Article

Note: Bina Jaya Mantap (Contractor) and Institute of Technology Petronas (Owner) contracted for two buildings. As agreed, Contractor was to obtain a bank guarantee in favor of Owner in the amount of RM 3,700,000, to be available in the event that Contractor breached or could not fulfill its contractual obligations.

After Contractor began work on the contract, it claimed it had suffered obstacles and unreasonable rejections, by Owner and Owner's agents, of subcontractors and work performed. Contractor received a site memo from the consulting engineer company, Meinhardt (Owner's Agent), an agent of Owner that was supervising Contractor, demanding changes in construction plans and more projects. Contractor objected to the requirements and requested a meeting with Owner's Agent. Later, Contractor and Owner's Agent met to discuss the site memo, but Owner's Agent's supposed employee demanded a "cooperation fee" of 5% of the value of the contract that the employee rounded up to RM 300,000. Contractor declined to discuss the fee, which it construed as a bribe, until the next week. When Contractor and Owner's Agent met again, Contractor secretly recorded the conversation in which Owner's Agent's employee again demanded the cooperation fee. The employee said that he would make more objections and requirements for the project and make life difficult for Contractor if the fee were not paid.

Contractor reported the bribe to Owner and sought assurances that Owner would act. Owner did not address the bribe itself but only asked who requested the bribe, but Contractor refused to provide the information without the assurances that action would be taken. Due to further obstacles and impediments in its work, and with the bribe still unresolved, Contractor conferred with legal counsel and sent a letter stating that it viewed the Owner's actions as a substantial breach and a repudiation of the contract. Contractor then terminated the contract and demanded that the bank guarantee not be drawn on.

Owner did not respond to the termination of the contract but instead sent numerous letters to Contractor over the course of three weeks detailing objections to slow or poor work, site management issues, and delay in the progress of Contractor's works. Contractor responded to each letter stating reasons why it stopped work and sent requests for payment of work performed. Owner sent another letter saying it was canceling the contract and making a claim on the guarantee for breach. Finally, Owner denied the allegations made in Contractor's letter and demanded that work be continued.

Contractor then petitioned for an injunction prohibiting Owner from drawing on the guarantee, alleging Owner's interference during Contractor's performance of contractual obligations and concerns over the bribe. Owner contested the allegations and countersued to remove the case to arbitration per the terms of the contract.

The High Court in Malaya, Kuala Lumpur, Dato'Mary Lim Suan, J., granted the injunction on the grounds of unconscionability and removed the case to arbitration.

The High Court ruled that unconscionability could serve as a separate basis for issuing an injunction other than fraud. The court noted, "It would seem from the modern authorities we have read, that in the case of on demand letters of guarantee or performance bonds the courts are now more willing to look beyond the fraud and exception and consider unconscionabilty as a separate and independent ground to allow for restraining order on the beneficiary." The court stated the test for an injunction to issue on unconscionabilty grounds as, "there must be placed before the Court manifest or strong evidence of some degree in respect of the alleged unconscionable conduct complained of, not a bare statement."

[JAH]

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This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.