Conclusion
Whether the courts of a particular jurisdiction should intervene to issue injunctions to 8.63 restrain unconscionable calls on performance bonds is a policy decision.
The relative ease of making conforming demands on performance bonds makes them potentially oppressive instruments. The traditional fraud exception is very difficult to establish and provides insufficient protection from abusive calls. The unconscionability exception supplements the traditional fraud exception to help better balance the interests of the applicant and the beneficiary. Such intervention will not erode confidence in the use of performance bonds as commercial instruments if the discretion to grant injunctions is exercised sparingly. On the contrary, this could inculcate a culture of integrity in the use of performance bonds. Although the concept of unconscionability is not susceptible to exact definition, this flexibility is also its strength and judges in established legal systems should be well equipped to adjudicate on the issue of unconscionability in a wide range of situations. Where the applicant claims that it should be excused from non-performance as the underlying contract has been frustrated or affected by a force majeure event, and the beneficiary nevertheless calls on performance bond, it may be difficult to assess whether the beneficiary was acting dishonestly or unconscionably. Particularly where force majeure is concerned, it may not be clear if the parties intended the beneficiary to be able to call on the bond after notice of force majeure had been given by the applicant. To avoid uncertainty, it would be useful to add a clause in the underlying contract providing for this situation.The practice relating to the grant of injunctions to restrain calls on performance 8.64 bonds in Singapore reflects many of the features mentioned in the paragraph above.
The Singapore courts have stated that the threshold of unconscionability that had to be established before a court would grant an injunction restraining call on a bond was a high one.
An injunction would be granted only if the entire context of the case was ‘particularly malodorous', and the applicant was able to show a strong prima facie case of unconscionability, which should not be easy to do.[861] A noteworthy development in Singapore is the use of a clause in the underlying contract where the applicant agrees not to seek an injunction to restrain a call on the performance bond except on the ground of fraud, thereby ruling out an application on the basis of unconscionability. The fact that this type of clause has been upheld by the Singapore courts reflects their policy of balancing the interests of the parties. The use of this type of clause would result in less protection for the applicant, but as it had voluntarily agreed to this, the principle of freedom of contract would generally apply.
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