CA 67/2000, [2000] SGCA 51

6. Timeline

DateEvent
Singapore Institute of Architects Conditions incorporated into contract
Eltraco submitted progress claim No 32
Project completed; completion certificate issued
Original maintenance period expired
Correspondence between architect, Eltraco, and QS regarding defects
Architect forwarded a schedule of defects to Eltraco
CGH obtained a quotation from WTK Builders Pte Ltd to effect the rectification of all the defective works
Architect issued a letter to Eltraco enclosing a schedule of defects
Eltraco replied to architect regarding defects
Joint inspection carried out
Architects listed out twenty major items of defects in a letter to the QS
CGH demanded payment on the bond from QBE
Eltraco objected to CGH's call on the bond
Eltraco objected to CGH's call on the bond
Extended maintenance period expired
Eltraco wrote a chaser to the architect
QS stated that claim No 32 could not be recommended because the defective works had not been fully rectified
QS gave a valuation on eight items of defects amounting to $627,600
Eltraco suggested settling five of the eight items valued by the QS at $61,716.80
CGH instituted Suit 129/2000 against QBE
Eltraco instituted Suit 214/2000 against CGH seeking an injunction
Judgment issued

7. Legal Issues

  1. Unconscionability
    • Outcome: The court held that unconscionability is a valid ground to restrain a call on a performance bond and reduced the amount CGH could claim.
    • Category: Substantive
    • Sub-Issues:
      • Lack of good faith
      • Unfairness
    • Related Cases:
      • [1999] 4 SLR 604
      • [2000] 1 SLR 657
  2. Performance Bond Call
    • Outcome: The court determined that the terms of the bond did not require the beneficiary to establish a breach before calling on it, but the call could be restrained if unconscionable.
    • Category: Substantive
    • Sub-Issues:
      • Premature call on bond
      • Accrued rights to damages

8. Remedies Sought

  1. Injunctive Relief

9. Cause of Actions

  • Breach of Contract

10. Practice Areas

  • Commercial Litigation
  • Construction Law
  • Performance Bonds

11. Industries

  • Construction
  • Banking

12. Cited Cases

Case NameCourtAffirmedCitationJurisdictionSignificance
GHL Pte Ltd v Unitrack Building Construction Pte LtdHigh CourtYes[1999] 4 SLR 604SingaporeCited as authority for the principle that unconscionability is a separate ground, apart from fraud, to restrain a beneficiary from calling or receiving moneys under a performance bond.
Dauphin Offshore Engineering & Trading Pte Ltd v The Private Office of HRH Sheikh Sultan bin KhalifaCourt of AppealYes[2000] 1 SLR 657SingaporeConsidered the decision in GHL and stated that what kind of situation would constitute unconscionability would have to depend on the facts of each case.
Cargill International SA & Anor v Bangladesh Sugar & Food Industries CorpN/AYes[1996] 4 All ER 563EnglandDiscussed in relation to the terms of the bond and the possibility of issuing a restraint on the call due to unconscionability.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute NameJurisdiction
No applicable statutes

15. Key Terms and Keywords

15.1 Key Terms

  • Performance bond
  • Unconscionability
  • Defective works
  • Building contract
  • Retention sum
  • Progress claim
  • SIA Conditions
  • Demand bond
  • Injunction

15.2 Keywords

  • Performance bond
  • Unconscionability
  • Construction contract
  • Defects
  • Injunction

17. Areas of Law

Area NameRelevance Score
Performance Bond90
Unconscionability85
Contract Law75
Building Contract65
Breach of Contract60
Construction Law50
Arbitration30
Civil Procedure25

16. Subjects

  • Construction Dispute
  • Contract Law
  • Banking Law
  • Performance Bonds