The court established that a bank guarantee call can be deemed invalid if found to be unreasonable and unconscionable, especially under the impact of Covid-19.

JUDGMENT

Abu Bakar Jais JCA:

Introduction

[1] We had allowed the Appellant's appeal against the decision of the High Court which dismissed the Appellant's Originating Summons for among others, an injunction to restrain the 1st Respondent from receiving the proceeds under an unconditional on demand bank guarantee.

[2] In reversing the decision of the High Court, we gave the declaration that the demand made by the 1st Respondent on the bank guarantee issued by the 2nd Respondent is invalid and unlawful. We also ordered that the 1st Respondent is not to receive the proceeds of that bank guarantee.

[3] The Respondents are aggrieved by our decision and hence our reasons for the same are explained hereafter.

Background Facts

[4] The 1st Respondent, a Myanmar company, awarded the Appellant a contract dated 31 December 2018 called Lump Sum Turnkey Contract for the Engineering, Procurement, and Construction of a Liquefied Petroleum Gas ("LPG") Receiving, Tanking, Storage and Bottling Facility at Land No 607, Ga Yan Kwin, No1 (e), Thida, Myaing Ward, Kyaut Tan Township Thilawa, Myanmar ("EPC Contract").

[5] Pursuant to the EPC Contract, the Appellant is to provide a bank guarantee to the 1st Respondent for the amount of USD2,487,200.00 being 10% of the contract price of USD24,872,000.00. This amount was later deposited in the 2nd Respondent by the Appellant.

[6] Subsequently, disputes arose between the Appellant and 1st Respondent regarding the performance of the EPC Contract. As a consequence, by a letter dated 17 May 2021, the 1st Respondent gave the notice to terminate the EPC Contract. Prior to that, by way of a letter dated 10 May 2021 to the 2nd Respondent but without notifying the Appellant, the 1st Respondent demanded from the 2nd Respondent the sum of USD2,487,200.00 under the bank guarantee. Only on 19 May 2021 the 1st Respondent informed the Appellant of the demand to the 2nd Respondent.

[7] The crux of the dispute before us is the call for the bank guarantee made by the Respondent against the Appellant.

At The High Court

[8] The Originating Summons ("OS") filed by the Appellant at the High Court ("HC") requested for the following prayers:

(a) a declaration that the call for the bank guarantee by the 1st Respondent is invalid ("Prayer 1");

(b) an injunction preventing the 1st Respondent from receiving proceeds from the bank guarantee ("Prayer 2"); and

(c) an injunction against the 2nd Respondent from paying the proceeds of the bank guarantee to the 1st Respondent ("Prayer 3").

[9] The learned High Court Judge ("HCJ") dismissed the Appellant's OS on the following grounds:

(a) the 1st Respondent is entitled to terminate the EPC Contract as the Appellant had breached the terms of the same;

(b) the 2nd Respondent could not be restrained to make payment to the 1st Respondent as the latter had made a call on the bank guarantee;

(c) Singapore law is the governing law pursuant to a term of the EPC Contract and the call made by the 1st Respondent;

(d) based on expert opinion produced by the 1st Respondent, the call was valid under Singapore law;

(e) the call cannot be nullified by s 7 of the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid- 19) Act 2020;

(f) the above is not applicable because:

(i) the Appellant's non-performance happened before the Covid-19 pandemic and before the above statutory provision came into effect;

(ii) the non-performance of the Appellant under the EPC Contract was not caused by the measures taken under the Prevention and Control of Infectious Diseases Act 1988;

(iii) the 2nd Respondent was not under any inability to honour the 1st Respondent's call; and

(iv) even if the 2nd Respondent was under an inability to comply with the 1st Respondent's demand, such an inability was not due to the Prevention and Control of Infectious Diseases Act 1988.

(g) the Appellant had no seriously arguable case, nor a strong prima facie case that the 1st Respondent's call is unconscionable;

(h) balance of convenience lies in