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Can you contractually exclude the unconscionability exception, in the context of a performance bond, in a separate document?

In the recent decision of Bintai Kindenko Pte Ltd v Samsung C&T Corp [2019] SGCA 39, the CA upheld a contractual exclusion clause that excluded the right of a subcontractor to rely on the unconscionability exception to prevent the main contractor from calling on the performance guarantee.

The respondent main contractor was appointed by the Employer for a project to upgrade the Suntec City Convention Center. The appellant was then appointed as the project’s M&E subcontractor under a Letter of Acceptance dated 3 December 2012 (“LOA”). Pursuant to the LOA, the subcontractor provided a banker’s guarantee (“BG”), which was payable on demand in writing.

Disputes arose as to whether the subcontractor was liable for delays in its work between March 2014 and December 2015. On 27 January 2016, the main contractor rejected all of the subcontractor’s requests for extension of time and computed the delays in the subcontract works. However, it did not raise any claim for liquidated damages in the Payment Responses it served between February 2017 and May 2017.

In July 2017 shortly after the subcontractor commenced an adjudication application for the release of the first half of retention monies amounting to about $2.1m, the main contractor informed the subcontractor that it was issuing a delay certificate and claimed that it was entitled to recover liquidated damages. Even then, the main contractor only called on the performance bond on 28 August 2017 which was the same day the subcontractor filed an Originating Summons in court for leave to enforce the Adjudication Determination it had by then obtained in its favor.

The subcontractor then took out an ex parte application and obtained an interim injunction restraining the main contractor from calling on the BG. Subsequently, the main contractor applied for the discharge of the interim injunction, and the HC granted the application and discharged the interim injunction. Dissatisfied with the HC’s decision, the subcontractor appealed against the discharge of the interim injunction.

In dismissing the appeal, the CA held, inter alia, that:

  1. Contrary to the HC judge’s holding, it was the main contractor, as the party seeking to rely on the unconscionability exception exclusion, who bore the burden of proving that the subcontractor’s right to rely on the unconscionability exception was contractually excluded. On the facts, notwithstanding that the exclusion clause was contained in a separate document, the exclusion clause was incorporated by reference. In the absence of fraud or misrepresentation, if a term in a signed contract incorporated some or all the terms of a separate document by making reference to those terms, the parties to the contract would be bound by those separate terms even if they did not have knowledge of what those terms were at the time of contracting.
  2. The subcontractor was left with fraud as the only ground for the interim injunction. On the facts, the subcontractor had failed to establish a strong prima facie case of fraud on the main contractor’s call on the BG.
  3. The HC judge erred and should have found it sufficient to discharge the interim injunction on the basis that the subcontractor had failed to make full and frank disclosure of all material facts at the ex parte A party seeking an ex parte interlocutory injunction has a duty to make full and frank disclosure of all material facts. On the facts, it was found that the subcontractor should have been conscious of the significance of the exclusion clause since the issue of incorporation was a live issue during adjudication. As such, the subcontractor’s failure to provide full and frank disclosure of the existence of the exclusion clause was sufficient to discharge the interim injunction.

This case is therefore a timely reminder that the Court will enforce terms expressly incorporated by reference even if they were never read or made available to the counterparty. Parties to a contract should therefore be mindful of reviewing a counterparty’s document expressly incorporated by reference into a contract as its terms may modify the scope of the agreement or a party’s rights or obligations under the main contract or contain exclusion clauses excluding or limiting liability.

Disclaimer: This update is provided to you for general information and should not be relied upon as legal advice.