LQS Construction v Mencast Marine: Unconscionability in Performance Bond Call

In LQS Construction Pte Ltd v Mencast Marine Pte Ltd and First Capital Insurance Ltd, the High Court of Singapore discharged an ex parte injunction obtained by LQS Construction against Mencast Marine's call on a performance bond. The court, presided over by Judicial Commissioner Hoo Sheau Peng, found that LQS Construction had failed to make full and frank disclosure of material facts and did not establish a strong prima facie case of unconscionability. The court also ordered LQS Construction to pay costs to Mencast Marine. The case involved a construction contract dispute and allegations of unconscionable conduct in calling on the performance bond.

1. Case Overview

1.1 Court

High Court of Singapore

1.2 Outcome

Ex parte injunction discharged

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Singapore court discharged an injunction against Mencast Marine's call on a performance bond, finding no unconscionable conduct and material non-disclosure by LQS Construction.

1.7 Decision Date

2. Parties and Outcomes

Party NameRoleTypeOutcomeOutcome TypeCounsels
LQS Construction Pte LtdPlaintiffCorporationEx parte injunction dischargedLost
Mencast Marine Pte LtdDefendantCorporationDischarge application grantedWon
First Capital Insurance LtdDefendantCorporationNeutralNeutral

3. Judges

Judge NameTitleDelivered Judgment
Hoo Sheau PengJudicial CommissionerYes

4. Counsels

Counsel NameOrganization
Lau See-Jin JeffreyLau & Co
Ong Kok SengPatrick Ong Law LLC
Chermaine Tan Si NingPatrick Ong Law LLC
Michael Nathanael Chee Guang HuiXu Guanghui
Anparasan s/o KamachiKhattarWong LLP
Wong Jing Ying AudreyKhattarWong LLP

4. Facts

  1. LQS was contracted by Mencast for construction of a factory and office building.
  2. LQS was required to submit a performance bond of 10% of the contract sum.
  3. A performance bond of $6.16m was issued by FCI in favor of Mencast.
  4. LQS provided FCI $500,000 as cash collateral to secure the performance bond.
  5. LQS was granted an extension of time to complete construction by 21 March 2016.
  6. TOP was issued on 4 August 2016.
  7. Mencast issued a Notice to Proceed on 16 November 2016.
  8. Mencast issued a Notice of Termination on 20 December 2016.
  9. Mencast called on the performance bond on 22 December 2016.

5. Formal Citations

  1. LQS Construction Pte Ltd v Mencast Marine Pte Ltd and another, Originating Summons No 1340 of 2016 (Summons No 362 of 2017), [2017] SGHC 148

6. Timeline

DateEvent
Letter of Award issued to LQS Construction
Performance bond issued by First Capital Insurance
Formal contract signed between LQS and Mencast
Original completion date for the Project
Extended completion date for the Project
Temporary Occupation Permit issued
LQS sent Mencast a form for partial handover of the premises
LQS claimed to have handed over all keys to the premises
Mencast rejected LQS's partial handover
LQS requested Mencast to issue a handing-over certificate
Mencast issued a Notice to Proceed to LQS
Peri Asia filed a winding-up application against LQS
LQS replied to the Notice to Proceed
Mencast noted LQS had not taken steps to complete outstanding works
Mencast issued a Notice of Termination
LQS filed Originating Summons No 1312 of 2016
Mencast called on the Performance Bond
Mencast's solicitors demanded payment from FCI
LQS commenced proceedings for an injunction
Ex parte injunction granted to LQS
Mencast filed the discharge application
LQS filed Summons No 354 of 2017
Application by LQS for return of cash collateral dismissed
LQS's counsel applied to discharge himself
Hearing for discharge application and application to discharge solicitor
Ex parte injunction discharged
Winding-up application by Peri Asia scheduled
LQS applied for a re-hearing of the discharge application
LQS filed an appeal against the decision in the discharge application
Re-hearing application dismissed
Judgment Date

7. Legal Issues

  1. Unconscionability
    • Outcome: The court found no strong prima facie case of unconscionable conduct on Mencast's part.
    • Category: Substantive
    • Sub-Issues:
      • Failure to notify of necessary repairs
      • Refusal to issue handing-over certificate
      • Coercion to sign letters
      • Improper progress payment claim certifications
      • Retaliatory call on performance bond
    • Related Cases:
      • [2012] 3 SLR 352
      • [2000] 3 SLR(R) 198
  2. Full and Frank Disclosure
    • Outcome: The court found that LQS had not made full and frank disclosure of all material facts in its initial application.
    • Category: Procedural
    • Sub-Issues:
      • Suppression of material facts
      • Misrepresentation of facts
    • Related Cases:
      • [2000] 1 SLR(R) 786

8. Remedies Sought

  1. Injunction restraining call on performance bond

9. Cause of Actions

  • Breach of Contract
  • Unconscionable Conduct

10. Practice Areas

  • Commercial Litigation
  • Construction Litigation

11. Industries

  • Construction
  • Insurance

12. Cited Cases

Case NameCourtAffirmedCitationJurisdictionSignificance
Tay Long Kee Impex Pte Ltd v Tan Beng Huwah (trading as Sin Kwang Wah)Court of AppealYes[2000] 1 SLR(R) 786SingaporeCited for the principle that an applicant for an ex parte interlocutory injunction has a duty to make full and frank disclosure of all material facts.
BS Mount Sophia Pte Ltd v Join-Aim Pte LtdCourt of AppealYes[2012] 3 SLR 352SingaporeCited for the principle that the court may grant an injunction to restrain a beneficiary from calling on a performance bond on the ground of unconscionability.
Eltraco International Pte Ltd v CGH Development Pte LtdCourt of AppealYes[2000] 3 SLR(R) 198SingaporeCited for the principle that mere breaches of contract by the beneficiary, and the existence of genuine disputes between parties, are not sufficient per se to constitute unconscionability.
Raymond Construction Pte Ltd v Low Yang Tong and anotherHigh CourtYes[1996] SGHC 136SingaporeCited for the definition of unconscionability as involving unfairness or conduct so reprehensible that a court of conscience would restrain the party.
CKR Contract Services Pte Ltd v Asplenium Land Pte Ltd and another and another appeal and another matterHigh CourtYes[2015] 3 SLR 1041SingaporeCited for the proposition that the right to call on an on-demand performance bond is not subject to preconditions, such as giving notice to the obligor.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute NameJurisdiction
Rules of Court (Cap 322, R5, 2014 Rev Ed)Singapore

15. Key Terms and Keywords

15.1 Key Terms

  • Performance Bond
  • Unconscionability
  • Ex Parte Injunction
  • Full and Frank Disclosure
  • Notice to Proceed
  • Notice of Termination
  • Temporary Occupation Permit
  • Handing-Over Certificate
  • Contract Sum
  • Liquidated Damages

15.2 Keywords

  • construction
  • performance bond
  • injunction
  • unconscionability
  • singapore
  • contract
  • Mencast
  • LQS
  • First Capital Insurance

17. Areas of Law

Area NameRelevance Score
Performance Bond95
Unconscionability80
Contract Law75
Injunctions70
Commercial Disputes60
Civil Procedure50
Company Law30

16. Subjects

  • Construction Dispute
  • Contract Law
  • Injunctions
  • Performance Bonds