Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2020 MarsdenLR 2265

HIGH COURT MALAYA KUALA LUMPUR
KINING EXETON SDN BHD – Appellant
Versus
MAJLIS PERBANDARAN KUANTAN & ANOR – Respondent
[Originating Summons No: WA-24C(ARB)-32-08/2019]

Petitioner Advocates:Datuk Ben Chan Chong Choon,Heather Yee Jing Wah ,Respondent Advocate: Dato' Bastion Pius Vendargon,Annemarie Pravina Vendargon

A performance bond is enforceable only upon a breach being certified; vague demands are insufficient for payment.

Headnote:(A) Arbitration Act 2005 - Section 11 - Construction Industry Payment and Adjudication Act 2012 - Conditional demand guarantees - Application to declare call on performance bond invalid due to failure to meet requisite conditions of performance bond. (Paras 1, 11, 15, 37)

(B)

Demand for payment under performance bond must assert breach of obligations for which the bond is triggered. (Paras 23, 35)

(C)

Court's jurisdiction to issue interim injunctions to prevent unconscionable actions pending arbitration. (Paras 35, 36)

Facts of the case:

Plaintiff, a construction contractor, sought injunction against the First Defendant's demand under performance bond, asserting it was conditional and improperly made. The bond related to completed construction work, disputed for defects.

Issues

: Validity of the First Defendant's demand on the performance bond, requirement of certification of losses claimed, and the unconscionability of the demand.

Findings of Court:

First Defendant's demand was premature and lacked necessary certification; therefore, injunction was granted.

Ratio Decidendi:

The court emphasized that a performance bond is only enforceable upon verified failure by the contractor, not upon ambiguous desires for payment.

Result:

Application allowed with costs ordered against the First Defendant.

Judgement Key Points

Key Points: - The bond call dated 28 June 2019 was found premature and lacked required certification, making the demand invalid and justifying an injunction. (!) (!) (!) - The court held the performance bond in issue to be conditional, requiring certification of losses incurred and positive assertion of breach, not mere desire to call on the bond. (!) (!) (!) - The court discussed the meaning of "certify," requiring an unambiguous attestation by an authorized person, supported by authorities and case law. (!) (!) (!) - Interim injunctions under s 11 Arbitration Act 2005 may be granted to preserve the status quo pending arbitration when appropriate. (!) (!) - The judgment confirms that payment under a performance bond is not automatically triggered by a plain on-demand demand; the bond’s wording governs enforceability. (!) (!) (!)

What is the validity of a call on a performance bond where the demand is alleged to be conditional and not properly certified?

What is the court’s interpretation of the term "certify" in the context of a performance bond and its implications for enforceability?

What are the standards for interim injunctions to restrain payment under a performance bond pending arbitration?

JUDGMENT

Lim Chong Fong J:

Introduction

[1] This is an application for a declaration that the call on the performance bond is invalid and consequently an injunction to restrain the receipt of the monies thereunder in preservation of the status quo pending the resolution of disputes pursuant to a construction contract in arbitration proceedings.

[2] The Plaintiff is a private limited company and involved in the construction contracting business.

[3] The First Defendant is a local authority constituted under the Local Government Act 1976.

[4] The Second Defendant is a public limited company and involved in licensed banking services under the Financial Services Act 2013.

Salient Background Facts

[5] By a contract dated 8 August 2011 ("Contract"), the First Defendant appointed the Plaintiff to construct and complete the project described as 'Cadangan Membina Kompleks Ibu Pejabat Majlis Perbandaran Kuantan (MPK) Di Atas Lot 29, s 30, Jalan Tanah Putih, Kuantan, Pahang Darul Makmur' ("Project").

[6] The relevant terms of the Contract read as follows:

"13.0 Performance Bond/Performance Guarantee Sum
13.1(a) The Contractor shall, on the date of possession of Site, provide a Performance Bond or performance Guarantee Sum as the case may be substantially as in the form in the Appendix issued by an approved licensed bank or financial institution incorporated in Malaysia in favour of the Government for a sum equivalent to five (5%) of the total Contract Sum as specified in the Appendix to secure the due performance of the obligations under this Contract Sum as specified in Appendix to secure the due performance of the obligations under this Contract by the Contractor. The Performance Bond shall remain valid and effective until twelve (12) after the expiry of the Defects Liability Period or the issuance the Certificate of Making Good Defects, whichever is the later.
...
48.0 Defects After Completion
...
48.2 If the Contractor shall fail to comply with either cl 48.1(a) and/or 48.1(b) within the time so specified, the materials or works so affected may be made good in such manner as the SO may think fit, in which case the costs incurred including On-Cost Charges (calculated by applying the Percentage On-Cost Charges stated in Appendix to the costs incurred), shall be deducted from any money due or to become due, to the Contractor under this Contract and failing which such costs shall be recovered from the Performance Bond or as a debt due from the Contractor."

[7] The Plaintiff complied with cl 13.1(a) of the Contract and accordingly submitted the following performance bond ("Performance Bond") issued by the Second Defendant to the First Defendant:

[8] Notwithstanding the Project has been completed by the Plaintiff, there were disputes and differences that arose between the Plaintiff and the First Defendant including on defects subsisting in the Project.

[9] These disputes and differences were referred to adjudication under the Construction Industry Payment and Adjudication Act 2012 and later arbitration. In this regard, the Plaintiff has served its notice of arbitration dated 13 August 2019 on the First Defendant.

[10] As a result, the First Defendant on 28 June 2019 made a demand on the Second Defendant pursuant to the Performance Bond as follows:

[11] Consequently, the Plaintiff filed this originating summons ("OS") pursuant to s 11 of the Arbitration Act 2005 praying for the following reliefs:

(1) A declaration that the demand dated 28 June 2019 made by the 1st Defendant to the 2nd Defendant under the Bank Guarantee No 248PG092157 dated 4 August 2011 and expiring on 17 August 2019 ("Bank Guarantee") is invalid, null and void;
(2) An injunction be and is hereby granted to restrain the 1st Defendant by itself and/or its servants and/or agents or whosoever from demanding/calling upon the Bank Guarantee or receiving and/or utilizing or dealing with any sum under the Bank Guarantee pending full and final disposal of the arbitration on issues and disputes betwe

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