CHAN TAN & PARTNERS ISSUE 2 OF 1994 NO.

1 COLOMBO COURT #09-26/27 SINGAPORE 179742

Construction contract - issue of certificate that not entitled to liquidated damages before the contract
works ought reasonably to have been completed was completed. (per H Fairweather Ltd v Asden
by superintending officer - validity of certificate Securities). The issuing of the certificates on the 29
Sept 1992 by the superintending officer was a
Engineering Construction Pte Ltd v Attorney primary obligation which had come to an end on the
General [1994] 1 SLR 687
30 April 1992. The superintending officer was
In this case the plaintiff agreed to complete certain functus officio when the certificates were issued.
construction works for the government by 18 Dec The court also expressed the opinion that since the
1991. Completion of the works was delayed and on entire question of the extent of the delay had been
30 April 1992, the government terminated the put before an arbitrator appointed under the terms of
contract. The agreement entitled the government to the agreement prior to the issue of the
liquidated and ascertained damages ("LAD") for any superintending officer's certificate. He was therefore
delay in completion if a superintendent officer functus officio and the certificate was null and void.
certified that the works ought reasonably to have
been completed. On 29 Sept 1992, the director EDITORIAL COMMENT
issued an extension of time certificate granting the
plaintiff an extension of 10 more days. On the same It appears that once the contract has been terminated
day the director issued a LAD certificate claiming the superintending officer under the contract
liquidated damages from the 28 Dec 1991 to 30 becomes functus officio and accordingly has no
April 1992 at $3000 per day. The material clauses power to issue any certificate that the works ought
in the contract are: reasonably to have been completed. This case
apparently also stands for the proposition that the
Clause 31(a) "If the contractor fails to superintending officer has no such power once an
complete the works...the superintending arbitrator is appointed. A certificate of this kind is a
officer shall certify in writing that, in his own familiar feature of most building contracts based on
opinion, the same ought reasonably to have the JCT-RIBA model.
been completed, the contractor shall pay ...to
the government a sum calculated at the rate The previous standard form SIA contract (SIA70)
of $3000 per day as LAD." required such a certificate to be issued before the
employer can deduct his liquidated damages from
Clause 32(a) "If, in the opinion of the payments due to the contractor. The Delay
superintending officer (SO), the works be Certificate under the current SIA standard form
delayed by force majeure...the SO shall make contract is in many ways similar to this certificate. It
a fair and reasonable extension of time for the may therefore be possible to argue, based on this
completion of the works." decision that the architect under the current SIA
standard form contract would be functus officio with
The plaintiff sought for a declaration that the regard to the certification of, say, delays under a
government was not entitled to liquidated damages Delay Certificate once the contract has been
for the delay up to 30 April 1992. The court granted terminated or once an arbitrator has been appointed.
the declaration sought by the plaintiff holding that
these clauses became inoperative when the Performance bond - injunction to restrain call on
government terminated the contract before the bond - question of fraud
completion of the works. The court was of the view
that the superintending officer's power to issue the Chartered Electronics Industries Ltd v The
certificates under clauses 31(a) and 32(a) came to an Development Bank of Singapore Ltd; Suit no. 485 of
and upon their wrongful termination of the contract 1990 (unreported).
on 30 April 1992. Thus the superintending officer is
The goods were to be delivered in six consignments of fraud" had not "resulted in the
within specified periods. The bank furnished a commercial dislocation that was feared by
performance guarantee as security for the seller's the application of the American standard."
performance under a certain term of the contract. (b) The application of the Ackner standard
The guarantee was confirmed by an international tends to "cause more injustice to the
bank against the counter-indemnity of the local performer than it achieves justice to the
bank. All the consignments were shipped as of the beneficiary." A performance bond does not
date of action but dispute arose relating to the have the same function as a letter of credit.
shipments. After an abortive meeting to resolve the The letter of credit is an "established mode
dispute, the bank received a demand that it either of payment in exchange for goods" whereas
extend the expiry date of the guarantee or make a bond is "merely a security."
payment. There were a number of these "extend or (c) An interlocutory injunction does nothing to
pay" demands before the plaintiffs commenced the affect the nature of the security. It merely
present action and obtained interim injunction "postpones the realisation of the security
restraining the bank from paying under the until the plaintiff is given an opportunity to
performance guarantee. Another interim injunction prove his case."
was later obtained to restrain the bank from paying (d) The court noted that "it is generally
the international bank on the counter-indemnity. recognised that a performance bond can be
an oppressive instrument if abused" and
The court in deciding to allow the injunction to that such abuse can be given
continue until the trial of the action had to consider, encouragement if the court were to lay
inter-alia, the question of alleged fraud on the part of such a high standard of proof that the
the buyers and the validity of the demand. In looking plaintiff cannot meet.
at the demand, the court also made certain (e) The requirement is inconsistent with the
observations relating to the "extend or pay" demand. approach with respect to the grant of
On the issue of fraud, the court reviewed "the interlocutory injunctions in ordinary cases
Ackner standard" and the various authorities on that does not involve performance bonds.
which it was based and noted that the main reason
for imposing such a "high standard of proof" was the The decision in this case essentially lowers the
apparent acceptance that such bonds and guarantees threshold required for the proof of fraud. It does not
were in the nature of letters of credit or promissory appear to do away entirely with the requirement to
notes and "the life-blood of international demonstrate fraud, albeit at a lower threshold than
commerce." He noted also that the Singapore Court the Ackner standard. It leaves open the question
of Appeal had in fact applied the Ackner standard to whether the court would restrain temporarily an
a dispute relating to letters of credit in Korea unfair call devoid of fraud. It is submitted that if one
Industry Co Ltd v Andoll Ltd [1989] 3 MLJ 449 and is to accept that the usual principles for other
proceeded to state that he did not consider this case injunction cases should also be applied for
to be "an authority for the application of the Ackner interlocutory injunctions relating to bonds there is no
standard in Singapore in cases concerning reason why there should be a specific need to
performance guarantees." In rejecting the Ackner demonstrate fraud. All that an applicant for an
standard, the court state the position as follows: interlocutory injunction needs to satisfy are the well
known requirements for there to be a serious
"In my view, there is no reason why the less question to be tried and that the balance of
onerous test of a "strong prima [sic. facie] convenience is in favour of granting the injunction.
case" should not suffice for instruments
given purely to secure the performance of
contracts."

EDITORIAL COMMENT

The observations that the court made to arrive at this

(a) The court noted that the Ackner LJ himself