STAR ENGINEERING PTE LTD v POLLISUM ENGINEERING PTE LTD & Anor
10 cases cited
Catchwords
Practice Areas
Judges (2)
Counsel (13)
Drew & Napier LLC Firm Ramdas & Wong Firm Tito Isaac & Co LLP Firm Chong Yi Mei Counsel Respondent Hsu Bi-Wei Timothy Homer Counsel Appellant Isaac Tito Shane Counsel Respondent Julia Emma Dcruz Counsel Respondent Lee Pei Hua Rachel Counsel Appellant Li Shunhui Daniel Counsel Respondent Tan Youliang Counsel Respondent Tay Eu-Yen Counsel Appellant Wong Hin Pkin Wendell Counsel Appellant Yeo Cai Yun Kimberly Counsel Respondent
Case Significance
Star Engineering Pte Ltd v Pollisum Engineering Pte Ltd and another [2024] SGCA 30 was decided by the Court of Appeal on 19 August 2024, in Civil Appeal No 9 of 2024, with the judgment delivered by Sundaresh Menon CJ sitting with Steven Chong JCA, following a hearing on 10 June 2024. The appeal arose out of a dispute between the appellant, Star Engineering Pte Ltd, and the first respondent, Pollisum Engineering Pte Ltd, in HC/OA 1135/2023 and a related appeal HC/RA 4/2024, with Great Eastern General Insurance Ltd as the second respondent.
Pollisum Engineering had engaged Star Engineering as its contractor for the design, construction and maintenance of works for a construction project, and as required under the contract Star Engineering furnished an unconditional on-demand performance bond issued by Great Eastern. After disputes arose, Pollisum made a demand for payment under the bond, and Star Engineering commenced OA 1135 seeking, among other things, an order restraining Pollisum from receiving payment pursuant to that demand. The matter, falling under the catchword of arbitration and stay of court proceedings, engaged the Arbitration Act and the Civil Law Act. Star Engineering was represented by Drew & Napier LLC, with counsel including Wong Hin Pkin Wendell and Tay Eu-Yen, while the respondents were represented by Ramdas & Wong and Tito Isaac & Co LLP, with counsel including Isaac Tito Shane.
Summary
SUPREME COURT OF SINGAPORE
19 August 2024
Case summary
Star Engineering Pte Ltd v Pollisum Engineering Pte Ltd and another [2024] SGCA 30
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Decision of the Court of Appeal (delivered by Chief Justice Sundaresh Menon):
Outcome: The Court of Appeal dismisses the appeal by the appellant against the decision of the High Court judge to grant a stay of HC/OA 1135/2023 in favour of arbitration in relation to the dispute between the appellant and the first respondent, and a case management stay of the said proceedings in relation to the second respondent.
Background
1 This is an appeal that arises out of a dispute between the appellant, Star Engineering Pte Ltd (“Star Engineering”), and the first respondent, Pollisum Engineering Pte Ltd (“Pollisum Engineering”), in HC/OA 1135/2023 and in a related appeal, HC/RA 4/2024 (“OA 1135” and “RA 4” respectively). The second respondent in OA 1135 and RA 4 is Great Eastern General Insurance Ltd (“Great Eastern”).
2 Star Engineering and Pollisum Engineering are both companies incorporated in Singapore. On or around 25 September 2019, Pollisum Engineering engaged Star Engineering for the design, construction, and maintenance of a construction project. The engagement was based on the REDAS Design and Build Conditions of Contract (3rd Ed, October 2010) (the “REDAS Conditions”) with agreed variations found in the Particular Conditions of Contract (the “Particular Conditions”) (collectively, the “Contract”). Under cl 2.1.1 of the REDAS Conditions, Star Engineering was to provide “an unconditional on-demand bond … in lieu of the cash deposit” for the sum of $856,000. Star Engineering duly provided Pollisum Engineering with an unconditional on-demand performance bond, namely Performance Bond No 2019-A0688351-GPB dated 15 November 2019 (the “PB”), which was issued by Great Eastern.
3 The Contract and the PB each contained different dispute resolution clauses. Clause 9 of the PB provided that “the parties agree to submit to the non-exclusive jurisdiction of the Singapore Courts”. The Contract contained a typical widely worded arbitration agreement between Star Engineering and Pollisum Engineering. Clause 33.2.1 of the REDAS Conditions stated that “[i]n the event of any dispute between the [p]arties in connection with or arising out of the Contract or the execution of the [w]orks … the [p]arties shall refer the dispute for arbitration”. Clause 2.1.3C.2 of the Particular Conditions was added to provide that “[a]ny dispute which the Contractor has in relation to such call, demand, receipt, payment … shall be resolved in accordance with clause 33 [of the REDAS Conditions]”. Accordingly, any disputes between Star Engineering and Pollisum Engineering relating to the PB were also to be referred to arbitration.
4 After disputes had arisen between the parties, on 28 March 2023, Pollisum Engineering gave notice to terminate the Contract.
5 On 30 October 2023, Pollisum Engineering made a demand for payment under the PB (the “Payment Demand”) on the basis that it had incurred rectification costs and significant losses and expenses due to alleged breaches of the Contract by Star Engineering. Pollisum Engineering alleged that there were substantial and numerous defects in Star Engineering’s works, and that Star Engineering had failed to obtain the Temporary Occupation Permit on time.
6 On 4 November 2023, Star Engineering filed OA 1135, seeking the following orders: (a) that Pollisum Engineering be restrained from receiving payment of the sum of $856,000 or any part thereof from Great Eastern pursuant to the Payment Demand; (b) that Great Eastern be restrained from making any payment under the PB of the sum of S$856,000 or any part thereof to Pollisum Engineering pursuant to the Payment Demand; (c) that Pollisum Engineering be restrained from making any further demand to Great Eastern for payment under the PB; and (d) that in the event that Pollisum Engineering receives the sum of $856,000 or any part thereof from Great Eastern, it be restrained from using, depleting and/or disposing the sums received, and for those sums to be repaid to Great Eastern.
7 On the same day, Star Engineering filed HC/SUM 3408/2023 (“SUM 3408”), an application made without notice to Pollisum Engineering, seeking temporary restraining orders on the same terms against the respondents pending the resolution of OA 1135. On 7 November 2023, Chan Seng Onn SJ allowed SUM 3408 and temporarily restrained the respondents.
8 On 6 November 2023, Pollisum Engineering filed HC/SUM 3431/2023 (“SUM 3431”), seeking a stay of OA 1135 in favour of arbitration. The learned AR dismissed the stay application.
9 On 5 January 2024, Pollisum Engineering appealed against the decision of the learned AR in SUM 3431, by RA 4.
10 In his grounds of decision given on 24 May 2024 (the “GD”), the High Court judge below (the “Judge”) allowed that appeal and granted a stay of OA 1135 in favour of arbitration in relation to the dispute between Star Engineering and Pollisum Engineering and a case management stay of OA 1135 in relation to Great Eastern.
11 The present appeal is brought by Star Engineering against the decision of the Judge.
Decision
Interference with payment under an unconditional performance bond
12 The present case concerns an interference with payment under an unconditional on-demand performance bond. An on-demand bond has been described as being “as good as cash” because it is intended to provide certainty of payment. In this case, this was essentially expressly provided for in the Contract: at [32].
13 In general, the courts have upheld demands made under a performance bond on the ground that the performance bond is a contract between the beneficiary and the financial institution, and hence a dispute between the parties to the underlying contract will typically be irrelevant to whether payment is to be made pursuant to a demand under such a bond. The court will only grant an injunction interfering with the obligation of the financial institution to honour the demand where the demand is made fraudulently or where it would be unconscionable for the party to make a demand under the performance bond. In this case, the latter ground was contractually excluded. The burden of proof falls on the party seeking to restrain payment being made pursuant to a demand to establish a clear case of fraud or unconscionability and mere allegations will not suffice: at [33].
14 The fraud exception is regarded as difficult to invoke. A party seeking to avail itself of the fraud exception must establish a strong prima facie case that the beneficiary called on the bond: (a) with the knowledge that its demand was invalid; (b) without belief in the validity of its demand; or (c) with indifference to whether the demand was valid or not. The standard of proof for fraud requires the plaintiff to show that the only realistic inference to be drawn on the available evidence was that the beneficiary had no honest belief that it was entitled to receive payment or was recklessly indifferent as to whether it had a right to receive payment: at [34].
15 It is equally impermissible to interfere with payment under a performance bond by seeking an injunction against the financial institution, as it would be to interfere by restraining the beneficiary from seeking or receiving payment: at [35].
16 Where a temporary restraining order is sought, often without notice to the other party, which interferes with the performance of the rights and obligations arising under an unconditional bond, the burden falls on the party seeking the restraining order to show that it has grounds for so interfering. Those grounds are strictly limited and require proof to a strong prima facie standard. That standard is adopted in this context because it is emphatically not the function of the court faced with such an application to make an ultimate determination of the substantive entitlement of the party demanding payment to receive and retain the money in question: at [36].
17 Where a restraining order is sought that interferes with payment under a bond, the court is not concerned at all with that underlying dispute. It is rather concerned with the separate question of whether there is sufficient ground to interfere at all, even temporarily, with the beneficiary’s right to be paid under the bond. The presumptive position is that there will be no such interference unless sufficient evidence is adduced of the possibility of the demand itself being fraudulent or, where applicable, unconscionable: at [37].
18 When Star Engineering sought and obtained the temporary restraining order pursuant to SUM 3408, Pollisum Engineering ought to have applied to set aside that injunction unless it accepted that there was strong prima facie evidence that it had acted fraudulently or unconscionably in making the demand. It seems that Pollisum Engineering’s response was shaped by its failure to appreciate the distinction between its substantive dispute with Star Engineering under the Contract, and the quite separate issue of its right to be paid pursuant to its Payment Demand under the PB: at [38].
19 Because of this confusion, Pollisum Engineering did not challenge Star Engineering’s attempted interference with the payment under the PB in OA 1135. In the proceedings below, Pollisum Engineering did not canvass the argument that there was no basis for restraining its call on the PB and did not challenge OA 1135 on that ground, instead choosing to seek a stay of the action in favour of arbitration. Pollisum Engineering now seeks to refer the matter to arbitration to determine the precise issue of whether it is entitled to call on the PB. By doing so, it seems that Pollisum Engineering has in effect converted its position from that of a party holding an unconditional on-demand bond into something akin to that of a party holding a conditional bond payable only upon proof of its entitlement to receive payment thereunder. Having taken that position, it seems that it is now too late for Pollisum Engineering to change course: at [39].
20 It is incumbent on a party seeking a stay of proceedings to show that it stands ready to arbitrate the matter. Pollisum Engineering, having sought a stay of OA 1135 in order to have the dispute over its entitlement to be paid under the PB determined in arbitration, seems to have added to the confusion of its situation by now saying in this appeal that it is for Star Engineering to commence proceedings in arbitration. In doing so, it, as a practical consequence, further delays any entitlement it may have to receive payment under the PB: at [40].
Whether OA 1135 should be stayed in favour of arbitration
21 As for Star Engineering, its appeal against the Judge’s orders seems to be wholly illogical and baseless. If Star Engineering succeeds in the arbitration, by establishing that no part of the sums demanded are due to Pollisum Engineering, that will be the end of the matter. Pollisum Engineering will likely be restrained from demanding any payment and Great Eastern will not make any payment. If, on the other hand, Star Engineering is found to owe part or all of the sums demanded, that will be when Great Eastern may be called on to make payment. There is therefore no real risk of inconsistent findings. Given that the substantive dispute is only between Pollisum Engineering and Star Engineering, and because of the stance taken by the former, there is no ground at all for the matter not to proceed to arbitration: at [41] to [42].
22 It is no longer relevant whether the dispute over the Payment Demand falls within the scope of the arbitration agreement in the Contract. That is because, for whatever reason, Pollisum Engineering does not seek immediate payment under the PB and instead, is agreeable to having its ultimate entitlement resolved in arbitration. That entitlement is clearly within the scope of the arbitration agreement in the Contract: at [43].
23 If Pollisum Engineering wishes to be paid the amount it has demanded, it should commence the proceedings seeking a declaration that it is entitled to be paid, and in defence, Star Engineering will have to adduce evidence to show that is not the case. On the other hand, if Star Engineering is out of pocket, as it claims, it has every reason to commence the arbitration expeditiously: at [44].
This summary is provided to assist in the understanding of the Court’s grounds of decision. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s grounds of decision.
What did Star Engineering seek in Star Engineering v Pollisum Engineering [2024] SGCA 30?
Star Engineering Pte Ltd commenced HC/OA 1135/2023 seeking, among other things, an order restraining Pollisum Engineering Pte Ltd from receiving payment under an unconditional on-demand performance bond issued by Great Eastern General Insurance Ltd after Pollisum demanded payment.
Who heard the appeal in Star Engineering v Pollisum Engineering [2024] SGCA 30?
The Court of Appeal heard Civil Appeal No 9 of 2024, with Sundaresh Menon CJ delivering the judgment of the court sitting alongside Steven Chong JCA, on 19 August 2024 following a hearing on 10 June 2024.
Statutes Cited
Cases Cited (10)
SLR (10)
[1990] 2 SLR(R) 520 [1995] 2 SLR(R) 262 [1999] 3 SLR(R) 44 [2010] 2 SLR 329 [2012] 3 SLR 125 [2012] 3 SLR 352 [2016] 3 SLR 557 [2019] 2 SLR 295 [2023] 2 SLR 389 [2024] 3 SLR 1031
Referenced in
Statutes interpreted in this judgment
Legal concepts & references
Judgment
Read the full judgment on the official Singapore Courts portal.
Read on eLitigationSource: eLitigation ([2024] SGCA 30)