Samsung C&T Corporation v Soon Li Heng Civil Engineering Pte Ltd

Case Details

• Citation: [2020] SGCA 79
• Court: Court of Appeal of the Republic of Singapore
• Decision Date: 17 August 2020
• Coram: Judith Prakash JA, Belinda Ang Saw Ean J, Woo Bih Li J
• Case Number: Civil Appeal No 222 of 2019
• Hearing Date(s): 17 July 2020
• Appellant: Samsung C&T Corporation
• Respondent: Soon Li Heng Civil Engineering Pte Ltd
• 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)
• Practice Areas: Credit and Security; Performance bond; Unconscionability; Construction Law

Summary

The decision in Samsung C&T Corporation v Soon Li Heng Civil Engineering Pte Ltd [2020] SGCA 79 represents a seminal clarification of the intersection between the statutory adjudication regime under the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) ("SOPA") and the equitable doctrine of unconscionability as it applies to performance bonds. The Court of Appeal was tasked with determining whether a beneficiary of a performance bond acts unconscionably when it makes a call on that bond to recover sums that would effectively negate the outcome of a prior adjudication determination ("AD"), before the underlying dispute has been finally resolved through litigation or arbitration.

The dispute arose from a subcontract for excavation and disposal works on the Thomson-East Coast Line project. Following an adjudication determination in favour of the subcontractor, Soon Li Heng Civil Engineering Pte Ltd ("SLH"), the main contractor, Samsung C&T Corporation ("Samsung"), paid the adjudicated sum but subsequently attempted to call on a performance bond. Samsung's justification for the call was an alleged overpayment discovered through "new evidence" regarding disposal quantities. SLH successfully obtained an injunction in the High Court to restrain the call, a decision which Samsung appealed to the Court of Appeal.

The Court of Appeal dismissed the appeal, establishing a clear ratio: it is unconscionable for a party to call on a performance bond in circumstances where the effect of doing so is to negate an AD prior to any final determination of the dispute. This holding is anchored in the "temporary finality" principle embodied in Section 21 of the Building and Construction Industry Security of Payment Act. The Court emphasized that the statutory purpose of SOPA—to facilitate cash flow through an interim but binding payment mechanism—would be undermined if a party could unilaterally reverse the cash flow via a performance bond call based on the same or similar grounds already ventilated (or available to be ventilated) during adjudication.

This judgment is particularly significant for its comparative analysis of Australian jurisdictions. The Court of Appeal distinguished several Australian authorities from New South Wales, Western Australia, and Queensland, noting that those jurisdictions lack a statutory equivalent to Section 21 of the Singapore SOPA. By doing so, the Court reinforced the unique strength of the Singapore adjudication regime and provided practitioners with a robust framework for restraining bond calls that threaten to render the adjudication process illusory.

Timeline of Events

1. 22 April 2016: Samsung and SLH enter into a Re-Measurement Sub-Contract ("the Subcontract") for excavation and disposal works for the Thomson-East Coast Line project.
2. 27 June 2016: SLH procures a performance bond from United Overseas Bank Limited in favour of Samsung ("the PB").
3. 31 August 2018: SLH serves Payment Claim No 20 ("PC 20") on Samsung for the sum of $3,278,935.95.
4. 31 August 2018: Samsung issues Payment Certificate No 20 ("PR 20"), asserting that it would only pay $167,848.99.
5. 19 November 2018: An amended Adjudication Determination ("1AD") is issued in SOP 372/2018, determining that Samsung must pay SLH $2,473,295.20 (including GST).
6. 15 December 2018: Samsung issues a Notice of Dispute to SLH.
7. 16 December 2018: Date as of which Samsung later asserts it identified discrepancies in disposal quantities.
8. 17 December 2018: Samsung terminates the Subcontract.
9. 26 December 2018: Samsung pays the adjudicated sum of $2,473,295.20 to SLH pursuant to 1AD.
10. 31 December 2018: SLH serves Payment Claim No 24 ("PC 24").
11. 8 January 2019: An email is sent from SLH to the Land Transport Authority ("LTA"), which Samsung later relies upon as "new evidence" of over-claiming.
12. 29 January 2019: Samsung issues Payment Certificate No 24 ("PR 24"), claiming an overpayment of $2,057,944.79.
13. 6 March 2019: Samsung makes a demand on the PB for the sum of $826,713.53.
14. 7 March 2019: SLH commences Originating Summons No 439 of 2019 to restrain the call on the PB.
15. 12 November 2019: The High Court issues its judgment in [2019] SGHC 267, granting the injunction.
16. 17 July 2020: The Court of Appeal hears and dismisses Samsung's appeal.
17. 17 August 2020: The Court of Appeal delivers its grounds of decision.

What Were the Facts of This Case?

The appellant, Samsung C&T Corporation ("Samsung"), was the main contractor engaged by the Land Transport Authority ("LTA") for the construction of the Marine Parade Station and Tunnels for the Thomson-East Coast Line. Samsung engaged the respondent, Soon Li Heng Civil Engineering Pte Ltd ("SLH"), as its subcontractor to perform excavation and disposal works. The parties executed a Re-Measurement Sub-Contract dated 22 April 2016 ("the Subcontract"). As part of the contractual security requirements, SLH provided a performance bond dated 27 June 2016 ("the PB") issued by United Overseas Bank Limited in favour of Samsung.

The scope of work involved the excavation and disposal of three distinct categories of material: soil, hardcore material, and ground improvement and mixed material. The Subcontract stipulated specific disposal sites for each category. Crucially, the measurement of these works was subject to different contractual principles. For soil and ground improvement/mixed material, measurement was based on the volume of the excavation pit (in-situ volume). For hardcore material, however, the Bills of Quantities provided for measurement based on lorry loads for certain items and "as-built drawings" for others.

The dispute was triggered by Payment Claim No 20 ("PC 20"), served by SLH on 31 August 2018 for $3,278,935.95. Samsung’s Payment Response ("PR 20") offered only $167,848.99, leading SLH to initiate adjudication (SOP 372/2018). The adjudicator issued an amended determination ("1AD") on 19 November 2018, awarding SLH $2,473,295.20. Samsung complied with the 1AD by paying the sum on 26 December 2018, but only after terminating the Subcontract on 17 December 2018 and issuing a Notice of Dispute on 15 December 2018.

Following the payment of 1AD, SLH served Payment Claim No 24 ("PC 24") on 31 December 2018. Samsung responded with Payment Certificate No 24 ("PR 24") on 29 January 2019, in which it not only rejected the claim but asserted that it had overpaid SLH by $2,057,944.79. Samsung's overpayment claim was based on what it termed "new evidence"—specifically an email dated 8 January 2019 from SLH to LTA. Samsung argued that this email revealed the actual number of lorry loads used for disposal, which Samsung used to calculate a "lorry load formula" to demonstrate that the quantities claimed in PC 20 (and awarded in 1AD) were inflated.

On 6 March 2019, Samsung called on the PB for $826,713.53, citing the alleged overpayment. SLH immediately sought an injunction. In the High Court, the Judge found that Samsung's "new evidence" was not actually new, as the underlying data regarding lorry loads had been available to Samsung during the 1AD adjudication. Furthermore, the Judge found that Samsung’s lorry load formula was a "facade" because it ignored the contractual measurement principles (such as in-situ volume for soil) in favour of a simplified lorry-count method that the Subcontract did not authorize for all material types. The High Court concluded that Samsung’s attempt to call the bond was an unconscionable attempt to undermine the temporary finality of 1AD.

Samsung appealed, contending that the High Court erred in its assessment of the "new evidence" and that the call on the PB was a legitimate exercise of its contractual rights to recover overpayments. Samsung also relied on Australian case law to argue that a performance bond call should not be restrained simply because an adjudication determination had been made.

What Were the Key Legal Issues?

The primary legal issue before the Court of Appeal was whether it is unconscionable for a beneficiary to call on a performance bond when the effect of that call is to negate or reverse the financial outcome of an adjudication determination made under the Building and Construction Industry Security of Payment Act, prior to a final resolution of the dispute.

This issue required the Court to examine several sub-questions:

• The Scope of Section 21 SOPA: To what extent does the "temporary finality" of an AD, as provided for in Section 21 of the SOPA, restrict a party's right to exercise collateral contractual remedies such as calling on a performance bond?
• The Definition of Unconscionability: Does the pursuit of a bond call that undermines the statutory adjudication regime meet the high threshold of unconscionability required to restrain a call on an on-demand bond in Singapore?
• The Relevance of "New Evidence": Can a beneficiary justify a bond call post-AD by pointing to evidence that was not considered by the adjudicator, and if so, what is the standard for such evidence?
• Comparative Jurisprudence: Should Singapore follow Australian authorities (specifically from New South Wales, Western Australia, and Queensland) which appear more permissive of bond calls notwithstanding prior adjudication outcomes?

The framing of these issues was critical because it pitted the "autonomy principle" of performance bonds—the idea that they are independent of the underlying contract—against the statutory policy of the SOPA, which seeks to ensure that subcontractors are paid promptly on an interim basis.

How Did the Court Analyse the Issues?

The Court of Appeal’s analysis began with the fundamental purpose of the Building and Construction Industry Security of Payment Act. The Court noted that the SOPA was enacted to address the "perennial problem" of cash flow in the construction industry by providing an interim, but binding, dispute resolution mechanism. Central to this is Section 21(1) of the SOPA, which states:

"An adjudication determination is binding on the parties to the adjudication until — (a) the leave of the court is granted to stay the enforcement of the adjudication determination... (b) the dispute is finally determined by a court or tribunal or by agreement of the parties; or (c) the adjudication determination is set aside by the court." (at [25])

The Court held that this "temporary finality" is a cornerstone of the legislative scheme. If a party could simply call on a performance bond to recover the very sums it was ordered to pay under an AD, the statutory protection afforded to the claimant would be rendered "illusory" (at [27]).

The Negation Principle and Unconscionability

The Court articulated a specific application of the unconscionability doctrine in the context of the SOPA. It held that where a bond call is made to "negate" an AD before a final determination of the dispute, such conduct is prima facie unconscionable. The Court reasoned that the SOPA creates a statutory right to receive and retain payment on an interim basis. A party who seeks to circumvent this right by using a performance bond is acting in a manner that the court will not countenace. The Court stated:

"We hold that it is unconscionable for a party to call on a performance bond in circumstances where the effect of so doing will be to negate an AD prior to any final determination of the dispute between the parties." (at [22])

Distinguishing Australian Authorities

A significant portion of the judgment was dedicated to distinguishing Australian cases cited by Samsung. Samsung relied on Patterson Building Group Pty Ltd v Holroyd City Council [2013] NSWSC 1484, Duro Felguera Australia Pty Ltd v Samsung C&T Corporation [2016] WASC 119, and Fabtech Australia Pty Ltd v Laing O’Rourke Australia Construction Pty Ltd [2015] FCA 1371.

In Patterson, the NSW Supreme Court allowed a bond call despite an adjudication. However, the Singapore Court of Appeal observed that the NSW Act (Building and Construction Industry Security of Payment Act 1999) lacks a provision equivalent to Singapore’s Section 21. While the NSW Act has a Section 32(1) which preserves contractual rights, it does not explicitly state that an AD is "binding" in the same way Section 21 of the Singapore SOPA does. The Court noted that Section 21 SOPA actually answers the question posed by Besanko J in Fabtech regarding how long an applicant should enjoy the fruits of an AD—the answer is until final determination (at [58]).

Similarly, regarding Duro Felguera, the Court noted that the Western Australian legislation (Construction Contracts Act 2004) also lacks the "temporary finality" language of Section 21. Consequently, the Australian position that the SOPA-equivalent acts preserve rather than override contractual rights could not be directly imported into Singapore law given the specific wording of Section 21.

The "New Evidence" and the Facade of the Call

Samsung argued that its call was not unconscionable because it was based on "new evidence" (the 8 January 2019 email) that showed SLH had over-claimed. The Court of Appeal, agreeing with the High Court, rejected this. The Court found that the "new evidence" was essentially a repackaging of data Samsung already possessed or could have possessed during the 1AD adjudication.

Furthermore, the Court scrutinized Samsung’s "lorry load formula." The Subcontract required soil disposal to be measured by in-situ volume (excavation pit size), not by counting lorry loads. Samsung’s attempt to use lorry loads to "prove" an overpayment was a departure from the contractual measurement methodology. The Court of Appeal endorsed the High Court's finding that Samsung's overpayment claim was a "facade" intended to justify the bond call. The Court noted that Samsung’s own Payment Certificate (PR 24) contained figures that did not actually correlate to the "new evidence" it claimed to have discovered, but rather reflected figures Samsung had already unsuccessfully argued in the 1AD adjudication.

Contractual Entitlement

While the High Court had spent considerable time analyzing whether Clause 17.7 of the Subcontract contractually permitted the call, the Court of Appeal found it unnecessary to reach a definitive conclusion on this. Once the call was found to be unconscionable due to its effect on the AD, the contractual right to call (if any) was secondary. The Court emphasized that even if a contractual right exists, it cannot be exercised unconscionably to undermine the statutory regime of the SOPA.

What Was the Outcome?

The Court of Appeal dismissed Samsung’s appeal in its entirety. The Court upheld the High Court’s decision to grant an injunction restraining Samsung from receiving any payment under the performance bond. The operative conclusion of the Court was as follows:

"In the circumstances, we dismissed Samsung’s appeal with costs." (at [61])

The dismissal of the appeal meant that the status quo established by the 1AD adjudication was preserved. Samsung, having already paid the $2,473,295.20 adjudicated sum, was prevented from "clawing back" approximately $826,713.53 of that sum through the performance bond. The Court ordered Samsung to pay costs to SLH for the appeal.

The practical effect of the judgment was to ensure that SLH retained the cash flow granted to it by the adjudicator until such time as the parties’ dispute—which Samsung had already signaled by issuing a Notice of Dispute—was finally determined by a court or an arbitral tribunal. The judgment effectively blocked Samsung’s attempt to use the performance bond as a self-help remedy to bypass the "pay now, argue later" philosophy of the SOPA.

Why Does This Case Matter?

This case is a landmark decision in Singapore construction law for several reasons. First, it establishes a clear and high-level principle regarding the relationship between statutory adjudication and equitable remedies. By holding that a bond call which negates an AD is unconscionable, the Court of Appeal has provided a powerful shield for subcontractors against main contractors who might seek to use their superior bargaining power and collateral security to circumvent the SOPA.

Second, the judgment clarifies the "temporary finality" of adjudication determinations in Singapore. While it has long been understood that an AD is binding until final resolution, this case gives that principle "teeth" by preventing the use of performance bonds to reverse the financial effect of the AD. It confirms that the "binding" nature of an AD under Section 21 SOPA is not merely a procedural rule for enforcement, but a substantive right that equity will protect.

Third, the decision provides a critical distinction between Singapore and Australian construction law. Practitioners often look to Australian authorities for guidance on SOPA-related issues, but this judgment serves as a stark reminder that the specific wording of the Singapore statute—particularly Section 21—creates a different legal landscape. The rejection of the Patterson and Duro Felguera approach in Singapore is a significant doctrinal shift that practitioners must account for when advising clients on multi-jurisdictional construction disputes.

Fourth, the Court’s treatment of "new evidence" sets a high bar for beneficiaries who wish to call on a bond post-AD. It is not enough to simply point to new data; the beneficiary must show that the evidence genuinely supports a claim that is consistent with the contractual measurement and valuation principles. The Court’s willingness to look behind the "facade" of a bond call and scrutinize the underlying calculations (such as the lorry load formula) demonstrates that the unconscionability inquiry in Singapore is a rigorous, fact-sensitive process.

Finally, for the wider commercial community, the case reinforces the unique Singaporean approach to performance bonds. Unlike the English "fraud-only" exception, Singapore’s "unconscionability" exception remains a robust tool for the courts to ensure fairness in commercial dealings. This case extends that fairness into the statutory realm, ensuring that the legislative intent of the SOPA is not defeated by the technical "autonomy" of bank guarantees.

Practice Pointers

• Assess the "Negation" Risk: Before advising a client to call on a performance bond following an adverse adjudication determination, practitioners must determine if the call effectively seeks to recover the same sums awarded in the AD. If the call "negates" the AD, it is prima facie unconscionable under the Samsung rule.
• Scrutinize "New Evidence": If a client claims to have discovered new evidence of overpayment after an AD, practitioners should verify whether this evidence was truly unavailable during the adjudication. Re-packaging old data or using simplified formulas (like the lorry load formula in this case) that contradict contractual measurement principles will likely be viewed as a "facade."
• Align with Contractual Measurement: Ensure that any claim for overpayment or breach justifying a bond call is strictly grounded in the contract’s specific measurement and valuation clauses. In this case, Samsung’s failure to use "in-situ volume" for soil disposal as required by the Subcontract was fatal to its argument.
• Timing of the Call: A bond call made shortly after paying an adjudicated sum, and based on the same underlying dispute, will attract heavy judicial scrutiny. Practitioners should advise clients that the "temporary finality" of the AD lasts until the dispute is finally determined by a court or tribunal.
• Drafting Considerations: While the Court of Appeal noted that Section 21 SOPA overrides unconscionable exercises of contractual rights, parties should still ensure that Clause 17.7-style set-off and security clauses are clearly drafted to specify the circumstances under which the bond may be called, though these cannot be used to contract out of the SOPA.
• Australian Authorities: Be cautious when relying on Australian case law regarding performance bonds and adjudication. The lack of a Section 21 equivalent in many Australian states means their courts may allow bond calls that Singapore courts would restrain as unconscionable.

Subsequent Treatment

The ratio in Samsung C&T Corporation v Soon Li Heng Civil Engineering Pte Ltd has become the definitive test for restraining performance bond calls in the post-adjudication context in Singapore. It is frequently cited in subsequent High Court applications for injunctions where a party seeks to protect the "fruits" of an adjudication determination. The case is recognized as having established the "negation principle," which serves as a specialized category of unconscionability within the construction industry. Later cases have followed this decision to emphasize that the statutory policy of the Building and Construction Industry Security of Payment Act must be protected from collateral attacks via performance bonds.

Legislation Referenced

• Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed), Section 21, Section 21(1), Section 36
• New South Wales Building and Construction Industry Security of Payment Act 1999, Section 32(1), Section 34
• Construction Contracts Act 2004 (WA), Section 38, Section 53
• Queensland Building and Construction Industry Payments Act 2004

Cases Cited

• Considered: Patterson Building Group Pty Ltd v Holroyd City Council [2013] NSWSC 1484
• Considered: Duro Felguera Australia Pty Ltd v Samsung C&T Corporation [2016] WASC 119
• Referred to: Soon Li Heng Civil Engineering Pte Ltd v Samsung C&T Corp and another [2019] SGHC 267
• Referred to: GHL Pte Ltd v Unitrack Building Construction Pte Ltd and another [1999] 3 SLR(R) 44
• Referred to: Clough Engineering Ltd v Oil and Natural Gas Corp Ltd [2008] FCAFC 136
• Referred to: Fabtech Australia Pty Ltd v Laing O’Rourke Australia Construction Pty Ltd [2015] FCA 1371

Source Documents

• Original Judgment at eLitigation
• Judgment PDF (CDN)