Singapore High Court clarifies limits on restraining calls on standby letters of credit characterised as performance bonds

DJY v DJZ and another [2025] SGHC(A) 18 concerns a dispute over a call on a standby letter of credit (“SBLC”) issued as security by DJY for a US$774 million contract to construct a semi-submersible oil and gas production rig for DJZ in Country X. Following financial pressures from currency depreciation and high inflation in Country X, the parties amended the contract to increase the contract sum by approximately US$52.8 million.

However, the Federal Audit Court of Country X (“FAC”) later scrutinised the contract and only allowed DJZ to continue making payments to DJY if DJY provided a guarantee to repay sums paid under the contract amendment should it be ordered by the FAC.  DJY accordingly procured an SBLC from its bank, DKA (the second respondent), valued at approximately US$126.6 million.

Under the SBLC terms, a call on the SBLC required:

a) a copy of the notification receipt by [DJZ] with the final decision [from the FAC] declaring the payment is null and void; and

b) the beneficiary’s (DJZ’s) duly signed statement.

In July 2022, the FAC issued its final decision, finding that payments under the contract amendment were invalid and that sums paid to DJY by DJZ therefore had to be repaid.  DJZ subsequently called on the SBLC by presenting a notification receipt (containing a link to the decision) and the requisite signed statement. 

DJY applied to the Singapore High Court for a restraint on the call, arguing that the documents presented did not strictly comply with the SBLC’s terms, and that the call was unconscionable (1). The application was dismissed, with the Court finding that the SBLC was properly characterised as a performance bond, that the notification receipt clearly and explicitly referred to the FAC decision via the provided link, and that DJY failed to establish a strong prima facie case of unconscionability (and there was hence no fraud).  

The potential issue of the FAC’s final decision not being presented independently of a notification receipt (i.e. as a second document rather than a link to the FAC’s website that stated that the requests for review were dismissed) was mentioned for the first time during the hearing (more than two years after the call on the SBLC), by the presiding Judge rather than DJY. 

DJY appealed, advancing a new argument that the demand on the SBLC was not compliant with International Standby Practices, International Chamber of Commerce Publication No. 590 (1998) (“ISP98”), as r 3.06 required the FAC’s final decision to be presented as a paper document (not via a link); and r 4.04 required documents to be presented in the language of the SBLC (i.e. in English, which it was not).

The Court of Appeal refused to permit these new arguments based on ISP98 rr 3.06 and 4.04 as DJY’s arguments had evolved throughout the proceedings and that, on the facts, the alleged discrepancies could have been raised much earlier – no satisfactory explanation was found for the late introduction of these arguments. 

The delay meant that DJZ suffered prejudice from being deprived of the opportunity to rectify the initial call on the SBLC before the SBLC expired, which could have easily been achieved by presenting the FAC’s final decision as a separate paper document. 

Though strictly speaking, obiter, the Court found it necessary to express its view that DJY was estopped by representation from raising the discrepancies belatedly. DJ represented, by its failure to raise the purported discrepancies in a timely manner, that there were no compliance issues with DJZ’s call. DJZ relied on this representation to its detriment, as it was unable to rectify the demand after the SBLC expired. It would thus be unjust to allow DJY to raise these discrepancies now.  The Court further commented that knowledge of the discrepancies is irrelevant for estoppel by representation to operate.  

Further, and in any event, DJY’s case would have failed as ISP98 does not directly govern the relationship between DJY and DJZ given a lack of privity between the parties under the SBLC.  The Court found, on the facts, that DKA was an issuing bank acting under an internal mandate from DJY as the applicant of the SBLC.  Any objections DJY had on DJZ’s call should have been raised with DKA, who would have in turn raised them with DJZ if valid and rejected the call as necessary.  Additionally, r 4.04 of the ISP98 did not apply to the FAC’s decision, as it was not issued by the beneficiary, DJZ (2).

Following the above, unless the nature of the discrepancy rendered the call unconscionable or fraudulent, there was no legal basis to restrain DJZ’s call on the SBLC. DJY must demonstrate a strong prima facie case of unconscionability in order for an injunction to be granted, and none was found here. 

DJY’s arguments that the FAC’s final decision was ambiguous or not final were rejected, with the Court noting that DJY itself had previously accepted the effect of the decision and that all parties, including the banks, had acted on that understanding. DJZ was therefore found to have not acted unconscionably in calling on the SBLC.  Conversely, the Court found DJY’s hands to be unclean (3). 

Finally, though not an issue dealt with in this appeal, the Court noted that the characterisation of the SBLC as a performance bond or a letter of credit was not determinative in this case as the same conclusions would have been reached in either instance.

1. Timeliness of objections to standby letters of credit and/or performance bonds

Objections and discrepancies in respect of calls made under an SBLC or performance bonds must be raised promptly after the call is made. Acceptance or silence may prevent applicants from relying on these objections to restrain any calls as courts may deem that the failure or omission would irreparably prejudice the beneficiary of the bond. 

2. Limited grounds for unconscionability. 

Beneficiaries of performance bonds can take comfort that the threshold for restraining the call on the bond is high. This affirms the existing body of case law that a call can only be restrained on very narrow grounds of unconscionability or fraud.  Applicants attempting to restrain calls, however, should also ensure that they do so with clean hands.

(1) DJY v DJZ and another [2024] SGHC 301.

(2) Paragraph 2 of the official commentary to r 4.04 of the ISP98 also states that any third-party documents are allowed to be in any language unless stipulated by the standby letter of credit:  DJY v DJZ and another [2025] SGHC(A) 18 at [74]. 

(3) The Court stated at [3] that “While it is for the appellant to establish unconscionability to justify the grant of the injunction, it may be tempting to describe the evolving nature of the appellant’s arguments as bordering on being “unconscionable”, particularly since the inordinate and inexplicable delay in raising some of the arguments had caused irreparable prejudice to the first respondent.” and at [93] that “it would be an understatement to describe the appellant’s evolving arguments in this appeal as being opportunistic afterthoughts”.