CEX v CEY: Performance Bond Call & Unconscionability in Construction Contract

In CEX v CEY, the Singapore High Court addressed an application by CEX, the main contractor, for an injunction to restrain CEY, the developer, from calling on a performance bond. The dispute arose from delays in a construction project. CEX argued that CEY's call on the bond was unconscionable because CEY pressured CEX to continue construction works illegally after the project's qualified person was incapacitated. The court, presided over by Justice Lee Seiu Kin, found that CEY had acted unconscionably and granted the injunction, restraining CEY from calling on the performance bond.

1. Case Overview

1.1 Court

High Court of the Republic of Singapore

1.2 Outcome

Injunction granted, restraining the call on the performance bond.

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Singapore High Court case concerning an injunction to restrain a call on a performance bond due to unconscionability in a construction project.

1.7 Decision Date

17 May 2020

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
CEX	Applicant	Corporation	Injunction granted	Won	Poonaam Bai of Eldan Law LLP Tan Shien Loon Lawrence of Eldan Law LLP Chan Ying Keet Jasmine of Eldan Law LLP
CEY	Respondent	Corporation	Injunction granted against CEY	Lost	Yeo Teng Yung Christopher of Legal Solutions LLC
CEZ	Respondent	Corporation	Neutral	Neutral	Phua Cheng Sye Charles of ComLaw LLC

3. Judges

Judge Name	Title	Delivered Judgment
Lee Seiu Kin	Judge	Yes

4. Counsels

Counsel Name	Organization
Poonaam Bai	Eldan Law LLP
Tan Shien Loon Lawrence	Eldan Law LLP
Chan Ying Keet Jasmine	Eldan Law LLP
Yeo Teng Yung Christopher	Legal Solutions LLC
Phua Cheng Sye Charles	ComLaw LLC

4. Facts

CEY is the developer for six strata detached houses at [redacted].
CEX took over the project as its main contractor on 9 May 2017.
CEX procured a performance bond from CEZ in favour of CEY.
Mr. John Seah, the architectural qualified person for the Project, took ill and was hospitalized on 7 January 2019.
Mr. Seah passed away on 24 January 2019.
Mr. Ng issued a termination certificate “on behalf of [Mr. Seah]” on 19 February 2019.
CEY issued a notice of termination on 20 February 2019.
CEY called on the performance bond on 19 July 2019.
The permits issued under s 6 of the Building Control Act automatically lapsed when Mr. Seah took ill on 7 January 2019.

5. Formal Citations

CEX v CEY and another, Originating Summons No 933 of 2019, [2020] SGHC 100

6. Timeline

Date	Event
2017-05-04	Letter of award dated for the proposed erection of strata landed housing development.
2017-06-15	Performance guarantee (DBPB17S019663) dated for the sum of S$1,063,000.00 issued by Ergo Insurance Pte Ltd in favour of CEY Development Pte Ltd
2017-05-09	CEX took over the project as its main contractor.
2019-01-07	Mr. John Seah took ill and was hospitalized.
2019-01-07	Mr. Seah attempted to authorise Mr. Ng Hoe Theong to “cover [his] duties”.
2019-01-24	Mr. Seah passed away.
2019-02-19	Mr. Ng issued a termination certificate “on behalf of [Mr. Seah]”.
2019-02-20	CEY issued a notice of termination.
2019-02-21	CEX served a notice of arbitration.
2019-07-19	CEY called on the performance bond.
2020-01-15	Judgment by Lee Seiu Kin J.
2020-05-18	Judgment date.

7. Legal Issues

Unconscionability
- Outcome: The court found that CEY had acted unconscionably in calling on the performance bond.
- Category: Substantive
- Sub-Issues:
  - Calls for excessive sums
  - Calls based on contractual breaches that the beneficiary of the call itself is responsible for
  - Calls tainted by unclean hands
  - Calls made for ulterior motives
  - Calls based on a position which is inconsistent with the stance that the beneficiary took prior to calling on the performance bond
- Related Cases:
  - [1995] 2 SLR(R) 262
  - [1998] 2 SLR(R) 732
  - [1999] SGHC 201
  - [1998] 3 SLR(R) 961
  - [1996] SGHC 136
  - [1999] 3 SLR(R) 44
  - [2000] 1 SLR(R) 117
  - [2012] 3 SLR 352
  - [2011] 2 SLR 47
  - [2012] 3 SLR 125
  - [2013] 3 SLR 1142
  - [2019] 5 SLR 215
  - [2008] 3 SLR(R) 1029
  - [2019] 4 SLR 1324
  - [2018] SGHC 33
  - [2003] 4 SLR(R) 73
  - [2018] SGHC 249
  - [2009] SGHC 7
  - [2018] SGHC 163
  - [2000] 3 SLR(R) 198
  - [1996] 4 All ER 563
  - [2018] SGHC 145
  - [2013] SGHC 86
  - [2001] SGHC 334
  - [1990] 2 SLR(R) 520
  - [1993] 2 SLR(R) 341
  - [2003] 1 SLR(R) 394
  - [2019] 2 SLR 295
  - [2019] SGHC 267
  - [2018] 3 SLR 404
  - [2001] 3 SLR(R) 716
  - [2001] 1 SLR(R) 458
Statutory Interpretation of s 6(5) of the Building Control Act
- Outcome: The court held that the permit to carry out structural works lapsed on 7 January 2019 when Mr Seah was hospitalised.
- Category: Statutory
- Sub-Issues:
  - Whether the holder of a permit to carry out structural works ceases to be a qualified person should the permit holder take ill and become otherwise incapacitated

8. Remedies Sought

Injunction to restrain call on performance bond

9. Cause of Actions

Breach of Contract

10. Practice Areas

Construction Law
Commercial Litigation
Arbitration

11. Industries

Construction

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
Bocotra Construction Pte Ltd and others v Attorney-General	Court of Appeal	Yes	[1995] 2 SLR(R) 262	Singapore	Cited for the principle of unconscionability in relation to restraining calls on performance bonds.
New Civilbuild Pte Ltd v Guobena Sdn Bhd	High Court	Yes	[1998] 2 SLR(R) 732	Singapore	Cited as a case that viewed 'unconscionability' as interchangeable with 'fraud' in the context of restraining calls on performance bonds.
Dauphin Offshore Engineering & Trading Pte Ltd v The Private Office of His Royal Highness Sheikh Sultan bin Khalifa bin Zayed Al Nahyan	High Court	Yes	[1999] SGHC 201	Singapore	Cited as a case that viewed 'unconscionability' as interchangeable with 'fraud' in the context of restraining calls on performance bonds.
Min Thai Holdings Pte Ltd v Sunlabel Pte Ltd and another	High Court	Yes	[1998] 3 SLR(R) 961	Singapore	Cited as a case that recognized unconscionability as a separate ground for restraining calls on performance bonds.
Raymond Construction Pte Ltd v Low Yang Tong and another	High Court	Yes	[1996] SGHC 136	Singapore	Cited as a case that recognized unconscionability as a separate ground for restraining calls on performance bonds and for elements of unfairness and conduct lacking in good faith.
GHL Pte Ltd v Unitrack Building Construction Pte Ltd and another	Court of Appeal	Yes	[1999] 3 SLR(R) 44	Singapore	Cited for ruling that unconscionability is a separate and distinct ground for granting an injunction to restrain the enforcement of a performance bond.
Dauphin Offshore Engineering & Trading Pte Ltd v The Private Office of HRR Sheikh Sultan bin Khalifa bin Zayed Al Nahyan	Court of Appeal	Yes	[2000] 1 SLR(R) 117	Singapore	Cited for clarifying the legal threshold for establishing the unconscionability exception, requiring a strong prima facie case.
BS Mount Sophia Pte Ltd v Join-Aim Pte Ltd	High Court	Yes	[2012] 3 SLR 352	Singapore	Cited for clarifying the legal threshold for establishing the unconscionability exception, requiring a strong prima facie case.
JBE Properties Pte Ltd v Gammon Pte Ltd	High Court	Yes	[2011] 2 SLR 47	Singapore	Cited for defending the unconscionability exception and explaining its rationale.
Master Marine AS v Labroy Offshore Ltd and others	High Court	Yes	[2012] 3 SLR 125	Singapore	Cited for the principles to identify the nature of the performance bond.
York International Pte Ltd v Voltas Ltd	High Court	Yes	[2013] 3 SLR 1142	Singapore	Cited for ascertaining whether the call falls within the terms of the bond.
BWN v BWO	High Court	Yes	[2019] 5 SLR 215	Singapore	Cited for ascertaining whether the call falls within the terms of the bond.
Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd	High Court	Yes	[2008] 3 SLR(R) 1029	Singapore	Cited for the principles of interpretation of the underlying contract.
Ryobi Tactics Pte Ltd v UES Holdings Pte Ltd and another and another matter	High Court	Yes	[2019] 4 SLR 1324	Singapore	Cited for the principle that contractual terms may cumulatively give rise to an entirely separate requirement for a call on a performance bond.
Milan International Pte Ltd v Cluny Development Pte Ltd and another	High Court	Yes	[2018] SGHC 33	Singapore	Cited for discussing whether a beneficiary’s termination of its contract with the obligor was unlawful.
Newtech Engineering Construction Pte Ltd v BKB Engineering Constructions Pte Ltd and others	High Court	Yes	[2003] 4 SLR(R) 73	Singapore	Cited for examining whether the obligors had been in breach of the underlying contract in the first place.
Hup Seng Lee Pte Ltd v Jaclyn Patrina Reutens	High Court	Yes	[2018] SGHC 249	Singapore	Cited for relying on “credible prima facie evidence of defects in the works” in establishing unconscionability.
Leighton Contractors (Singapore) Pte Ltd v J-Power Systems Corp and another	High Court	Yes	[2009] SGHC 7	Singapore	Cited for the proposition that if the obligor were able to demonstrate conclusively that there had in fact been no breach, then that would lend weight to its assertions that the beneficiary had acted unconscionably.
AES Façade Pte Ltd v Wyse Pte Ltd and another	High Court	Yes	[2018] SGHC 163	Singapore	Cited for the principle that on-demand performance bonds do not typically require beneficiaries to prove their losses before being entitled to call on the bond.
Eltraco International Pte Ltd v CGH Development Pte Ltd	High Court	Yes	[2000] 3 SLR(R) 198	Singapore	Cited for the principle that when a beneficiary simply cannot point to any loss suffered, the courts may be prompted to infer that the call had been abusive and lacked bona fides.
Cargill International SA v Bangladesh Sugar & Food Industries Corporation	Queen's Bench Division	Yes	[1996] 4 All ER 563	England and Wales	Discussed in Eltraco International Pte Ltd v CGH Development Pte Ltd for the principle that when a beneficiary simply cannot point to any loss suffered, the courts may be prompted to infer that the call had been abusive and lacked bona fides.
Sunrise Industries (India) Ltd v PT OKI Pulp & Paper Mills and another	High Court	Yes	[2018] SGHC 145	Singapore	Cited as an authority that considered the actual and potential losses claimed by the beneficiaries in deciding whether the call had been excessive.
Ryobi-Kiso (S) Pte Ltd v Lum Chang Building Contractors Pte Ltd and another	High Court	Yes	[2013] SGHC 86	Singapore	Cited as an authority that considered the actual and potential losses claimed by the beneficiaries in deciding whether the call had been excessive.
Liang Huat Aluminium Industries Pte Ltd v Hi-Tek Construction Pte Ltd	High Court	Yes	[2001] SGHC 334	Singapore	Cited for the principle that the burden of proving a strong prima facie case ultimately lies on the obligor to produce cogent evidence that the sums are indeed excessive.
Royal Design Studio Pte Ltd v Chang Development Pte Ltd	High Court	Yes	[1990] 2 SLR(R) 520	Singapore	Cited for the principle that it lies foul in the mouth of the beneficiary to complain of a breach of contract if it had itself been responsible for the breach.
Kvaerner Singapore Pte Ltd v UDL Shipbuilding (Singapore) Pte Ltd	High Court	Yes	[1993] 2 SLR(R) 341	Singapore	Cited for the principle that it lies foul in the mouth of the beneficiary to complain of a breach of contract if it had itself been responsible for the breach.
Anwar Siraj and another v Teo Hee Lai Building Construction Pte Ltd	Court of Appeal	Yes	[2003] 1 SLR(R) 394	Singapore	Cited for the principle that the courts have professed an aversion towards overtly technical analysis at this stage of the proceedings.
Bintai Kindenko Pte Ltd v Samsung C&T Corp and another	Court of Appeal	Yes	[2019] 2 SLR 295	Singapore	Cited for the principle that unclean hands may manifest in less than full and frank disclosure during a hearing for an ex parte injunction.
Soon Li Heng Civil Engineering Pte Ltd v Samsung C&T Corp and another	High Court	Yes	[2019] SGHC 267	Singapore	Cited for the principle that calls made for ulterior motives should be restrained.
LQS Construction Pte Ltd v Mencast Marine Pte Ltd and another	High Court	Yes	[2018] 3 SLR 404	Singapore	Cited for the principle that proving that the bond had been called for an ulterior motive is ultimately a fact-sensitive inquiry involving reference to factors such as the timing of the call.
Samwoh Asphalt Premix Pte Ltd v Sum Cheong Piling Pte Ltd and another	Court of Appeal	Yes	[2001] 3 SLR(R) 716	Singapore	Cited for the principle that tactical calls aimed at putting contractors under financial pressure to compromise, to be unconscionable as well.
Hiap Hong & Co Pte Ltd v Hong Huat Development Co (Pte) Ltd	Court of Appeal	Yes	[2001] 1 SLR(R) 458	Singapore	Cited for the principle that an architect’s actions are not relevant unless he is an agent of the beneficiary.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute Name	Jurisdiction
Arbitration Act (Cap 10, Rev Ed 2002)	Singapore
Building Control Act (Cap 29, 1999 Rev Ed)	Singapore
Building Control Act (Cap 29, 1999 Rev Ed) s 6(5)	Singapore
Building Control Act (Cap 29, 1999 Rev Ed) s 8(2)	Singapore
Architects Act (Cap 12, 2000 Rev Ed)	Singapore
Professional Engineers Act (Cap. 253, 1992 Rev Ed)	Singapore
Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed)	Singapore

15. Key Terms and Keywords

15.1 Key Terms

Performance bond
Unconscionability
Building Control Act
Qualified person
Termination certificate
Notice of termination
Illegality
Construction works
Architectural qualified person
Permit
Strata landed housing development

15.2 Keywords

Performance bond
Unconscionability
Construction contract
Injunction
Building Control Act

17. Areas of Law

Area Name	Relevance Score
Unconscionability	95
Performance Bond	90
Building and Construction Law	80
Construction Law	75
Contract Law	60
Arbitration	50
Civil Procedure	30

16. Subjects

Construction Dispute
Arbitration
Contract Law
Performance Bonds
Injunctions