Jurisdiction - Singapore
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Singapore – “As Good As Cash”?: Restraining Calls On Performance Bonds.

30 March, 2015


Legal News & Analysis – Asia Pacific – Singapore  Capital Markets


Performance bonds are a common feature of many commercial dealings, from sale of goods to construction contracts. At least in the case of “ondemand” bonds, they are often described as being “as good as cash”. In this briefing, we consider a recent Singapore decision in which the court struck down a clause that purported to limit the grounds on which a call on a performance bond can be challenged. Against that background, they also look at the circumstances in which courts in various jurisdictions will be prepared to intervene to prevent a party making a call.

Performance Bonds

Broadly, a performance bond is an undertaking by an issuing bank or financial institution, on behalf of an “obligor”, to pay a specified amount to a named “beneficiary”. Payment may be required either on demand or on presentation of certain documents (when using the term “performance bonds” later in this briefing, we are referring to on-demand bonds). Performance bonds are commonly used in, for example, the construction and shipbuilding industries, and are intended to provide a form of security which can be converted to cash as soon as a prescribed default occurs.

Of course, the nature of a performance bond means that it is open to abuse by an unscrupulous beneficiary, and it is not uncommon to find an obligor turning to the courts to try to prevent a call from being made on a bond. As discussed below, the grounds on which a court will intervene to prevent a call will depend upon the governing law of the bond. Common law jurisdictions in general recognise fraud as a ground for restraining a call, but some jurisdictions go beyond this.


In CKR Contract Services Pte Ltd -v- Asplenium Land Pte Ltd and another, a property developer, Asplenium Land Pte Ltd (Asplenium) engaged CKR Contract Services (CKR) as its main contractor to develop three blocks of residential buildings.1 CKR provided a performance bond for part of the total contract sum. Dissatisfied with CKR’s performance under the contract, Asplenium issued a notice of termination and called on the bond. CKR applied for an injunction to restrain the developer on the grounds that the call was unconscionable.

It is established that Singapore law recognises unconscionability, in addition to fraud, as grounds to restrain a call on a performance bond. However, in this case, the court had to examine a clause in the underlying contract that purported to limit the grounds of challenge to just fraud (the Fraud Clause).

The court held that the Fraud Clause could not prevent CKR from relying on unconscionability as grounds on which to challenge the call on the Bond. The High Court did not agree with an earlier decision of the Singapore District Court in the case of Scan-Bilt Pte Ltd -v- Umar Abdul Hamid [2004] SGDC 274, whereby a similar clause to the Fraud Clause was upheld. The Singapore High Court cited three reasons for departing from the earlier decision of the lower court:


  • if enforceable, the Fraud Clause would have the effect of curtailing the court’s jurisdiction and discretion to grant an injunction and would therefore be contrary to public policy;
  • the court’s power to grant injunctions flows from its equitable jurisdiction and cannot be circumscribed by clauses in a contract; and
  • the Singapore courts have deliberately recognised the ground of unconscionability (and so moved away from the English position) in order to strike a balance between the principle of party autonomy and the court’s concern in regulating dishonest and unconscionable behaviour on the part of beneficiaries. Such policy considerations cannot be summarily displaced by contract.

Having decided that the Fraud Clause was unenforceable and that CKR therefore could rely on the grounds of unconscionability to restrain the call on the bond, the court went on to hold that CKR had failed to satisfy the high threshold of proving a strong prima facie case of unconscionability. The court noted that:


  • unconscionability includes elements of abuse, unfairness and dishonesty;
  • unfairness per se does not necessarily amount to unconscionability although in every instance of unconscionability there will be an element of unfairness; and
  • the existence of a genuine dispute does not necessarily mean that a call is unconscionable; mere breaches of contract will not by themselves be unconscionable.

English Law

The traditional approach of the English courts has been that they will intervene only where there is a clear prima facie case that the beneficiary is acting fraudulently in making a call.
However, two relatively recent cases have opened the possibility that the courts may restrain a call where it arises from a breach of contract by the applicant.2 In particular, in Doosan Babcock, the beneficiary calling on the bond was injuncted from doing so, in part because it could only do so because of its own breach of contract (in that case, a failure to issue a certificate). While the courts in these cases have shown more flexibility than traditionally has been the case, their willingness to examine the breaches of the underlying contracts (which were subject to arbitration clauses) has not been free from criticism.


Malaysian jurisprudence on this issue echoes the Singapore position in recognising unconscionability as grounds for restraining a call.3 As in Singapore, the standard of proof is a high one – mere allegations of unconscionability will not suffice.
As Ramly JCA has put it, “‘unconscionability’ should only be allowed with circumspect where events or conduct are of such degree such as to prick the conscience of a reasonable and sensible man”.4



In Australia, the Federal Court has confirmed three main exceptions to the rule that the court will not intervene to prevent a call on a performance bond; that is, in the cases of:


  • fraud;
  • unconscionability; and
  • where the beneficiary has made a promise in the underlying contract not to call upon the bond.

It is important to note, however, that under the Australian approach the scope of unconscionability differs from that in Singapore and Malaysia and is informed by the statutory provisions of the Trade Practices Act/Australian Consumer Law.

Practical Solutions

In summary, and while courts in common law jurisdictions tend to accept the notion that a performance bond should be “as good as cash”, there are instances where a more liberal approach has been adopted. Parties should be alive to differences between jurisdictions, both when negotiating the law that is to govern a performance bond and when assessing whether to apply for, or to resist, an injunction against a call on a bond.
As always, drafting of these instruments is also key. In particular, parties should be aware that:


  • trigger events can be defined in advance. In that regard, conditional bonds or bonds that require certificates from a third party may help to mitigate the risk of wrongful calls; and
  • clauses which seek to limit the grounds on which a party can restrain a call on a bond may prove to be unenforceable.

End Notes:

1 See: [2014] SGHC 266.
2 See: Simon Carves Limited -v- Ensus UK Limited [2011] EWHC 657 (TCC); Doosan Babcock Limited -v- Comercializadora de Equipos y Materiales Mabe Limitada [2013] EWHC 3201 (TCC).
3 See: Sumatec Engineering and Construction Sdn Bhd -v- Malaysian Refining Company Sdn Bhd [2012] 3 CLJ 401.
4 Ibid. 


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For further information, please contact:


Rob Palmer, Partner, Ashurst
[email protected]


Baldev Bhinder, Ashurst
[email protected]


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