Case Details
- Citation: [2020] SGCA 79
- Case Title: Samsung C&T Corp v Soon Li Heng Civil Engineering Pte Ltd
- Court: Court of Appeal of the Republic of Singapore
- Civil Appeal No: Civil Appeal No 222 of 2019
- Decision Date: 17 August 2020
- Judges (Coram): Judith Prakash JA; Belinda Ang Saw Ean J; Woo Bih Li J
- Judgment Author: Woo Bih Li J
- Plaintiff/Applicant (Appellant): Samsung C&T Corporation
- Defendant/Respondent (Respondent): Soon Li Heng Civil Engineering Pte Ltd
- Legal Area: Credit and Security — Performance bond
- Key Issue: Unconscionability in calling on a performance bond after an adjudication determination (AD)
- Procedural History: Appeal from the High Court decision in [2019] SGHC 267
- Outcome in Court of Appeal: Appeal dismissed; injunction restraining the beneficiary from receiving under the performance bond upheld
- Counsel for Appellant: Lee Peng Khoon Edwin and Er Hwee Lee Danna Dolly (Eldan Law LLP)
- Counsel for Respondent: Poon Guokun Nicholas and Choy Chee Yean (Breakpoint LLC)
- Performance Bond: United Overseas Bank Limited performance bond dated 27 June 2016 in favour of Samsung
- Subcontract: Re-Measurement Sub-Contract dated 22 April 2016
- Statutory Framework: Building and Construction Industry Security of Payment Act (SOPA) (Singapore); comparative references to Australian SOPA regimes
Summary
This Court of Appeal decision concerns when a beneficiary may call on a performance bond in the context of Singapore’s statutory adjudication regime under the Building and Construction Industry Security of Payment Act (SOPA). The dispute arose from a construction subcontract under which the subcontractor, Soon Li Heng Civil Engineering Pte Ltd (“SLH”), procured a performance bond in favour of the main contractor, Samsung C&T Corporation (“Samsung”). After an adjudication determination (AD) under SOPA was issued in SLH’s favour, Samsung later demanded payment under the performance bond on the premise that SLH had over-claimed and thereby caused Samsung to overpay.
The High Court granted a final injunction restraining Samsung from receiving money under the performance bond. On appeal, the Court of Appeal dismissed Samsung’s appeal and upheld the injunction. The Court’s central holding was that it is unconscionable to call on a performance bond where doing so would negate the temporary finality of an AD before the parties’ dispute is finally determined. The Court emphasised the legislative scheme of SOPA, including the binding effect of ADs and the availability of review mechanisms, and found that Samsung’s demand effectively sought to circumvent the statutory adjudication process.
What Were the Facts of This Case?
Samsung was engaged by the Land Transport Authority as the main contractor for the Marine Parade Station and Tunnels for the Thomson-East Coast Line. Samsung then subcontracted excavation and disposal works to SLH. The parties entered into a Re-Measurement Sub-Contract dated 22 April 2016. Under the subcontract, SLH was responsible for excavating and disposing of three categories of material: (a) soil; (b) hardcore material; and (c) ground improvement and mixed material. Importantly, the subcontract provided for separate disposal sites for each type of material, and the measurement and re-measurement mechanics differed depending on the work and material type.
To secure SLH’s performance, SLH procured a performance bond (“PB”) from United Overseas Bank Limited dated 27 June 2016 in favour of Samsung. The PB was therefore a credit and security instrument intended to provide Samsung with recourse if SLH failed to perform or breached the subcontract. The subcontract also contained contractual provisions dealing with offsetting and set-off, including an “Offset Right” clause (cl 17.7) that addressed how Samsung could recover amounts due to it under the subcontract through the performance security or by set-off.
In 2018, SLH served Payment Claim No 20 (“PC 20”) on Samsung for $3,278,935.95. Samsung issued a payment response (payment certificate No 20) stating it should pay only $167,848.99. The dispute proceeded to SOPA adjudication (SOP 372/2018). The adjudicator determined that Samsung was to pay SLH a sum, which was later reduced to $2,473,295.20 (including GST) by an amended AD issued on 19 November 2018 (“1AD”). Samsung paid the adjudicated sum on 26 December 2018.
After 1AD, Samsung continued disputing the final quantities of material disposed of. SLH served further payment claims (including PC 24 and PC 25), and the parties continued to dispute measurement and quantities. Samsung asserted that it had obtained “new evidence” from an email from SLH to the LTA dated 8 January 2019, suggesting that SLH had disposed of less material than previously claimed. Samsung also disputed the measurement of hardcore material, noting that the subcontract’s measurement methods were not limited to lorry loads and sometimes relied on “as built drawings” and other measurement principles.
While SOPA adjudication for the subsequent disputes continued (SOP 98/2019 was initiated on 7 March 2019), Samsung made a demand on the performance bond on 3 April 2019 for the full bond amount of $826,713.53. Samsung’s premise was that SLH had over-claimed in breach of the subcontract. On 4 April 2019, SLH commenced proceedings in the High Court seeking an injunction to restrain Samsung from receiving money under the PB, and obtained an ex parte interlocutory injunction. The High Court later granted a final injunction on 12 November 2019.
What Were the Key Legal Issues?
The Court of Appeal focused on unconscionability. The legal question was not merely whether Samsung had a contractual basis to call on the performance bond, but whether, in the circumstances, calling on the bond was unconscionable because it would undermine the statutory effect of the AD. In particular, the Court had to consider whether Samsung’s demand effectively negated the temporary finality of 1AD before the dispute between the parties was finally resolved.
A second issue, addressed by the High Court and raised on appeal, concerned the interaction between the performance bond demand and the contractual “Offset Right” clause (cl 17.7). Samsung argued that it was entitled to demand payment under the PB to satisfy its overpayment claim. The High Court held that the phrase “under the Subcontract” in cl 17.7 required the demand to be made pursuant to a particular provision of the subcontract relating to a sum due to Samsung, and that Samsung’s demand was not made in that manner.
Although the Court of Appeal indicated that it did not need to decide the cl 17.7 point because unconscionability was sufficient to dispose of the appeal, the case nonetheless illustrates how courts may analyse both statutory scheme and contractual construction when determining whether a bond call should be restrained.
How Did the Court Analyse the Issues?
The Court of Appeal began by stressing that SLH’s case was not simply that an AD existed. Rather, Samsung’s reasons for calling on the PB had already been considered and rejected by the adjudicator in relation to the matters underlying 1AD. This factual context mattered because it meant Samsung was not calling on the PB to address a genuinely separate dispute that had not been adjudicated. Instead, the demand was directed at matters that were already adjudicated, and the effect of calling the PB would be to undermine the adjudication outcome.
The Court then articulated the governing principle of unconscionability in this setting. It held that it is unconscionable for a party to call on a performance bond where the effect is to negate an AD prior to any final determination of the dispute between the parties. This is a significant refinement of the conceptual link between performance security and SOPA adjudication: while performance bonds are generally enforceable according to their terms, the court may restrain a call where the call would defeat the statutory purpose of temporary finality and expeditious payment resolution.
The Court’s reasoning was anchored in the legislative scheme of SOPA. SOPA was enacted in 2004 to provide an expeditious mechanism for payment in construction disputes. Under SOPA, an adjudicator determines disputes on a temporary basis pending final resolution by a court, tribunal, or other dispute resolution process. The Court highlighted the statutory binding effect of an AD: under s 21(1), an AD is binding on the parties and persons claiming through them unless and until specified events occur, including (a) refusal of leave to enforce under s 27, (b) final determination of the dispute by a court/tribunal/other dispute resolution proceeding, or (c) settlement by agreement.
Crucially, SOPA also provides a mechanism for review of an AD under s 18. The Court noted that Samsung did not apply for such a review. This omission reinforced the unconscionability finding because Samsung effectively sought to achieve, through a bond call, what SOPA’s structure would not permit without using the statutory review process. The Court further relied on SOPA’s “no contracting out” provision in s 36, which provides that SOPA’s provisions have effect notwithstanding any contrary contractual provision. This meant that contractual rights cannot be used to circumvent SOPA’s temporary finality.
Samsung attempted to argue that SOPA did not interfere with or affect its contractual right to call on the PB. However, the Court rejected this characterisation. The Court distinguished the statutory position in Singapore from the comparative Australian regimes referenced in argument, noting that New South Wales does not have an equivalent to s 21’s temporary finality. The Court’s point was not that performance bonds are always restrained, but that the presence of SOPA’s binding effect and review mechanisms means that a bond call cannot be used as a backdoor to negate an AD.
In addition, the Court agreed with the High Court’s assessment that Samsung’s demand sought to undermine the temporary finality of 1AD. The Court also observed that Samsung’s “new evidence” argument did not justify the bond call because the adjudicator had already considered and rejected the substance of Samsung’s complaint. The Court therefore treated Samsung’s demand as a circumvention tactic rather than a good-faith attempt to address a genuinely distinct and unadjudicated breach.
Finally, while the Court of Appeal did not need to decide whether Samsung would also have been precluded under cl 17.7, it endorsed the High Court’s reasoning that the contractual offset mechanism could not be invoked in a manner inconsistent with the subcontract’s structure. The Court’s approach underscores that unconscionability analysis in this context is both fact-sensitive and scheme-sensitive: it depends on what the bond call is trying to achieve relative to the SOPA adjudication process.
What Was the Outcome?
The Court of Appeal dismissed Samsung’s appeal and upheld the High Court’s final injunction restraining Samsung from receiving money under the performance bond. The practical effect is that SLH was protected from having the bond proceeds paid out to Samsung while the underlying disputes remained subject to SOPA’s temporary finality framework and any further dispute resolution steps.
By confirming that unconscionability can arise where a bond call negates an AD, the Court ensured that the statutory adjudication outcome would not be rendered illusory through security enforcement. The decision therefore preserves the integrity of SOPA adjudication as a fast, interim mechanism intended to maintain cashflow and prevent strategic undermining of adjudicator determinations.
Why Does This Case Matter?
This case matters because it clarifies the boundary between enforceable performance security and the statutory adjudication regime in Singapore. Practitioners often treat performance bonds as separate from SOPA adjudication, assuming that a beneficiary can call on the bond whenever it alleges breach. Samsung C&T v Soon Li Heng demonstrates that courts will scrutinise the effect of the call on the SOPA process, and will restrain calls that would negate an AD before final determination.
The decision is also significant for its emphasis on legislative scheme. The Court’s reasoning is not limited to general equitable principles; it is explicitly tied to SOPA’s temporary finality (s 21), review mechanism (s 18), and the “no contracting out” provision (s 36). For lawyers advising contractors, subcontractors, and sureties, the case signals that contractual drafting cannot override SOPA’s statutory purpose. Even where a bond call is contractually authorised, it may still be unconscionable if it undermines the adjudication outcome.
From a litigation strategy perspective, the case highlights the importance of using SOPA’s review process where appropriate. Samsung’s failure to seek review of the AD was a contextual factor supporting unconscionability. Going forward, parties who disagree with an AD should consider whether review is available and timely, rather than attempting to achieve a de facto reversal through performance bond enforcement.
Finally, the case provides a useful analytical template for future disputes: courts will examine (i) whether the bond call targets matters already adjudicated, (ii) whether the adjudicator has considered and rejected the beneficiary’s reasons, and (iii) whether the call would negate the AD’s temporary finality. This structured approach will assist counsel in assessing risk when advising on bond calls during ongoing SOPA adjudications.
Legislation Referenced
- Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (“SOPA”) — in particular ss 18, 21 and 36
- Construction Contracts Act (Singapore) (as referenced in the judgment’s legislative context)
- Construction Contracts Act 2004 (as referenced in the judgment’s legislative context)
- New South Wales Building and Construction Industry Security of Payment Act (Australia) (comparative reference)
- New South Wales Building and Construction Industry Security of Payment Act 1999 (Australia) (comparative reference)
- Queensland Building and Construction Industry Payments Act (Australia) (comparative reference)
Cases Cited
- [2019] SGHC 267 — Soon Li Heng Civil Engineering Pte Ltd v Samsung C&T Corp and another
- [2020] SGCA 79 — Samsung C&T Corp v Soon Li Heng Civil Engineering Pte Ltd
Source Documents
This article analyses [2020] SGCA 79 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the full judgment for the Court's complete reasoning.