Boustead Singapore Ltd v Arab Banking Corp: Fraud, Demand Guarantees & Unconscionability
In Boustead Singapore Ltd v Arab Banking Corporation (B.S.C.), the Singapore High Court addressed a dispute arising from credit facilities extended by Arab Banking Corporation (ABC) to Boustead Singapore Limited for a construction project in Libya. Boustead sought a declaration that it was discharged from liabilities to ABC under a credit facilities agreement (FA) related to counter-guarantees (CGs) issued for a construction project in Al-Marj, Libya. The court, presided over by Woo Bih Li J, found that ABC's claim against Boustead was fraudulent and that it would be unconscionable for ABC to obtain payment from Boustead. The court injuncted ABC from receiving payment from Boustead under the FA Demand and from making payment to BCD on BCD’s CG Demands. The court also declared the event-of-default notice invalid and dismissed ABC’s claim for payment of US$18,781,481.20.
1. Case Overview
1.1 Court
High Court1.2 Outcome
Judgment for Plaintiff; ABC is injuncted from receiving payment from Boustead under the facility agreement demand and is injuncted from making payment to BCD on BCD’s counter-guarantee demands. The event-of-default notice is invalid.
1.3 Case Type
Civil
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
Singapore High Court judgment on fraud and unconscionability in demand guarantees, concerning credit facilities for a Libya construction project.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| Arab Banking Corporation (B.S.C.) | Defendant | Corporation | Claim Dismissed | Lost | |
| Boustead Singapore Limited | Plaintiff | Corporation | Judgment for Plaintiff | Won |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Woo Bih Li | Judge | Yes |
4. Counsels
4. Facts
- Boustead, through a joint venture, was contracted to construct a housing development in Al-Marj, Libya.
- ABC extended credit facilities to Boustead for the construction project.
- The project required Boustead to furnish a performance bond (PB) and an advance-payment guarantee (APG).
- The PB and APG were issued through intermediary banks, with ABC issuing counter-guarantees (CGs) in favor of a Libyan bank, BCD.
- Unrest broke out in Libya in 2011, leading to the evacuation of Boustead's staff and the destruction of plant and equipment.
- BCD made demands on ABC for payment under the CGs, which Boustead disputed.
- ABC made a consolidated demand for payment of US$18,781,481.20 under the FA, which Boustead refused to pay.
5. Formal Citations
- Boustead Singapore Ltd v Arab Banking Corp (B.S.C.), Suit No 730 of 2012 consolidated with Suit No 784 of 2012, [2015] SGHC 63
6. Timeline
| Date | Event |
|---|---|
| Boustead, through a joint venture, was employed to construct a housing development in Al-Marj, Libya. | |
| Boustead’s staff was evacuated from Libya. | |
| United Nations Security Council passed Resolution 1970 (2011). | |
| United Nations Security Council passed Resolution 1973 (2011). | |
| Bank of Commerce and Development sent a SWIFT message to Arab Banking Corporation requesting an extension of CG39 or payment of the full sum. | |
| Boustead wrote to ODAC stating that a force majeure event had occurred. | |
| Bank of Commerce and Development sent a second extend or liquidate request to Arab Banking Corporation. | |
| Boustead commenced Originating Summons No 503 of 2011 against Arab Banking Corporation. | |
| Bank of Commerce and Development made a demand on Arab Banking Corporation for payment under CG39. | |
| Boustead obtained an ex parte injunction restraining Arab Banking Corporation from extending the validity of or making payments under the CGs. | |
| Bank of Commerce and Development sent a first extend or liquidate request for CG38 to Arab Banking Corporation. | |
| Bank of Commerce and Development sent a second extend or liquidate request for CG38 to Arab Banking Corporation. | |
| Bank of Commerce and Development made a demand on Arab Banking Corporation for payment under CG38. | |
| Bank of Commerce and Development sent copies of the ODAC Notices to Arab Banking Corporation. | |
| Arab Banking Corporation forwarded copies of the ODAC Notices to Boustead. | |
| Assistant registrar set aside the order granting leave for service of the originating process out of jurisdiction in OS 503/2011. | |
| Bank of Commerce and Development wrote to Arab Banking Corporation stating that ODAC requested an extension or liquidation of the APG. | |
| Arab Banking Corporation responded to Bank of Commerce and Development acknowledging the message and reminding them of the injunction. | |
| A judge of the High Court dismissed Boustead's appeal and discharged the injunction. | |
| Boustead commenced Suit No 730 of 2012 against Arab Banking Corporation. | |
| Boustead made an ex parte application for a second interim injunction, which was granted. | |
| Arab Banking Corporation made a consolidated demand for payment of US$18,781,481.20 under the facility agreement. | |
| Boustead responded to Arab Banking Corporation's facility agreement demand by email. | |
| Arab Banking Corporation served an event-of-default notice on Boustead under the facility agreement. | |
| Arab Banking Corporation commenced Suit No 784 of 2012. | |
| Bank of Commerce and Development wrote to Arab Banking Corporation asking for an update on the Singapore court proceedings. | |
| Arab Banking Corporation provided a lengthy response detailing the progress of the Singapore litigation. | |
| Bank of Commerce and Development responded, stating that the dispute was a matter between Boustead and Arab Banking Corporation. | |
| Judgment reserved. | |
| The appeal to this decision in Civil Appeal No 70 of 2015 was dismissed by the Court of Appeal. |
7. Legal Issues
- Fraud
- Outcome: The court found that ABC acted fraudulently in the reckless sense when making the FA Demand, as it had knowledge of BCD's fraudulent CG Demands.
- Category: Substantive
- Sub-Issues:
- Reckless disregard for truth or falsity
- Turning a blind eye to fraud
- Related Cases:
- [1978] QB 159
- [1983] 1 AC 168
- [1985] 2 Lloyd’s Rep 554
- (1889) 14 App Cas 337
- Unconscionability
- Outcome: The court held that it would be unconscionable for ABC to obtain payment from Boustead under the FA, considering the circumstances.
- Category: Substantive
- Sub-Issues:
- Abuse of contractual rights
- Unfairness in demanding payment
- Related Cases:
- [2012] 3 SLR 352
- [2000] 1 SLR(R) 117
- [2011] 2 SLR 47
- Validity of Demand Guarantees
- Outcome: The court found that the CG Demands conformed to the requirements of the CGs under English law.
- Category: Substantive
- Sub-Issues:
- Conforming demand requirements
- Strict compliance with terms
- Related Cases:
- [1978] QB 159
- [1986] 2 Lloyd’s Rep 146
- [2013] 2 Lloyd’s Rep 477
- Exclusion of Liability for Negligence
- Outcome: The court held that clauses 6.6, 6.8, and 6.9 of the FA were not exclusions of liability for negligence and were therefore not caught by s 2(2) of the UCTA.
- Category: Substantive
- Sub-Issues:
- Reasonableness of exclusion clauses
- Application of Unfair Contract Terms Act
- Implied Terms in Contract
- Outcome: The court rejected Boustead's arguments for the implication of terms into the FA.
- Category: Substantive
- Sub-Issues:
- Duty to examine documents with reasonable care
- Duty not to make demands with knowledge of invalidity
- Related Cases:
- [2013] 4 SLR 193
8. Remedies Sought
- Declaration of discharge from liabilities
- Permanent injunction restraining payment
- Damages
9. Cause of Actions
- Breach of Contract
- Fraudulent Claim
- Unconscionable Conduct
10. Practice Areas
- Commercial Litigation
- Banking Litigation
- International Trade
- Contract Disputes
11. Industries
- Construction
- Banking
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Edward Owen Engineering Limited v Barclays Bank International Limited | Queen's Bench | Yes | [1978] QB 159 | England and Wales | Cited for the principle that payment must be made regardless of how unfair it may be in the circumstances. |
| Siporex Trade SA v Banque Indosuez | Unknown | Yes | [1986] 2 Lloyd’s Rep 146 | England and Wales | Cited for the commercial role that a demand guarantee serves, treated as the equivalent of cash. |
| United City Merchants (Investments) Ltd and Glass Fibres and Equipment Ltd v Royal Bank of Canada and others | House of Lords | No | [1983] 1 AC 168 | England and Wales | Cited for the principle that a bank may refuse to pay on a demand where the beneficiary is a party to the fraud, the bank has knowledge of the fraud, and the beneficiary has been given an opportunity to answer the allegation of fraud. |
| United Trading Corporation SA and Murray Clayton Ltd v Allied Arab Bank Ltd and others | English Court of Appeal | No | [1985] 2 Lloyd’s Rep 554 | England and Wales | Cited for the principle that it cannot be in the interests of international commerce that machinery provided for traders should be misused for fraud and for the evidential weight of a failure to explain conduct. |
| Derry v Peek | House of Lords | Yes | (1889) 14 App Cas 337 | England and Wales | Cited for the classic statement of fraud: a false representation made knowingly, without belief in its truth, or recklessly, careless as to whether it be true or false. |
| Enka Insaat Ve Sanayi AS v Banca Popolare dell'Alto Adige SpA | High Court | Yes | [2009] EWHC 2410 (Comm) | England and Wales | Cited for the standard of 'particularly cogent evidence' required to establish fraud. |
| Balfour Beatty Civil Engineering v Technical & General Guarantee Co Ltd | Unknown | No | [2000] CLC 252 | England and Wales | Cited regarding the relevant time for the fraud exception. |
| Solo Industries UK Ltd v Canara Bank | Unknown | No | [2001] 1 WLR 1800 | England and Wales | Cited regarding the relevant time for the fraud exception. |
| European Asian Bank AG v Punjab & SindBank (No 2) | Unknown | No | [1983] 1 WLR 642 | England and Wales | Cited regarding the relevant time for the fraud exception. |
| Indian Overseas Bank v United Coconut Mills Inc | Singapore Court of Appeal | No | [1992] 3 SLR(R) 12 | Singapore | Cited regarding the strict compliance required for demands under letters of credit. |
| Sea-Cargo Skips AS v State Bank of India | Unknown | Yes | [2013] 2 Lloyd’s Rep 477 | England and Wales | Cited for the approach in determining whether a demand made under a performance bond was conforming. |
| Panatron Pte Ltd and another v Lee Cheow Lee and another | Singapore Court of Appeal | Yes | [2001] 2 SLR(R) 435 | Singapore | Cited for the classic statement of fraud found in Derry v Peek. |
| BS Mount Sophia Pte Ltd v Join-Aim Pte Ltd | Singapore High Court | Yes | [2012] 3 SLR 352 | Singapore | Cited for the principle that unconscionability exists as a distinct ground from fraud for restraining payment on a demand. |
| Shanghai Electric Group Co Ltd v PT Merak Energi Indonesia and another | Singapore High Court | No | [2010] 2 SLR 329 | Singapore | Cited for the principle that the restraint of a demand made under a demand guarantee is a substantive matter. |
| Dauphin Offshore Engineering & Trading Pte Ltd v The Private Office of HRH Sheikh Sultan bin Khalifa bin Zayed Al Nahyan | Singapore High Court | Yes | [2000] 1 SLR(R) 117 | Singapore | Cited for the principle that Singapore law is applicable where both the underlying contract and the demand guarantee are governed by Singapore law. |
| JBE Properties Pte Ltd v Gammon Pte Ltd | Singapore High Court | Yes | [2011] 2 SLR 47 | Singapore | Cited for the principle that Singapore law is applicable where both the underlying contract and the demand guarantee are governed by Singapore law. |
| Raymond Construction Pte Ltd v Low Yang Tong | Singapore High Court | Yes | [1996] SGHC 136 | Singapore | Cited for the principle that unconscionability includes elements of abuse, unfairness and dishonesty. |
| Technical & General Guarantee Company Ltd v Mark Patterson | English High Court | Yes | [2003] WL 18223105 | England and Wales | Cited for treating a cross-indemnity on the same footing as a performance bond. |
| Deutsche Bank AG v Chang Tse Wen | Singapore Court of Appeal | Yes | [2013] 4 SLR 886 | Singapore | Cited for the principle that the UCTA addresses clauses that exclude or restrict a liability, obligation or duty. |
| EFT Holdings, Inc and another v Marinteknik Shipbuilders (S) Pte Ltd and another | Singapore High Court | Yes | [2014] 1 SLR 860 | Singapore | Cited for the principle that foreign law is required to be pleaded and proved as a fact. |
| Sakthivel Punithavathi v PP | Singapore High Court | Yes | [2007] 2 SLR(R) 983 | Singapore | Cited for the principle that an expert’s evidence must be sifted, weighed and evaluated. |
| Sembcorp Marine Ltd v PPL Holdings Pte Ltd and another and another appeal | Singapore Court of Appeal | Yes | [2013] 4 SLR 193 | Singapore | Cited for the process of implication is an exercise of giving effect to the parties’ presumed intentions. |
| Foo Jong Peng and others v Phua Kiah Mai and another | Singapore High Court | Yes | [2012] 4 SLR 1267 | Singapore | Cited for the principle that a term which contradicts the express terms of the contract will not be implied. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Unfair Contract Terms Act | Singapore |
| Libyan Commercial Code | Libya |
15. Key Terms and Keywords
15.1 Key Terms
- Demand Guarantee
- Counter-Guarantee
- Facility Agreement
- Performance Bond
- Advance Payment Guarantee
- Fraud
- Unconscionability
- Force Majeure
- Event-of-Default Notice
- Libya
- Al-Marj Project
15.2 Keywords
- demand guarantee
- fraud
- unconscionability
- construction project
- Libya
- injunction
- counter-guarantee
- facility agreement
17. Areas of Law
16. Subjects
- Banking
- Contract Law
- International Trade
- Civil Procedure