Case Details
- Citation: [2019] SGHC 267
- Title: Soon Li Heng Civil Engineering Pte Ltd v Samsung C&T Corp and another
- Court: High Court of the Republic of Singapore
- Date of Decision: 12 November 2019
- Case Number: Originating Summons No 439 of 2019
- Judge: Ang Cheng Hock J
- Coram: Ang Cheng Hock J
- Parties: Soon Li Heng Civil Engineering Pte Ltd (Plaintiff/Applicant) v Samsung C&T Corp and another (Defendant/Respondent)
- Second Defendant: United Overseas Bank Limited (bank issuing the performance bond)
- Legal Area: Credit and Security — Performance bond
- Key Issue: Whether the first defendant’s call on a performance bond was unconscionable
- Procedural Posture: Application to restrain a call on a performance bond
- Appeal Note: The appeal in Civil Appeal No 222 of 2019 was dismissed by the Court of Appeal on 17 July 2020 (see [2020] SGCA 79)
- Counsel: Poon Guokun Nicholas (Breakpoint LLC) for the plaintiff; Lee Peng Khoon Edwin and Er Hwee Lee Danna Dolly (Eldan Law LLP) for the first defendant; second defendant absent and unrepresented
- Judgment Length: 27 pages, 14,014 words
- Statutes Referenced: Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (“SOPA”)
Summary
This High Court decision concerns a subcontractor’s attempt to restrain a main contractor from calling on a performance bond. The plaintiff, Soon Li Heng Civil Engineering Pte Ltd (“Soon Li Heng”), subcontracted excavation and disposal works to Samsung C&T Corp (“Samsung”), the main contractor for the Thomson-East Coast Line Marine Parade Station and tunnels project. The subcontract required Soon Li Heng to furnish a performance bond (“PB”) issued by the bank (United Overseas Bank Limited). When Samsung called on the PB, Soon Li Heng sought an injunction on the basis that the call was “unconscionable”.
The court applied the established Singapore doctrine that performance bonds are generally payable on demand, and the court will only restrain a call in exceptional circumstances, typically where the call is unconscionable. After reviewing the parties’ correspondence and the surrounding dispute under the SOPA adjudication regime, Ang Cheng Hock J concluded that the plaintiff had not established the high threshold for unconscionability. The application was therefore dismissed, allowing the call to proceed.
What Were the Facts of This Case?
Samsung was employed by the Land Transport Authority (“LTA”) as the main contractor for the construction of the Marine Parade Station and tunnels for the Thomson-East Coast Line (“the Project”). Samsung then engaged Soon Li Heng as its subcontractor to carry out excavation and disposal works. The subcontract was a re-measurement subcontract dated 22 April 2016 with a value of about S$16.5 million. As security for performance and completion, Soon Li Heng furnished a performance bond. The PB was issued by the bank (the second defendant) in favour of Samsung, with a covenant to pay up to S$826,713.53 upon Samsung’s demand.
The subcontract work involved three categories of excavated materials: (a) soil; (b) hardcore material; and (c) ground improvement and mixed material. Disposal routes differed by material type. Soil was to be disposed directly to LTA’s dumping ground (the Marina East Staging Ground, “MESG”). Hardcore material could not be accepted at MESG and therefore had to be disposed at a different dumping ground sourced by Soon Li Heng. Ground improvement and mixed material were to be treated at an intermediate treatment site referred to as “TOL” or Soon Li Heng’s staging ground, where the material would be processed (for example, crushing) to render it suitable for disposal at MESG.
Disputes arose under the SOPA payment claim regime. On 31 August 2018, Soon Li Heng served Payment Claim No 20 (“PC 20”) seeking S$3,278,935.95. Samsung responded with a payment response and payment certificate reducing the amount claimed. The dispute proceeded to adjudication (SOP 372/2018). The adjudicator determined that Samsung should pay Soon Li Heng S$2,473,295.20 (the “1AD” determination), issued on 9 November 2018. Samsung paid the adjudicated sum on 26 December 2018.
Subsequently, on 31 December 2018, Soon Li Heng served Payment Claim No 24 (“PC 24”). Samsung raised issues concerning the final quantities of disposal and the disposal/processing of hardcore material. Samsung asserted that, based on figures in emails sent by Soon Li Heng to LTA, the “final quantity of disposal as of 16 December 2018” was materially lower than what Soon Li Heng claimed in PC 24. Samsung’s calculations relied on assumptions, including a conversion rate of “2000 kg/m3” to derive volume from weight, and assumptions about lorry load capacity when calculating volume from lorry loads. Soon Li Heng disputed Samsung’s approach, emphasising that the adjudicator in 1AD had already determined the correct measurement methodology under the subcontract and that Samsung’s new calculations were based on an undisclosed method not aligned with the subcontract terms.
What Were the Key Legal Issues?
The central legal issue was whether Samsung’s call on the performance bond was “unconscionable” such that the court should grant an injunction restraining payment. This required the court to consider the scope of the unconscionability exception to the general rule that performance bonds are independent of the underlying disputes and are payable on demand.
A secondary issue was how the ongoing and earlier SOPA adjudication and payment claim disputes affected the unconscionability analysis. In particular, the court had to evaluate whether Samsung’s conduct—its insistence on challenging measurement and quantity calculations, its allegations of over-claiming or dishonest conduct, and its reliance on contractual rights—crossed the threshold from a bona fide dispute into conduct that would render a call on the PB unconscionable.
How Did the Court Analyse the Issues?
Ang Cheng Hock J began from the premise that performance bonds function as security and are typically intended to be honoured according to their terms upon demand. The court therefore recognises that the bond issuer and beneficiary should not be drawn into the merits of the underlying contractual dispute. The unconscionability exception exists precisely to preserve the integrity of the demand guarantee while allowing the court to intervene in exceptional cases where the beneficiary’s demand is so unfair or oppressive that it would be contrary to justice to allow payment.
In assessing unconscionability, the court considered the factual context surrounding Samsung’s call. The dispute between the parties was not a simple “no work done” scenario. Instead, it involved measurement and quantity disputes under a re-measurement subcontract, with different disposal routes and treatment processes. The parties’ correspondence showed that Samsung’s objections focused on alleged discrepancies between quantities claimed in PC 24 and information provided to LTA, including the conversion of weight to volume and the use of lorry load assumptions. Samsung also raised issues about hardcore disposal and processing, asserting that the quantities of hardcore material processed at the TOL treatment area were overstated.
Crucially, the court examined whether Samsung’s call was merely a continuation of a contractual and measurement dispute, or whether it was accompanied by conduct that would justify injunctive relief. The plaintiff argued that Samsung’s call was unconscionable because it effectively sought to obtain payment under the PB in circumstances where the underlying dispute had already been adjudicated (at least in relation to PC 20) and where Samsung’s position was inconsistent with the adjudicator’s determination on measurement methodology. The plaintiff also pointed to Samsung’s allegations of fraud or dishonest conduct, contending that these were either unsupported or were being used as a pretext to call the PB.
The court’s reasoning emphasised that unconscionability is a high threshold. A beneficiary’s insistence on its contractual rights, even if contested, does not automatically make a call unconscionable. The court also recognised that the SOPA regime is designed to provide interim finality through adjudication, but it does not necessarily eliminate all future disputes under the same contract, especially where later payment claims involve different measurement periods, different quantities, or different factual matrices. In this case, PC 24 was a later cumulative claim, and Samsung’s objections related to the “final disposal quantity” and hardcore processing for the relevant period. While the adjudicator in 1AD had determined measurement methodology for earlier disputes, the court was not persuaded that Samsung’s subsequent challenge was so abusive as to amount to unconscionability.
Ang Cheng Hock J also considered the nature of Samsung’s communications. Samsung’s letters accused Soon Li Heng of over-claiming and “persistent dishonest conduct”. However, the court treated these allegations as part of an adversarial dispute rather than as definitive proof of fraud or bad faith. In the unconscionability inquiry, the court requires more than allegations; it requires a clear basis to conclude that the call is being made in a manner that is manifestly unfair. The plaintiff did not establish that Samsung’s call was made for an improper purpose or in circumstances that would make it unconscionable to allow the PB to be called.
Finally, the court’s analysis reflected the policy underpinning performance bonds. If courts were to restrain calls based on ordinary disputes about measurement, calculation methods, or the interpretation of contractual provisions, the demand guarantee would lose much of its commercial utility. The court therefore resisted turning the unconscionability exception into a substitute for adjudication or arbitration of the underlying contractual claims. Unless the plaintiff could show exceptional circumstances, the bond should be honoured according to its terms.
What Was the Outcome?
The High Court dismissed Soon Li Heng’s application to restrain Samsung from calling on the performance bond. The practical effect was that Samsung was not prevented from demanding payment under the PB, and the bank was not restrained from honouring the demand in accordance with the bond’s terms.
As noted in the LawNet editorial note, the plaintiff’s appeal was later dismissed by the Court of Appeal on 17 July 2020 (Civil Appeal No 222 of 2019), confirming the High Court’s approach to the unconscionability threshold in performance bond disputes.
Why Does This Case Matter?
This case is significant for practitioners because it reinforces the narrow scope of the unconscionability exception in Singapore performance bond jurisprudence. The decision illustrates that where the underlying dispute concerns measurement, quantity calculations, or contractual interpretation in a construction context, the court is unlikely to restrain a call on the PB unless the applicant can demonstrate exceptional unfairness or manifest impropriety.
For subcontractors and contractors, the judgment also highlights the interaction between the SOPA adjudication regime and performance bond calls. Even where earlier SOPA adjudications have determined certain measurement methodologies, later payment claims may still generate factual and measurement disputes. The unconscionability inquiry will not automatically be satisfied merely because the applicant believes the beneficiary is re-litigating issues or because the beneficiary has made allegations of over-claiming. Evidence of bad faith or oppressive conduct must be sufficiently clear to meet the high threshold.
From a drafting and risk-management perspective, the case underscores the importance of understanding that performance bonds are designed to provide security independent of the merits. Parties should therefore treat performance bond calls as potentially proceeding notwithstanding ongoing disputes, and should prepare to address the unconscionability standard with concrete evidence rather than relying on the existence of a dispute or on contested calculations.
Legislation Referenced
Cases Cited
- [2015] SGDC 181
- [2018] SGHC 163
- [2019] SGHC 267
- [2020] SGCA 79
Source Documents
This article analyses [2019] SGHC 267 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the full judgment for the Court's complete reasoning.