Injunctions against on-demand performance bonds require clear evidence of unconscionability or bad faith, and financial harm alone does not justify such injunctions if damages are adequate.

Roz Mawar Rozain J:

[1] This is an appeal by the Appellant (MARA) against the decision of the Sessions Court dated 31 May 2024, which granted an injunction in favour of the Respondent (PERNEC) restraining MARA from claiming the Performance Bond (Jaminan Bank-i No 56752202740001) of RM778,630.00 issued by Affin Islamic Bank Berhad (the Bank), pending full disposal of the dispute in Court.

[2] The primary issues before this Court are:

(a) whether the Sessions Court erred in holding that MARA's call on the Performance Bond was unconscionable;

(b) whether the balance of convenience favours the grant of an injunction;

(c) whether there was sufficient evidence of delay attributable to MARA, justifying the injunction.

Factual Background

[3] The dispute arises from the MARA Total Campus Management System contract, awarded to PERNEC under a Service Agreement dated 15 August 2021. The project development period was fixed for 24 months which began on 5 November 2020 and was to end on 4 November 2022. There were timelines of when Go Live Phase 1 was to be completed on 10 December 2021 and Go Live Phase 2 on 4 October 2022. The Bank had issued the Performance Bond of RM779,630.00 in favour of the Appellants.

[4] According to correspondences and the PERNEC's request for an extension of time (EOT), MARA agreed on 17 December 2021 to grant PERNEC an extension to 4 September 2023. The timeline for Go Live Phase 1 was extended to 30 November 2022 and Go Live Phase 2 on 17 July 2023. The supplementary agreement was executed on 27 July 2022.

[5] Due to yet another delay, MARA issued several reminders. An ICT Development Committee Meeting was convened on 2 March 2023 when MARA had again agreed to give another extension of time to PERNEC where the Go Live Phase 1 then stretched to 29 August 2023 and Go Live Phase 2 on 4 September 2023 which was the deadline as agreed earlier in the 1st EOT. This second agreement (2nd EOT) was executed on 28 August 2023.

[6] Even after the 2nd EOT, MARA issued multiple Notices of Delay and Non-Performance to PERNEC that culminated in a Notice to Remedy under Clause 15.1(a) of their contract, until eventually, the project completion deadline of 4 September 2023 had lapsed. MARA followed by a Notice of Termination on 26 October 2023. On 31 January 2024, MARA sought to claim the Performance Bond, prompting PERNEC to file an injunction application, which the Sessions Court granted, preventing MARA from enforcing the bond.

Decision Of The Sessions Court

[7] The Sessions Court granted the injunction in favour of PERNEC which injuncts MARA from making any claim on and receiving any payment under the Performance Bond from the Bank until the resolution of the dispute. It was found that the delays in project completion were partly caused by MARA. The Sessions Court concluded that the balance of convenience favoured PERNEC, as the bond call would irreparably harm its financial standing. It wanted to maintain the status quo as it opined that the disputes on liability should be fully adjudicated in a trial before MARA could enforce the bond.

This Appeal

[8] In imploring this Court to allow its appeal, MARA argued that the Performance Bond is an on-demand bond, and MARA is entitled to call on it. MARA submitted that the Sessions Court misapplied the law on unconscionability and balance of convenience, and the injunction was wrongly granted as PERNEC's delays were solely its fault. MARA maintained that its notice of termination was justified and lawful.

[9] PERNEC responded that MARA had contributed to the delays in meeting the deadline because the latter had issued various change requests and amendments to the project scope, resulting in the necessity for the EOTs. By granting the EOTs, PERNEC argued that MARA had accepted, acknowledged, and contributed to the delays. PERNEC further argued that the termination was wrong because MARA accepted the delays. PERNEC contended that the Notices to Remedy issued by MARA were claimed to be proced