Arab Banking Corp v Boustead Singapore: Demand Guarantees & Unconscionability

Arab Banking Corporation (B.S.C.) (Arab Bank) appealed against the High Court's decision in favor of Boustead Singapore Limited (Boustead), which concerned whether Arab Bank's demand for payment on Boustead, pursuant to a credit facility, was fraudulent and/or unconscionable. The High Court granted an injunction sought by Boustead to restrain Arab Bank from receiving payment from Boustead and from making payment to another bank further up the banking chain. The Court of Appeal dismissed the appeal, finding that Arab Bank acted fraudulently in making the demand for payment.

1. Case Overview

1.1 Court

Court of Appeal

1.2 Outcome

Appeal Dismissed

1.3 Case Type

Civil

1.4 Judgment Type

Judgment

1.5 Jurisdiction

Singapore

1.6 Description

Singapore Court of Appeal case regarding fraudulent and unconscionable demand for payment made by Arab Bank on Boustead Singapore.

1.7 Decision Date

20 April 2016

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Arab Banking Corporation (B.S.C.)	Appellant	Corporation	Appeal Dismissed	Lost	Pillai K Muralidharan of Rajah & Tann Singapore LLP Foo Ming-En Mark of Rajah & Tann Singapore LLP Sim Wei Na of Rajah & Tann Singapore LLP Tan Yehna, Andrea of Rajah & Tann Singapore LLP
Boustead Singapore Limited	Respondent	Corporation	Judgment for Respondent	Won	Tan Chee Meng of WongPartnership LLP Josephine Choo of WongPartnership LLP Ng Shu Ping of WongPartnership LLP Charmaine Neo of WongPartnership LLP

3. Judges

Judge Name	Title	Delivered Judgment
Sundaresh Menon	Chief Justice	Yes
Andrew Phang Boon Leong	Judge of Appeal	No
Quentin Loh	Judge	No

4. Counsels

Counsel Name	Organization
Pillai K Muralidharan	Rajah & Tann Singapore LLP
Foo Ming-En Mark	Rajah & Tann Singapore LLP
Sim Wei Na	Rajah & Tann Singapore LLP
Tan Yehna, Andrea	Rajah & Tann Singapore LLP
Tan Chee Meng	WongPartnership LLP
Josephine Choo	WongPartnership LLP
Ng Shu Ping	WongPartnership LLP
Charmaine Neo	WongPartnership LLP

4. Facts

Boustead, through a joint venture, contracted with ODAC to construct a housing development in Libya.
Boustead procured the issuance of a Performance Bond (PB) and an Advanced Payment Guarantee (APG) in ODAC’s favour.
Arab Bank issued counter-guarantees (CGs) to C&D Bank, which had issued the PB and APG.
Unrest in Libya in 2011 led to Boustead abandoning the construction project.
ODAC requested C&D Bank to extend the validity periods of the PB and APG or pay the full sums secured.
C&D Bank made extend-or-liquidate requests to Arab Bank, which Arab Bank initially rejected as non-compliant.
C&D Bank then made outright demands for payment under the CGs, stating it had received valid demands from ODAC.
Arab Bank demanded payment from Boustead under the facilities agreement (FA).

5. Formal Citations

Arab Banking Corp (B.S.C.) v Boustead Singapore Ltd, Civil Appeal No 70 of 2015, [2016] SGCA 26

6. Timeline

Date	Event
2007-01-01	Boustead, through a joint venture, was employed by ODAC to construct a housing development in Al-Marj, Libya.
2007-08-28	C&D Bank issued the Performance Bond in ODAC’s favour.
2007-09-10	C&D Bank issued the Advanced Payment Guarantee in ODAC’s favour.
2009-08-17	Arab Bank issued counter-guarantee CG38 to C&D Bank.
2009-09-08	Arab Bank issued counter-guarantee CG39 to C&D Bank.
2011-02-01	Unrest broke out in Libya.
2011-02-23	Boustead's staff were evacuated from Libya.
2011-06-13	Boustead wrote to ODAC stating that a force majeure event had occurred.
2011-06-22	Boustead commenced action against Arab Bank in Singapore (OS 503).
2011-06-23	C&D Bank made an outright demand for payment against Arab Bank for payment under CG39.
2011-07-11	C&D Bank made an outright demand for payment under CG38.
2012-08-29	The appeal was dismissed on the ground that Boustead had commenced the action with an incorrect originating process.
2012-08-30	Boustead filed Suit No 730 of 2012 against Arab Bank.
2012-09-03	Arab Bank made a consolidated demand under cl 6.9 of the FA for payment of US$18,781,481.20.
2012-09-10	Arab Bank served an event-of-default notice on Boustead under the FA.
2012-09-19	Arab Bank commenced a counter-suit against Boustead (Suit No 784 of 2012).
2015-10-19	Hearing date.
2016-04-21	Judgment reserved.

7. Legal Issues

Fraud
- Outcome: The Court of Appeal found that Arab Bank acted fraudulently in making the demand for payment.
- Category: Substantive
- Sub-Issues:
  - Reckless Indifference
  - Invalid Demand
- Related Cases:
  - [1989] 1 SLR(R) 484
  - [1992] 2 SLR(R) 20
  - [2010] 2 SLR 329
  - (1985) 30 BLR 48
  - (1889) 14 App Cas 337
  - [2001] 2 SLR(R) 435
  - [1891] 2 Ch 449
  - [1983] 1 AC 168
  - [2001] 1 WLR 1800
  - [1999] 2 Lloyd’s Rep 187
  - [1985] 2 Lloyd’s Rep 554
  - [1994] 3 SLR(R) 79
  - [2002] 1 WLR 1975
Unconscionability
- Outcome: The Court of Appeal did not express concluded views on the unconscionability issue.
- Category: Substantive
- Related Cases:
  - [2011] 2 SLR 47
  - [2012] 3 SLR 352

8. Remedies Sought

Injunction
Declaration

9. Cause of Actions

Breach of Contract
Fraudulent Misrepresentation

10. Practice Areas

Commercial Litigation
Banking Litigation

11. Industries

Construction
Banking

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
Boustead Singapore Ltd v Arab Banking Corp (B.S.C.)	High Court	Yes	[2015] 3 SLR 38	Singapore	Refers to the published judgment of the High Court decision being appealed.
JBE Properties Pte Ltd v Gammon Pte Ltd	Court of Appeal	Yes	[2011] 2 SLR 47	Singapore	Cited for the considerations that undergird the Singapore jurisprudence recognising the unconscionability exception in the context of performance bonds.
Brightside Mechanical and Electrical Services Group Ltd and another v Standard Chartered Bank and another	Court of Appeal	Yes	[1989] 1 SLR(R) 484	Singapore	Cited as a case where injunctions had been sought against the guarantor bank and/or the beneficiary on the ground that the beneficiary had acted fraudulently in calling on the guarantee.
Chartered Electronics Industries Pte Ltd v Development Bank of Singapore	Court of Appeal	Yes	[1992] 2 SLR(R) 20	Singapore	Cited as a case where injunctions had been sought against the guarantor bank and/or the beneficiary on the ground that the beneficiary had acted fraudulently in calling on the guarantee.
Shanghai Electric Group Co Ltd v PT Merak Energi Indonesia and another	Court of Appeal	Yes	[2010] 2 SLR 329	Singapore	Cited as a case where injunctions had been sought against the guarantor bank and/or the beneficiary on the ground that the beneficiary had acted fraudulently in calling on the guarantee.
GKN Contractors v Lloyds Bank Plc	Court of Appeal	Yes	(1985) 30 BLR 48	England and Wales	Cited for the principle that the account party may obtain an injunction to restrain payment by the guarantor bank if it can show what may be called “common law fraud” on the part of the beneficiary which the guarantor bank has notice of.
Derry v Peek	House of Lords	Yes	(1889) 14 App Cas 337	United Kingdom	Cited for the classic statement of fraud.
Panatron Pte Ltd and another v Lee Cheow Lee and another	Court of Appeal	Yes	[2001] 2 SLR(R) 435	Singapore	Cited for approving the classic statement of fraud found in Derry v Peek.
Angus v Clifford	Court of Appeal	Yes	[1891] 2 Ch 449	England and Wales	Cited for explaining the concept of recklessness.
United City Merchants (Investments) Ltd v Royal Bank of Canada	House of Lords	Yes	[1983] 1 AC 168	United Kingdom	Cited for the principle that fraud unravels all.
Solo Industries UK Ltd v Canara Bank	High Court	Yes	[2001] 1 WLR 1800	England and Wales	Cited for the principle that fraud unravels all.
Czarnikow-Rionda Sugar Trading Inc v Standard Bank of London Ltd	High Court	Yes	[1999] 2 Lloyd’s Rep 187	England and Wales	Cited for putting forward a contractual basis for the fraud exception.
United Trading Corporation SA and Murray Clayton Ltd v Allied Arab Bank Ltd and others	Court of Appeal	Yes	[1985] 2 Lloyd’s Rep 554	England and Wales	Cited for the principle that it is not necessary for “every possibility of an innocent explanation [to be] excluded” before the fraud exception is made out.
Rajaram v Ganesh (trading as Golden Harvest Trading Corp) and others	High Court	Yes	[1994] 3 SLR(R) 79	Singapore	Discusses fraud on the part of a receiving bank.
Montrod Ltd v Grunkötter Fleischvertriebs GmbH	Court of Appeal	Yes	[2002] 1 WLR 1975	England and Wales	Discusses the fraud exception to the autonomy principle.
BS Mount Sophia Pte Ltd v Join-Aim Pte Ltd	Court of Appeal	Yes	[2012] 3 SLR 352	Singapore	Cited for the principle that a performance bond has the potential to be used as an “instrument of oppression”.

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

Demand Guarantee
Performance Bond
Advanced Payment Guarantee
Counter-Guarantee
Fraud Exception
Unconscionability
Credit Facility
Force Majeure
Indemnity
Reckless Indifference

15.2 Keywords

Demand Guarantees
Fraud
Unconscionability
Injunction
Banking
Construction
Singapore
Libya

17. Areas of Law

Area Name	Relevance Score
Banking and Finance	90
Banking Law	90
Performance Bond	85
Unconscionability	80
Fraud and Deceit	75
Injunctions	70
Contract Law	60
Commercial Law	50
Arbitration	30

16. Subjects

Banking
Contract Law
Civil Procedure