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2017 MarsdenLR 2342
HIGH COURT MALAYA KUALA LUMPUR
GUMUSUT-KAKAP SEMI-FLOATING PRODUCTION SYSTEM (L) LTD – Appellant
Versus
SABAH SHELL PETROLEUM COMPANY LIMITED – Respondent
[Originating Summon No: 24C(ARB)-30-10/2016]
The court established that an unconditional on-demand bond cannot be restrained unless clear fraud or unconscionability is shown.
Headnote:Statute Analysis: The case involves the Arbitration Act 2005 and examines issues surrounding the performance bond's validity and unconscionability. Facts: The Plaintiff sought to restrain the Defendant's call on a performance bond, claiming unconscionability and failure to meet preconditions.
Findings of Court:
The Court reaffirmed the Defendant's right to call the bond, deeming the call valid and not unconscionable (para 272).
Issues: The Court found that the core issues revolved around whether the Defendant's call on the Bond was valid (para 46) and if it was unconscionable (para 54).
Ratio Decidendi: The Court reasoned that the autonomy principle of unconditional on-demand bonds applied; thus any disputes about the underlying contract would not impede the Defendant's right to call (para 34).
Result: The Plaintiff's application was dismissed, the Defendant's call on the Bond was upheld, and an interim stay was granted (para 276).
[1] The dispute between the parties have a familiar ring to it. The Plaintiff applied to injunct the Defendant from receiving the proceeds of a Performance Bond procured by the Plaintiff in favour of the Defendant and issued by a Bank. The anticipated arguments advanced by the Plaintiff are that the call on the Bond is unconscionable and that the condition precedent or pre-condition for the call has not been fulfilled with the Defendant taking the position that what has arisen between the parties is nothing more than a contractual dispute and that the Bond is an unconditional on-demand Bond with no condition precedent attached to it.
[2] There was the further argument on the balance of convenience test to be applied with the Plaintiff submitting that the Defendants loss if any would be the interest they would have earned if the sum secured by the Bond is released only after the conclusion of the arbitration between the parties arising out of the underlying contract. On the other hand, the Defendant took the position that, in any event, damages would be an adequate remedy should they have to refund together with interest the Bond Sum which they said should be released upon a call being made.
[3] The Plaintiff was anxious about the Defendants financial position in a multi-million claim and counterclaim in arbitration that has just commenced with the Bond sum of USD20 million, being the subject matter of this injunction in aid of arbitration filed under s 11(1)(f) and (h) of the Arbitration Act 2005 .
[4] The Defendants response was that they have more reason to be anxious of the Plaintiffs financial standing, being a special purpose vehicle of its parent company, with this lease of the Semi-Submersible Floating Production System ("SEMI-FPS") platform being its sole source of revenue and the Defendant has been consistently paying the lease Day Rate of USD600,000.00 without fail amounting to about USD18 million per month since October 2014. The Defendant highlighted this as a material fact not disclosed in the ex-parte application for the injunction.
Project
[5] The underlying contract between the Plaintiff and the Defendant dated 9 November 2012, is with respect to a SEMI-FPS Lease Agreement (Contract No C-591673) ("the Underlying Contract"). TheSEMI-FPS is in essence an offshore platform (deep water semi- submersible floating production system) used for the drilling and extraction of oil.
[6] Pursuant to the Underlying Contract:
i) The Plaintiff is to perform and complete the Works which covers project management, engineering, procurement and construction of a SEMI-FPS and additional related support services, namely:
(a) Operational Readiness and Assurance (OR&A) work;
(b) Pre-Commissioning and Commissioning Support work;
(c) Logistical Support work; and
(d) Topsides Follow-on Engineering work;
ii) Upon completion of the Project, the Plaintiff shall lease the SEMI- FPS to the Defendant at the Gumusut-Kakap Field offshore Borneo, Northwest of Sabah, Malaysia.
[7] On 3 June 2013, the Conditional Completion Certificate ("CCC") was issued. The Defendant took custody of the SEMI- FPS.
[8] On 28 August 2013, the Plaintiff said it completed its works under the Underlying Contract. According to the Plaintiff, both parties had agreed in writing that the Defendant will complete the Plaintiffs remaining offshore works. However, according to the Defendant, the Handover Completion ought to have been achieved by the Plaintiff on 18 May 2013. This was not achieved on time.
[9] According to the Defendant, the Underlying Contract was then agreed to be amended by the parties pursuant to a letter dated 28 August 2013 to provide that the Defendant will complete, on behalf of the Plaintiff, the Plaintiffs outstanding works with regards the SEMI-FPS and at the costs of the Plaintiff. The amendment also provided that all other rights and obligations of the parties remained unchanged.
[10] The Defendant contended that upon taking over to complete the P
