CKR Contract Services Pte Ltd v Asplenium Land Pte Ltd & Anor and another appeal and another matter [2015] SGCA 24

The Singapore Court of Appeal in CKR Contract Services Pte Ltd v Asplenium Land Pte Ltd & Anor and another appeal and another matter reversed the decision of the High Court and found that a clause restraining a call on a performance bond on the ground of unconscionability was enforceable. As it sought to limit liability, the clause may still be subject to scrutiny under the Unfair Contract Terms Act (the “UCTA”). However, as the clause only impacted the remedy a court could grant but did not inhibit access to the court, the Court of Appeal held that such a clause was not an attempt to oust the jurisdiction of the court and there was no reason to strike down the clause on the basis that it was contrary to public policy.

Background

The parties to the dispute were CKR Contract Services Pte Ltd (“CKR”) and Asplenium Land Pte Land (“Asplenium”). Asplenium, as the developer, employed CKR, as the main contractor, for the construction of a condominium pursuant to a contract which required CKR to furnish an on-demand performance bond in Asplenium’s favour for 10% of the contract sum (“Performance Bond”). Clause 3.5.8 of the preliminaries to the contract (the “Preliminaries”) stated that CKR was not entitled to restrain Asplenium from calling on the Performance Bond on any ground, except in the case of fraud (“Clause 3.5.8”).

The parties’ relationship became strained after Asplenium complained of CKR’s substandard work and slow progress on the construction project.The disagreements culminated in Asplenium’s purported termination of the contract. The disputes under the contract were submitted to arbitration. Asplenium then made a call on the performance bond which CKR obtained an injunction against, pursuant to an ex parte application before a High Court judge.

Subsequently, after an inter partes hearing, the High Court judge dismissed CKR’s application to restrain Asplenium’s call on the Performance Bond. In doing so, the Judge held that Clause 3.5.8 was unenforceable because it ousted the jurisdiction of the court. Asplenium appealed against the judge’s decision.

Arguments on appeal

Asplenium argued that Clause 3.5.8 was enforceable as clauses which restrict or exclude equitable remedies have been held to be enforceable, even if they were to be construed strictly. Asplenium also argued that Clause 3.5.8 was not an ouster clause as it restricted the grounds on which relief may be sought from the court, rather than removed access to the court completely.

CKR disagreed, stating that Clause 3.5.8 was an ouster clause as it had the effect of fettering the court’s power, rather than curtailing the parties’ rights. CKR further argued that Singapore law had developed a public policy of protecting contractors from oppressive calls on performance bonds.

Decision of Court of Appeal

The Court of Appeal formulated the question before it as whether parties could agree to exclude unconscionability as a ground for restraining a call on a performance bond. The answer to this would turn on the function and effect of Clause 3.5.8.

The Court of Appeal examined Clause 3.5.8, and found that it sought to restrict the right of the obligor under the performance bond to apply for an injunction to restrain the beneficiary from calling on that bond, except in a situation of fraud. Such a clause was more in the nature of an exclusion or exception clause, as opposed to a clause seeking to oust the jurisdiction of the court. However, the Court of Appeal noted that such clauses, though not necessarily Clause 3.5.8 itself, might be subject to common law principles as well as the UCTA and might be unenforceable if held unreasonable pursuant to the UCTA.

Accordingly, the Court of Appeal disagreed with the ruling of the High Court, and found that Clause 3.5.8 was not a clause seeking to oust the jurisdiction of the court.

The Court of Appeal also observed that, pursuant to the terms of Clause 3.5.8, Asplenium could have asked for a cash deposit instead of a performance bond. This practical point demonstrated that there was no pressing reason in either principle or policy why a clause such as Clause 3.5.8 should be considered as somehow being contrary to public policy.

The Court of Appeal went on to note that it was clear from the Preliminaries that Asplenium’s right to call on the Performance Bond was not contingent on the satisfaction of any preconditions. The Preliminaries made clear that Asplenium was entitled to use the sums secured under the Performance Bond to “make good any cost, expense, loss or damage sustained or likely to be sustained as a result of any breach of or default under [the main contract]”. The general law thus entitled Asplenium to make a call on the Performance Bond subject to the unconscionability or fraud exceptions. CKR had agreed, by virtue of Clause 3.5.8, to restrict its right to seek relief on the ground of unconscionability.

Judgment

The Court of Appeal found that Clause 3.5.8 did not oust the jurisdiction of the court and was enforceable. Asplenium could indeed call on the Performance Bond and the argument on unconscionability was immaterial in light of Clause 3.5.8.

Practical impact

This case affirms the validity of including exclusion clauses in construction contracts which limit the grounds of resisting a call on a performance bond to the sole ground of fraud. The question as to whether such limits should be placed is a negotiation point which parties may bargain over. By applying an UCTA analysis rather than a public policy analysis, the court is likely to focus on the reasonableness of such exclusion clauses from the bargaining and negotiation perspective rather than considering whether it ousts the jurisdiction of the court.

For completeness, the risk of a clause which seeks to exclude all grounds of resisting a call on a performance bond (including fraud) was not tested in this case. The Court of Appeal had expressly drawn a distinction between Clause 3.5.8 which limits the right to an equitable remedy in the court process and clauses which oust the court’s jurisdiction by denying a party access to a court altogether.