Peh Swee Chin SCJ:

[1] We are not going to write a judgment on this case, but at the conclusion of hearing of it, learned Counsel for the appellant seemed to have made a somewhat impassioned plea for it. We have decided to accede to it and we hereby do so.

[2] This case raised the question of what is known as a performance bond in relation to an interlocutory injunction to prevent a call or demand on such performance bond. A brief summary of facts is necessary and is set out below.

[3] The facts not in dispute were that the appellant, Esso Petroleum Malaysia Inc, (hereinafter called the buyer) had obtained a contract from Petroliam Nasional Bhd to construct some plant called a slugcatcher for which certain pipes and piping materials were required by a contractor employed by the buyer to build the said plant. The buyer then agreed with the respondent, Kago Petroliam Sdn Bhd, (hereafter called the seller), for the latter to sell and deliver such pipes and materials, (hereinafter called the said goods), from time to time on certain specified dates, to the buyer for the use of the said contractor. Such specified dates were regarded by both partiess as important, especially for the buyer so that the buyer would be able to comply with the contractual obligations to both the said contractor and also to the said Petroliam Nasional Bhd Such purchases from time to time of the said goods from the seller by the buyer were initiated and evidenced by separate documentation comprising the details and dates of requirement of the said goods in documents called "local purchase orders" with an appendix of same terms and conditions of purchase attached in every case to each of these local purchase orders, (hereafter called local purchase orders). The said local purchase orders were long documents, and for the purpose of this judgment, it would only be necessary to set out cl 9.0 of the said terms and conditions of the said local purchase orders:

9.0 Delivery

9.1 Time is the essence of this purchase order. Seller shall deliver the Materials/Equipment within the scheduled delivery period specified in this purchase order.

9.2 If SELLER fails to deliver the Materials/Equipment within the scheduled delivery periods specified in this purchase order and EPMI elects not to terminate this purchase order pursuant to art 10.1, it is agreed that as damages to EPMI for such delay, in the absence of legal ground and justification, the value of this purchase order shall be reduced by an amount equal to one percent (1%) of the value of this purchase order for each week or part thereof of delay in the delivery of any or all of the Materials/Equipment. The maximum amount that can be deducted for liquidated damages is ten percent (10%) of the value of this purchase order. Any liquidated damages due to EPMI as provided in this article shall be deducted from payments due to Seller.

[4] In accordance with the said cl 9, whenever the seller delayed in the delivery of the said goods as ordered, deductions were made by the buyer from the payment due to the seller as damages.

[5] The buyer agreed however, by way of purported indulgence to the seller, to refund a balance of such deductions in the event of "cost impact" found to be less or none in regard such damages deducted after such cost impact was ascertained by the buyer.

[6] Such refund being dependent on the ascertainment of such cost impact; such ascertainment would in turn depend on the completion of the said slugcatcher and the receipt of claims from the said contractor for delay against the buyer. Such ascertainment was found to be more complex than it was anticipated, and the said refund of any balance of such amount of deductions as damages for delay could take time.

[7] Therefore at the seller's request, at a meeting between the parties herein, the buyer agreed to release and pay to the seller the total amount of such deductions in exchange for letters of guarantee. A total amount of German Marks, viz DM482,202