Tactic Engineering Pte Ltd (in liquidation) v Sato Kogyo (S) Pte Ltd: Performance Bond Dispute
In Tactic Engineering Pte Ltd (in liquidation) v Sato Kogyo (S) Pte Ltd, the High Court of Singapore heard an application to set aside an injunction restraining Sato Kogyo from calling on an on-demand bond. The bond was issued by Tactic in favor of Sato Kogyo. Foo Chee Hock JC set aside the injunction, finding that Tactic had failed to establish a strong prima facie case of unconscionability on the part of Sato Kogyo in calling on the bond. The court found a genuine contractual dispute existed between the parties.
1. Case Overview
1.1 Court
High Court of the Republic of Singapore1.2 Outcome
Application to set aside the Injunction granted.
1.3 Case Type
Civil
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
Dispute over an on-demand bond. The court set aside an injunction restraining Sato Kogyo from calling on the bond, finding no unconscionability.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| Tactic Engineering Pte Ltd (in liquidation) | Applicant | Corporation | Application Dismissed | Lost | Daniel Tay Yi Ming, Eugene Lee Kok Wee |
| Sato Kogyo (S) Pte Ltd | Respondent | Corporation | Application to set aside the Injunction granted | Won | Yong Boon On, Amanda Koh Jia Yi, Linus Lin Zhiyi |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Foo Chee Hock | Judicial Commissioner | Yes |
4. Counsels
| Counsel Name | Organization |
|---|---|
| Daniel Tay Yi Ming | Morgan Lewis Stamford LLC |
| Eugene Lee Kok Wee | Morgan Lewis Stamford LLC |
| Yong Boon On | Eldan Law LLP |
| Amanda Koh Jia Yi | Eldan Law LLP |
| Linus Lin Zhiyi | Eldan Law LLP |
4. Facts
- Sato Kogyo was the main contractor for the construction of the Mattar Station.
- Sato Kogyo appointed Tactic as its subcontractor for $24,468,800.00.
- Sato Kogyo was entitled to retain up to 5% of the subcontract sum.
- Sato Kogyo agreed to release the retention monies in exchange for an on-demand bond.
- Tactic procured an on-demand bond worth $1,223,440.00 in favour of Sato Kogyo.
- Tactic owed Sato Kogyo $226,960.73 under another project, "MCE 487".
- The parties agreed to set-off the MCE Monies against the Retention Monies.
- Sato Kogyo released the full sum of $1,183,408.29 without deducting the MCE Monies.
- Tactic's financial woes meant that it could not complete its works.
- Sato Kogyo had to make arrangements to complete the works, incurring back charges.
- Sato Kogyo claimed a sum of $1,351,574.89 from Tactic and stated that it would call on the Bond if Tactic did not make payment.
- Sato Kogyo called on the Bond and demanded payment of the Bond Amount.
5. Formal Citations
- Tactic Engineering Pte Ltd (in liquidation) v Sato Kogyo (S) Pte Ltd, Originating Summons No 1076 of 2016(Summons No 5633 of 2016), [2017] SGHC 103
6. Timeline
| Date | Event |
|---|---|
| Subcontract between Sato Kogyo and Tactic Engineering signed. | |
| Tactic Engineering procured the on-demand bond in favour of Sato Kogyo. | |
| Parties agreed to set-off MCE Monies against Retention Monies. | |
| Tactic sent an invoice to Sato Kogyo seeking the release of $1,183,408.29. | |
| Sato Kogyo indicated it would call on the Bond. | |
| Sato Kogyo claimed $1,351,574.89 from Tactic. | |
| Sato Kogyo made a demand for payment. | |
| Sato Kogyo made a demand for payment. | |
| Sato Kogyo called on the Bond and demanded payment of the Bond Amount. | |
| Sato Kogyo called on the Bond again, seeking payment of the Bond Amount by 21 October 2016. | |
| Tactic applied for the Injunction, which was granted on the same day. | |
| Hearing date. | |
| Hearing date. | |
| Decision date to set aside the injunction. | |
| Reasons for decision issued. |
7. Legal Issues
- Unconscionability
- Outcome: The court found that Tactic failed to establish a strong prima facie case of unconscionability on the part of Sato Kogyo in calling on the bond.
- Category: Substantive
- Sub-Issues:
- Inflation of back charges
- Inclusion of items outside scope of works
- Failure to account for MCE Monies
- Related Cases:
- [2000] 3 SLR(R) 198
- [2012] 3 SLR 352
- On-demand bond
- Outcome: The court emphasized that the Bond was an on-demand bond that Sato Kogyo had the right to call on, subject to limited exceptions like fraud and unconscionability.
- Category: Substantive
- Related Cases:
- [2013] 3 SLR 1142
8. Remedies Sought
- Injunction
9. Cause of Actions
- Breach of Contract
10. Practice Areas
- Construction Law
- Commercial Litigation
- Arbitration
- Performance Bonds
11. Industries
- Construction
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Eltraco International Pte Ltd v CGH Development Pte Ltd | High Court | Yes | [2000] 3 SLR(R) 198 | Singapore | Cited for principles relating to unconscionability in calling on a performance bond, specifically that parties are expected to abide by their agreements and courts should be slow to disrupt the allocation of risk. |
| BS Mount Sophia Pte Ltd v Join-Aim Pte Ltd | High Court | Yes | [2012] 3 SLR 352 | Singapore | Cited for principles relating to unconscionability in calling on a performance bond, including the high threshold for establishing unconscionability, the need for a strong prima facie case, and the focus on breadth rather than depth in the court's examination. |
| York International Pte Ltd v Voltas Ltd | High Court | Yes | [2013] 3 SLR 1142 | Singapore | Cited for the principle that a performance bond is a mechanism for redistributing the risk of insolvency, and courts should not lightly interfere with the parties' agreement. |
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
- Retention Monies
- Subcontract
- Back charges
- Unconscionability
- MCE Monies
- Administrative Charges
15.2 Keywords
- Performance bond
- Injunction
- Unconscionability
- Construction
- Singapore
16. Subjects
- Building and Construction Contracts
- Guarantees and Bonds
17. Areas of Law
- Building and Construction Law
- Contract Law
- Injunctions
- Civil Procedure