Ahmad Fairuz CJ:

[1] The appellant in this case has been granted leave to appeal to the Federal Court on eight questions of law for consideration of the Court. However, during the hearing, four questions have been withdrawn leaving four questions of law to be considered by the Court namely questions ii, iii, vi and viii:

(ii) Do the terms of the performance bond (the bond) in question require the beneficiary of the bond to assert expressly and clearly in its demand thereon that the contractor had failed to perform or had committed a breach of the underlying contract between the contractor and the beneficiary in order for its demand to be valid?

(iii) Does the phrase 'we hereby submit our claim for the sum of RM2,075,700-94 as provided by the letter of guarantee 'in the 2nd defendant's demand on the bond, amount to an assertion that the 1st defendant had failed to perform or had committed a breach of the underlying contract between the 1st and 2nd defendants?

(vi) Is the contractor precluded by the phrase 'notwithstanding any contestation or protest by the contractor' in the bond from raising an objection as to the validity of the demand on the bond or as to purpose of the bond having lapsed?

(viii) Does the purpose of a bond which guarantees due performance of the underlying contract lapse once the said contract is mutually terminated so that any demand made on the bond thereafter is valid?

[2] The 1st respondent was the main contractor for the construction of a housing project known as the Sri Rampai Project. He engaged the appellant as a subcontractor for the said project. Amongst others, the salient terms of the subcontract was that the time of completion for the project was 30 June 2004 and liquidated and ascertained damages were payable at the rate of RM30,000 per day.

[3] The 2nd respondent on behalf of the appellant issued a banker's guarantee dated 27 June 2003 for the sum of RM2,075,700.94 in favour of the 1st respondent. The said bank guarantee was extended on 29 September 24 to 31 December 2004. The subcontract works were not completed by 30 June 2004. There was an extension of time issued to the appellant by the 1st respondent wherein the completion date was revised to 22 September 2004. A certificate of non-completion was issued by the 1st respondent on 19 November 2004 confirming that the appellant failed to complete the subcontract works by the revised completion date of 22 September 2004.

[4] However the bank guarantee was never extended beyond 31 December 2004. The 1st respondent then made three claims to the bank in respect of the bank guarantee. The 2nd respondent had however rejected the claim on the basis that the contract had been terminated when the claim was made. The 2nd respondent then filed an interpleader proceeding for the appellant and the 1st respondents to appear in Court to settle the dispute and for the appellant and the 1st respondents to state their claim in case the 2nd respondent had to pay them.

[5] The learned High Court Judge held that the 2nd respondent had to pay the amount stated in the bank guarantee to the 1st respondent and that the appellant had to pay the costs to the 1st respondent and the 2nd respondent. Dissatisfied, the appellant filed an appeal to the Court of Appeal. The Court of Appeal however affirmed the decision made by the High Court Judge and dismissed the appeal. Hence, this appeal to the Federal Court.

Findings Of The High Court

[6] There were three issues considered by the High Court. The first issue was to determine whether the said bank guarantee was a conditional or an unconditional bank guarantee. For this issue, the learned judge said in his grounds of judgment:

The terms to be perused by the Court are paras 1, 2, 4 and 5 of the said Bank Guarantee. The said terms, upon examination, are the same as the terms of the Bank Guarantee in the following cases:... Teknik Cekap...

Therefore, the Court holds that the Bank Guarantee in this case is also an unconditional bond