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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The Opposed Ex Parte Hearing: Contradiction in Terms?

This will be the first in a series of articles I will touch on issues relating to general ex parte hearings, ad interim orders, inter partes hearings and the tactical considerations relating to these matters.

Introduction

The Latin term ex parte means “for one party” and in legal proceedings, an ex parte application is heard by the Judge only in the presence of one party. Due to the extraordinary situation of a Judge only hearing from one party, an ex parte application is normally only allowed in circumstances of urgency, and where if notice is given to the other side, it may alert that party to dissipate assets or to frustrate any possible injunctive relief that may be granted. So it is common to see ex parte applications for a Mareva or freezing injunction, or for other types of urgent injunctions.

To safeguard against any possible abuse of the ex parte process, both the common law and the procedural rules require a full and frank disclosure of material facts, as well as for the applicant to not only make submissions in support of the application but to also highlight potential arguments against the grant of the application.

The Pickwick opposed ex parte procedure

A modern practice that has evolved is for the applicant to file an ex parte application but to give notice to the other side prior to the ex parte hearing. The opposing respondent may then choose to appear at the ex parte hearing and where the hearing may then proceed on an opposed ex parte basis, in that the Court will hear submissions from both parties. This in itself may already sound like a contradiction in terms for both parties to be present at the ex parte hearing. Nonetheless, the utility of this has been highlighted in the leading English High Court case of Pickwick International Inc (GB) Ltd v Multiple Sound Distributors Ltd and another [1972]3 All ER 384.

Megarry J in that cases highlighted that the Court would be greatly assisted in deciding whether or not to grant the ex parte injunction by knowing what contentions may be advanced against the grant of the application. The Court would also be aware of the general line of evidence in opposition to the application when it moves into the formal inter partes stage. It makes it possible for the real points of contention to emerge more quickly and thus saves Court’s time. Megarry J points to one advantage to the applicant is that the Court, having heard what there is to be said in opposition to the grant of the injunction, may sometimes be encouraged to grant an injunction that otherwise would be refused. I am not entirely convinced as to how true this so-called advantage is. I would imagine that the Court may then get a fuller picture as to how weak the injunction application may be, having heard the submissions from the opposing party.

Megarry J also pointed to potential disadvantages to each side when parties engage in an opposed ex parte hearing. The opposing party may go to the trouble of preparing submissions at short notice in which a truly ex parte application would have failed in any event. For the applicant, this more modern Pickwick procedure carries the risk that if his application fails he may be ordered to pay the costs of the party who has successfully opposed the application. The Court has jurisdiction to make an order for costs against the applicant in such cases, whether in the cause or in any event. It was held that it cannot be right that the applicant should issue an express or tacit invitation to be present to the party whom he is seeking to enjoin, and then deny him any claim to the costs of what has proved to be a successful opposition.

In Malaysia

The opposed ex parte procedure has been referred to approvingly here in Malaysia. The Singapore High Court decision in Castle Fitness Consultancy Pte Ltd v Manz [1990] 1 MLJ 141 was one of the first cases referring to the Pickwick procedure approvingly and it was the Court’s view that such a procedure should be adopted. An example of an opposed ex parte hearing is also seen in the High Court case of Azman & Tay Associates Sdn Bhd v Sentul Raya Sdn Bhd [2002] 4 MLJ 390.

The one advantage in the Malaysian context of an applicant giving notice of the ex parte hearing and then anticipating the opposed ex parte hearing is in the situation where the applicant expects the Court, or a particular Judge, to be reluctant to proceed with the ex parte application without notice having been provided to the other side. An example of this is the strict approach taken by Mohd Hishamudin JCA in his dissenting judgment in the Court of Appeal case of Westform Far East Sdn Bhd v Connaught Heights Sdn Bhd and other appeals [2010] 3 MLJ 459. This appeal involved the grant of an ex parte injunction to prevent the presentation of a winding up Petition and there was no notice provided to the opposing party. His Lordship felt that there was no urgency justifying proceeding on an ex parte basis and that notice should have been given. His Lordship referred approvingly to his earlier High Court decision in University of Malaya Medical Centre v Choo Chee Kon & Anor [2008] 3 MLJ 278.

Coming Soon

This discussion on the opposed ex parte procedure is predicated on the applicant having the choice to proceed ex parte, or to give notice and then head to an opposed ex parte hearing or to file an inter partes application. In my next article,I will touch on two applications where the applicant must follow the procedural rules and must file the application on an ex parte basis. The Rules of Court 2012 provide that both the leave applications for judicial review and committal must be filed ex parte. So is there discretion on the Court to allow for the application to be heard inter partes or an opposed ex parte basis?

Edit: I have now written about the ex parte leave for committal application.

Contractual Clause that Damages are Not an Adequate Remedy

The Federal Court in the AV Asia v MEASAT decision (Grounds of Judgment dated 20 January 2014) dealt with the issue on the existence of a contractual clause providing that “monetary damages will not be sufficient … and that injunctive relief would be appropriate to prevent any actual or threatened use of disclosure of such Confidential Information …”

Would such a clause bind the Court in holding that damages are not an adequate remedy for the purpose of granting an injunction?

The Federal Court agreed with both the High Court and the Court of Appeal in finding that the Court would not be bound by this contractual term. The Federal Court referred to two Canadian and American authorities. Those authorities held that where a clause stipulates that damages may not be adequate and that injunctive relief may or shall be the appropriate remedy, that does not mean that such relief will be granted as of right. The party seeking to secure equitable relief must still satisfy the Court that the pre-requisites for granting injunctive relief are prevalent.

 

Winding Up Petitions and Cross-Claims

I came across the unreported case of Josu Engineering Construction Sdn Bhd v TSR Bina Sdn Bhd [2013] MLJU 279 where Mary Lim J made a very thorough analysis of the issue of cross-claims and winding up petitions.This is a rare case where a cross-claim was successful in grounding an injunction to restrain the presentation of a winding up petition, even though the section 218 notice was based on a judgment debt.

There is a seemingly inconsistent position as to whether a genuine cross-claim (which exceeds the initial debt) is sufficient to oppose a winding up petition or to even ground an injunction to restrain the presentation of a winding up petition but this case carefully dissects the different Malaysian appellate authorities as well as other authorities from other jurisdictions.

BRIEF FACTS

The facts in Jose Engineering are important in understanding why the High Court allowed the injunction to restrain the presentation of a winding up petition. The Plaintiff and Defendant were earlier involved in litigation against each other in two different cases, and for ease of reference, I will call them the First Suit and the Second Suit.

In the First Suit, the Defendant succeeded in its counterclaim against the Plaintiff and then issued a section 218 notice seeking for payment under the counterclaim. There was an application filed for a stay of execution but with no hearing date fixed yet.

In the Second Suit, the Plaintiff in turn had obtained a judgment with damages to be assessed by the Senior Assistant Registrar. This was a final judgment as it was upheld by the Court of Appeal and leave to the Federal Court was dismissed. The assessment of damages had yet to be fixed for hearing and with the Plaintiff claiming that it had filed its bundles of documents and had prepared its witness statements. The Plaintiff’s contention is that its claim under the Second Suit judgment would far exceed the quantum of the First Suit’s counterclaim which was claimed in the section 218 notice.

LEGAL PRINCIPLES

The High Court’s analysis of the different authorities ran the gamut from the Malaysian cases of Pontian United Theaters Sdn Bhd v Southern Finance Berhad [2006] 1 CLJ 1067 (C.A.), People Realty Sdn Bhd v Red Rock Construction Sdn Bhd [2008] 1 MLJ 453 (C.A.) and Zalam Corporation Sdn Bhd v Dolomite Readymixed Concrete Sdn Bhd [2011] 9 CLJ 705 (C.A.) (where all the cross-claim arguments were dismissed) to the Singapore Court of Appeal cases of Metalform Asia Pte Ltd v Holland Leedon Pte Ltd [2007] SGCA 6 and Pacific Recreation Pte Ltd v SY Technology Inc & Another Appeal [2008] SGCA 1.

In general, where a debt is undisputed, an injunction to restrain the presentation of a winding up petition is generally refused. And a judgment debt is a clear undisputed debt. However, the High Court found guidance in the Singapore Court of Appeal Metalform decision which allowed an injunction to restrain the presentation of the petition even based on an undisputed debt due to the cross claim. The Singapore Court of Appeal rejected the New Zealand test of having to show that the winding up petition is “bound to fail.” In cross-claim cases, the appropriate test in allowing such an injunction that “there is a likelihood that the petition may fail or that it is unlikely that a winding up order would be made.”

APPLICATION

The High Court noted that unlike the facts before the Court, the earlier Malaysian cases did not involve a cross-claim in the nature of an interlocutory judgment. While the Defendant had a final judgment through the counterclaim, the Plaintiff was also armed with an interlocutory judgment which was also a final judgment. It was only the quantum of damages which had to be assessed. The cross-claim was therefore found to not only be genuine but also bona fide.

The injunction was allowed in restraining the presentation of the petition but on terms that the Plaintiff pay the full judgment sum to its solicitors to be held as stakeholders pending the assessment of damages.

CONCLUSION

This case, and the various authorities referred to in the decision, demonstrate the high threshold to be met in allowing a cross-claim to effectively defeat the right of a judgment creditor to present a winding up petition. This is understandable since the judgment creditor already comes armed with an undisputed debt through the judgment and has a statutory right to present a winding up petition. Whether the petition will be allowed at the hearing is another issue altogether. In litigation, the allegation of a cross-claim is sometimes only raised once the section 218 notice is presented and a cross-claim, exceeding the judgment sum, is cobbled together in order to try to prevent the presentation of the winding up petition.