Unconscionable conduct can be a distinct ground for restraining a beneficiary from calling on a bank guarantee, requiring sufficient evidence to establish its occurrence.

[1] In the High Court the appellant here (Sumatec) succeeded in obtaining an injunction to restrain the respondent here (MRC) from calling upon a bank guarantee issued by Bank Islam Malaysia Berhad (BIMB). The High Court also dismissed MRCs application to set aside an earlier ex-parteinjunction order dated 4 June 2010 obtained by Sumatec to the same effect.

[2] The ex-parteinterlocutory application by Sumatec in the High Court was for the following prayers:

(a) to restrain the MRC from calling upon the bank guarantee issued by BIMB;

(b) alternatively, if a demand had been made by the MRC, for MRC to be restrained from receiving the sum guaranteed thereunder;

(c) further alternatively, if any sum has been released by the BIMB to MRC, MRC to be restrained from utilizing or dealing with such sums pending determination and disposal of Sumatecs claim in this suit or further order; and

(d) a further order sought against MRC was to the effect that, if the monies under the bank guarantee had been received by the MRC from the BIMB, MRC was to be directed to refund such monies to BIMB in the meanwhile.

[3] The background facts had been clearly set out in the judgment of the trial judge and suffice for us to reproduce them (with some editing).

3. 1 By a Letter of Award dated 9 May 2008 Sumatec was appointed by MRC to be its contractor for the design, supply, fabrication and erection of structural steel for the Melaka refinery PSR-2 revamp project at Sungei Udang, Melaka (the structural steel works contract). The parties subsequently entered into a contract in writing for this structural steel works. This was a bill of quantities contract.

3. 2 By another Letter of Award dated 15 May 2008 Sumatec was also awarded a contract for the Civil Works related to the same project (The Civil Works Contract).

3. 3 This present proceedings only involves the structural steel works contract. As per the terms of this aspect of the contract Sumatec was required to complete the works by 3 May 2009.

3. 4 Sumatec was also to provide a bank guarantee for the due performance of the contract for 10% of the contract value of the structural steel works. The full contract sum as initially agreed by the parties was RM47,846,688. 00 and accordingly Sumatec procured a bank guarantee from BIMB for the sum of RM4,784,668. 80 with the MRC as the named beneficiary. The bank guarantee was to be valid until three months after expiry of the warranty period, which in turn was twelve months after the date of provisional acceptance of the works as certified by issue of a provisional acceptance certificate.

3. 5 Sumatec claimed that their works were seriously hindered by delays on the part of the MRC to supply complete drawings and this had a knock-on effect on the production and fabrication of steel structures for the MRCs project. Further, it is alleged, that there were no specific milestones set for completion of parts or stages of the works but that the completion date set for the 31 May 2009 was for the overall works.

3. 6 It was Sumatecs further claim that MRC had proceeded to reduce the scope of Sumatecs works by removing certain aspects of the works, like the erection of the steel structures, from Sumatec original scope of works. This variation was confirmed on 16 June 2009