Note: To resolve outstanding bills for the supply of electricity to a golf club in Malaysia, Pearl Island Resort Development Sdn Bhd (Customer) and Tenaga Nasional Bhd (Supplier) agreed to payment in 10 monthly installments, totaling together RM 463,334.08. Customer made the first three installments but failed to make the fourth.

At one point in this process, Customer provided a bank guarantee in the amount of RM 80,000.00 to Supplier. At a later point prior to the entry of judgment, Supplier drew on the bank guarantee and was paid.

Supplier sued Customer for the outstanding electricity charges in the sum of RM 10,747.17, reflecting the additional cost of electricity incurred by Customer minus RM 80,000.00 from the bank guarantee provided by Customer and two other deposit sums totaling RM 16,529.69 paid by Customer and held by Supplier. The High Court (Pulau Pinang), Varghese, J., dismissed Supplier's claim because the statute of limitations barred its action after six years.

Among the allegations, Customer claimed that the drawing on the bank guarantee was wrongful. The opinion does not explain in what respect the drawing was allegedly wrongful, but it may be that it was thought to be due to a breach of contract by Supplier. Since the Judge found that Supplier was not in breach of contract and Supplier had decided to draw on bank guarantee, the Judge's decision apparently included the decision that the drawing was not wrongful.

The Judge found that the limitations statute did not apply in this case because the bank guarantee was a separate contract, not between Supplier and Owner, but between Supplier and the Bank. Bank was to pay Supplier with seven days of notice of default, and Supplier was entitled to enforce this contract without reference to the Owner. Payment did not come from the Owner. Supplier was not time-barred to make this demand on the bank guarantee, so an indefiniteness to when a claim would be time-barred by statute would contradict the purpose of the statute.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.