CEX v CEY and another [2020] SGHC 100

Case Details

• Citation: [2020] SGHC 100
• Title: CEX v CEY and another
• Court: High Court of the Republic of Singapore
• Date of Decision: 18 May 2020
• Case Number: Originating Summons No 933 of 2019
• Coram: Lee Seiu Kin J
• Applicant/Plaintiff: CEX
• Respondents/Defendants: CEY and another
• Parties (as described): CEX — CEY — CEZ —
• Legal Area: Building and Construction Law – Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed)
• Key Topic: Setting aside adjudication determination – Unconscionability
• Judicial Focus (from extract): Injunction to restrain calling on an on-demand performance bond; unconscionability exception
• Counsel for Applicant: Tan Shien Loon Lawrence, Chan Ying Keet Jasmine and Poonaam Bai (Eldan Law LLP)
• Counsel for 1st Respondent: Yeo Teng Yung Christopher (Legal Solutions LLC)
• Counsel for 2nd Respondent: Phua Cheng Sye Charles (Comlaw LLC)
• Judgment Length: 18 pages, 9,477 words
• Statutes Referenced (as provided): Building Control Act (Cap 29, 1999 Rev Ed); Architects Act; Building and Construction Industry Security of Payment Act; Professional Engineers Act; and the “intention of the Act” (as referenced in the extract)
• Cases Cited (as provided): [1996] SGHC 136; [1999] SGHC 201; [2001] SGHC 334; [2009] SGHC 7; [2013] SGHC 86; [2018] SGHC 145; [2018] SGHC 163; [2018] SGHC 249; [2018] SGHC 33; [2019] SGHC 267

Summary

In CEX v CEY and another [2020] SGHC 100, the High Court (Lee Seiu Kin J) granted an injunction restraining a developer (CEY) from calling on an on-demand performance bond procured in favour of the developer. Although the contractor (CEX) brought the application on both fraud and unconscionability, the court’s decision turned primarily on the unconscionability exception to the general principle that on-demand performance bonds should be honoured according to their terms.

The case arose from a strata detached houses project that was beset by delays. CEY terminated CEX’s employment and, relying on a termination certificate issued “on behalf of” the project’s architectural qualified person, called on the performance bond after CEX refused to pay a large demand for replacement-contractor costs. The court found that CEY’s conduct—particularly in relation to the circumstances surrounding the architectural qualified person’s illness and the termination process—crossed the threshold of unconscionability. The injunction therefore prevented CEY from obtaining payment under the bond while the underlying dispute remained unresolved.

What Were the Facts of This Case?

CEX was appointed as the main contractor for a project involving six strata detached houses. It took over the project on 9 May 2017 after accepting a letter of award dated 4 May 2017. Under clause 9.1 of the letter of award, CEX procured a performance bond from CEZ in favour of CEY. The performance bond was an on-demand bond, meaning that the beneficiary could call on it without proving underlying breach, subject only to limited exceptions recognised by Singapore law.

The project experienced significant delays. CEY attributed the delays to CEX’s alleged persistent failure to carry out the contract with due diligence and expedition. CEX, in contrast, argued that many delays were beyond its control and pointed to the illness and subsequent death of the architectural qualified person, Mr John Seah. Mr Seah’s role was central to the project’s approvals and procedural steps, and his incapacity became a key factual feature in the dispute.

Mr Seah fell ill and was hospitalised on 7 January 2019. On that day, he attempted to authorise another person, Mr Ng Hoe Theong, to “cover [his] duties”. On the basis of that authority, Mr Ng issued a “Notice to Proceed” to CEX, purporting to allow the works to continue with due diligence and due expedition. Mr Seah later died on 24 January 2019. There was no new architectural qualified person formally appointed until 27 February 2019.

Despite Mr Seah’s death, Mr Ng later issued a termination certificate “on behalf of [Mr Seah]” on 19 February 2019. The certificate stated that CEX had “failed and [was] still failing to proceed with due diligence or expedition in its Works”. CEY relied on this termination certificate and issued a notice of termination on 20 February 2019, citing CEX’s alleged persistent failure to proceed with due diligence and expedition. CEX denied breach and promptly served a notice of arbitration the following day, including claims that its employment had been wrongfully terminated.

After termination, CEY sought to recover losses said to arise from CEX’s alleged breaches. CEY’s complaints were collated and conveyed in a letter of demand seeking S$3,921,039.68, described as CEY’s estimated expenses for hiring a replacement contractor. CEX refused to pay. CEY then called on the performance bond on 19 July 2019. The present application sought to restrain that call.

What Were the Key Legal Issues?

The court identified two main issues. The first concerned statutory interpretation under the Building Control Act (Cap 29, 1999 Rev Ed). Specifically, the court had to consider whether the holder of a permit to carry out structural works ceases to be a “qualified person” when the permit holder becomes ill and incapacitated. This “Interpretation Issue” was relevant to whether it was illegal for CEX to carry on construction works during the period when Mr Seah was ill and then deceased.

The second issue was whether the call on the performance bond should be restrained. The court noted that the performance bond’s nature and terms were not disputed, and there was no argument that the demand was technically defective. The legal question was therefore whether an injunction should be granted on the ground of unconscionability—an exception to the autonomy principle for on-demand bonds.

How Did the Court Analyse the Issues?

1. The unconscionability exception and its framework

The court began by addressing the development of the unconscionability exception in Singapore jurisprudence. It explained that there had previously been uncertainty whether “unconscionability” was merely loose language for fraud, or whether it was a distinct ground for restraining calls on performance bonds. The Court of Appeal in GHL Pte Ltd v Unitrack Building Construction Pte Ltd [1999] 3 SLR(R) 44 settled the dichotomy by ruling that unconscionability is a separate and distinct ground for granting an injunction to restrain enforcement of a performance bond.

From there, the court reviewed how the threshold for establishing unconscionability had been articulated in later authorities. It referred to the need for a “strong prima facie case” and to the policy rationales underpinning restraints on bond calls: respecting the parties’ intention, upholding the commercially valuable autonomy principle, and preventing abusive or oppressive calls—particularly in the construction industry. The court also emphasised that the precise scope of unconscionability is not exhaustively defined, and that courts should not provide an “instruction manual” that would enable parties to evade the exception.

To make the doctrine more operational, Lee Seiu Kin J proposed a structured approach for evaluating unconscionability. The framework comprised: (a) identifying the nature of the bond (including whether it is truly on-demand); (b) ascertaining whether the call falls within the bond’s terms; and (c) evaluating whether the overall tenor and entire context support a strong prima facie case of unconscionability. The court described unconscionability as involving unfairness and conduct lacking good faith, while clarifying that the list of manifestations is not closed.

In particular, the court identified recurring patterns that often support unconscionability, including: calls for excessive sums; calls based on breaches that the beneficiary itself is responsible for; calls tainted by unclean hands (such as inflated estimates or selective/incomplete disclosures); calls made for ulterior motives; and calls inconsistent with the beneficiary’s prior stance. The court further stressed that no single factor is dispositive, and that the absence of a factor does not necessarily exonerate the beneficiary. Even if a call corresponds reasonably to claimed losses, it may still be unconscionable depending on context.

2. Application to the facts: CEY’s conduct and the termination process

Although the judgment extract provided does not include the full application section, the introduction and the court’s stated reasoning make clear the core factual and contextual basis for the injunction. The court characterised CEY as having “let its impatience get the best of it” and found that CEY had acted unconscionably in calling on the performance bond. This conclusion was reached notwithstanding the absence of technical defects in the call.

The court’s reasoning was anchored in the circumstances surrounding the architectural qualified person, Mr Seah. Mr Seah’s illness and death created a procedural and regulatory context that mattered to the legality and propriety of the construction works and the termination steps taken thereafter. Mr Seah attempted to authorise Mr Ng to cover his duties on 7 January 2019. Mr Ng issued a Notice to Proceed on that basis. However, after Mr Seah’s death, Mr Ng issued a termination certificate “on behalf of [Mr Seah]” on 19 February 2019, which CEY relied upon to terminate CEX’s employment.

The court’s view that CEY acted unconscionably suggests that it considered the termination certificate and the reliance on it to be unfair or lacking good faith in the overall context. In other words, even if CEY could frame the call as being within the bond terms and supported by a termination certificate, the court was prepared to look beyond formalities to the substance of the beneficiary’s conduct. This is consistent with the unconscionability doctrine’s focus on the “overall tenor and entire context” rather than a narrow checklist.

Further, the court’s introduction indicates that CEY’s conduct went beyond mere contractual disagreement. CEY had pushed CEX to proceed with “illegal construction works” and then terminated CEX’s employment for failing to comply with that push. The court’s language implies that CEY’s position was inconsistent with good faith and with the beneficiary’s obligations in the construction process. That inconsistency—particularly where the beneficiary’s own actions contributed to the circumstances relied upon to justify termination—can be a powerful indicator of unconscionability.

3. The Interpretation Issue and why the decision rested primarily on unconscionability

The court identified the Interpretation Issue under the Building Control Act as relevant to whether CEX’s continued works were illegal during the period of Mr Seah’s incapacity and death. However, the court stated that while CEX advanced arguments on fraud and unconscionability, it based its decision primarily on unconscionability. This indicates that even if the statutory interpretation question was important, the court found sufficient grounds to restrain the bond call on the unconscionability analysis alone.

That approach is doctrinally coherent. The unconscionability exception is designed to prevent oppressive enforcement of on-demand instruments where the beneficiary’s conduct is unfair or in bad faith. Where the court finds a strong prima facie case of unconscionability, it may be unnecessary to definitively resolve every underlying regulatory or contractual legality question at the interlocutory stage—especially where the parties have already commenced arbitration and the merits are to be determined in the proper forum.

What Was the Outcome?

The High Court granted CEX an injunction restraining CEY from calling on the performance bond. The practical effect was to prevent CEY from obtaining immediate payment under the on-demand bond while the dispute between the parties—including the termination and the alleged breaches—remained subject to arbitration and further determination.

Although the application was brought on both fraud and unconscionability, the court’s decision was anchored primarily in the unconscionability exception. This reinforces that, in Singapore, unconscionability can operate as an independent and meaningful restraint on bond calls, even where the demand is not technically defective.

Why Does This Case Matter?

1. It reinforces the operational test for unconscionability

CEX v CEY is useful for practitioners because it demonstrates how the unconscionability exception is applied in a construction context. The court’s discussion of the doctrine—particularly the structured framework for assessing unconscionability—provides a practical roadmap for litigators seeking (or resisting) injunctions against bond calls. It also underscores that courts will consider the “overall tenor” and not confine themselves to whether the call is strictly within the bond’s terms.

2. It highlights the importance of good faith and consistency

The case illustrates that a beneficiary’s conduct can become unconscionable when it is inconsistent with good faith—especially where the beneficiary’s own actions contribute to the circumstances relied upon to justify termination and bond enforcement. In construction disputes, where procedural steps and regulatory compliance often intersect with contractual performance, beneficiaries cannot assume that formal compliance with bond mechanics will immunise them from injunctive relief.

3. It has implications for risk allocation in on-demand instruments

On-demand performance bonds are commercially valuable precisely because they provide payment certainty. However, CEX v CEY confirms that this autonomy is not absolute. Where a contractor can show a strong prima facie case of unconscionability, the court may intervene to prevent abusive enforcement. For developers, this means that bond calls must be approached with careful attention to fairness, disclosure, and the beneficiary’s own role in the dispute. For contractors, it provides a basis to seek injunctive relief where the beneficiary’s conduct is oppressive or tainted by bad faith.

Legislation Referenced

• Building Control Act (Cap 29, 1999 Rev Ed), including s 6(5)
• Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed)
• Architects Act
• Professional Engineers Act

Cases Cited

• [1996] SGHC 136
• [1999] SGHC 201
• [2001] SGHC 334
• [2009] SGHC 7
• [2013] SGHC 86
• [2018] SGHC 145
• [2018] SGHC 163
• [2018] SGHC 249
• [2018] SGHC 33
• [2019] SGHC 267
• Bocotra Construction Pte Ltd v Attorney-General [1995] 2 SLR(R) 262
• New Civilbuild Pte Ltd v Guobena Sdn Bhd [1998] 2 SLR(R) 732
• Dauphin Offshore Engineering & Trading Pte Ltd v The Private Office of His Royal Highness Sheikh Sultan bin Khalifa bin Zayed Al Nahyan [1999] SGHC 201
• Min Thai Holdings Pte Ltd v Sunlabel Pte Ltd [1998] 3 SLR(R) 961
• Raymond Construction Pte Ltd v Low Yang Tong [1996] SGHC 136
• GHL Pte Ltd v Unitrack Building Construction Pte Ltd [1999] 3 SLR(R) 44
• Dauphin Offshore Engineering & Trading Pte Ltd v The Private Office of HRR Sheikh Sultan bin Khalifa bin Zayed Al Nahyan [2000] 1 SLR(R) 117
• BS Mount Sophia Pte Ltd v Join-Aim Pte Ltd [2012] 3 SLR 352
• JBE Properties Pte Ltd v Gammon Pte Ltd [2011] 2 SLR 47
• Master Marine AS v Labroy Offshore Ltd [2012] 3 SLR 125
• York International Pte Ltd v Voltas Ltd [2013] 3 SLR 1142
• BWN v BWO [2019] 5 SLR 215

Source Documents

• Original Judgment (PDF) — Singapore Law Watch
• Archived Copy (PDF) — Litt Law CDN

This article analyses [2020] SGHC 100 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the full judgment for the Court's complete reasoning.