Posts

Showing posts from February, 2011

Restraining call on a performance bond – functional and commercial reasons

As stated in an earlier post, the provision of refund or performance bond is a key element in shipbuilding contract. This is especially significant between parties from different jurisdiction. The nature of such instrument can either be conditional or on-demand, depending on the terms upon which it may be invoked. An on-demand bond is payable without proof or condition independent of the underlying contract. Its purpose is to provide a security which is to be readily, promptly and assuredly realizable when the prescribed event occurs. The English position regarding on-demand bond is that the bank must pay according to its guarantee, on demand, if so stipulated, without proof or conditions. The only exception is when there is a clear fraud of which the bank has notice [1]. However, the position in Singapore is wider. Apart from fraud (which is the traditional ground for restraining a call on a performance bond), unconscionability is a separate and independent ground for the court to gr