Injunction on Hyflux unit's call on $730k bond lifted

Hyflux Membrane Manufacturing - part of the troubled Hyflux group - won court approval to retrieve about $730,000 from a performance bond frozen since last October in a German bank.

Justice Aedit Abdullah yesterday found the call on the bond by Hyflux to be bona fide, and ordered the injunction placed on it then, by Hyflux sub-contractor Sulzer Pumps Spain, to be discharged.

The performance bond, worth more than €466,000 (S$730,000), had been made by Deutsche Bank in favour of Hyflux to guarantee that Sulzer fulfilled its contractual obligations to Hyflux. The bank did not participate in the court proceedings.

Hyflux is under a court-sanctioned restructuring process that has left creditors empty-handed.

A debt moratorium gives it court protection from creditors until July 30.

In the current case, Hyflux had contracted Sulzer to supply and install pumps in a desalination plant in Oman. After the job was completed, Hyflux found difficulties with the pumps, which failed repeatedly between November 2017 and May last year.

Last October, Hyflux called on the bond and when talks derailed, Sulzer successfully applied ex parte to the High Court to stop Hyflux calling on it.

Sulzer's lawyers K. Anparasan and Sumyutha Sivamani had argued then for the injunction to be issued urgently as it feared any payment made would be irretrievable owing to Hyflux's financial difficulties.

Justice Aedit had granted the temporary injunction then owing to the circumstances, but he noted that it was unclear if the current hearing involving the two sides was delayed by issues arising out of Hyflux's restructuring.

The judge, after hearing submissions from Hyflux lawyers Paul Rabindranath Sandosham and Joan Peiyun Lim-Casanova, found there was "no unconscionability" involved to deny the call on the bond.

"The correspondence and other documentary evidence showed (Hyflux) genuinely and consistently believed that (Sulzer) had breached its warranty obligations," he said in judgment grounds. "Hyflux had consistently maintained that the pump failures were due to design flaws caused by (Sulzer). There was no evidence of mala fide or reprehensible conduct."

Making clear a performance bond is a security that has been bargained for, Justice Aedit said: "Parties calling on bonds are not to be treated differently because they are in the midst of a restructuring. The fact (that Sulzer) may be exposed to the financial constraints of the beneficiary is not good enough reason to bar the call if no other reason exists. This is part and parcel of the contractual arrangement that they have made between themselves in arranging for the performance bond."

Mr Anparasan of WhiteFern LLC, when contacted last night, said his Madrid-based client is considering all options given Hyflux's financial predicament.