Article

Note: To assure payment for the sale of cable related to the installation of a low voltage electrical project, Brunsfield Communications (Applicant/ Purchaser) arranged with Hong Kong Bank Malaysia (Issuer) to issue an "unconditional or 'on-demand' bank guarantee" [¶7] equal to the purchase price, RM400,000 in favor of Syarikat See Wide Letrik (Beneficiary/Supplier). The contractual award provided that "payment for the equipment shall be made by the [Applicant/Purchaser] to the [Beneficiary/Supplier] 90 days from the date for delivery and that payment shall be guaranteed by a mutually agreed bankers guarantee". [¶7] Beneficiary/Supplier was to deliver the cable in three separate shipments but was unable to do so because Applicant/Purchaser continuously deferred the date of delivery of the goods. Considering Applicant/ Purchaser to be in breach for failure to accept the goods which it had tendered, Beneficiary/Supplier drew on the bank guarantee and Applicant/Purchaser sued Beneficiary/Supplier for fraudulently drawing without having delivered the goods and for declaratory relief preventing payment of the bank guarantee.

The trial judge ruled that Beneficiary/Supplier had fraudulently drawn on the bank guarantee, because it was not payable until the goods were delivered. The Court of Appeal, Zahari, Ali, & Ibrahim, J.J., reversed this decision, ruling that the trial judge erred in considering the evidence.

Applicant/Purchaser "contended that the bank guarantee is conditional and not otherwise" [¶19] because "the bank's liability thereunder is contingent upon the appellant showing that there are sums owing to it and the total amount of the said sums." [¶19] The appellate court concluded that "it is our view that it was intended to be an 'on-demand guarantee'". [¶41]

The appellate court found that the underlying contract did not permit Applicant/Purchaser to change the delivery date and its doing so constituted a breach of the contract. The appellate court accepted evidence from Beneficiary/Supplier that the delivery delays resulted in high storage and interest costs and found no evidence supporting Applicant/Purchaser's claim of fraud.

The appellate court found that the bank guarantee was set to expire soon after Applicant/Purchaser's repeated postponements in its willingness to take delivery. The appellate court also found that Applicant/Purchaser was no longer able to use the cable and that the delays were merely an attempt to prevent Beneficiary/Supplier from drawing on the bank guarantee by letting it expire. Based on these findings, the appellate court ruled that Applicant/ Purchaser had failed to prove beyond a reasonable doubt that Beneficiary/Supplier had committed fraud when drawing on the bank guarantee. The appellate court allowed Beneficiary/Supplier to draw on the bank guarantee.

[JEB/rhw]

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