Raus Sharif JCA:

[1] This is an appeal by the first defendant against the judgment of the High Court, Kuala Lumpur, ordering in an interpleader proceedings, a judgment be entered against the plaintiff in favour of the second defendant for the sum RM2,075,700.94 with costs to be borne by the first defendant.

[2] The facts of this case are these. The second defendant was the main contractor for Sri Rampai project ("the project"). The first defendant was the sub-contractor engaged by the second defendant for the project. At the request of the first defendant the plaintiff issued a Bankers Guarantee No. TF001G784990 dated 27 June 2003 ("bank guarantee") for the sum of RM2,075,700.94 in favour of the second defendant. The bank guarantee was arranged for by the first defendant as required in the building contract between the first and second defendant.

[3] Disputes arose between the first and second defendant in the performance of the building contract. The second defendant alleged that the works were not completed on time by the first defendant as stipulated in the building contract even after an extension of time was granted by the second defendant.

[4] Subsequently, the second defendant made a demand on the bank guarantee. The first defendant challenged the validity of the demand. Hence, no payment was made to the second defendant by the plaintiff. The first defendant than demanded for the release of the fixed deposit funds, secured for the granting of the bank guarantee. The plaintiff did not accede to the same.

[5] On 13 May 2005, the plaintiff commenced an interpleader proceeding in the High Court to determine the question whether, inter alia , there is liability to pay on the bank guarantee. The first defendant in turn made a counterclaim against the plaintiff for the release of the first defendant's fixed deposit funds. On 24 October 2005, the High Court decided in favour of the second defendant. The first defendant's counterclaim was accordingly dismissed. Hence, this appeal.

[6] The main question before the High Court as well as before this Court was whether the second defendant's demand was valid to trigger payment of the bank guarantee. The issue as to the release of the fixed deposit funds would hinge on the outcome of the main question. If the plaintiff did not have to pay out of the bank guarantee, the plaintiff has to release the fixed deposit funds to the first defendant.

[7] It is the first defendant's case that the second defendant's demand was invalid. The reasons were:

(i) it failed to clearly and expressly assert that the first defendant had failed to perform or breached the underlying building contract;

(ii) by the time the second defendant made the demand, the building contract had been mutually terminated and there can therefore be no breach of contract to trigger payment under the bank guarantee;

(iii) the second defendant had failed to present the original bank guarantee to the plaintiff together with its demand.

[8] The second defendant responded by stating:

(i) the bank guarantee is an unconditional and "on demand" bank guarantee. Payment therefore must be effected by the plaintiff when a valid demand on the bank guarantee is made;

(ii) there was no mutual determination of the building contract. There were discussions and negotiations entered into between the first defendant and second defendant, but the same was unsuccessful. Even if there was a mutual agreement (which was strongly denied by the second defendant) the first defendant is still not absolved of its liability under the bank guarantee.

(iii) The bank guarantee made no reference or requirement that the original bank guarantee must be produced at the time of the demand before payment can be made.

(i) Whether The Bank Guarantee Was Conditional Or Unconditional