Shanghai Electric v PT Merak: Restraining Call on On-Demand Bond under English Law
Shanghai Electric Group Co Ltd, a Chinese company, contracted with PT Merak Energi Indonesia, an Indonesian company, for the construction of a power plant. After disputes arose, PT Merak terminated the contract and sought to call on an on-demand bond issued by a bank in favor of PT Merak. Shanghai Electric sought an injunction to restrain PT Merak from calling on the bond. The High Court of Singapore, presided over by Lee Seiu Kin J, set aside the injunction, holding that English law governed the restraint on calling the bond and that PT Merak's demand was not fraudulent.
1. Case Overview
1.1 Court
High Court1.2 Outcome
Injunction set aside.
1.3 Case Type
Civil
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
Shanghai Electric sought to restrain PT Merak from calling on an on-demand bond. The court set aside the injunction, holding English law applied.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| Shanghai Electric Group Co Ltd | Plaintiff | Corporation | Application dismissed | Lost | Christopher Chuah, Cindy Lim, Joanna He |
| PT Merak Energi Indonesia | Defendant | Corporation | Application allowed | Won | Hri Kumar Nair SC, Tham Feei Sy, Kristine Ang Li Shan |
| The Bank | Defendant | Corporation | Neutral | Neutral |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Lee Seiu Kin | Judge | Yes |
4. Counsels
| Counsel Name | Organization |
|---|---|
| Christopher Chuah | WongPartnership LLP |
| Cindy Lim | WongPartnership LLP |
| Joanna He | WongPartnership LLP |
| Hri Kumar Nair SC | Drew & Napier LLC |
| Tham Feei Sy | Drew & Napier LLC |
| Kristine Ang Li Shan | Drew & Napier LLC |
4. Facts
- Shanghai Electric contracted with PT Merak to construct a power plant in Indonesia.
- The contract was governed by English law and provided for arbitration in Singapore.
- PT Merak was to pay Shanghai Electric an advance payment of US$10.8m.
- Shanghai Electric was required to procure a bond for US$10.8m in favor of PT Merak.
- PT Merak paid the advance payment, and Shanghai Electric commenced work.
- PT Merak issued a Notice of Contractor Default, alleging little progress was made.
- PT Merak terminated the contract and demanded payment under the bond.
- Shanghai Electric sought an injunction to restrain PT Merak from calling on the bond.
5. Formal Citations
- Shanghai Electric Group Co Ltd v PT Merak Energi Indonesia and another, Originating Summons No 273 of 2009, [2010] SGHC 2
6. Timeline
| Date | Event |
|---|---|
| Contract signed between Shanghai Electric and PT Merak. | |
| Bond issued by the Bank for US$10.8m. | |
| Addendum to the Contract entered into. | |
| PT Merak paid US$10.8m to Shanghai Electric. | |
| PT Merak issued a “Notice of Contractor Default” to Shanghai Electric. | |
| Shanghai Electric sent the first Letter to PT Merak. | |
| Shanghai Electric sent the second letter to PT Merak. | |
| PT Merak acknowledged receipt of the Contractor Remedial Plan. | |
| PT Merak sent a second letter to Shanghai Electric. | |
| Shanghai Electric furnished further details of the Contractor Remedial Plan to PT Merak. | |
| PT Merak delivered a notice of termination to Shanghai Electric. | |
| Shanghai Electric accepted the termination. | |
| PT Merak delivered a letter of demand to the Bank calling for payment under the Bond. | |
| Shanghai Electric filed the Injunction application on an ex parte basis. | |
| Injunction granted. | |
| PT Merak filed application to set aside the Injunction. | |
| Judgment reserved. |
7. Legal Issues
- Restraint of Call on On-Demand Bond
- Outcome: The court held that English law governed the restraint on the calling of the bond and that the demand was not fraudulent or unconscionable.
- Category: Substantive
- Sub-Issues:
- Fraud
- Unconscionability
- Validity of Demand
- Related Cases:
- [1995] 2 SLR 733
- [1999] 4 SLR 604
- Applicable Law
- Outcome: The court determined that the issue of restraining a demand on an on-demand bond is a substantive matter, governed by the law stipulated in the bond (English law).
- Category: Procedural
- Related Cases:
- [2002] 2 SLR 22
8. Remedies Sought
- Injunction to restrain call on bond
9. Cause of Actions
- Breach of Contract
- Application for Injunction
10. Practice Areas
- Commercial Litigation
- Arbitration
- Banking
11. Industries
- Construction
- Energy
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Bocotra Construction Pte Ltd v Attorney-General (No 2) | Court of Appeal | Yes | [1995] 2 SLR 733 | Singapore | Cited for the principle of fraud or unconscionability as grounds to interfere and restrain the enforcement of a performance bond. |
| New Civilbuild Pte Ltd v Guobena Sdn Bhd | High Court | Yes | [1999] 1 SLR 374 | Singapore | Cited to discuss the divergence between Singapore and English law regarding unconscionability as a ground to restrain a call on an on-demand bond. |
| GHL Pte Ltd v Unitrack Building Construction Pte Ltd | Court of Appeal | Yes | [1999] 4 SLR 604 | Singapore | Cited to confirm that Singapore law has departed from English law by recognizing unconscionability as a separate ground for restraining a call on an on-demand bond. |
| United City Merchants (Investments) Ltd v Royal Bank of Canada | House of Lords | Yes | [1983] 1 AC 168 | England | Cited for the doctrine that fraud unravels all. |
| Marinteknik Shipbuilders (S) Pte Ltd v SNC Passion | High Court | Yes | [2001] SGHC 140 | Singapore | Cited to raise the question of whether plaintiffs may rely on unconscionability when the relevant contracts are governed by English law. |
| Star City Pty Ltd v Tan Hong Woon | Court of Appeal | Yes | [2002] 2 SLR 22 | Singapore | Cited to determine whether a provision is substantive or procedural by looking at its effect and purpose. |
| John Pfeiffer Pty Ltd v Rogerson | High Court of Australia | Yes | 203 CLR 503 | Australia | Cited to support the principle that matters affecting the existence, extent, or enforceability of rights are substantive. |
| Chaplin v Boys | House of Lords | Yes | [1971] AC 356 | England | Cited for the principle that the lex fori regulates procedure and remedies. |
| Raymond Construction Pte Ltd v Low Yang Tong | High Court | Yes | [1996] SGHC 136 | Singapore | Cited to define unconscionability as unfairness, distinct from dishonesty or fraud. |
| Dauphin Offshore Engineering & Trading Pte Ltd v The Private Office of HRH Sheikh Sultan bin Khalifa bin Zayed Al Nahyan | Court of Appeal | Yes | [2000] 1 SLR 657 | Singapore | Cited to elaborate on what constitutes unconscionability and the standard of proof required. |
| Eltraco International Pte Ltd v CGH Development Pte Ltd | Court of Appeal | Yes | [2000] 4 SLR 290 | Singapore | Cited to emphasize that unconscionability involves unfairness and that the entire picture must be viewed. |
| Royal Design Studio Pte Ltd v Chang Development Pte Ltd | High Court | Yes | [1990] SLR 1116 | Singapore | Cited as one of the origin cases of the unconscionability exception in Singapore. |
| Kvaerner Singapore Pte Ltd v UDL Shipbuilding (Singapore) Pte Ltd | High Court | Yes | [1993] 3 SLR 350 | Singapore | Cited as one of the origin cases of the unconscionability exception in Singapore. |
| Econ Corporation International Limited v Ballast-Nedam International BV | High Court | Yes | [2003] 2 SLR 15 | Singapore | Cited to support the principle that the right to an injunction in the case of an on-demand bond pertains to a substantive right. |
| Mercedes-Benz AG v Leiduck | Privy Council | Yes | [1996] 1 AC 284 | Hong Kong | Cited to argue that the court had no jurisdiction because no substantive relief was being sought. |
| GKN Contractors Ltd v Lloyds Bank plc | Unknown | Yes | (1985) 30 BLR 53 | England | Cited for the principle that fraud requires the beneficiary to present a claim they know to be invalid. |
| United Trading Corporation SA v Allied Arab Bank Ltd | Unknown | Yes | [1985] 2 Lloyd’s Rep 554 | England | Cited for the principle that fraud requires the beneficiary to have no honest belief in the validity of the call on the performance guarantee. |
| Edward Owen Engineering Ltd v Barclays Bank International Ltd | Court of Appeal | Yes | [1978] 1 QB 159 | England | Cited to describe on-demand bond as a new creature. |
| Potton Homes v Coleman Contractors | Unknown | Yes | 28 BLR 19 | England | Cited as the origin of the unconscionability exception in Singapore. |
| Bolivinter Oil S.A. v. Chase Manhattan Bank N.A. | Unknown | Yes | [1984] 1 Lloyd's Rep. 251 | England | Cited for the principle that mere assertion or allegation of fraud would not be sufficient. |
| Goh Suan Hee v Teo Cher Teck | Court of Appeal | Yes | [2009] SGCA 52 | Singapore | Cited to show that the question of assessment of damages is not settled in Singapore. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| No applicable statutes | |
15. Key Terms and Keywords
15.1 Key Terms
- On-demand bond
- Injunction
- Contractor Default
- Contractor Remedial Plan
- Advance Payment Security
- Unconscionability
- Fraud
- Governing Law
- Lex fori
- ICC URDG
15.2 Keywords
- on-demand bond
- injunction
- contract default
- English law
- Singapore
- construction
- power plant
16. Subjects
- Contract Law
- Banking Law
- Arbitration
- Conflict of Laws
- Injunctions
17. Areas of Law
- Contract Law
- Injunctions
- Conflict of Laws
- Arbitration Law
- Banking Law