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CASE OF THE WEEK

 

CONTRACT: Performance bonds - Beneficiary's right - Call on bond - Whether unconscionable conduct entitled court to restrain beneficiary from calling on or demanding and receiving monies under bank guarantee or performance bond - Court to consider claim on case to case basis - Whether unconscionability proven

BANKING: Guarantee - Bank guarantee - Demand on guarantee - Whether unconscionable conduct entitled court to restrain beneficiary from calling on or demanding and receiving monies under bank guarantee or performance bond - Court to consider claim on case to case basis - Whether unconscionability proven CIVIL PROCEDURE: Injunction - Demand for payment of bank guarantee - Injunction to restrain respondent from calling upon bank guarantee - Whether unconscionability proven to maintain injunction granted - Whether there were reasons to justify interference with appellate judges' exercise of discretion to set aside injunction - Balance of convenience - Whether favoured refusal of injunction

SUMATEC ENGINEERING AND CONSTRUCTION SDN BHD v. MALAYSIAN REFINING COMPANY SDN BHD
FEDERAL COURT, PUTRAJAYA
ARIFIN ZAKARIA CJ, HASHIM YUSOFF FCJ, ABDULL HAMID EMBONG FCJ
[CIVIL APPEAL NO: 02 (i)-27-2011 (W)]
29 FEBRUARY 2012

HEADNOTES

The appellant (`Sumatec') was appointed by the respondent (`MRC') to be its contractor for a project (`the Structural Steel works contract'). Sumatec was to also provide a bank guarantee for the due performance of the contract. It was Sumatec's assertion that they had duly completed all works required of them by delivery of all agreed steel structure, which was confirmed by the respondent through the issuance of a Provisional Acceptance Certificate. However, a dispute arose between the two parties and subsequently Sumatec was informed that MRC had proceeded to make a demand for payment or encashment of the bank guarantee. Sumatec contended that MRC's call on the bank guarantee amounted to unconscionable conduct and this in itself was sufficient ground to challenge the calling for payments under the said bank guarantee. In the High Court, Sumatec succeeded in obtaining an injunction to restrain the respondent from calling upon the bank guarantee issued by Bank Islam Malaysia Berhad (BIMB). However, the Court of Appeal found that MRC was not guilty of any unconscionable conduct to restrain it from calling on the bank guarantee and had allowed MRC's appeal, concluding that the balance of convenience tipped in favour of MRC and that damages would, at the end of the day, be a sufficient remedy for Sumatec. Herein, leave to appeal was allowed on the sole question namely, whether `unconscionable conduct' on the part of a beneficiary of a bank guarantee or a performance bond was a distinct ground, apart from "fraud", that entitled the court to restrain the beneficiary from calling on or demanding and receiving monies under the bank guarantee or performance bond.

Held (dismissing the appeal with costs)

Per Abdull Hamid Embong FCJ delivering the judgment of the court:

(1) The principle recognising unconscionability as a separate and distinct ground to restrain a beneficiary from making a call on a performance bond accorded with good commercial sense (Kejuruteraan Bintai Kindenko Sdn Bhd v. Nam Fatt Construction Sdn Bhd & Anor; Focal Asia Sdn Bhd & Anor v. Raja Noraini Raja Datuk Nong Chik & Anor). Thus, unconscionability may now be raised as a distinct ground. The determination on whether unconscionability applies in a particular case would therefore depend largely on the material facts. (para 40)

(2) Sumatec raised several incidences of the alleged unconscionable conduct on the part of MRC. These were factual matters which had been carefully evaluated and answered in the Court of Appeal. The learned judges had rightly concluded based on the materials before them, that unconscionability had not been proven to maintain the injunction granted. There were no reasons to justify an interference with the appellate judges' exercise of their discretion to set aside the injunction. It was unnecessary to add, minus or expand on the reasons given by the Court of Appeal to its negative finding of unconscionability on the part of MRC. Balance of convenience favoured refusal of the injunction. (para 43)

Bahasa Malaysia Translation Of Headnotes

Perayu (`Sumatec') dilantik oleh responden (`MRC') sebagai kontraktor untuk satu projek (`kontrak kerja-kerja keluli struktur'). Sumatec juga menyediakan bank gerenti bagi pelaksanaan wajar kontrak. Sumatec menyatakan bahawa mereka telah menyempurnakan semua kerja-kerja yang diperlukan dengan pengantaran semua struktur keluli yang dipersetujui, yang disahkan oleh responden melalui pengeluaran Sijil Penerimaan Sementara. Walaubagaimanapun, pertikaian timbul di antara kedua-dua pihak dan seterusnya Sumatec telah diberitahu bahawa MRC telah membuat tuntutan bayaran atau penunaian bank gerenti. Sumatec berhujah bahawa tuntutan bank gerenti yang dibuat oleh MRC adalah satu tindakan tidak berpatutan dan ini adalah alasan yang mencukupi untuk membantah tuntutan untuk bayaran di bawah bank gerenti tersebut. Di dalam Mahkamah Tinggi, Sumatec berjaya mendapatkan injunksi untuk menghalang responden dari menuntut bank gerenti yang dikeluarkan oleh Bank Islam Malaysia Berhad (BIMB). Walaubagaimanapun, Mahkamah Rayuan mendapati MRC tidak bersalah melakukan apa-apa tindakan tidak berpatutan dan telah membenarkan rayuan MRC, dengan membuat kesimpulan bahawa imbangan keselesaan lebih condong ke pihak MRC dan gantirugi, pada akhirnya, merupakan remedi mencukupi bagi Sumatec. Di sini, kebenaran membuat rayuan dibenarkan atas soalan undang-undang tunggal, iaitu, sama ada `tindakan yang tidak berpatutan' dari pihak benefisiari bank gerenti atau bon pelaksanaan adalah alasan tersendiri, selain daripada `fraud', yang memberi hak kepada mahkamah untuk menghalang benefisiari dari menuntut atau menerima wang di bawah bank gerenti atau bon pelaksanaan.

Diputuskan (menolak rayuan dengan kos)

Oleh Abdull Hamid Embong HMP menyampaikan penghakiman mahkamah:

(1) Prinsip mengiktiraf `tindakan tidak berpatutan' sebagai alasan asing dan tersendiri bagi menghalang seorang benefisiari dari membuat tuntutan terhadap bon pelaksanaan mempunyai maksud komersial yang bagus (Kejuruteraan Bintai Kindenko Sdn Bhd v. Nam Fatt Construction Sdn Bhd & Anor; Focal Asia Sdn Bhd & Anor v. Raja Noraini Raja Datuk Nong Chik & Anor). Oleh itu, tindakan tidak berpatutan kini boleh dibangkitkan sebagai alasan tersendiri. Penentuan sama ada tindakan tidak berpatutan terpakai dalam kes tertentu banyak bergantung kepada fakta-fakta material.

(2) Sumatec telah membangkitkan beberapa kejadian-kejadian yang didakwa tindakan tidak berpatutan pihak MRC. Ini adalah perkara-perkara fakta yang telah dinilai secara teliti dan dijawab di Mahkamah Rayuan. Yang arif hakim-hakim telah membuat kesimpulan yang betul berdasarkan material-material yang terdapat di hadapan mereka, bahawa tindakan tidak berpatutan tidak dibuktikan untuk mengekalkan injunksi yang diberikan. Tiada alasan timbul untuk mewajarkan gangguan ke atas budibicara yang dilaksanakan oleh hakim-hakim rayuan untuk mengenepikan injunksi. Ia adalah tidak perlu untuk menambah, menolak atau mengembangkan alasan-alasan Mahkamah Rayuan mengenai dapatan bahawa tiada tindakan yang tidak berpatutan dilakukan pihak MRC. Imbangan keselesaan lebih condong kepada penolakan injunksi.

Case(s) referred to:

Bains Harding (Malaysia) Sdn Bhd v. Arab-Malaysian Merchant Bank Berhad & 3 Ors [1996] 1 BLJ 25 HC (refd)

Bank of Nova Scotia v. Angelica - Whitewear (1987) 36 DLR (4th) 161 SC (refd)

Bocotra Construction Pte Ltd & Ors v. AG (No. 2) [1995] 2 SLR 733 (refd)

Bocotra Construction Pte Ltd v. AG [1995] 2 SLR (R) 262 (refd)

CDN Research & Development Ltd v. Bank of Nova Scotia (1980) 18 CPC 62 (refd)

Commercial Bank of Australia Ltd v. Amadio and Another [1983] 46 ALR 402 (refd)

Dauphin Offshore Engineering and Trading Pte Ltd v. The Private Office of HRH Sheikh Sultan bin Khadifa bin Zayed Al-Nahyan [2000] 1 SLR (R) 117 (refd)

Edward Owen Engineering Ltd v. Barclays Bank International Ltd [1978]
1 All ER 976 (refd)

Edward Owen Engineering Ltd v. Barclays Bank International Ltd [1978] QB 159 (refd)

Esso Petroleum Malaysia Inc v. Kago Petroleum Sdn Bhd [1995] 1 CLJ 283 SC (refd)

Focal Asia Sdn Bhd & Anor v. Raja Noraini Raja Datuk Nong Chik & Anor [2009] 1 LNS 913 HC (refd)

GHL Pte Ltd v. Unitrack Building Construction Pte Ltd [1999] 4 SLR 604 (refd)

GHL Pte Ltd v. Unitrack Building Construction Pte Ltd and Another [1999] 3 SLR (R) 44 (refd)

Harbottle (Mercantitle) v. National Westminster Bank Ltd [1978] 1 QB 146 (refd)

IE Contractors Ltd v. Lloyd's Bank Plc [1990] 2 Lloyd's Rep 496 (refd)

Kejuruteraan Bintai Kindenko Sdn Bhd v. Nam Fatt Construction Sdn Bhd & Anor [2011] 7 CLJ 442 CA (refd)

LEC Contractors (M) Sdn Bhd v. Castle Inn Sdn Bhd & Anor [2000] 3 CLJ 473 CA (refd)

Lloyds Bank v. Bundy [1975] QB 326 (refd)

Min Thai Holdings Pte Ltd v. Suniable Pte Ltd & Anor [1999] 2 SLR 368 (refd)

Nafas Abadi Holdings Sdn Bhd v. Putrajaya Holdings Sdn Bhd & Anor [2004] 1 LNS 127 HC (refd)

New Civilbuild Pte Ltd v. Guobena Sdn Bhd & Another [1999] 1 SLR 374 (refd)

Newtech Engineering Construction Pte Ltd v. BKB Engineering Constructions Pte Ltd and Others [2003] SGHC 141 (refd)

Olex Focas Pty Ltd v. Skodaexport Co Ltd [1998] 3 VR 380 (refd)

Samwoh Asphalt Premix Pte Ltd v. Sum Cheong Piling Pte Ltd & Anor [2002] 1 SLR 1 (refd)

Satriadesa Corporation Sdn Bhd v. Tenaga Nasional Bhd [2010] 4 CLJ 877 HC (refd)

Shanghai Electric Group Co Ltd v. PT Merak Energi Indonesia [2010] 2 SLR 329 (refd)

Stern v. McArthur (1988) 165 CLR 489 (refd)

The Radio & General Trading Co Sdn Bhd v. Wayss & Freytag (Malaysia) Sdn Bhd [1997] 1 LNS 400 HC (refd)

Legislation referred to:

Trade Practices Act 1974 [Aus], ss. 51AA, 51AB, 51AC

Other source(s) referred to:

Halsbury's Law of England, 3rd edn, vol 17 [1956], p 682

Jeffrey J Browne, The Fraud Exception to Standby Letters of Credit in Australia: Does it Embrace Statutory Unconscionability? Bond Law Review vol II Issue 1, 6 January 1999

Unconscionability As A Ground For Withholding Payment In Demand Guarantees: Should The Exception Be Extended To Letters Of Credit? [2008] 1 MLJ clxxxiii

For the appellant - Alex De Silva (Melinda D'Angelus with him);
M/s Bodipalar Ponnudurai De Silva

For the respondent - Azlan Sulaiman; M/s Azmi & Assocs

[Appeal from Court of Appeal; Civil Appeal No: W-02(IM)(NCC)-3223-2010]

[Editor's note: For the Court of Appeal judgment, please see Malaysian Refining Company Sdn Bhd v. Sumatec Engineering And Construction Sdn Bhd [2011] 7 CLJ 21.]

Reported by Suhainah Wahiduddin

 
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