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Singapore court upholds contractual unconscionability exception exclusion

Out-Law Legal Update | 10 Jan 2020 | 12:55 pm | 4 min. read

The Court of Appeal in Singapore has once again upheld a contractual clause which excluded the right of a subcontractor to rely on the "unconscionability" exception as a ground to restrain the main contractor from calling on a bank guarantee.
  • Ruling follows previous decisions
  • Court did not clarify when exclusion clauses would be unreasonable
  • Future decisions may provide more clarity

The outcome in the case – between Kindenko Pte Ltd and Samsung C&T Corporation and Bintai Kindenko (34-page / 295KB PDF) – should not be surprising to most. Almost five years have now passed since Singapore's highest court upheld a similar exclusion clause on the basis that clauses which seek to restrict or exclude a remedy are permissible as long as they do not oust the jurisdiction of the court, in the 2015 case of CKR Contract Services Pte Ltd v Asplenium Land Ptd Ltd.

However, the decision is still very much worth noting for at least two reasons:

  • the observation by the Court of Appeal that the subcontractor's awareness or understanding of the impugned exclusion clauses did not matter, which underscores the need for contractors to properly review all documents and terms referenced in a contract before signing the papers;
  • the Court of Appeal's observations about the Unfair Contract Terms Act (UCTA), which have made it much more unlikely that it will strike down exclusion clauses such as the ones in Bintai Kindenko on the basis of unreasonableness under the UCTA.

However, it is unfortunate that the Court of Appeal did not expound further on the "factual circumstances" in which such exclusion clauses will be deemed to be unreasonable. It is also difficult to see the perceived contradiction in the subcontractor's submission: that the impugned exclusion clauses were unreasonable precisely because they oust the jurisdiction of the court to grant an equitable remedy regardless of the facts.

We can only hope that a future decision will provide some needed clarification.

Samsung C&T Corporation was the main contractor for a project to upgrade the Suntec City Convention Centre. The mechanical and engineering works for the project were subcontracted to Bintai Kindenko Pte Ltd.

The main contract between Samsung and its employer provided that Samsung was not entitled to restrain a bond call except in the case of fraud. The subcontract contained a similar exclusion clause in relation to Bintai.

Various phases of the subcontracted works were not completed on time, which resulted in a dispute as to whether Bintai was liable for these delays. Samsung then attempted to call on the banker's guarantee provided by Bintai. Bintai responded by applying to the court for an interim injunction to restrain the call. Bintai's application succeeded, but its success was shortlived as Samsung eventually successfully applied to discharge the interim injunction before the High Court. Bintai appealed.

The Court of Appeal dismissed Bintai's appeal, on the following grounds:

  • the court will only intervene to prevent a beneficiary from calling on a performance guarantee if it can be shown that the call was either fraudulent or unconscionable. The burden of proving fraud or unconscionability falls on the party seeking to restrain the call;
  • that being said, where the responding party seeks to rely on an exclusion clause to preclude reliance on either fraud or unconscionability, it is that party which bears the burden of proving the contractual exclusion;
  • therefore, in this case, Samsung bore the burden of proving that the exclusion clauses had been incorporated into the subcontract – and it succeeded in doing so;
  • it did not matter whether the contractual terms setting out the exclusion had been given to Bintai, or whether Bintai had any knowledge of what those terms were at the time of contracting. In the absence of fraud or misrepresentation, a party is bound by all the terms of a contract that it signs even if it did not read or understand those terms;
  • Bintai therefore could only rely on the fraud exception, for which it was required to establish a strong prima facie case. However, it was unable to do so. Notably, Bintai failed to establish fraud despite the Court of Appeal accepting Bintai's submission that there was no evidence of the employer under the main contract making claims against Samsung for delays, and that Samsung had likely make up its liquidated damages claims in haste;
  • finally, in an interesting departure from the decision of the court below, the Court of Appeal found that Bintai's failure to disclose the existence of the exclusion clauses to the court in its application for an interim injunction provided an independent basis to discharge the interim injunction.

While not critical to the court's decision, it is also worth noting that Bintai's attempts to rely on the UCTA for the first time during the appeal was not met favourably. The Court of Appeal noted that Bintai failed to seek leave to introduce this new point on appeal, but that even if leave had been sought it would not have been granted because:

  • the question of whether an exclusion clause is unenforceable under the UCTA is fact-specific; and
  • had Bintai's new point been allowed, Samsung would unjustifiably have been deprived of an opportunity to present the relevant evidence to rebut the point.

That said, the Court of Appeal observed that it would not have been inclined to strike down the exclusion clauses in any event.

Bintai argued that the exclusion clauses were inherently unreasonable because they "exclude the court's ability to intervene in circumstances where intervention has already been deemed reasonable". The Court of Appeal found these submissions untenable because they contradicted the clear principle that "whether or not a clause is (or is not) reasonable under the UCTA would depend not only on the various factors enunciated in the UCTA itself as well as in the case law ... but also (and perhaps more importantly) on the precise facts of the case itself".

Nicholas Brown, Hai Song Tan and Charlotte Wang are construction disputes expert at Pinsent Masons, the law firm behind Out-Law.