A A

HCCT 27/2021
B [2021] HKCFI 1468 B

C IN THE HIGH COURT OF THE C

HONG KONG SPECIAL ADMINISTRATIVE REGION

D D
COURT OF FIRST INSTANCE
E CONSTRUCTION AND ARBITRATION PROCEEDINGS NO. 27 OF 2021 E

____________
F F
BETWEEN
G G
JML-CRAFT PTY LTD Plaintiff
H H
and
I I
CHINA PING AN INSURANCE (HONG KONG) 1st Defendant
J
COMPANY LIMITED
J

BUILT PTY LTD 2nd Defendant

K K

____________
L L

M Before: Deputy High Court Judge Victor Dawes SC in Chambers M

N Date of Hearing: 4 May 2021 N

Date of Decision: 24 May 2021

O O

P _______________ P

DECISION
Q Q
_______________
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S S

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 A A
A. Introduction
B B

C
1. This is the substantive hearing of an application for an interlocutory
C
injunction by a sub-contractor (“P”) to restrain: (i) the surety (“D1”) from
D D
making any payment under a surety bond; and (ii) the main contractor (“D2”)

E from demanding or receiving payment from D1. The matter first came before E
me for directions on 26 March 2021 where D1 undertook not to make payment
F F
to D2 pending the substantive hearing.
G G
2. P’s latest position is that it will not seek any order against D1. The only
H H
remaining issue between them is costs.
I I
3. As between P and D2, P maintains that D2 should be restrained from
J J
making any further demand under the “Advance Payment Bond” and receiving
K any payment under it pending the disposal of this action. K

L L
B. Background
M M
4. P is a company incorporated in Australia and is part of the Craft Group of
N N
Companies. It is a contractor engaged in, inter alia, the supply and installation
O of facade and glazing systems to construction projects. O

P P
5. On 25 February 2019, D2 (the Main Contractor) awarded to P a sub-
Q contract for facade glazing and louvres (“Subcontract”) for a construction Q
project at 183-185 Clarence Street in Sydney (“Site”). P’s scope of work
R R
consists of the design, supply and installation of a curtain wall facade system
S for both the new structure and for certain parts of the heritage buildings that S
stood on the Site. A substantial part of the subcontract sum was for the supply
T T

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 A A
and installation of what is known as the “FT01 panels” to be used at the main
B B
curved facade panels for the Project.
C C
6. In or about late 2019, P and D2 began discussions on an advanced payment
D D
by D2 to P in relation to part of the Subcontract. D2 required P to provide an
E advance payment bond as security. E

F F
7. P’s case is that the parties entered into what is known as the “Advance
G Payment Agreement” in order to give security to D2 for its advance payment G

up until the FT01 panels were delivered to the Site. Under this agreement, P
H H
was to provide an advanced payment bond (“Advance Payment Bond”) for
I AUD1.5 million to D2. One of the key terms was said to be a provision for I

reduction in value of the Advance Payment Bond as the FT01 panels were
J J
delivered to the Site. P’s liability for the advanced payment and the
K corresponding maximum guaranteed sum under the Advance Payment Bond K

would be extinguished after the satisfactory delivery of all the FT01 panels. In
L L
return, D2 was to pay P AUD1.35 million as advanced payment for the
M procurement of the FT01 panels after receipt of the Advance Payment Bond. M

The Advance Payment Agreement is said to be evidenced by a number of

N N
emails between the parties from 19 March 2020 to 9 April 2020 (“Pre-
O Variation Correspondence”). O

P P
8. The Advance Payment Bond was signed by P and delivered to D2 on 11
Q May 2020. It was payable by D1. The recital of the Advance Payment Bond Q

provided for a “Maximum Guaranteed Sum” in the amount of HK$7.7million

R R
(i.e. AUD1.5 million). Further, clause 2 of the Advance Payment Bond
S provides as follows: S

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 A A
“[D1] shall reduce the Maximum Guaranteed Sum progressively
B by a sum equivalent to any deduction made on the cumulative
B
aggregate value of goods and materials supplied and/or work done
by [P] in the course of the project, up to the value of the Maximum
C Guaranteed Sum, as evidence in a certified true copy of the Interim C
Payment Certificate that has been signed by [D2]’s Commercial
Manager and Construction Director and that [P] has to submit to
D D
[D1]. The format of the Interim Payment Certificate shall be in the
format attached in Schedule B, or such revised format which must
E be mutually agreed between [D1], [D2] and [P].” E

F 9. It is common ground that the parties entered into a written variation F

agreement on around 11 May 2020 (“Variation Agreement”). A number of

G G
provisions in the Sub-Contract were amended. It contained, inter alia, the
H following provisions: H

I I
“2.3: In Item 19(d) of Annexure Part A delete existing drafting and
replace with "Additional security for unfixed plant and materials
J (Clause 5 and Subclause 37.3) - 100% of the value of the plant and J
materials (being $1,484,690) in the form of an ‘unconditional' and
K 'on demand' bond included in this Agreement in Australian Dollars K
from [D1] with a validity period that is no less than 12 months from
the date of practical completion.
L L

In Item 19(e) of Annexure Part A delete “[Not used]” and replace

M with “[P’s] security upon delivery to Site and satisfactory M
inspection by [D2] of all plant and materials at Site and written
N
confirmation from [D2’s] Commercial Manager and Construction
N
Director is reduced by (Subclause 5.4)” - 100%

O O
2.7(iv): Additional security provided in Item 19(d) shall be subject
to recourse by the Principal and [D2] at any time: …… to satisfy
P any claims that [D2] may have against [P]. P

Q 2.8: In clause 5.4 replace the first paragraph with the following: Q
Upon delivery of all plant and materials to site, free of defects,
deficiencies, errors or omissions to the satisfaction of [D2] in
R R
accordance with the requirements set out in item 19(e) [D2’s]
entitlement to security held pursuant to Item 19(d) and Item 38 shall
S be reduced by the percentage in Item 19(e). Upon the expiration of S
the period of time set out in Item 19(g) after the issue of the
certificate of practical completion, and where there is separable
T portions the certificate of practical completion in respect of the last T

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 A A
separable portion, [D2’s] entitlement to security and additional
B security shall be reduced by the percentage or amount in Item 19(f)
B
and the reduction shall be released and returned within 30 days to
[P].”
C C

10.Significantly, the Advance Payment Bond was attached to the Variation

D D
Agreement.
E E

11.On 26 May 2020, D2 provided AUD1.35 million to P as advance payment

F F
crediting P’s Payment Schedule No. 13 in the amount of AUD1,350,002.64.
G G

H
12.It is P’s case that by 12 February 2021, all the FT01 panels were
H
satisfactorily delivered to the Site. This was evidenced by Payment Schedule
I I
No. 25 dated 12 February 2021 which was approved by D2. Further, it would

J
appear from a document known as “Status Report FT01” dated 16 March 2021
J
prepared by Mark Gelok of P that P’s work was either completely or
K K
substantially completed. D2 took issue with the content of this report.

L L
13. P therefore asserts that according to the Advance Payment Agreement
M M
and/or Clause 2 of the Advance Payment Bond, P’s liability for the advanced
N payment and the corresponding liability under the Advance Payment Bond N
should be extinguished and D2 could not make any demand under the Advance
O O
Payment Bond.
P P
14.On 15 March 2021, D2 instructed its solicitors to attend the office of D1
Q Q
and presented a written demand (dated 12 March 2021) for the Maximum
R Guaranteed Sum under the Advance Payment Bond. R

S S

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15.P’s case is that the demand was made fraudulently and/or in bad faith. It is
B B
said that D2 knew that it was not entitled to make the said demand under the
C Advance Payment Agreement and/or the Variation Agreement. C

D D
16.P also pleaded an implied term of the Variation Agreement that P’s liability
E for the advance payment and the corresponding Maximum Guaranteed Sum E
under the Advance Payment Bond would be reduced progressively by the
F F
value of FT01 panels satisfactorily delivered to the Site. P’s overall position is
G that the Variation Agreement should be construed to give effect to the G

Advance Payment Agreement, which catered for a progressive reduction

H H
mechanism.
I I

17.In addition, P also pleaded an alternative case that D2 is estopped from

J J
denying the terms and conditions of the Advance Payment Agreement
K because: (i) they were the common assumption on the basis of which P and D2 K

entered into the Variation Agreement; and (ii) P would suffer detriment and it
L L
would be unjust for D2 to resile from such common assumption.
M M

18.In short, D2’s position is as follows:

N N

(1) First, the demand under the Advance Payment Bond was
O O
predicated on P’s indebtedness under the Subcontract relating to
P various claims for delay amounting to at least AUD3,967,780 and P

P’s lack of solvency.

Q Q

(2) Second, the Advance Payment Bond was only extinguished when
R R
all the materials (not only the FT01 panels) were satisfactorily
S delivered, and that D2 issued a written confirmation to that effect. S

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Since there were various defects in the materials delivered, no
B B
such confirmation was issued.
C C
(3) Third, D2 took issue with the suggestion that the work related to
D D
FT01 was complete. It is said that the “L12 glass” is missing;

E there are leaks through the FT01 facade at Level 12; there are E
minor defects remaining outstanding; water testing of the FT01
F F
facade is incomplete and the “L8 glass” distortion is unresolved.
G G
(4) Significantly, D2 claimed that P had not completed critical aspects
H H
of the Subcontract work by 15 March 2021.

I I
C. Relevant Principles
J J

19.It is not in dispute that, in general, on-demand bonds are independent of

K K
underlying transactions. Accordingly, courts in general will not restrain the
L enforcement of such bonds even though there may be disputes relating to the L

M
underlying transaction between the parties. There are however two relevant
M
exceptions to this rule.
N N

O O
20.The first is the well-known fraud exception (“Fraud Exception”). In order

P
to restrain the enforcement of an on-demand bond in the interlocutory stage on
P
the basis of the Fraud Exception, the court must be satisfied that it is seriously
Q Q
arguable that the only realistic inference on the facts is that there has been

R fraud by the beneficiary and that the bank (payor of the bond) was aware of the R
fraud: see for example Alternative Power Solution Ltd v Central Electricity
S S
Board [2015] 1 W.L.R. 697, at §59, cited with approval in West Kowloon
T T

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 A A
Cultural District Authority v AIG  Insurance Hong Kong Ltd [2020] HKCA
B B
778 . This is a high threshold.
C C
21.In his written submissions, Mr. Cheuk (for P) submitted that P can rely on
D D
the Fraud Exception so long as he can show a seriously arguable case of fraud.
E He relies on MW High Tech Projects UK Ltd v Biffa Waste Services Ltd [2015] E
1 C.L.C. 449, at §34. I would note that the Fraud Exception was not actually
F F
invoked in MW High Tech (see §33). Insofar as Mr. Cheuk is advocating for a
G lower threshold than the “only realistic inference of fraud” test, I disagree. G

Such a lower threshold is inconsistent with the decision of the Court of Appeal
H H
in West Kowloon Cultural District Authority.
I I

22.The second exception arises when there is an express or implied agreement

J J
between the parties that the beneficiary will not enforce the bond in certain
K conditions (“Implied Agreement Exception”). For an applicant to succeed in K

obtaining an injunction on this ground, he must show that there is a “strong

L L
case” as to the existence of such an agreement. As Chow J said in Grande
M Cache Coal LP v Marubeni Corp HCA 2136/2015 (unreported, 23 September M

2015) at §32:
N N

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P P

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“What seems to me to be clear is that whatever may be the correct
B categorisation of the legal or evidential threshold, having regard to the B
nature of a performance bond (or performance guarantee or demand
C
guarantee), which has been said to be similar to a letter of credit or
C
promissory note, it is not sufficient for a plaintiff seeking to restrain a
beneficiary from obtaining payment thereunder to show merely that
D D
there is a serious question to be tried (in the sense of the question not
being "frivolous" or "vexatious") on whether the terms of the
E underlying contract preclude the beneficiary from making a call and E
whether, on the facts, the beneficiary is so precluded. A higher
F threshold is required to be met - that threshold has variously been F
described as "it is positively established that the party was not entitled
to draw down", or "a strong case" has been shown, or "the 'serious
G G
issued to be tried' threshold is in practice a more difficult one to
overcome", or "it has been clearly established that the beneficiary is
H H
precluded from making a call by the terms of the contract". All these
different formulations seem to me to convey the same idea, and
I probably would not lead to any different result in practice.” I

J J

K
23.Chow J’s remarks are consistent with various English authorities referred to
K
me: see for example Doosan Babcock Ltd v Commercializadora de Equipos y
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Materiales Mabe Limitada [2014] BLR 33, and Simon Carves Ltd v Ensus UK

M Ltd [2011] BLR 340.

M

N N
24.Although the two exceptions are distinct at law, they are closely related
O with each other on the facts. This is because P’s pleaded case is founded on O

various implied terms and common understandings between P and D2. If the
P P
court finds that P fails to establish a “strong case” in respect of the implied
Q terms and alleged common understandings, it is difficult to see how the court Q

can say that D2 acted fraudulently, in the sense that D2 knew it had no right to
R R
enforce the Advance Payment Bond. Where there is ambiguity as to the
S contractual position between the parties, D2 could legitimately take a different S

view from P as to its legal rights. In that case, it could not be said that the only
T T

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 A A
realistic inference is fraud. I therefore turn to deal with the Implied Agreement
B B
Exception first.
C C

D D. Implied Agreement Exception

D

E E
25.The starting point is that conditions restricting enforcement can arise out of
F express or implied terms: MW High Tech, at §34. F

G G
26.In interpreting the agreements entered into by the parties, I give due weight
H to the natural meaning of the words chosen by the parties, while bearing in H

mind the context and purpose of the parties’ commercial arrangements. In

I I
assessing whether any terms should be implied into the parties’ bargain, I am
J guided by the Court of Appeal’s judgment of Lo Yuk Sui v Fubon Bank (HK) J

Ltd [2019] HKCA 261, and the well-known authorities cited in at §§30 - 32
K K
therein. The overriding principle is that terms should only be implied out of
L necessity. L

M M
27.Mr Cheuk relies on the Pre-Variation Correspondence to show that P and
N
D2 had reached the Advance Payment Agreement. Pursuant to this Advance N

O
Payment Agreement, the parties agreed that the Advance Payment Bond value
O
would be progressively reduced as FT01 panels were delivered to the Site. P’s
P P
position is that since the Advance Payment Bond was issued solely to secure

Q P’s obligation to deliver FT01 panels, the extent of this security should be
Q
progressively reduced when P performs its delivery obligations in respect of
R R
FT01 panels.
S S
28.Based on the Advance Payment Agreement, P’s case is that D2’s
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entitlement to the Advance Payment Bond is limited by two conditions:
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(1) First, the Advance Payment Bond can only be invoked as security
B B
for P’s delivery obligations in respect of FT01 panels. It could not
C be invoked to satisfy other claims D2 may have against P. C

D D
(2) Second, the value of the Advance Payment Bond would be
E progressively reduced as FT01 panels were delivered to the Site. E
Since P has delivered all the FT01 panels by 12 February 2021,
F F
the Advance Payment Bond is extinguished.
G G

29.I address each of these alleged conditions in turn.

H H

I
D1. The Purpose Limitation I

J J
30.Mr. Cheuk’s point is that, taking into account the purpose of the Advance
K K
Payment Bond, it can only be used as security for P’s delivery obligations

L
relating to the FT01 panels. As such, D2 cannot, as it has done, rely on the
L
Advance Payment Bond to satisfy other claims it may have against P, such as
M M
damages claims for delay.

N N
31.Mr. Cheuk’s submission, however, is prima facie inconsistent with Clause
O O
2.7(iv) of the Variation Agreement, which explicitly provides that the Advance
P Payment Bond can be used as security for any claims that D2 may have against P
P.
Q Q

R 32.P and D2 may have negotiated the advanced payment arrangement around R

P’s obligation to deliver the FT01 panels. Nevertheless, it does not follow that
S S
the Advance Payment Bond can only be used as security for that narrow
T purpose. The parties are free to widen the effect of the security. For example, a T

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customer may charge a piece of property to a bank to secure a new loan, but
B B
the parties may well specify that this security could be invoked for the
C customer’s other indebtedness to the bank. In my view, that is the effect of C
Clause 2.7(iv) of the Variation Agreement.
D D

E 33.Mr. Cheuk is effectively asking the court to interpret the term “any claims” E

in Clause 2.7(iv) of the Variation Agreement to mean “any claims in respect of

F F
P’s delivery of the FT01 panels”. I am unable to agree with this approach as it
G is inconsistent with the plain wording of Clause 2.7(iv). G

H H
34.On the other hand, a wider reading of Clause 2.7(iv) of the Variation
I I
Agreement is consistent with other terms of the Subcontract. In particular,

J Clause 2.7(iv) of the Variation Agreement is materially similar to Clause 5.2 J

of the Subcontract, and the default mechanism is that security provided for one
K K
purpose under the Subcontract can be used to satisfy any claims that D2 may
L have against P. By inserting Clause 2.7(iv) into the Variation Agreement, the L
parties likely intended to follow the default position in the Subcontract.
M M

N 35.Insofar as Mr. Cheuk is seeking to rely on the Pre-Variation N

Correspondence to restrictively interpret the Variation Agreement, that would

O O
be contrary to the parol evidence rule. I would therefore reject that approach.
P P

Q 36.I also consider it inappropriate to imply a term into the Variation

Q
Agreement so as to restrict the purpose of the Advance Payment Bond as
R R
security. But to do so it strictly unnecessary. At the present state of the
S evidence I am not satisfied that such an implication is necessary for business S

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efficacy. The Variation Agreement is fully workable without it – it merely puts
B B
P in a less advantageous position commercially.
C C

D2. Satisfactory Delivery of the FT01 Panels

D D

E E
37.It was hotly contested between the parties as to whether the Advance

F Payment Bond has been extinguished/reduced because P had already satisfied F

the relevant delivery obligations.
G G

H 38.Mr Cheuk’s position can be summarised as follows: H

I I
(1) First, Clause 2 of the Advance Payment Bond provided for a
J progressive reduction mechanism. D2’s entitlement to the J

Advance Payment Bond would be reduced when P progressively

K K
satisfies its delivery obligations in respect of FT01 panels.
L L

(2) Second, all the FT01 panels were satisfactorily delivered by

M M
12 February 2021. Any defects relating to the FT01 panels related
N to installation, and not delivery. Accordingly, P had already N

completed its delivery obligations notwithstanding any alleged

O O
defects.
P P

39.Mr Zimmern, appearing for D2, took a different position as to the effect of
Q Q
the Advance Payment Bond and the Variation Agreement:
R R

S
(1) First, there is no such thing as a progressive reduction mechanism.
S
Clauses 2.3 and 2.8 of the Variation Agreement provided that
T T
there would be a one-off reduction of 100% of the Advance

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Payment Bond when all plant and materials were delivered to the
B B
Site.
C C
(2) “All plant and materials” in Clauses 2.3 and 2.8 did not only refer
D D
to FT01 panels. Instead, in order to trigger the reduction, P would
E have to satisfactorily deliver all materials related to the Project. E

F F
40.There were various defects relating to a host of materials, and there was
G therefore no satisfactory delivery. For that reason, D2 never issued any written G

confirmation certifying satisfactory delivery.

H H

I 41.There are two main points of contention between the parties. The first I

relates to whether a progressive reduction mechanism exists in the first place.

J J
The second relates to whether the delivery of materials other than the FT01
K panels has an impact on whether the Advance Payment Bond was K

reduced/extinguished.
L L

M 42.The starting point of the analysis is to look at the relevant contractual terms. M

Prima facie there appears to be a conflict between Clause 2 of the Advance

N N
Payment Bond and Clauses 2.3/2.8 of the Variation Agreement. The former
O clearly provides for a progressive reduction mechanism; whereas the latter O

speaks of a 100% one-off reduction when all materials were delivered.

P P

Q 43.I see some attraction in P’s argument. There is some force in saying that the Q

parties created (and therefore valued) the security in accordance with the FT01
R R
panels, and therefore any reduction of the security should track the delivery of
S the FT01 panels, and not any other materials delivered. S

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44.At the interlocutory stage, I do not need to rest my decision on whether P or
B B
D2’s interpretation is correct. Irrespective of whether I rely on Clause 2 of the
C Advance Payment Bond or Clauses 2.3/2.8 of the Variation Agreement, it is C
clear that the Advance Payment Bond is not automatically
D D
reduced/extinguished when there is delivery. Instead, D2 must issue a written
E confirmation to certify that it is satisfied with delivery. Clause 2 of the E
Advance Payment Bond specifically requires this confirmation to be in the
F F
form of an Interim Payment Certificate annexed in Schedule B of the Advance
G Payment Bond. G

H H
45.D2’s Commercial Manager and Construction Director never issued any
I written confirmation certifying that D2 was satisfied with delivery for any I

materials. This is fatal to P’s case. Accordingly, I consider that D2’s

J J
entitlement to the Advance Payment Bond to be valid and subsisting.
K K

46. Mr. Cheuk relies on various payment schedules as written confirmation

L L
that P had satisfied its delivery obligations. However, this is contrary to Clause
M 37.2A of the Subcontract, which expressly states that payment schedules are M

not evidence that work under the Subcontract had been completed.
N N

O 47.P could have argued that D2 acted in breach of contract by failing to issue O

written confirmation even when there was satisfactory delivery, and that D2’s
P P
breach was the only reason why the Advance Payment Bond remained alive.
Q That was what the applicant did in the case of Doosan Babcock. In Doosan Q

Babcock, the bond in question only remained valid because the respondent,
R R
MABE, had wrongfully refused to issue Taking-Over Certificates. This led
S Edwards-Stuart J to say at §38: S

“In the light of the principle established or recognised by the House

T T
of Lords in the Alghussein case, I cannot see how it would be just

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to refuse interim relief in a case where the defendant can only make
B a call on the Advance Payment Bond by setting up a state of affairs
B
which, on the material before the court, has a strong likelihood of
being shown to be the direct result of his own deliberate breach of
C contract. For example, as in this case, where the continuing validity C
of the Advance Payment Bond is solely the result of the absence of
the Taking-Over Certificates, which in turn is said to be the result
D D
of the MABE's wrongful refusal to issue them.”

E E

48.On the evidence before me, there is no basis for me to find that D2 had
F F
acted in breach of contract by failing to issue any written confirmation of
G delivery. This is for two reasons: G

H H
(1) First, the allegation of breach is not part of P’s pleaded case. I put
I this to Mr. Cheuk during his oral submissions, and he fairly I

accepted that he did not plead such a breach.

J J

K
(2) Second, P never asked D2 to issue any written confirmation of
K
satisfactory delivery, in the form of the Interim Payment
L L
Certificate or otherwise. It is difficult to find that there is a breach

M when P never even applied for written confirmation.

M

N N
E. Fraud Exception

O O
49.I am satisfied that the Fraud Exception does not apply. As I indicated
P P
earlier, the Fraud Exception is closely intertwined with P’s case on the implied
Q terms and common understandings. I have already found that P has failed to Q
establish a strong case in respect of the Implied Agreement Exception.
R R
Accordingly, D2 could legitimately consider that it could demand payment
S pursuant to the Advance Payment Bond. In that case, it is not seriously S
arguable that fraud is the only realistic inference.
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F. Estoppel
B B

C 50.P’s case is that the Advance Payment Agreement reached between P and C
D2 formed a shared assumption which gives rise to an estoppel by convention.
D D
In my view the principle of estoppel by convention does not assist P.
E E
51.An estoppel by convention only arises when the parties had a shared
F F
assumption: First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd (2012) 15
G HKCFAR 569. As a general point, it is questionable whether pre-contractual G

negotiations are to be given much weight in establishing an estoppel by

H H
convention. A fortiori, when parties are negotiating to reach a final agreement,
I the shape of the agreement would continue to evolve. It is therefore natural I

that a final written agreement departs from a previous common understanding.

J J
The court should be slow to rewrite a contract on the basis of an estoppel by
K convention. K

L L
52.More importantly, the Pre-Variation Correspondence were emails between
M P and D2’s staff instead of their legal advisers. The parties may not have M

chosen their words very precisely and it is dangerous to read too much into
N N
them.
O O

53.On the facts, I am unable to accept that P has a strong case showing a
P P
common understanding that would assist its position. Even if I am to accept
Q that there was an understanding to the effect that the Advance Payment Bond Q

is reduced/extinguished following the delivery of FT01 panels, there is no way

R R
of getting around the requirement that D2 must issue a written confirmation
S certifying satisfactory delivery. S

T T

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54.I would note that the requirement of a written confirmation was specifically
B B
mentioned by D2 in its email dated 19 March 2020, where D2 suggested that
C any Interim Payment Certificates certifying satisfactory delivery must be C
signed by both D2’s Commercial Manager and Construction Director. This
D D
shows that the written confirmation requirement was important to D2. There
E can be no basis to say that it should somehow be dispensed with. E

F F
G. Adequacy of Damages
G G

55.Although I have found that P has failed to satisfy the necessary legal
H H
thresholds for relying on the Fraud Exception and the Implied Agreement
I Exception, for completeness I turn to examine other points that were raised by I

the parties during the course of submissions. They pertain to whether damages
J J
are an adequate remedy for P, and where the balance of convenience lies.
K K

56.Mr Cheuk referred me to various authorities which have found that the
L L
enforcement of a performance bond would detrimentally impact the reputation
M of a contractor. The case of Unistress Building Construction Ltd v Top Dollars M

Development Ltd [2018] 1 HKLRD 237 is particularly relevant. In Unistress,

N N
the Advance Payment Bond in question was also used to secure a contractor’s
O obligation to satisfactorily carry out construction works. At §49, Chow J O

accepted that the contractor’s reputation would be detrimentally affected if the

P P
Advance Payment Bond was enforced. Such losses would not be quantifiable,
Q and damages would not be an adequate remedy. I agree that the same Q

reasoning applies to the present case.

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S 57.Mr Hughes for D1 submits that Unistress can be distinguished because S

Chow J was concerned with a default bond in that case, a bond which was only
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enforceable upon the contractor’s breach. On the other hand, the Advance
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Payment Bond is an on-demand bond. I do not accept that this is a material
C distinction. The economic reality is that both on-demand bonds and default C
bonds are used to secure a contractor’s performance of its obligations. Any
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enforcement would practically be an indication of unsatisfactory performance.
E The enforcement of default bonds may be more serious, but that is a matter of E
degree.
F F

G 58.As to the balance of convenience, Mr. Zimmern argued that any cross- G

undertaking of damages by P would be inadequate due to doubts as to P’s

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solvency. However, D2’s risk is limited. The Advance Payment Bond is to be
I paid by D1, and there is no evidence that it would be unable to pay. If I

anything, it is D1 who would have to bear the risk of P’s insolvency.

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K 59.The only loss that D2 may suffer is in the form of interest, which is a K

comparatively small amount. Therefore, I would have found that the balance of
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convenience lay in favour of P.
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60.However, since I have found that P’s substantive case in respect of D2’s
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entitlement to the Advance Payment Bond does not satisfy the requisite legal
O thresholds, I decline to grant the injunction sought. O

P P
H. Disposal and Costs
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61.In light of the above, I decline to grant the injunction against D2.
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62.In the hearing, I asked Mr Cheuk whether it is possible for the court to
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grant an injunction restraining the receipt of payment, since receiving money
C is a passive act, and it is difficult to stop a transfer into one’s bank account. C

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63.Mr Cheuk has subsequently referred me to two authorities where the courts
E have made such an order: see Unistress at §31, 53; JBE Properties Pte Ltd v E
Gammon Pte [2010] SGCA 46. I note that in Gee on Commercial Injunctions,
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7th ed, at §15-017 and §15-025, the authors indicate that an injunction can be
G granted to restrain the receipt of payment. However, this point was never G

raised or discussed in the cited cases nor in the textbooks.

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I 64.Since I decided not to grant the injunction in favour of P, it is not necessary I

for me to decide on this point. I would only remark that this problem may be
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resolved by asking the beneficiary of a bond to issue standing instructions to
K its bank to decline payment. This is however a point that I have not raised K

with the parties.

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M 65.It remains for me to deal with the issue of costs. Although P discontinued M

its application against D1, its position is that D1 should not recover all its
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costs. P submits that it offered to settle with D1 on 21 April 2021. The terms of
O the offer were that P would agree to discontinue the action against D1 if D1 O

agrees to maintain the undertaking that it would not make payment to D2 until
P P
the Summons is determined. D1 unreasonably refused to accept the offer and
Q therefore should not be awarded costs after the date of the offer. Q

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66.D1 argued that the terms of the offer were much more draconian than its
S existing undertaking to the court. Additionally, there would be a chance that it S

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would be in breach of the Advance Payment Bond. It was therefore justified in
B B
refusing the offer.
C C
67.I award costs in favour of D1. The starting point is that costs should be
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awarded to a respondent when an application is not pursued. In this case, the
E application against D1 was unnecessary because P could achieve its objective E
by only seeking an injunction against D2. Further, P’s offer is irrelevant
F F
because D1 eventually did better than the offer – P withdrew its application
G against D1 unconditionally. G

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68.As to D2, I see no reason why costs should not follow the event. In fact, in
I these types of claims, the interlocutory stage is often determinative of the final I

outcome. Accordingly, I award costs in favour of D2.

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69.I make a costs order nisi in favour of D1 and D2, with certificate for
C counsel. The costs order shall be made absolute 14 days after the date of the C
handing down of this Judgment.
D D

E E

F F

G (Victor Dawes SC) G

Deputy High Court Judge
H H

I Mr Calvin Cheuk, instructed by Holman Fenwick Willan, for the Plaintiff I

J Mr Sebastian Hughes, instructed by Munros, for the 1st Defendant J

Mr Richard Zimmern, instructed by King & Wood Mallesons, for the 2nd
K Defendant K

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P P

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