Articles

In brief

Following the decision by the General Division of the Singapore High Court (“High Court”) in Tradesmen Pte Ltd v. Ten-League Corporations Pte Ltd [2026] 3 SLR 502, in which the High Court considered the principles applicable to the construction of performance bonds and determined that the performance bond in that case was an indemnity bond, not an on-demand bond, the High Court’s decision went on appeal before the Appellate Division of the Singapore High Court (“Appellate Division”) in Civil Appeal No. 55 of 2025, and the Appellate Division dismissed the appeal.

This update discusses the Appellate Division’s analysis and findings in relation to certain new arguments put forward by the beneficiary of the performance bond. The Appellate Division’s decision reinforces that the Singapore Courts will uphold the parties’ contractual and commercial bargain as agreed under the terms of their performance bonds.

In detail

To recapitulate the relevant background facts:

• Ten-League Corporations Pte Ltd. ("Ten-League") engaged Tradesmen Pte Ltd. ("Tradesmen") as the main contractor to undertake certain design and construction works for a building project. The parties’ contract ("Contract") was based on the Real Estate Developers' Association of Singapore Design and Building Conditions of Main Contract (4th Edition, 2022) ("REDAS Conditions").
• Pursuant to the Contract, Tradesmen procured a performance bond ("Performance Bond") from Liberty Insurance Pte Ltd. ("Liberty") in favor of Ten-League.
• Disputes arose between the parties, which eventually led to Ten-League terminating the Contract. The parties are in disagreement as to whether Ten-League's termination of the Contract was wrongful.
• Around six months after its termination of the Contract, Ten-League called on the full amount of the Performance Bond ("Bond Call"). The Bond Call was a bare demand for payment which neither asserted any breach of the Contract on the part of Tradesmen, nor that Ten-League had suffered any losses.
• Tradesmen applied for an injunction to restrain Ten-League’s Bond Call.

The High Court’s decision

The High Court determined that the Performance Bond was an indemnity bond because, amongst other reasons:

• The parties' intention was ambiguous based on the express language of the Performance Bond as the Performance Bond contained clauses suggesting that it could be either an indemnity bond or an on-demand bond. For example, Clause 1 of the Performance Bond provided that Liberty:
  
  … irrevocably and unconditionally undertakes [sic] and covenants [sic] to pay in full immediately upon demand in writing any sum or sums that may from time to time be demanded by [Ten-League].
  
  On the other hand, Clause 2 of the Performance Bond provided as follows:
  
  In the event of [Tradesmen] failing to fulfil any of the terms and conditions of the said Contract, [Liberty] shall indemnify [Ten-League] against all losses, damages … sustained by [Ten-League] up to the sum of the Guaranteed Sum upon receiving [Ten-League's] written notice of claim for payment.
  
  
• Consequently, the High Court went on to consider the terms of the Contract, and noted that the parties deliberately amended the specimen on-demand bond in Appendix 6 of the REDAS Conditions by including Clause 2 as set out above (which had the effect of an indemnity bond).

New argument raised on appeal: Clauses 1 and 2 of the Performance Bond were separate and independent obligations

Ten-League argued on appeal that the obligations in Clauses 1 and 2 could be reconciled on the basis that they should be interpreted disjunctively, giving rise to two separate and independent mechanisms by which Ten-League could call on the Performance Bond.

In response, Tradesmen argued that Clauses 1 and 2 should be read consistently as giving rise to one single indemnity mechanism by which Ten-League could call on the Performance Bond. In particular, Tradesmen argued that the parties could not have intended for the Performance Bond to be both on-demand (Clause 1) and indemnity-based (Clause 2) at the same time because there was no conceivable situation where Ten-League would opt to call on the Performance Bond based on Clause 2 instead of Clause 1. Tradesmen also argued that in cases where agreements contained separate and independent obligations, there had to be clear and unambiguous language to make that explicit.

The Appellate Division agreed with Tradesmen’s arguments and upheld the High Court decision that the Performance Bond was an indemnity bond, not an on-demand bond. In relation to the new argument raised on appeal, the Appellate Division held that the language and nature of the clauses did not clearly and unambiguously support a disjunctive interpretation. The Appellate Division therefore affirmed the High Court’s decision to grant the injunction restraining Ten-League from receiving any part of the guaranteed sum under the Performance Bond.

Key takeaways

This case reinforces the importance of ensuring that the terms in a performance bond are inherently consistent and not potentially contradictory. As seen in this case, ambiguity may arise where one term appears to confer a right to call on the performance bond on-demand, while a separate term states that the right to call on the performance bond is contingent on breach(es) of contract and damages suffered.

Contributed by:

Daniel Ho - Local Principal, Baker & McKenzie, Wong & Leow
Tan Jia Xin - Associate, Baker & McKenzie, Wong & Leow
Shaun Hue - Trainee, Baker & McKenzie, Wong & Leow