Chian Teck Realty v SDK Consortium: Performance Bond Dispute in Construction Contract
In Chian Teck Realty Pte Ltd v SDK Consortium and Lonpac Insurance Bhd, the High Court of Singapore addressed a dispute over a performance bond in a construction project. Chian Teck Realty, the applicant, sought to restrain SDK Consortium, the first respondent, from claiming on a performance bond issued by Lonpac Insurance Bhd, the second respondent. The court, presided over by Lee Seiu Kin J, found that SDK's demand on the bond was invalid because it was based on a clause that had not been properly triggered. The court ordered Lonpac to be restrained from making payment to SDK pursuant to the claim on the bond made on 29 July 2022.
1. Case Overview
1.1 Court
General Division of the High Court of the Republic of Singapore1.2 Outcome
Order for second respondent to be restrained from making payment to first respondent pursuant to the claim on the bond made on 29 July 2022. First respondent is also restrained from claiming or directing second respondent to make said payment.
1.3 Case Type
Civil
1.4 Judgment Type
Judgment
1.5 Jurisdiction
Singapore
1.6 Description
Singapore court case regarding a performance bond in a construction project. The court considered the validity of the bond call and potential fraud.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| Chian Teck Realty Pte Ltd | Applicant | Corporation | Partial | Partial | |
| SDK Consortium | Respondent | Partnership | Partial | Partial | |
| Lonpac Insurance Bhd | Respondent | Corporation | Won | Won |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Lee Seiu Kin | Judge | Yes |
4. Counsels
4. Facts
- Chian Teck was a subcontractor of SDK for a construction project at Woodlands Health Campus.
- Chian Teck was obliged to procure a performance bond in favour of SDK of an amount equal to 5% of the total value of the Subcontract.
- Lonpac issued a performance bond in favour of SDK for the sum of S$1,123,152.55.
- The relationship between Chian Teck and SDK deteriorated, leading to disputes and adjudication proceedings.
- Chian Teck served notice on SDK to terminate the contract.
- Lonpac sent a letter to SDK stating that it was giving SDK 90 days written notice from the expiry of the Bond of Lonpac’s intention not to extend the Bond.
- SDK issued a demand for payment of the entire amount secured under the Bond.
5. Formal Citations
- Chian Teck Realty Pte Ltd v SDK Consortium and another, Originating Application No 518 of 2022, [2023] SGHC 210
6. Timeline
| Date | Event |
|---|---|
| Subcontract awarded to Chian Teck by SDK | |
| Lonpac issued Performance Bond No Z/18/BP00/047925 in favour of SDK | |
| Relationship between Chian Teck and SDK deteriorated | |
| Chian Teck served notice on SDK to terminate the contract | |
| Lonpac sent a letter to SDK stating that it was giving SDK 90 days written notice from the expiry of the Bond of Lonpac’s intention not to extend the Bond | |
| Lonpac sent a second letter informing SDK of the same | |
| SDK issued a demand for payment of the entire amount secured under the Bond | |
| Hearing date | |
| Hearing date | |
| Hearing date | |
| Judgment reserved |
7. Legal Issues
- Validity of call on performance bond
- Outcome: The court found that the call on the bond was invalid because it was based on a clause that had not been properly triggered.
- Category: Substantive
- Sub-Issues:
- Compliance with condition precedents
- Interpretation of bond clauses
- Related Cases:
- [2019] 4 SLR 1324
- Fraud in calling on performance bond
- Outcome: The court found that Chian Teck had not met the high standard of proof necessary for showing fraud.
- Category: Substantive
- Sub-Issues:
- Dishonest belief
- Reckless indifference
- Related Cases:
- [2016] 3 SLR 557
- [2019] 2 SLR 295
- Implied term in contract
- Outcome: The court found that there was no room to imply the Implied Term into the Subcontract.
- Category: Substantive
- Sub-Issues:
- Business efficacy
- Officious bystander test
- Related Cases:
- [2013] 4 SLR 193
8. Remedies Sought
- Restraint of payment under the Bond
- Costs
9. Cause of Actions
- Breach of Contract
- Injunction
10. Practice Areas
- Construction Law
- Commercial Litigation
11. Industries
- Construction
- Insurance
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Shanghai Electric Group Co Ltd v PT Merak Energi Indonesia and another | High Court | Yes | [2010] 2 SLR 329 | Singapore | Cited to support the principle that a performance bond is 'as good as cash' because it provides certainty of payment from a reputable financial institution. |
| Master Marine AS v Labroy Offshore Ltd and others | Court of Appeal | Yes | [2012] 3 SLR 125 | Singapore | Cited for the principle that the performance bond is a contract between the beneficiary and the financial institution, and as between them, the underlying contract is not relevant. |
| Arab Banking Corp (B.S.C.) v Boustead Singapore Ltd | Court of Appeal | Yes | [2016] 3 SLR 557 | Singapore | Cited for the principle that the court will only grant an injunction where the demand is made fraudulently, on the ground that 'fraud unravels all'. |
| Bocotra Construction Pte Ltd and others v Attorney-General | Court of Appeal | No | [1995] 2 SLR(R) 262 | Singapore | Cited for setting a high standard of proof for fraud in demanding payment under a performance bond. |
| Sunrise Industries (India) Ltd v PT OKI Pulp & Paper Mills and another | High Court | Yes | [2018] SGHC 145 | Singapore | Cited for setting a high standard of proof for fraud in demanding payment under a performance bond. |
| Dauphin Offshore Engineering & Trading Pte Ltd v The Private Office of His Royal Highness Sheikh Sultan bin Khalifa bin Zayed bin Zayed Al Nahyan | High Court | No | [1999] SGHC 201 | Singapore | Cited for tracing the development of unconscionability as a ground for restraining demands on performance bonds. |
| GHL Pte Ltd v Unitrack Building Construction Pte Ltd and another | Court of Appeal | Yes | [1999] 3 SLR(R) 44 | Singapore | Cited for confirming unconscionability as a ground to restrain demands on performance bonds. |
| CKR Contract Services Pte Ltd v Asplenium Land Pte Ltd and another and another appeal and another matter | Court of Appeal | No | [2015] 3 SLR 1041 | Singapore | Cited as an example of parties agreeing that the performance bond cannot be restrained on the ground of unconscionability. |
| Sembcorp Marine Ltd v PPL Holdings Pte Ltd and another and another appeal | Court of Appeal | Yes | [2013] 4 SLR 193 | Singapore | Cited for the three-step requirement for the implication of contract terms. |
| Cargill International SA v Bangladesh Sugar and Food Industries Corp | English Court | No | [1996] 4 All ER 563 | England and Wales | Cited for the proposition that terms can be implied into the underlying contract between contractor and sub-contractor which would circumscribe the buyer’s rights under his collateral guarantee with the guarantor, notwithstanding that the guarantee and underlying contract are independent at law. |
| Ryobi Tactics Pte Ltd v UES Holdings Pte Ltd and another and another matter | Court of Appeal | Yes | [2019] 4 SLR 1324 | Singapore | Cited for the principle that a call on the performance bond which stipulates such requirements would be restrained in the absence of strict compliance. |
| Bintai Kindenko Pte Ltd v Samsung C&T Corp and another | Court of Appeal | Yes | [2019] 2 SLR 295 | Singapore | Cited for the requirements to establish a strong prima facie case that the beneficiary called on the bond with the knowledge that its demand was invalid, without belief in the validity of its demand, or with indifference to whether the demand was valid or not. |
| 1L30G Pte Ltd v EQ Insurance Co Ltd | High Court | Yes | [2017] 5 SLR 1106 | Singapore | Cited for the principle that the postal acceptance rule did not apply to the clause, and that the clause was only satisfied when the plaintiff in that case had actually received the notice of non-renewal. |
| Golden Harvest Films Distribution (Pte) Ltd v Golden Village Multiplex Pte Ltd | Court of Appeal | Yes | [2007] 1 SLR(R) 940 | Singapore | Cited for the principle that where an express term of the contract governs the legal relationship between the parties, there is no scope for the implication of a term. |
13. Applicable Rules
| Rule Name |
|---|
| Rules of Court 2021 Order 13 Rule 1 |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Supreme Court of Judicature Act (Cap 322) Section 18(2) | Singapore |
| Supreme Court of Judicature Act (Cap 322) First Schedule | 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
- Subcontract
- Unconditional demand
- Fraud
- Implied term
- Notice of non-extension
- Condition precedent
- Building and Construction Industry Security of Payment Act
15.2 Keywords
- performance bond
- construction contract
- injunction
- fraud
- Singapore
- building and construction law
17. Areas of Law
| Area Name | Relevance Score |
|---|---|
| Performance Bond | 95 |
| Contract Law | 80 |
| Construction Law | 75 |
| Breach of Contract | 60 |
| Banking and Finance | 50 |
| Commercial Disputes | 40 |
| Civil Procedure | 35 |
| Estoppel | 30 |
| Misrepresentation | 25 |
| Evidence | 20 |
| Summary Judgement | 15 |
16. Subjects
- Building and Construction Law
- Contract Law
- Performance Bonds