DALAM MAHKAMAH TINGGI MALAYA DI KUALA LUMPUR
NO. GUAMAN: D-24 NCC-37-2010
1. KOPERASI BELIA NASIONAL
2. TIDAL MARINE ENGINEERING SDN BHD
(No. Syarikat: 272759-T) … PLAINTIF-
(JABATAN KERJA RAYA MALAYSIA CAWANGAN TERENGGANU) … DEFENDAN
GROUNDS OF DECISION
The Plaintiffs’ application in this suit is for an injunction to prevent the Jabatan Kerja Raya Malaysia (“JKR”) from receiving a sums guaranteed under a Bank Guarantee issued by Malayan Banking Berhad (“Extended Bank Guarantee”). The 1st Plaintiff had been appointed by the Government of Malaysia to carry out construction works for a project, namely “Projek Lebuhraya Pantai
Timur Fasa 2 …dan Persimpangan Bertingkat Ceneh….” This contract was mutually terminated by a Supplemental Agreement dated 16.9.2009. The 1st Plaintiff had submitted its final claim for a sum of RM12,008,800.24 to JKR, and it appeared that JKR agreed in principle to regard RM8,000,000 as payable. The sums guaranteed in favour of JKR were in respect of advance payments made to the 1st Plaintiff, which are now repayable with the Mutual Termination. As submitted by the Plaintiffs:
“The Plaintiffs also have a claim amounting to RM12 million (of which JKR acknowledged RM8 million) but have to date.refused to make payment. As such, it is unconscionable for JKR to hold monies owing to the Plaintiffs’ and yet demand for further payments.”
The 1st Plaintiff is the main contractor while the 2nd Plaintiff is the sub-contractor for the project.
The central issue in this case concerns the question whether a proper demand was made in relation to the Extended Bank Guarantee which had an expiry date on 24.1.2010. I have considered and placed due emphasis on the character of this Bank Guarantee which is an “advance payment” Guarantee for the sum of RM1,976,518.05. Aside from the reduced sum (from RM10,000,000.00 to RM1,976,518.05 and the extension of the expiry date to 24.1.2010), the other terms and conditions remain as per the
earlier Bank Guarantee No. 99060BGP5410758 which expiry date was 26.2.2009.
As an advance payment Guarantee, this Bank Guarantee functions to ensure part of an advance payment made by the Government of Malaysia was to be refunded to it according to its express term and condition. Under Clause 1 of the Guarantee, the Bank (Maybank) shall pay to the Government the stated amount “apabila sahaja Kerajaan membuat tuntutan tanpa mengira apa-apa tentangan atau bantahan daripada kontraktor.” Clause 1 proceeds further to stipulate:
Sekiranya dalam apa-apa keadaan kami melengah-lengahkan membuat pembayaran dan seumpamanya setelah menerima tuntutan daripada Kerajaan, maka pihak Kerajaan berhak menuntut dan berhak dibayar apa-apa kos tambahan sebagai ganti rugi akibat keengganan kami mematuhi syarat-syarat Jaminan ini.”
The demand on the Guarantee was made consistent with the contractual undertakings of the relevant parties here (Koperasi Belia and the Government of Malaysia) as can be expressly seen in Clauses 4.1, 4.2, 4.3 of the Supplemental Agreement on Mutual Termination, particular Clause 4.1 which obligated the Contractor to repay the remaining advance payment of RM1,899,613.83 within two weeks from the date of signing of the Agreement dated 16th September 2009.
Strictly construed, all that is required is for the Government to make a demand on the Guarantee within the validity period, which it did. On the wording of the Guarantee, there is no requirement that this demand must be communicated to the Bank within this validity period. The demand was made on the last day of the validity period i.e. 24.1.2010, but received by Maybank only on 4.2.2010. Maybank has taken the view that the demand is good in the absence of an “express claims period” in the Guarantee. This stand taken by the Bank finds support from the express terms of the Guarantee.
The authorities are clear on the status of an on-demand guarantee. The underlying principle is “autonomy of the documents”, and the parties are not to dispute it on the basis of a dispute with reference to the underlying contract. The only exception is what is described as “the fraud exception” or, by a limited extension, “unconscionable conduct”. For the latter ground see Bocotra Construction Pte Ltd v Attorney-General (No. 2)  2 SLR 733 (A Singapore Court of Appeal decision).
The law on what constitutes an unconditional Bond or Guarantee has been extensively analysed and stated by the Federal Court in China Airlines Ltd v. Maltran Air Corporation Sdn Bhd  3 CLJ 163 and Kerajaan Malaysian v. South-East Asia Insurance Bhd  3 CLJ 705. I wish to add in this connection that the cases do not place much emphasis on the terminology used, whether it be “bond” or “guarantee”. Both are interchangeable.
The Federal Court in China Airlines Ltd drew a distinction between two types of performance bond: a conditional Performance Bond and an unconditional or “on demand” Performance Bond. As for a conditional Performance Bond, the Federal Court held that it is a Bond “whereby the Guarantor becomes liable upon proof of a breach of the terms of the principal contract by the principal and the beneficiary sustaining loss as a result” (at page of the report). The unconditional or “on demand’ Performance Bond, on the other hand, refers to a Bond “which is so drafted that the Guarantor becomes liable merely when a demand is made upon him by the beneficiary with no necessity for the beneficiary to prove any default on the part of the principal in the performance of the principal contract” (at page of the report).
Whether a bond is unconditional/”on demand” bond for a conditional one, is a matter essentially of construction and identifying the intention of the parties in a commercial setting. It is useful in this collection to be reminded of Lord Denning‘s statements in Attica Sea Carriers Corporation v. Ferrostaal Poseidon Bulk Reederai G.M.B.H  1 Llyod’s Rep 250, at p.5):
“The parties can, by clear words, provided that complete performance of the particular stipulation can be a condition precedent: but, in the absence of clear words, the court look to see which of the rival interpretations gives the more reasonable result… the fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result, the more
unlikely it is that the parties can have intended it, and if they do intend it, the more necessary it is that they shall make that intention abundantly clear.” (quoting in part Lord Reid in Wickman v Schuler  A.C. 235)
See also Esso Petroleum Malaysia Inc. v Kago Petroleum
Sdn Bhd  1 CLJ 283 (decision of Peh Swee Chin J), as followed in Bocotra Construction Pte Ltd v Attorney-General (No 2)  2 SLR 733, supra. The underlying purpose of a Performance Bond is to provide security which is to be readily, promptly and assuredly realizable when the prescribed event occurs: (Esal (Commodities) v Oriental Credit  Llyod’s Law Rep 496).
On the evidence there is further nothing to reasonably suggest the demand by the Government of Malaysia was backdated. Hence, the bona fides of the demand cannot be challenged on any substantial grounds. On this issue of bona fides and “unconscionable conduct” too, I am not persuaded there is absence of bona fides despite the assurances given by Dato’ Sr Abdull Manaf Hj. Hashim to postpone demand on the advance payment. Dato’ Sr Abdull Manaf is not the “Pegawai Pengurus Projek” with the authority to decide on this matter, being only the “Pengarah Kanan, Cawangan Kontrak dan Ukur Bahan, Ibu Pejabat JKR”. “P.P.” or “Pegawai Penerima” is specifically defined in the “Syarat-Syarat Kontrak” as “Pengarah Pembinaan Projek LPT Fasa 2, JKR.” This contractual stipulation is
obviously within the knowledge of the Plaintiff and Dato’ Sr Abdull Manaf is not the “P.P.” It is therefore not unconscionable for the Government of Malaysia to take the position that these assurances are not binding on the Government on account of lack of contractual authority. It is also not open for the Plaintiffs to argue that because they have a claim which far exceeds the Guarantee sum, the call on the Guarantee will be unconscionable. To do so will be to venture into the area of a dispute on the underlying contract, and offend the principle of autonomy of the document.
For the reasons, the appropriate order is to dismiss this Originating Summon application with costs of RM10,000.00 to be paid by the Plaintiff to the Government of Malaysia within one month from the date of this Order.
As for the interim injunction granted by this Court on 11.2.2010, the same is discharged. Whatever uncertainty there is on whether a court can grant on interim injunction against the Government by virtue of the peculiar wording of s. 54 of the Specific Relief Act, the Court of Appeal in Superintendent of Lands and Surveys, Kuching Division & Ors. v Kuching Waterfront Development Sdn Bhd  6 CLJ 751 has clearly held that no injunction can lie against the Government, be it interim or final, by virtue of section 29(1) (a) and (b) of the Government Proceedings Act. I must confess I have found it difficult to reconcile this case with the decision in Sabil Mulia (M) Sdn Bhd v Pengarah Hospital Tengku Ampuan Rahimah &
Ors  2 CLJ 122, which is also a Court of Appeal decision, where it was expressly held Section 29 of the Government Proceedings Act 1965 did not prohibit the grant of a temporary injunction against the Government, citing and approving the case of Tengku Haji Jaafar & Anor v Government of the State of Pahang  2 MLJ 105.
Counsel for the Plaintiffs tried to argue that a distinction should be drawn on the facts. The Kuching Waterfront case concerns an exercise of administrative power in relation to a re-entry issue on land, i.e the registration of a memorial of re-entry in the land register in respect of the land belonging to the Plaintiff there. Here there is no such exercise of a similar public administrative function, but instead the dispute with the Government (JKR) concerns a purely commercial transaction. I find it difficult to fit this argument comfortably with the very wide holding of the Court of Appeal which states:
“i. The combined effect of the hurdle of s. 29(1) (a) of the GPA [is] that no injunction may be ordered against the Government…
ii. the balance of convenience founded on public interest or sufficiency of damages favoured the non-issuance of an injunction, regardless of the …statutory provisions.” (at pp 772 – 773 of the report)
Kuching Waterfront is a later decision, and I am bound by it.
( MOHAMAD ARIFF BIN MD. YUSOF ) HAKIM MAHKAMAH TINGGI DAGANG NCC 3 KUALA LUMPUR
Dated 29th June 2010.
For the plaintiff:
For the defendant:
Sanjay Mohan (K. Gobinath with him) Messrs. Kadir, Andri Aidham & Partners.
Jabatan Peguam Negara.