Restraining Bond Calls: Singapore Court Shows Reluctance

• Published date: 14 February 2024
• Law Firm: Herbert Smith Freehills
• Author: Mr Daniel Waldek and Tse Wei Lim

Under Singapore law, contractors can seek to restrain calls on on-demand bonds based on "unconscionability". This is where the call is said to be made in bad faith or involves abusive, unfair or dishonest conduct. Unconscionability is a broader and less stringent standard than the traditional ground of fraud which is applied under English law.

The recent Singapore High Court decision in Shanghai Chong Kee Furniture & Construction Pte Ltd v Church of St Teresa [2024] SGHC 5 reinforces the position that the Singapore courts will be slow to restrain calls on on-demand bonds on the grounds of unconscionability, including even where a bond call is based on a contract administrator's mistaken (but honest) overcalculation of delay liquidated damages. This is a welcome decision for the beneficiaries of bonds, such as Owners/Employers and main contractors.

Facts

The Church of St Teresa engaged Shanghai Chong Kee Furniture & Construction Pte Ltd (SCK) as the contractor for restoration works at the Church's premises. The Contract was based on the Singapore Institute of Architect's Minor Works Contract 2012. SCK provided an unconditional performance bond for 10% of the contract sum.

The Contract required SCK to complete the works within a year. Completion was delayed by almost three years, due to various issues including COVID-19 pandemic restrictions. Relevantly, SCK had submitted a notice of relief under the Singapore Covid-19 (Temporary Measures) Act 2020 (COTMA).

The Church called on the entire performance bond to recover delay...