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2010 MarsdenLR 2602
HIGH COURT MALAYA KUALA LUMPUR
KEJURUTERAAN BINTAI KIDENKO SDN BHD – Appellant
Versus
NAM FATT CONSTRUCTION SDN BHD & ANOR – Respondent
[Suit No: 22 Ncc-199-2010]
On-demand performance guarantees require clear evidence of fraud for an injunction to be granted; the doctrine of unconscionability is insufficient without demonstrated fraud.
Headnote:(A) Performance Bond - Doctrine of Unconscionability - Interlocutory Injunction - Application to restrain call on Guarantees dismissed; fraud exception applied - Guarantees were unconditional and on demand as per established principles - No fraudulent intent established; however, application for the electrical works component found to warrant intervention due to evident unfairness - Principles outlined in previous case law established that fraud must be clearly evidenced to support injunctions. (Paras 10, 22, 28-29)
(B) Courts should not interfere with on-demand guarantees unless clear fraud is proved to the Bank's knowledge; mere unconscionable conduct insufficient without demonstrated fraud (Paras 30-31).
Facts of the case:
The Plaintiff, a sub-contractor, contested the 1st Defendant's call on two Performance Guarantees totaling RM5 million concerning the delays in a construction project. The Plaintiff alleged the 1st Defendant's call was unconscionable due to the issuance of non-compliance certificates. (Paras 5-6)
Findings of Court:
The performance guarantees were upheld as on demand and unconditional; the call for the electrical works component deemed unconscionable; whereas no such unfairness was found for the mechanical works component. Costs awarded to the 1st Defendant. (Paras 43-44)
Issues: Whether the call on the Performance Guarantees could be restrained based on alleged unconscionability or fraud - examined the legal thresholds and applications.
Ratio Decidendi: The court found it legally bound to respect the established principle that only clear evidence of fraud could justify stopping payments on on-demand performance guarantees, with unconscionability as an insufficient ground without overlapping with fraud. (Paras 30-31)
Result: Dismissal of injunction application and main claim; costs awarded to the 1st Defendant.
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| 1. (Para 1 , 2 , 3 , 4 , 5) |
Introduction
This is an application for an interlocutory injunction to restrain the 1st Defendant from receiving the proceeds from two Performance Guarantees upon which two calls had been made by the 1st Defendant. The 2nd Defendant is the Guarantor Bank, which has, through its counsel, indicated that it will abide by any order that this Court makes in relation to this matter.
The Plaintiff is a sub-contractor to the 1st Defendant, the main contractor for a project for the construction of the Integrated Customs, Immigration and Quarantine Complex in Johor Bahru. The employer is a company called Gerbang Perdana Sdn Bhd (GPSB), with JKR as the project owner.
The Plaintiff is one of several sub-contractors for the Project for two components, namely the electrical and mechanical works which have a total contract value of RM100 million made up of RM54 million (for the mechanical portion) and RM46 million (for the electrical portion). The revised contract sum for the entire project is RM577,582,886.44. This appears from Exhibit LKC - 8 to the Affidavit in Reply filed by the 1st Defendant (Enclosure 20), ie, the Contractor's Certificate of Payment dated 31 December 2009. By that Certificate, a sum of RM1,251,964.49 is certified as now due to the contractor. The sum now certified as due has taken into account numerous deductions for non-compliance and failure to perform obligations under the contract, including deductions for non-compliance and damages due to non-completion attributed to the Plaintiff for the M & E portions of the works.
Significant delays have occurred in the completion of the project which should have been completed by 13 September 2005, but according to the Plaintiff the works have been completed and a Certificate of Practical Completion (CPC) has been issued by JKR on 8 September 2007 and backdated to be effective from 31 May 2007.
The Plaintiff's Contention
According to the Plaintiff, the employer has also issued a Certificate of Non-Completion dated 1 June 2007 to the 1st Defendant, and this, according to the Plaintiff, was issued mala fide.
It is the contention of the Plaintiff that the conduct of the 1st Defendant is unconscionable as it has failed to either assess or claim for the monies due and owing to the Plaintiff and thereby is in willful disregard of its contractual obligations to the Plaintiff. The Plaintiff goes so far as to argue that the 1st Defendant as contractor and the employer have sought to "engineer a situation to avoid making payment of the sums due and owing to the Plaintiff." Although the CMC was issued allegedly mala fides, the 1st Defendant has to date refused to challenge the issuance of the document. Instead, the 1st Defendant is demanding for the sums guaranteed by the two Performance Guarantees, and in this regard is acting unconscionably for the following reasons:
1. The 1st Defendant has failed to take steps to pursue the Plaintiff's claims for prolongation costs, variations and other claims.
2. It is also failed to take steps to pursue the Plaintiff's claim for additional time and costs.
3. In complete and total disregard of its contractual obligations, the 1st Defendant has failed to properly assess the Plaintiff's claim for additional time and cost.
4. The 1st Defendant has failed to properly assess the back charges imposed by the employer.
5. For the electrical contract portion, the final draft account prepared by the employer illustrates very clearly the Plaintiff is owed monies.
As regards the fifth ground stated above, see Exhibit A-21 to the Plaintiff's Affidavit in Support, where the sum of RM130,665.44 is certified as a final amount due to the contractor, including retention sum. The sum is in respect of package No CIQ 06 where the nominated subcontractor is named as the Plaintiff.
It has, however, to be stated that for the mechanical works portion, the relevant statement of final account is certified as showing a neg
