(i) runway pavement
(ii) CAAS taxiway fillets
(iii) MINDEF taxiway fillets up to 75 m from east of the runway centre line
(iv) Three reinforced concrete box culverts and U-drains including outfall structures
(v) All drainage works west of the runway
(vi) All drainage works across the runway
(vii) All drainage works east of the runway until western edge of taxiway
(viii) Turfing works until western edge of parallel taxiway

(the principal sub-contract).

(i) runway pavement
(ii) CAAS taxiway fillets
(iii) MINDEF taxiway fillets up to 75m from east of the runway centre line

(the subsidiary sub-contract).

The Guarantor unconditionally and irrevocably undertakes and convenants to pay in full forthwith upon demand in writing any sum or sums that may from time to time be demanded by the Main Contractor up to a maximum aggregate sum of S$500,000-00 (Singapore Dollars Five Hundred Thousand Only) without requiring any proof that the Main Contractor is entitled to such sum or sums under the Contract or that the Nominated Subcontractor has failed to execute the Contract or is otherwise in breach of the Contract. Any sum or sums so demanded shall be paid forthwith by the Guarantor unconditionally, without any deductions whatsoever and notwithstanding the existence of any differences or disputes between the Main Contractor and the Nominated Subcontractor arising under or out of or in connection with the Contractor or the carrying out of work thereunder or as to any amount or amounts payable thereunder and notwithstanding that such differences or disputes have been referred to arbitration or are the subject of proceedings in Court or is in the midst of any other means of dispute resolution.

13.    It is not disputed that Samwoh on or about 7 January 2001 terminated the subsidiary sub-contract with Gim Chuan, and stopped work at the site. Whether this termination was lawful or otherwise is not in issue before us. SC Piling were fully aware that Samwoh terminated the subsidiary sub-contract with Gim Chuan and stopped work at the site. They made no complaint against Samwoh for stopping work. In fact, they also regarded that the subsidiary sub-contract was at an end, for they commenced negotiations with Samwoh with a view to having a new contract between them and Samwoh. While the negotiations were in progress, Samwoh at the request of SC Piling mobilized their workforce and carried out some pavement works at the site.

14.    It is helpful to set out these events in greater detail. Their respective representatives met at the office of SC Piling on 13 February 2001. On 14 February 2001, Samwoh wrote to SC Piling as follows:

Thank you for the invitation to an informal meeting with your senior management at your kind office.

We hope that the information provided on the existing site drainage problems, the status of Gim Chuans repudiation of our contract and the seriousness of the existing site condition and the inherent long-term effects is useful to you.

For your information and necessary actions, please.

SC Piling also wrote to Samwoh on 15 February 2001 thus:

We refer to our meeting with you on 13^th February, 2001 at SCPs main office with regards to the above.

As discussed and agreed, please mobilize one paving team immediately to site by 19^th February, 2001.

Terms and conditions of this temporary arrangement will be settled in due course.

For your immediate action, please.

As discussed and agreed, the following conditions shall prevail upon mobilization of one Paving Team to your site on the 19 February 2001.

a) That you shall ensure proper drainage and ensure that the area is fit for paving.

b) That we shall not be liable for any defects caused by the pre-existing conditions on site, and in this regard of the performance of the sub-grade or sub-base.

c) That we shall pave solely on your instructions only.

d) That all plant and machinery remain our property and where required, we will be at liberty to demobilize and withdraw all such property from site.

In this respect, we shall mobilize One Paving Team, with all other terms and conditions not herein included to be finalized at our next meeting.

As previously confirmed by your kind office prior to our mobilization, the conditions set out in our letter ref: SWAP/2001/0136_sy are fundamental to our continued presence at your site.

As explained to you earlier, our investigations into the drainage situation and construction problems had never been seriously looked into nor addressed. It would therefore be unreasonable to expect us to accept that the pavement is already in a condition that is fit for paving, even though you have indicated that you would ensure that it is so.

We would therefore clarify that the conditions set out aforesaid are also to be retained if we are to continue with the paving. The price quoted was therefore put forward on the basis that these conditions are retained.

17.    Unfortunately, the parties could not agree on the terms on which Samwoh would take over the contract. As a result, Samwoh discontinued their work at the site. It was at that point in time that SC Piling decided to call on the performance guarantee. They made their call on 1 March 2001. It is significant that at the time when the performance guarantee was called, SC Piling had not made any claim against Samwoh for any damage or loss occasioned by either any breach of the principal sub-contract or any breach of the subsidiary sub-contract. They then took steps to prevent Samwoh from removing their plant and equipment from the site. They also refused to pay Samwoh the sum due for work done under the temporary arrangement.

12. The purpose of the demand guarantee is first to serve as a deterrent that is to say to subject the instructing party to act with a sense of reason and responsibility vis--vis the beneficiary. Next, the purpose of a demand guarantee is to serve as an expeditious remedy. If there are disputes they must be settled between the instructing party and the beneficiary at a later date. In this respect, it shifts the onus of establishing a wrongful demand to the instructing party at a convenient time. An application for interlocutory restrain is improper.

13. In this case there was a demand guarantee, though called a performance guarantee. The Courts should be slow to interfere or tinker with that contractual arrangement.

14. The Court must lean in favour of giving effect to a document and a demand under it than nullifying it. Given that learning of the law, one of the purposes of the PG was to be deterrent against the plaintiffs walking out of the contractual obligations. In other words the PG is a sort of indemnity or insurance to SC Piling the main-contractor. Without such a performance guarantee the main contract will be at the mercy of the plaintiffs.

15. The plaintiffs argued that the demand was unconscionable. In my view it was the conduct of the plaintiffs [Samwoh] that was unconscionable. It was unconscionable because in order to procure the contract they arranged for the PG without the PG they would not have been awarded the contract. Having procured the contract they acted in a manner that would have left SC Piling in a lurch in a situation where time was very important.

The judge, with respect, was wrong in these findings. Reverting to the case at hand, we find that there was no evidence that Samwoh had failed to discharge their obligations under the subsidiary sub-contract and the demand made by SC Piling was utterly lacking in bona fides. In our judgment, SC Piling acted unconscionably in calling on the performance guarantee. On this point, we find helpful the following part of the judgment of Selvam JC (as he then was) in Kvaerner Singapore Pte Ltd v UDL Shipbuilding (Singapore) Pte Ltd [1993] 3 SLR 350 at 354:

a demand under the performance guarantee can be made only when the seller has failed or refused to fulfil his obligations under the contract. The sellers failure or refusal is a condition precedent to the buyer making a demand. An assertion to that effect is implied in a demand made by the buyer. In circumstances where it can be said that the buyer had no honest belief that the seller has failed or refused to perform its obligation, a demand by the defendants/buyers in my view is a dishonest act which would justify a restraint order. On the facts of the case a demand made by the buyer was utterly lacking in bona fides.

22.    In the result, we allow the appeal and set aside the order below. We now make further orders as follows. After the interim injunction was discharged, ECICS paid the amount of S$500,000 under the performance guarantee to SC Piling, and in consequence, Samwoh in pursuance of their indemnity to ECICS were and are obliged to reimburse ECICS the amount they had paid with interest, if any. We understand that Samwoh had substantially reimbursed them the amount due. We think that the parties should, as far as practicable, be placed in the same position in which they were before the injunction was discharged. We therefore order that SC Piling repay the amount of S$500,000 to ECICS forthwith and that ECICS upon receipt thereof repay the amount to Samwoh. This order does not prejudice ECICS in any way, as they only pass on to Samwoh the amount they received from SC Piling. For avoidance of any doubt, we declare that this order is not to affect any right of indemnity ECICS may have against Samwoh in respect of the payment, which they had made under the performance guarantee. We restore the injunction restraining SC Piling from calling for any payment under the performance guarantee and receiving any payment thereunder and ECICS from making any payment thereunder to SC Piling, until the trial of the action or until further order as may be made by the High Court.

23.    Next, Samwoh contend that SC Piling should pay interest on the amount of S$500,000 which the latter are now required to refund to ECICS. On the authority of Credit Agricole Indosuez v Banque Nationale de Paris (No 2) [2001] 2 SLR 301, Samwoh are entitled to interest. Instead of ordering SC Piling to pay the interest to ECICS and the latter upon receipt to pay the same to Samwoh, we order that SC Piling pay to Samwoh interest on the amount of S$500,000 at 4.5% per annum for the period from the date of payment of that amount to them by ECICS to the date of their repayment of the amount of S$500,000 to ECICS as herein ordered. The rate of 4.5% is certainly not excessive. It is the prime lending rate of The Development of Singapore Ltd, which we understand is the lowest of the prime lending rates prescribed by the local banks in Singapore.

24.    We now come to the question of costs. SC Piling should pay the costs of Samwoh here and below. We so order. The next question is whether Samwoh or SC Piling should pay the costs of ECICS. We think that it is not wrong for Samwoh to join ECICS in these proceedings, as at the time when the application for the ex parte injunction was made, SC Piling had already made the call on the performance guarantee. Samwoh were justified in joining ECICS as a party so that the order they obtained would be binding directly on both SC Piling and ECICS. Similarly, in this appeal, Samwoh were also justified in joining ECICS as a party, otherwise it would be difficult to have an order along the line of the order made herein. That being so, we think that the costs of ECICS here and below should be paid by SC Piling. We so order. We also make the consequential order for the refund of the security deposit in court, with interest, if any, to Samwoh or their solicitors.