Page 23 - August-2020-Issue

ARTICLE

have been unjustified, in law? However, even while uphold-
The Court’s decision throws up In the case of Halliburton, ing the ground of unconsciona-
two particular questions that after it filed the injunction bility as the basis of restraint, it
may also arise in other courts has not escaped the Singapore
or jurisdictions that seek to application, Vedanta Court of Appeal that there is a
follow the COVID-19 as a force terminated the contract. ‘perennial tension’ between the
majeure theme in interfering with interests of the procurer and ben-
bond calls. In situations where the eficiary of the bond (BS Mount
contractor’s contract Sophia). Liquidity concerns, for
Irretrievable harm, has been terminated, it instance, can apply equally to
special equities and other the beneficiary of the bond who,
for instance, may need funds to
grounds in addition to is often difficult for the complete works left unfinished. It
fraud contractor to obtain an is therefore in the rarest of cases
First, the decision seems to buck extension of bonding that calls on bonds are restrained.
the current trend of courts across
jurisdictions that are seeking to facilities. We have seen The decision in Halliburton
uphold the sanctity of contractual this in the English case
arrangements and tightening the v Vedanta seems to buck
grounds on which bond calls can of Liberty Mercian Ltd v that trend
be restrained. It is well known Cuddy Civil Engineering If one examines the Court’s deci-
that certain jurisdictions outside sion as to why an event of force
of English law have been open Ltd and another (No 2) majeure affecting the underlying
to grounds for restraining bond [2014] EWHC 3584 (TCC) drilling contract was able to af-
calls on grounds that fall short of fect a distinct contract involving a
fraud. For instance, in Singapore, where the contractor’s third- party bank (i.e. the perfor-
unconscionability – held to mean inability to obtain a mance bonds), one can see analy-
abuse, unfairness, and dishones- sis that starts by relying on a US
ty, being broader than the notion performance bond court authority from 1983 (Itek
of fraud (BS Mount Sophia Pte because the underlying Corporation v. First National
Ltd v Join-Am Pte Ltd [2012] 3 Bank of Boston 566 Fed Supp
SLR 352) – is a ground commonly contract had been 1210 (“Itek”)) and construes the
cited in injunction applications to terminated led the court test of irreparable/irretrievable
restrain calls on bonds. This sub- harm used to justify the grant of
mission has become so common- to have to order the an injunction in Itek to fall within
place that beneficiaries of bonds contractor to pay money the concept of “special equities”
have started to draft contractual under Indian law justifying the
provisions that preclude the pro- into the court in lieu of grant of a restraint (though the
Court also goes on to hold that
curer of the bonds from relying the performance bond.
on unconscionability as a basis the ground of “special equities” is
a basis that is additional to fraud
for injunctions against bond calls.
Such provisions have been test- and occurrence of irretrievable
injury on which a call could be
ed in the Singapore courts and merit (Bintai Kindenko Pte Ltd v restrained).
found to be valid (CKR Contract Samsung C&T Corp and another
Services Pte Ltd v Asplenium [2019] 2 SLR 295). As far as one is able to tell from
Land Pte Ltd [2015] 3 SLR 1041) Therefore, even in jurisdictions the Court’s summary of the facts
with dicta in a recent Court of that had previously broadened in Halliburton v Vedanta, the con-
Appeal decision indicating that the grounds for interfering with ditions seem to be different from
any argument that such clauses bond calls, one sees a drawing- those that existed in Itek. In Itek,
fall foul of the Unfair Contract back. An on-demand bond has a US exporter sought to terminate
Terms Act would also have no been said to be ‘as good as cash’. its liability under stand-by letters

Kaleidoscope May, 2020 23