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This month we’re digging into the legal, operational, and regulatory tensions at the core of LC and guarantee practice.
Since a draft was included in the presentation at issue in ICC Opinion TA.948, it prompts important questions about examination not only under UCP but also under bills of exchange law.
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To support its work obligations, Chian Teck Realty Pte Ltd. (Subcontractor/Applicant), a Singapore reinforced concrete and precast specialist, applied for and caused Lonpac Insurance Bhd (Guarantor) to issue a SGD 1,123,152.55 performance bond in favour of SDK Consortium (Contractor/Beneficiary), the main contractor for a construction project (and consortium of three engineering companies). The bond value constituted 5% of the subcontract value and no practice rules were mentioned. The subcontract contained a clause stipulating that demands on the bond could not be restrained on the basis of unconscionability.1 (para.3).
A few years into the project,2 the relationship between the parties “deteriorated”. There were disputes regarding both performance of work as well as payment certifications. Subcontractor/Applicant later served a contract termination notice on Contractor/Beneficiary claiming it unilaterally reduced the scope of work and falsely accused Subcontractor/Applicant of performance delays. Contractor/Beneficiary’s first demand for payment was made 29 July 2022. Preceding the demand, Guarantor sent a letter to Contractor/Beneficiary in April 2022 informing that the bond would not be extended. While Contractor/Beneficiary claimed that it did not receive the April notice, it was undisputed that Contractor/Beneficiary received a second notice sent 19 July 2022.
Landlord sued Lessee for use and occupancy of commercial lease.
On appeal, Court considered whether trial court: erred in holding that Subcontractor/Applicant was contractually precluded from relying on the unconscionability exception; correctly held that Contractor/Beneficiary’s demand was not fraudulent; and erred in declining to discharge the injunction.
A recent Singapore case highlights the potential inherent risks for banks that take credit insurance policies as security.
Appeal of denied bill of costs obtaining supersedeas LC.
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