1 The plaintiffs are building and civil engineering contractors.

2 On 27 November 1987, the plaintiffs entered into an agreement with the Director-General of Public Works (`PWD`) for and on behalf of the government of the Republic of Singapore (`the government`), for the engineering survey and investigation, design, construction and maintenance, of the then proposed Central Expressway Phase II from Bukit Timah Road to Chin Swee Road (`the contract`). The contract sum was $312,888,888.

3 By cl 9 of the conditions of contract, the plaintiffs were required to provide a guarantee in the prescribed form to be issued by an approved bank to be jointly and severally bound with the plaintiffs in a sum equal to 10% of the contract sum.

4 Pursuant to cl 9 aforesaid, the plaintiffs procured the issue of a performance bond (`the bond`) by the Standard Chartered Bank (`the bank`) for the sum of $31,288,888.80. The bond reads:

5 And whereas by cl 9 of the conditions of contract, the contractor must provide a bank guarantee for a sum equal to ten per cent (10%) of the contract sum, for the due performance of the contract.

6 The bond thus expires on the issue of the maintenance certificate under cl 55 of the conditions of contract and any claim thereunder must be made within six months therefrom. The issue of the maintenance certificate itself depends on the issue of the certificate of completion under cl 47(1) of the conditions of contract.

7 Clause 47 reads:

8 Clause 55 of the conditions of contract reads:

9 The period of maintenance stipulated in the contract is one year from the date of issue of the certificate of completion.

10 The completion date stipulated in the contract was 25 January 1991 subject to provisions for extension of time.

11 Work commenced on 25 January 1988. Substantially the whole of the works, including the tunnels, were opened for public use in a formal ceremony on 21 September 1991.

12 On 24 September 1991 the engineer issued a partial completion certificate, under cl 47(3), certifying completion of the bulk of the works including the tunnels with effect from 5 September 1991. He has not to date issued his certificate of completion for the whole of the works because of outstanding works which were left uncompleted by the plaintiffs being removal of the cofferdam in the Singapore River, construction of the river wall, completion of certain ramps, staircases and underpasses and other miscellaneous items. Consequently the maintenance certificate has also not been issued.

13 In the meantime disputes having arisen between the plaintiffs and PWD, the plaintiffs by letter of 14 August 1991 required the said disputes to be referred to arbitration under cl 60 of the conditions of contract. Clause 60 reads:

14 Pursuant to the said reference, the plaintiffs and PWD on behalf of the government on 19 January 1993 appointed Tun Mohamed Suffian to be the sole arbitrator (`the arbitrator`).

15 A set of rules for the arbitration based on the Arbitration Rules of the Singapore International Arbitration Centre was agreed upon (`the agreed rules`), r 18(g) of which reads:

16 By their points of claim filed and served on or about 16 February 1993, the plaintiffs are alleging that there were errors in the tender documents relating to the highway alignments and the drawings and flood level requirements given on the drawings and specifications and maladministration of the contract by PWD. The plaintiffs are also contending that the works were substantially completed on 15 August 1991, that is 202 days after the completion date of 25 January 1991 stated in the contract. But they contend that, for the delays caused by PWD, they are entitled to an extension of time totalling 384 days of which only 73 days have been granted by the engineer. By reason aforesaid, the plaintiffs are claiming a sum of $138,448,900 as at September 1991.

17 By their points of defence, filed and served on or about 17 September 1993, PWD deny the plaintiffs` claim. PWD are also contending that the tunnels are defective and that this was confirmed by a quality audit report of the engineering consulting firm of Harris & Sutherland. PWD`s claim for remedial costs and liquidated damages for delay amounts to $87,000,000. These are the subject matter of PWD`s counterclaim.

18 The counterclaim was filed and served on or about 15 November 1993. On 23 December 1993, at a hearing before the arbitrator, PWD applied for judgment in default of defence due within one month from date of service of the counterclaim. The plaintiffs however contended that the counterclaim was not within the reference to arbitration as the claims therein had not been referred to the engineer for his decision in accordance with cl 60 of the conditions of contract. Following this objection, PWD referred their counterclaim to the engineer with a view to making a separate reference to arbitration but did not withdraw the counterclaim which remained filed with the arbitrator.

19 In the meantime, by letter of 5 February 1994, PWD notified the plaintiffs and the bank of their intention to call on the bond on 19 February 1994.

20 On receipt of PWD`s letter of 5 February 1994, the solicitors for the plaintiffs wrote on 9 February 1994 to the arbitrator for an order `restraining` PWD from doing so until the matter could be heard on 25 February 1994.

21 On 14 February 1994, the arbitrator made the interim restraining order reading:

22 On the same day, the Attorney General (`A-G`) on behalf of PWD wrote to the arbitrator pointing out, inter alia , that the arbitrator did not have jurisdiction to grant an injunction either under the agreed rules, the Arbitration Act (Cap 10) or at common law. In particular, the A-G drew the attention of the arbitrator to s 27 of the Government Proceedings Act (Cap 121) which reads:

23 On 15 February 1994, the arbitrator wrote to the plaintiffs` solicitors copied to the A-G as follows:

24 On the same day the plaintiffs` solicitors submitted that the arbitrator under the agreed rules had power to determine his own jurisdiction and that if he revoked his order, grave injustice would be done.

25 After considering the said submission by letter of 15 February 1994 on behalf of the plaintiffs and the response of the A-G of the same date, the arbitrator on 16 February 1994 withdrew his order of 14 February 1994.

26 However, following further submissions by letters from the plaintiffs` solicitors, the arbitrator on 18 February 1994, made the following order:

27 I therefore direct that this matter be debated at our next meeting in Singapore on 25th of this month. Until then, I direct the respondent do preserve the bank guarantee dated 13 August 1988 by desisting from making a call on it in the manner proposed in its letter of 5 February; otherwise it would cause injustice to the claimants.

28 Notwithstanding further objection from the A-G, the arbitrator refused to revoke his order of 18 February 1994. The matter then came up for hearing before the arbitrator on 25 February 1994. At the end of the hearing the arbitrator made an order in the following terms:

29 On 4 March 1994, the A-G filed OM 19/94 for, inter alia , `a declaration that the interim award dated 25 February 1994` was invalid and or void.

30 On 7 March 1994, the arbitrator gave his grounds of decision which read:

31 I am of the opinion that the declaration is neither an injunction nor an order for specific performance which even a court is not allowed to issue by s 27(1) of the Government Proceedings Act (Cap 121): it is merely an order declaratory of the rights of the parties which the Act allows a court to make. Moreover, the money payable under the bank`s letter of guarantee is property or thing under the control of the PWD: and r 18(g) of SIAC Rules expressly allows an arbitrator to make an order for its preservation, which my declaration is.

32 The letter of guarantee by its terms clearly relates to the contract in question in this arbitration. It refers to the joint venture, to the project to be undertaken by the joint venture and to cl 9 of the conditions of contract. It cannot be said that the joint venture has no standing in it.

33 On 22 March 1994, the plaintiffs filed these proceedings for the following reliefs:

34 This application came up for hearing before me immediately after the conclusion of the hearing in OM No 19/94 in which I made an order declaring that the arbitrator`s order of 25 February 1994 `is not binding on the applicant`, that is PWD, government of the Republic of Singapore, with costs reserved. [ See Re An Arbitration between Bocotra Construction Pte Ltd & Ors v Public Works Department, Government of the Republic of Singapore .]

35 At the hearing, counsel for the plaintiffs abandoned prayers 3, 4 and 5. He pursued prayers 1 and 2. He requested a ruling on prayer 6 (which raised issues similar to those in OM No 19/94) based on his arguments in the originating motion. Much depends on whether on its true construction the bond is a `demand bond` payable on demand or one subject to finding by the arbitrator of default on the part of the plaintiffs. I will therefore deal with the three prayers in the order of prayer 2, 1 and 6.

36  Prayer 2

37 By this, the plaintiffs are seeking a declaration that on the true construction of the bond and in the circumstances the guaranteed sum is only payable upon proof of default on the part of the plaintiffs, that is, to the satisfaction of the arbitrator.

38 The bond in favour of the government was furnished by the plaintiffs pursuant to cl 9 of the conditions of contract. Clause 9 stipulated that the bond `shall be in the prescribed form`. The form was prescribed in Appendix II to the Instructions to Tenderers. Therefore the wording of the bond had been agreed to by the plaintiffs.

39 Clause 1 states that the bank `hereby agree to pay to the government forthwith on demand any sum or sums ...` up to $31,288,888.80. The bank therefore has to pay on demand under cl 1. Under cl 2, `on receipt of the guaranteed sum` the government `shall be entitled to utilised [sic] it to satisfy such liability of the [the plaintiffs] as [the government] may determine, arising from or due to the default of the [plaintiffs].` The determination [on receipt of the guaranteed sum] `of such liability of the [plaintiffs] ... arising from or due to the default of the [plaintiffs]` is by the government. The balance, if any, of the guaranteed sum shall then be refunded to the bank. This is inconsistent with the contention that the bond is to be called on only after the arbitrator has found default on the part of the plaintiffs.

40 Further, if it was intended that the bond be conditional upon proof of liability as found by the arbitrator, the expiry date of the bond would not have hinged on the issue of the maintenance certificate as it might expire before the finding of default by the arbitrator.

41 Lastly, if the bond is only to be called up after the arbitrator has determined the default, the amount to be called up to satisfy the liability would then have been known and that would be the amount the bank will pay, in which case there will be no occasion for the balance of the guaranteed sum (less such liability) to be refunded to the bank because there would have been no demand under the bond until the amount of such liability had been determined by the arbitrator.

42 That the bond so worded is a demand bond is consistent with banking practice otherwise banks will have the unenviable task of deciding whether payment when demanded has to be made. In Esal (Commodities) Ltd & Anor v Oriental Credit Ltd & Anor , the performance bond stated:

43 Ackner LJ said at p 549:

44 Mr Tugendhat supports both constructions by relying upon the words in the undertaking immediately following `written demand` -

45 I am therefore of the view that the bond is a demand bond under which the bank has to pay to the government on demand the amount demanded up to the limit of the `guaranteed sum`.

46  Prayer 1

47 By s 27 of the Government Proceedings Act, where in any proceedings against the government, any such relief is sought as might in proceedings between private persons be granted by way of injunction, the court shall not grant an injunction but may in lieu thereof make an order declaratory of the rights of the parties. Thus the principles governing the grant of a declaration in these proceedings are those pertaining to the grant of injunction in actions between private persons. Hence the issue is whether the government if it were a private person should be restrained from calling on the bond which I have found to be a demand bond.

48 It is the government`s contention that they have counterclaims amounting to $87,000,000 for remedial works, uncompleted works and liquidated damages for delay in completion. It is not alleged that the government does not have a bona fide belief that there has been default on the part of the plaintiffs. The plaintiffs, however, are contending that the certificate of completion under cl 47(1) ought to have been issued on 15 August 1991 and the maintenance certificate 12 months thereafter. If so, the Bond would have expired by March 1993 at the latest. Since these issues are before the arbitrator, the government should not be allowed to call on the Bond until after the arbitrator has adjudicated on these issues.

49 On the law, I should begin with RD Harbottle (Mercantile) Ltd v National Westminster Bank Ltd & Ors . In that case the English plaintiffs entered into three contracts of sale with Egyptian buyers and each contract provided that the plaintiffs would establish a guarantee confirmed by a bank in favour of the buyers. The terms of the guarantees were very wide and the amounts secured were payable on the buyers` demand. They were established with Egyptian banks and confirmed by the defendant English bank at which the plaintiffs had an account. The buyers demanded payment under the guarantees. The plaintiffs, who contended that the buyers had no justification for demanding payment, brought three actions against the English bank and, in each action, the other defendants were the relevant Egyptian bank and buyers. They sought a declaration against each defendant that the buyers had no right to draw on the guarantees and injunctions restraining all the defendant banks from making, and all the buyers from demanding, payment under the guarantees. The plaintiffs applied ex parte for, and were granted, interlocutory injunctions against each defendant. The Egyptian defendants did not enter an appearance and took no part in the subsequent proceedings. In granting the English bank`s application to have the injunctions against them discharged, Kerr J held (1) that, even on the assumptions that the courts would entertain an action against the English bank and the Egyptian banks for a declaration that the buyers were not entitled to payment under the guarantees and that the court had rightly granted injunctions on the ex parte applications in circumstances where it was obvious that the actions were a contrivance to obtain relief against the English bank and the Egyptian defendants and to bring the latter within the jurisdiction of the court, the plaintiffs would only have a cause of action against the English bank if the English bank debited their account in breach of contract and, since the plaintiffs would have an adequate remedy in damages and the damage incurred by the English bank if it failed to honour its international obligations far outweighed any damage likely to be incurred by the plaintiffs, the court would discharge the injunctions granted against the English bank; (2) that the court had an inherent jurisdiction to discharge or refuse to continue an injunction; and, since it was doubtful whether the injunctions should have been granted, there were no grounds for continuing them and they had no legal force in Egypt, the court would exercise that jurisdiction to discharge the injunctions made against the Egyptian defendants, although they had neither entered an appearance nor applied for them to be discharged. In the course of his judgment, Kerr J said at pp 155-156:

50 In Edward Owen Engineering Ltd v Barclays Bank International Ltd & Anor the plaintiffs, English suppliers, contracted with Libyan customers to erect greenhouses in Libya and agreed that a performance guarantee for ten per cent of the contract price should be issued by the defendant English bank and lodged with a Libyan bank. The contract, which was governed by Libyan law, provided that an irrevocable confirmed, or confirmable, letter of credit payable at the English bank was to be opened in favour of the plaintiffs. After the plaintiffs had given a counter-guarantee to the English bank, the latter on their own responsibility and on the plaintiffs` behalf gave a performance bond for £50,203 to the Libyan bank and confirmed that their guarantee was payable `on demand without proof or conditions.` The Libyan bank then issued a guarantee bond for the plaintiffs for the same sum in favour of the Libyan customers. No letter of credit which complied with the terms of the contract was opened by the customers and the plaintiffs, after telling them that the guarantee given had no effect, accepted their conduct as a repudiation of the contract. At the customers` request the Libyan bank then claimed £50,203 under the guarantee from the English bank. The plaintiffs obtained an interim injunction on their ex parte application to restrain the English bank from paying the Libyan bank. Kerr J discharged the injunction. The appeal by the plaintiffs was dismissed by the Court of Appeal. In dismissing the appeal, Lord Denning MR said at pp 170-171:

51 All this leads to the conclusion that the performance guarantee stands on a similar footing to a letter of credit. A bank which gives a performance guarantee must honour that guarantee according to its terms. It is not concerned in the least with the relations between the supplier and the customer; nor with the question whether the supplier has performed his contracted obligation or not; nor with the question whether the supplier is in default or not. The bank must pay according to its guarantee, on demand, if so stipulated, without proof or conditions. The only exception is when there is a clear fraud of which the bank has notice.

52 In Howe Richardson Scale Co Ltd v Polimex-Cekop and National Westminster Bank Ltd , the sellers on 15 January 1976 entered into a contract with the buyers (Polimex) for the sale and delivery of some valuable equipment. The contract price was £500,000 of which £25,000 was payable in advance within 45 days of the signing of the contract `on presentation by the seller bank guarantee`. £50,000 was to be paid by `irrevocable, unconfirmed letter of credit` opened upon notification that the goods were ready for shipment and the balance of £425,000 was payable `within Westminster Bank/Bank Handlowy financial agreement of 20 March 1975`. The guarantee which was provided by the second defendants, the National Westminster Bank Ltd, stated, inter alia:

53 The sellers received the advance payment of £25,000. For some reason Polimex did not open the letter of credit in connection with the second instalment, but the sellers completed the manufacture of a greater part, if not all, of the goods, and in due course received through the financial agreement a substantial sum of money somewhere between £300,000 and £400,000 on account of the final instalment. It appeared, although the facts were not clear, that no shipping instructions were ever received by Polimex. Polimex claimed repayment of £25,000 under the guarantee, on the ground that the delivery had not been made by 31 March 1977. The second defendants took the view that it was bound to honour its obligations under the guarantee and advised the sellers of its view. The sellers applied for an injunction to restrain Polimex from claiming under the guarantee. The application was refused. The sellers` appeal was dismissed by the Court of Appeal which also refused leave to appeal to the House of Lords. Roskill LJ, with whom Cumming-Bruce LJ agreed, said at p 165:

54 I should add that Polimex have not been represented before us. The bank, although the plaintiffs have not sought to appeal against the setting aside of the injunction against it, has appeared. Mr Peter Scott, for the bank, relied upon a judgment of Mr Justice Kerr in Harbottle v National Westminster Bank Ltd [1977] 3 WLR 752, as justifying the bank`s intervening in these proceedings in order to resist the grant of the injunction against Polimex. It seems to me that Mr Justice Kerr`s judgment, the correctness of which has not been questioned before us, justifies this action which the bank has taken in appearing.

55 In Intraco Ltd v Notis Shipping Corporation , the sellers at the beginning of April 1981, sold their vessel `Bhoja Trader` to the buyers. The contract was in the Norwegian sale form which included a guarantee that the vessel at the time of delivery was free from all encumbrances and maritime liens or other debts whatsoever and further provided an indemnity in respect of the consequences of any such claim incurred prior to the time of delivery. The purchase price was US$810,000 with US$41,000 being paid as a deposit, US$369,000 payable in cash on delivery and the balance of US$400,000 being paid within 90 days of delivery by means of a bank guarantee which provided, inter alia , for payment to:

56 Delivery took place at Calcutta on April 16, and shortly afterwards the vessel was arrested. The buyers had to provide security of US$200,000 to obtain her release and consequently alleged that they had suffered large losses due to cancellation of cargo bookings for the vessel. The buyers claimed against the sellers for breach of contract. As the sellers had no assets in England other than their rights under the bank guarantee, the buyers applied ex parte to Goff J for an injunction restraining the sellers from calling upon the bank to make payment. Goff J granted the injunction until the matter could be considered inter partes . At the inter partes hearing Staughton J refused to continue the injunction. On appeal, the buyers` appeal was dismissed by the Court of Appeal. Leave to appeal to the House of Lords was refused. Donaldson LJ who delivered the judgment of the Court of Appeal said at p 257:

57 Although this line of authorities shows the court`s reluctance to restrain a bank from making payment under the guarantee or interfere with the sellers` right to call upon the bank to do so except in cases of fraud, the grant or refusal of an injunction is subject to the principles governing the exercise of the inherent equitable jurisdiction of the courts. `The courts have a discretion to grant interlocutory injunctions whenever it is just or convenient to do so.`: per Kerr J in the Harbottle case3 at p 158. To determine if it is `just or convenient` to restrain a call on the bond, one cannot completely disregard the underlying contract.

58 In Potton Homes Ltd v Coleman C ontractors Ltd , the plaintiffs by three contracts agreed to supply the defendants with prefabricated building units. The plaintiffs furnished a performance bond for each contract. The plaintiffs claimed under the contracts. It was admitted that £89,621 was due. The balance was disputed. The defendants also alleged defects particularly with regard to the second contract and made a demand upon the performance bond for the second contract which was for £68,816.92. The plaintiffs obtained an interim injunction restraining the defendants from calling on that performance bond. The plaintiffs then applied for summary judgment for their claim and the deputy judge gave judgment for £89,621 but ordered a stay of execution. He held that he had no power to restrain the defendants from calling on the performance bond but ordered under the Rules of the Supreme Court O 29 r 2(1) that the proceeds of the call on the performance bond be frozen and paid into a joint account. The defendants` appeal was allowed by the Court of Appeal which held that the proceeds of the call on the first demand bond were to be treated as cash in hand and the bank was both obliged and right to pay the defendants £68,816.92. But in the course of his judgment, Eveleigh LJ said at p 28:

59 May LJ, on the other hand at p 31, said:

60 The approach of Eveleigh LJ in the Potton Homes case7 was also that taken by LP Thean J (as he then was) in Royal Design Studio Pte Ltd v Chang Development Pte Ltd . There, by an agreement dated 11 July 1988 made between the plaintiff and the defendant, the plaintiff agreed at its own cost and expense to construct and complete for the defendant nine units of 3-storey terrace houses, and, in consideration therefor, the defendant agreed on completion of construction of the terrace houses and issue of the temporary occupation licences in respect thereof to convey to the plaintiff 31/2 units of the terrace houses. Pursuant to the agreement, the plaintiff procured the issue of a performance bond of $120,000. Under the agreement, the plaintiff was to complete construction within 14 months and to secure issue of the temporary occupation licences within 17 months from the date of the permit to commence or carry out building works issued to the defendant by the Building Control Division. Disputes arose between the plaintiff and the defendant. The plaintiff complained that the defendant had delayed some of the payments under interim certificates and such delay had put a severe strain on the plaintiff`s cash flow and hampered the progress of the works, thereby resulting in delay in the works. The defendant, on the other hand, complained that the plaintiff had been guilty of delay in the construction of the houses within the time agreed upon. The defendant had extended the time for completing the construction but reserved its right to impose liquidated damages. On 1 May 1990, the defendant by notice in writing terminated the agreement and requested the plaintiff to vacate the defendant`s land and premises. The plaintiff thereupon instituted action against the defendant and obtained ex parte injunctions to restrain the defendant from calling on the performance bond and from evicting the plaintiff from the defendant`s land and premises. The defendant applied by notice of motion for a discharge of the two injunctions and also for an order that the plaintiff vacate the land and premises of the defendant. LP Thean J discharged only the second injunction. He refused to discharge the injunction restraining the defendant from calling on the bond. One of his principal reasons for this was that the defendant was more than adequately secured. At p 234, this was what the learned judge, after referring to the dicta of Eveleigh and May LJJ in Potton Homes , said:

61 On the material before me, it appears that the plaintiff had carried out a substantial part of the construction of the nine units of the terrace houses. Its complaint is that it could not proceed with the construction of the houses because the defendant refused to make the interim payments and the defendant`s architect did not issue any further interim certificate after the sixth interim certificate. Under the agreement the plaintiff, on completion of the construction and issue of the temporary occupation licence would be entitled to the 31/2 units of the houses, and these 31/2 units have been sold for a total amount of $1.575m; the sales were made by the defendant and are yet to be completed, and the legal ownership of these units is still vested in the defendant. The defendant has paid to the plaintiff only $948,021.21 and a considerable sum of money is still in the hands of the defendant, which, if upon resolution of the dispute the plaintiff is found liable to pay damages to the defendant for breach of contract, can be applied by the defendant to set off such damages payable. In addition, Leslie Yeo Hern, the director of the plaintiff, had issued a personal guarantee to the defendant in the sum of $1m and there is no suggestion that this guarantee is worthless. Taking into account all these matters, it would be wrong, in my opinion, merely to accept the assertion of the defendant that the plaintiff was in breach of contract; that on that ground the defendant was entitled to call on the bond, and that the bond is like a letter of credit, and not to consider whether or not the defendant should be restrained from calling on the bond. All the relevant facts of the case must be considered.

62 But in the exercise of the court`s equitable jurisdiction unless the facts otherwise warrant it as in the Royal Design Studio case8, an ongoing arbitration on the disputes arising out of the underlying contract is not a ground on which to restrain the beneficiary from calling on the performance bond so long as he has an honest belief that there is a default by the other party to the underlying contract which entitles him to call on the performance bond.

63 In State Trading Corporation of India Ltd v ED & F Man (Sugar) Ltd & Anor the facts were that in April 1980, the plaintiffs had agreed to sell a quantity of sugar to the first defendants (Man), to be delivered in instalments from May to July 1980. The contract required the plaintiffs to `establish performance bond of 5 through I class bank in favour of buyers for maximum quantity under the contract immediately,` which they did through the second defendants, the State Bank of India. The bond provided that the bank would stand surety for the plaintiffs` due performance of the contract and that `should the seller fail for whatever reasons to carry out ... its obligations under the ... contract [the bank would] make payment immediately upon [the buyer`s] giving ... notice of the default on the part of the seller, notwithstanding any dispute between the seller and [the buyer].` The bank also agreed that the seller`s notice would be conclusive proof of default. There were the usual force majeure savings in the sale agreement. After part delivery had occurred, the Indian government barred any further export of sugar. Further deliveries were therefore not made. The defendant buyers accordingly proposed to give notice of default to the bank under the bond. The plaintiffs denied that they were in breach, relying on the force majeure clause. There were arbitration proceedings on foot to settle the question. Meanwhile, the plaintiffs were granted an ex parte order restraining the first defendants from giving notice to the bank under the bond. The injunction was discharged at the inter partes hearing and the plaintiffs appealed. The appeal was dismissed. It was held by Lord Denning, with whom Shaw and Griffiths LJJ agreed, that in earlier cases where the banks there had already received notice of default the performance bond had been held to be effective. However, the fact that the plaintiffs before him had challenged the allegation of default before notice had been served under the bond did not alter matters. Despite the interlocutory nature of the hearing, the plaintiffs were wrong to contend that a term must be implied in the sale agreement that notice of default would only be served when reasonable and just cause for doing so existed or where there was some evidence of default. Such a term would strike at the purpose and efficacy of the performance bond. He said:

64 Lord Denning went on to state that the first defendants were in any case sufficiently substantial to meet any future judgment for damages if notice of default had been wrongly given. The bond was there so that, on notice of default being given, the buyers would receive money in hand against their damages claim for non-performance. Such bonds fulfilled a most useful rule in international trade. The courts must see that they were honoured.

65 Thus the fact that there is an ongoing arbitration between the parties before the arbitrator in which a finding on the date on which the maintenance certificate ought to have been issued may be made is no reason to stop the calling up of the bond since there is no suggestion that the government does not honestly believe that there has been default on the part of the plaintiffs. If, as Lord Denning in the State Trading Corporation case9 said, the government gives notice of default wrongly, it can meet any damages that may be awarded against it. The balance of convenience is also not in favour of the plaintiffs, because it is difficult to gauge when the final award will be published by the arbitrator. There is also the dispute on whether the government`s counterclaim arising from the alleged defaults for which the bond is sought to be called on is effectively before the arbitrator. Any order having the effect of restraining the government from calling on the bond pending the publication of the final award may cause the same to expire by reason of the delay in the demand for payment under the bond.

66 For the reasons aforesaid, this is not a case in which an injunction would be ordered if the parties were private persons. Therefore it is not one in which a declaratory order should be made.

67 Even if this is a fit case for a declaratory order to be made in lieu of injunction, prayer 1 in seeking `a declaration that the [government] ... is not entitled [to call on the Bond] until after final award in the arbitration` ... has been published, is seeking an interim declaration. [ Emphasis is mine.]

68 This is a relief unknown in law. In International General Electric Co of New York Ltd & Anor v Commissioners of Customs & Excise , the first plaintiff was a British company and a wholly owned subsidiary of the second plaintiff, a company incorporated under the law of the State of New York. The plaintiffs had for upwards of 40 years been importing into Britain a variety of electrical goods bearing the mark `GE` enclosed in a device. In March, the defendants, the Commissioners of Customs and Excise, stopped the plaintiffs` goods upon the ground that their importation into Britain infringed the Merchandise Marks Acts 1887 to 1953, by reason of the mark `GE` thereon, which mark, it was alleged, infringed the mark `GEC`, the trade mark of a British company. The plaintiffs having started an action, inter alia, for a declaration that the defendants were not entitled to detain their goods, moved ex parte for an interim declaration. Plowman J, following the decision of Romer J in Underhill v Ministry of Food , dismissed the motion on the ground that s 21 of the Crown Proceedings Act 1947, conferred no power on the court to make an interim declaration of rights. Section 21 of the Crown Proceedings Act 1947 is in pari materia with s 27 of our government Proceedings Act. On appeal, it was held that an order declaring the rights of parties must in its nature be a final order and (subject to appeal) be res judicata between the parties; and that in proceedings against the Crown it was not possible to obtain an order which corresponded to an interim injunction or an interim declaration which did not determine the rights of the parties but which was only intended to preserve the status quo. In giving his judgment with which Diplock LJ concurred, Upjohn LJ said at pp 789-790:

69 Speaking for my part I simply do not understand how there can be such an animal, as I ventured to call it in argument, as an interim declaratory order which does not finally declare the rights of the parties. It seems to me quite clear that in proceedings against the Crown it is impossible to get anything which corresponds to an interim injunction. When you come to the question of a final injunction, no doubt a declaratory order may be made in lieu thereof, for that finally determines the rights of the parties. But it seems to me quite impossible to invent some form of declaration which does not determine the rights of the parties but is only meant to preserve the status quo.

70 Accordingly, prayer 1 is dismissed.

71  Prayer 6

72 The enforcement and construction of the bond has not been referred to the arbitrator and hence he is not empowered to make the declaration in his order of 25 February 1994. The order was also purportedly made under r 18(g) of the agreed rules. Rule 18(g) is meant to apply to preservation, storage, sale or other disposal of property or thing particularly of a perishable nature which property or thing forms the subject matter of the arbitration or is otherwise relevant thereto. The bond or the money payable thereunder is not property or thing of a perishable nature requiring steps to be taken for its preservation. Neither did r 20.5 empower the arbitrator to make the said order. Rule 20.5 reads:

73 Rule 20.5 thus empowers the arbitrator to order security for the claim or counterclaim if the same has also been referred to him.

74  On costs

75 In the light of the declarations and order I have made, I award the Attorney General costs of these proceedings and of OM No 19 of 1994.

76  Claim dismissed .