Article

Factual Summary: "[A]s security for proper and due performance of works", Contractor/Applicant provided a bank guarantee in the amount of RM 10,475,000 in favor of Owner/Beneficiary. When a dispute arose and Contractor/Applicant terminated its work, Owner/Beneficiary initiated arbitration proceedings and demanded payment on the bank guarantee. Contractor/Applicant then sued Owner/ Beneficiary in the Malaysian High Court to enjoin Owner from receiving payment under the bank guarantee pending the outcome of the arbitration proceedings. The Judge denied Contractor/ Applicant's request for an injunction.

Legal Analysis:

1. Independence; Injunction

Contractor/Applicant argued that an injunction was appropriate because the bank guarantee was intended to secure Contractor/Applicant's performance, and whether or not Contractor/ Applicant had failed to perform under the contract was yet to be determined in the pending arbitration proceedings.

The Judge ruled that the bank guarantee was not a "conditional bond" because it had not incorporated the terms of the building contract. The Judge observed that the only condition was that a demand had to be made. Quoting from the terms of the bank guarantee, the Judge stated that "the terms of the guarantee clearly stipulates [sic] that the bankers must release payment on [Owner/ Beneficiary's] demand notwithstanding any contestation or protest by [Contractor/Applicant] or the guarantor or any third party".

Noting that there was no LC Fraud, the Judge stated that Contractor/Applicant "is not seeking an injunction in relation to the arbitration proceedings [i.e. to enjoin a civil suit] and the [Owner/ Beneficiary's] right arises from the terms of the Performance Bond", distinguishing this case from a claim based on a statute permitting injunctions in aid of arbitration.

Text: The following excerpt from the bank guarantee was quoted in the opinion:

If the [Contractor/Applicant] (unless relieved from the performance by any clause of the Contract or by statute or by the decision of a tribunal of competent jurisdiction) shall in any respect fail to execute the Contract or commit any breach of his obligations thereunder then the [Bank/Issuer] shall pay to the [Owner/Beneficiary] up to and not exceeding the sum of Malaysia Ringgit: Four Million, Three Hundred Sixty Three Thousand Four Hundred Thirty Seven And Sen Ninety Only RM4,363,437- 90, representing 5% of the Contract value or such part thereof, on the [Owner/Beneficiary's] demand notwithstanding any contestation or protest by the [Contractor/Applicant] or by the [Bank/Issuer] or by any other third party. Provided always that the total of all partial demands so made shall not exceed the sum of RM4,363,437-90 and that the [Bank/Issuer's] liability to pay the [Owner/Beneficiary] as aforesaid shall correspondingly be reduced proportionate to any partial demand having been made as aforesaid.

[JEB/pbl]

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