When a Singapore company gives a performance bond or banker’s guarantee to secure its obligations under a construction or supply contract, it accepts a harsh commercial reality: the beneficiary can usually call on that bond on demand, without proving the company actually defaulted. For a contractor already fighting a payment dispute, a wrongful call can drain working capital overnight and tip a viable business into distress. Singapore’s High Court has a narrow but well established jurisdiction to step in and restrain such a call before the bank pays out. This article explains how that application works, its legal basis, and what a company needs to prepare if it believes a call on its bond is being made unfairly.
1. What the Application Is
A performance bond (sometimes called an on-demand bond or banker’s guarantee) is issued by a bank or insurer at the request of a contractor or supplier, in favour of an employer or main contractor, as security for performance of a contract. The defining feature of an on-demand bond is that the beneficiary can call on it simply by making a written demand, without first proving the underlying contract was actually breached. That is what makes it “as good as cash” for the party holding it, and precisely why it is so dangerous for the party who provided it.
An application to restrain a call on a performance bond or banker’s guarantee is an urgent application to the General Division of the High Court for an interim injunction. The applicant is usually the contractor or subcontractor who procured the bond, and the respondents are typically the beneficiary (the employer or main contractor) and, in some cases, the issuing bank or insurer. The company asks the court to restrain the beneficiary from calling on, or receiving payment under, the bond, and to restrain the bank or insurer from paying out, pending resolution of the underlying dispute (whether by litigation, arbitration, or adjudication under the Security of Payment Act).
Because the whole point of an on-demand bond is to give the beneficiary quick access to cash, the courts have long recognised that this jurisdiction must be used sparingly. Only two grounds are accepted in Singapore: fraud, and the Singapore-specific ground of unconscionability. Absent one of these two grounds (or, in some cases, absent even unconscionability where the parties have contracted it away), the call will stand even if the underlying contractual dispute is genuinely arguable.
This sits alongside other urgent injunction applications a Singapore company may need, such as anti-suit injunctions restraining foreign proceedings and Erinford injunctions preserving the status quo pending an appeal. All three demand quick action and a Singapore Advocate and Solicitor familiar with the court’s general injunctive jurisdiction.
2. Legal Basis
Unlike many court applications a Singapore company might face, there is no standalone “Performance Bond Act”. The jurisdiction to restrain a call is drawn from the High Court’s general injunctive powers, and the grounds for exercising it are built up through case law. The two pillars are as follows.
The statutory source of the court’s power
The application is brought under section 18(2) of the Supreme Court of Judicature Act 1969 (SCJA), read together with the First Schedule to that Act. Paragraph 5 of the First Schedule gives the General Division the power, before or after proceedings are commenced, to provide for “the interim preservation of property which is the subject matter of the proceedings by sale or by injunction”. Paragraph 14 separately empowers the court to “grant all reliefs and remedies at law and in equity, including… an injunction”. Procedurally, the application is filed as an Originating Application under Order 13 Rule 1 of the Rules of Court 2021, which governs applications for an injunction before trial. This is precisely the basis cited in the most recent reported case on point, Chian Teck Realty Pte Ltd v SDK Consortium and another [2023] SGHC 210, where the Originating Application was expressly brought under both provisions.
The two accepted grounds
Because the bond is a separate contract between the beneficiary and the bank, independent of the underlying construction or supply contract, the court will not look behind a call simply because the applicant disputes the underlying default (Master Marine AS v Labroy Offshore Ltd and others [2012] 3 SLR 125). Only two grounds justify an injunction:
- Fraud: the applicant must establish a strong prima facie case that the beneficiary called on the bond knowing its demand was invalid, without honest belief in its validity, or with reckless indifference as to validity. This is a deliberately high bar: see Bocotra Construction Pte Ltd and others v Attorney-General [1995] 2 SLR(R) 262 and Arab Banking Corp (B.S.C.) v Boustead Singapore Ltd [2016] 3 SLR 557, where the only realistic inference on the evidence had to be that the beneficiary had no honest belief in its right to be paid.
- Unconscionability: a ground developed uniquely in Singapore, departing from English law and confirmed by the Court of Appeal in GHL Pte Ltd v Unitrack Building Construction Pte Ltd [1999] 3 SLR(R) 44. It covers conduct that is abusive, unfair or dishonest even if it falls short of fraud in the strict sense.
Critically, parties are free to contract out of the unconscionability ground. In CKR Contract Services Pte Ltd v Asplenium Land Pte Ltd [2015] 3 SLR 1041, the Court of Appeal upheld a clause under which the contractor agreed it could restrain a call only on the ground of fraud, not unconscionability. Many standard-form subcontracts used on Singapore projects now contain exactly this kind of clause, so a company should check its contract carefully before assuming both grounds are open to it. In Chian Teck, decided in 2023, the subcontract contained such a clause and the applicant was confined to arguing fraud alone.
3. Who Can Apply
The application is almost always brought by the party who procured the bond, typically a contractor or subcontractor, though it can equally be a supplier, tenant, or any company that gave a performance bond or banker’s guarantee as security under a commercial contract. The applicant company must show standing, that is, that it is party to the underlying contract (or the party for whose account the bond was procured), and that the bond is or may shortly be the subject of a call.
The respondents are typically the beneficiary of the bond (the employer, main contractor, or counterparty threatening or making the call), and the bank or insurer that issued it, since the order sought will usually restrain that institution from paying out even if the beneficiary ignores the injunction.
Because the application is made in the company’s name, the usual corporate authorisation requirements apply. A board resolution authorising the proceedings, and confirming who is authorised to swear the supporting affidavit, should be in place before filing.
4. Step-by-Step Process
- Act immediately on learning of an actual or threatened call. Once the bank pays out, the funds are usually gone, and a later injunction is of little practical use. Engage a Singapore Advocate and Solicitor the moment a call is threatened, not after the money has left the bank.
- Gather the contractual and factual evidence: the bond, the underlying contract, correspondence relating to the alleged default and the call, and any evidence going to the beneficiary’s state of mind (for fraud) or to abusive or unfair conduct (for unconscionability, where that ground is still available).
- File the Originating Application and supporting affidavit under Order 13 Rule 1 of the Rules of Court 2021, together with a draft order.
- Apply on an urgent or without-notice basis if there is a real risk that the bank will pay out before the respondents can be heard, with a return date for the respondents to be heard shortly after.
- Give the usual undertaking as to damages, compensating the respondents for any loss caused by the injunction if it later turns out to have been wrongly granted.
- Attend the inter partes hearing, where the respondents may argue for the interim order to be set aside or varied.
- Proceed with the underlying dispute. The injunction only preserves the status quo; the question of default still has to be resolved by litigation, arbitration, or adjudication under the Security of Payment Act.
5. Documents Required
| Document | Purpose |
|---|---|
| Originating Application (Order 13 Rule 1, Rules of Court 2021) | Formally commences the application for an injunction before the General Division of the High Court |
| Supporting affidavit | Sets out the facts, the contractual background, and the grounds (fraud and/or unconscionability) relied upon |
| Copy of the performance bond or banker’s guarantee | Establishes the terms on which the beneficiary may call, including any clause excluding unconscionability as a ground |
| Copy of the underlying contract or subcontract | Shows the obligations the bond was meant to secure and any conditions attached to when a call may be made |
| Correspondence on the alleged default and the call | Central evidence of the beneficiary’s state of mind: honest belief, knowledge of invalidity, or reckless indifference |
| Draft order | Sets out the precise injunction sought against the beneficiary and, where relevant, the issuing bank or insurer |
| Undertaking as to damages | Required of the applicant as a condition of obtaining an interim injunction |
| Company’s board resolution | Confirms authorisation to commence proceedings and to swear the supporting affidavit on the company’s behalf |
| ACRA business profile of the applicant company | Confirms the company’s registration details and standing to bring the application |
6. Timeline and Costs
| Stage | Typical Timeline | Typical Cost Range (SGD) |
|---|---|---|
| Preparing the Originating Application and affidavit | 1 to 5 days (often compressed to hours where a call is imminent) | S$8,000 to S$20,000 |
| Urgent or without-notice hearing for interim relief | Same day to a few days after filing | S$5,000 to S$15,000 |
| Inter partes hearing (respondents heard) | 1 to 4 weeks after the interim order | S$10,000 to S$25,000 |
| Full hearing of the injunction application on the merits | 2 to 6 months from filing, depending on complexity and any appeal | S$25,000 to S$80,000 or more |
| Court and filing fees | Payable at filing and at each hearing | S$2,000 to S$6,000 |
These figures are indicative only and vary with the complexity of the dispute, the number of respondents, and whether the matter runs to a reasoned judgment (as in Chian Teck, which ran from filing in September 2022 to judgment in August 2023). Costs escalate quickly if the respondents resist strongly or there is an appeal.
7. What Happens After the Order
If the injunction is granted, the beneficiary is restrained from calling on, or receiving payment under, the bond, and the bank or insurer is restrained from paying out, usually until the underlying dispute is resolved or further order of court. The bond itself typically remains valid and in place; the injunction simply freezes the beneficiary’s access to the proceeds while the dispute is worked out. As the court in Chian Teck made clear, an injunction restraining a particular call does not stop the beneficiary from making a fresh, valid call later if the grounds for the earlier restraint no longer apply.
If the injunction is refused, or later set aside, the bank is free to pay out, and the company will need to pursue any remedy for wrongful call (if it still has one) as a claim for damages against the beneficiary, rather than by stopping the money leaving the bank. This is why acting before payment is made is so much more effective than acting afterwards.
Either way, the underlying commercial dispute, whether over defective work, delay, or a disputed payment claim, still needs resolving on its own merits. Construction companies should consider whether a related adjudication application under the Security of Payment Act, or arbitration under the main contract, needs to run alongside the injunction. Where an adjudication determination is already flawed, an application to set it aside may also be relevant.
Companies should also be aware that if litigation over the underlying dispute follows, the respondent may in turn seek security for costs against the applicant company, particularly where its financial standing is in question. Legal advice should cover this angle from the outset.
8. Frequently Asked Questions
What is the difference between a performance bond and a banker’s guarantee?
In practice the terms are used interchangeably in Singapore. Both describe an instrument, issued by a bank or insurer, under which the issuer promises to pay a sum to a beneficiary on demand, as security for a contracting party’s performance. The precise wording of the document matters far more than which of the two terms appears in its title.
Can I stop a call on the bond just because I dispute that I was actually in default?
Generally, no. An on-demand bond is treated as a contract independent from the underlying contract, so a genuine dispute about default is not, by itself, a ground to restrain payment. The applicant must show fraud or, if the contract allows it, unconscionability.
My subcontract says I cannot restrain a call except for fraud. Does that clause hold up?
Yes. Singapore courts have upheld such clauses, notably in CKR Contract Services Pte Ltd v Asplenium Land Pte Ltd [2015] 3 SLR 1041 and Chian Teck Realty Pte Ltd v SDK Consortium [2023] SGHC 210. If your contract validly excludes the unconscionability ground, you must rely on fraud alone, which carries a higher evidential burden. Have a Singapore Advocate and Solicitor review the exact wording before deciding how to frame the application.
How quickly does the company need to act?
As quickly as possible. Once the bank pays the beneficiary, the funds are generally gone and a later injunction has little practical value. Treat a threatened or actual call as an emergency instruction to your lawyers.
Does restraining the call resolve the underlying construction dispute?
No. The injunction only preserves the status quo over the bond proceeds. The underlying dispute, for example over defective work, delay, or a disputed payment claim, still needs to be resolved through litigation, arbitration, or adjudication under the Security of Payment Act.
What happens if the application fails?
If the court is not satisfied that fraud (or unconscionability) has been made out to the required standard, the injunction is refused or discharged, and the bank remains free to pay the beneficiary. The undertaking as to damages may also bite if an interim injunction was later found to have been wrongly obtained, exposing the applicant to a claim for the respondents’ losses. Directors researching further may find general Singapore litigation resources such as justfollowlaw.com useful background reading.
Need Help With This Matter?
If your company is facing this situation, Raffles Corporate Services can assist with the groundwork, ACRA filings, compliance documentation, and coordinating with experienced Singapore law firms. For matters requiring court proceedings, we work with a panel of experienced Singapore law firms who offer cost-effective and efficient legal service and advice.
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This article is for general information only and does not constitute legal advice. For advice specific to your situation, please consult a qualified Singapore Advocate and Solicitor.
The Editorial Team, Raffles Corporate Services