An “innocent omission” does not excuse material non-disclosure in an injunction application against a call on a performance guarantee

This article is produced by CMS Holborn Asia, a Formal Law Alliance between CMS Singapore and Holborn Law LLC.

Singapore’s Court of Appeal has held in Bintai Kindenko Pte Ltd v. Samsung C&T Corporation and another [2019] SGCA 39 (“Bintai v Samsung (2019)”) that, although the burden lies on a respondent to show circumstances justifying a departure from fraud or unconscionability as exceptions to a call on a performance guarantee, this does not exempt an applicant from its duty to draw a first-instance judge’s attention to this issue as part of its duty to make full and frank disclosure.

1. Background

Performance guarantees are liable to intervention by the court if it can be shown that a beneficiary’s call on a guarantee was either fraudulent or unconscionable.

In recent years, it is becoming more common for parties to agree to exclude the right of the provider of the performance guarantee to rely on the unconscionability exception to prevent the beneficiary’s call on the performance guarantee. In CKR Contract Services Pte Ltd v. Asplenium Land Pte Ltd and another and another appeal and another matter [2015] 3 SLR 1041, the Court of Appeal held that parties could do so, subject to the ordinary legal constraints on exclusion clauses.

The Court of Appeal in Singapore has observed that while it would also be open to parties to argue that such an exclusion clause was not incorporated into the contract in the first place, the Court would not have been inclined to hold that such exclusion clauses were inherently unreasonable and unenforceable under the Unfair Contract Terms Act (“UCTA”), and the applicant also failed to discharge its duty to make full and frank disclosure because it did not draw attention to the fact that there was an issue about whether the unconscionability exception was excluded by contract.

2. Facts

A sub-contract between the applicant (“Bintai”) and the respondent (“Samsung”), in relation to an upgrading project, provided that the form of contract would include all particular conditions as set out in the main contract. The particular conditions purported to add similarly-worded exclusion clauses into the main contract and the sub-contract respectively. In accordance with the sub-contract, Bintai furnished Samsung with a banker’s guarantee (“BG”) for a sum of about $4.3 million.

Various phases of the sub-contract works were not completed on time and disputes arose between the parties as to whether Bintai was liable for those delays. Samsung demanded payment on the BG for the guaranteed sum. Bintai took out an urgent application for an interim injunction to restrain Samsung from calling on the BG. On 29 August 2017, a judge (“Judge”) granted an interim injunction to that effect.

Subsequently, Samsung applied for the discharge of the interim injunction. On 30 November 2017, the Judge granted the application and discharged the interim injunction.

Dissatisfied, Bintai sought the Judge’s leave to appeal against his decision. Subsequently, Bintai obtained the Court of Appeal’s leave to appeal against the Judge’s decision.

Pursuant to the leave granted, Bintai appealed against the Judge’s decision to discharge the urgent interim injunction.

3. The Court of Appeal’s Decision

Bintai contractually precluded from relying on the unconscionability exception

The Court of Appeal dismissed Bintai’s appeal against the High Court’s discharge of the interim injunction, making the following observations:

• The burden lay on Samsung to show that there were circumstances which justified a departure from the general position, that an applicant who sought an injunction to restrain a call on a performance guarantee only needed to show that the fraud or unconscionability exceptions were made out.

• However, the fact that the burden was on Samsung did not exempt Bintai from its duty to draw the judge’s attention to this issue as part of its duty to make full and frank disclosure.

• Having signed and accepted the terms of the sub-contract, Bintai could not now seek to escape from what it perceived to be a bad bargain by disclaiming any knowledge of those terms at the time of contract.

• Samsung would be prejudiced if Bintai were allowed to raise the new point that, in the event the exclusion clauses were incorporated into the sub-contract, they should nevertheless be considered unenforceable pursuant to the UCTA. Before a court can determine the reasonableness of an exclusion clause under the UCTA, the parties must be given an opportunity to adduce evidence relating to the relevant circumstances at the time of contracting.

• The clear principle is that whether or not a clause is (or is not) reasonable under the UCTA would depend not only on the various factors enunciated in the UCTA itself as well as in the case law, but also (and perhaps more importantly) on the precise facts of the case itself.

The call on the BG was not fraudulent

Bintai, therefore, was left with fraud as the only ground to maintain the interim injunction. On the issue of fraud, Bintai repeated essentially the same submissions that it had made before the High Court.

The Court of Appeal observed that Bintai did not give it any compelling reason to disagree with the Judge’s views.

Bintai had failed to provide full and frank disclosure of all material facts

The Court of Appeal further held that the interim injunction should also have been discharged on the basis that Bintai failed to make full and frank disclosure of material facts during the urgent hearing of its application for an interim injunction. The exclusion clauses were obviously highly material in the urgent application and would have affected significantly the Judge’s decision to grant an interim injunction.

It was observed that the Judge granted the injunction on the ground of unconscionability when that ground was apparently excluded by agreement already.

4. Key Takeaways

Bintai v Samsung (2019) re-emphasises the importance of an applicant’s duty to make full and frank disclosure of all material facts at urgent hearings. This duty extends to the disclosure of facts that the applicant would have known if it had made proper inquiries, although the extent of such inquiries would depend on the facts and circumstances of each case. An applicant is required to draw the judge’s attention to the relevant documents, as well as to identify the crucial points for and against the application.

The decision also clarifies that it is the party seeking to rely on an exclusion clause, that bears the burden of showing credible evidence that the other’s right to rely on the unconscionability exception is contractually excluded (although again, this fact does not exempt an applicant from drawing a judge’s attention to the issue as part of its duty to make full and frank disclosure). This point addresses a slight lacuna in the law on the burden of proof applicable when the operation of such an exclusion clause is disputed.

Holborn Law LLC was counsel to the respondent in this appeal.