Contractually Limit an Injunction on Call on Performance Bond

A recent Singapore Court of Appeal decision in CKR Contract Services [2015] SGCA 24 can now make it harder for contractors to apply for an injunction to restrain the call on unconditional performance bonds. The Court of Appeal upheld a clause in a contract which excluded unconscionability as a ground to restrain a call on a performance bond. Only a fraudulent call on the bond would entitle the contractor to seek such an injunction to restrain the call.

Under Singapore law, just like Malaysian law, a Court can grant injunctive relief to restrain a call on an on-demand performance bond in two situations. The first is where the call is made fraudulently and the second is where the call is made unconscionably.

The contract in this case contained a clause that the contractor was not (except for a case of fraud) entitled to restrain a call on the performance bond on any ground, including the ground of unconscionability. Therefore, the issue is whether parties can agree to exclude the unconscionability exception as a ground for restraining a call on a performance bond.

The High Court originally ruled that this clause was void as it ousted the jurisdiction of the Court. The Court of Appeal overruled this decision and held that the clause does not oust the jurisdiction of the Court. The clause merely restricted an equitable remedy in a particular situation. Hence, the clause was more in the nature of an exclusion or exception clause as oppose to one seeking to oust the Court’s jurisdiction.

Of interest, the Singapore Court of Appeal also referred to the Federal Court decision in AV Asia Sdn Bhd v Measat Broadcast Network Systems Sdn Bhd [2014] 3 MLJ 61 and distinguished it. I have written on this Federal Court decision earlier.

In summary, the Federal Court decision involved a clause forcing the hand of the Court to grant an injunction where one would not ordinarily have issued. There, the parties agreed that damages would not be a sufficient remedy and that injunctive relief would be appropriate. The Federal Court held that the clause did not fetter the discretion of the Court in deciding whether an injunction was appropriate or not.

The Singapore Court of Appeal agreed that the Court cannot be obliged to exercise its discretion in a manner that is contrary to principles it would ordinarily apply to the grant of injunctive relief. That however does not preclude parties from agreeing to limit their right to seek certain remedies or reliefs from the court.

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