A cleaning contractor serving foreign workers’ dormitories fell short on manpower and cleanliness. The dormitory operator deducted payments and called the contractor’s $36,300 performance bond. The contractor sued for underpayment and the bond money; the operator counterclaimed for overpayment.
The dispute
The contract was performance-based. There were no liquidated damages, but a 20% tolerance applied to the stipulated manpower, and clause 5 allowed the client to pay only for manpower actually deployed if the shortfall exceeded that tolerance (at [25]–[26]). The contractor never kept its shortfall within 20%. The contractor claimed $48,300.76 in underpayment; the operator said it had overpaid (at [17]).
Underpayment or overpayment?
The court found that the operator was entitled to pay only for the manpower actually provided once the shortfall exceeded the tolerance, and that it had in fact overpaid. The contractor’s claim for underpayment was dismissed and the counterclaim for $36,427.32 allowed (at [4], [108]).
The performance bond
Following Pun Serge v Joy Head Investments Ltd [2010] 4 SLR 478, unless the contract says otherwise, a performance bond implies a later accounting between the parties: if the bond exceeds the loss, the excess goes back (at [92]). Nothing in the contract excluded that (at [93]).
- Breach. Although no clause said so expressly, the court implied a term that the contractor would provide cleaning to a standard acceptable to the client, given that the contract was outcome-based and measured against KPIs (at [99]). That standard was not met, and the manpower shortfall stayed above 20% throughout (at [101]–[102]).
- Loss. The operator relied on a single email asserting about $107,000 in replacement cleaning costs, with no supporting documents. It had not discharged its burden, and was entitled only to nominal damages of $1 (at [103]–[104]).
The court ordered the operator to repay $36,299, the bond less $1 (at [107]). After setting off the overpayment counterclaim, the contractor owed the operator $128.32, with interest (at [109]–[110]).
Our role
Akesh Abhilash acted for the defendant, the dormitory operator. The court accepted the defendant’s construction of the contract, agreeing that the claimant’s reading “would lead to an absurd outcome” requiring payment however few workers were supplied (at [41]–[42]). The claim for underpayment was dismissed and the counterclaim for overpayment allowed in full (at [4]); after set-off, it was the claimant who owed money (at [109]).
Why it matters
Calling a performance bond is not the end of the matter. The party that calls it should keep the evidence of its actual loss, such as invoices for replacement work, or it may have to give the money back. Contractors facing a call should look for the accounting the law implies.
Common questions
Can the party who calls a performance bond keep the whole amount?
Not necessarily. Unless the contract excludes it, there is an implied accounting between the parties: if the bond exceeds the actual loss, the excess must be repaid.
What if the loss cannot be proved?
The court may award only nominal damages. Here the client produced a single email asserting its replacement cleaning costs, which was not enough.
Akesh Abhilash is a Singapore disputes lawyer with eleven years in practice, acting in commercial, cross-border and criminal matters before the Court of Appeal, the High Court, the State Courts and international tribunals. Read his profile.