The court upheld the injunction against calls on bank guarantees, reinforcing that claims made on such guarantees may be deemed unconscionable under the Arbitration Act.

Ahmad Zaidi JCA:

INTRODUCTION

[1]The parties herein shall be referred to as they were before the High Court in Originating Summons No BA-24C(ARB)-2–02 of 2020 (‘the OS’).

[2]This judgment covers four appeals before this court which were heard together. The four appeals emanated from the decisions of the Shah Alam High Court dated 23 March 2020 (for encls 1 and 3) and 28 March 2020 (for encls 28 and 35) in the OS abovementioned. Enclosures 1 and 3 are the plaintiff’s applications. Whereas, encls 28 and 35 are the defendant’s.

[3]Enclosures 1, 3, 28 and 35 are interrelated as they pertained to the same subject matter viz, two bank guarantees (‘the BGs’) issued by the plaintiff to the defendant, pursuant to a building contract awarded by the defendant to the plaintiff. The BGs were subsequently subjected to calls made by the defendant. The plaintiff challenged the validity of the calls.

[4]Fast forward, the learned High Court judge (‘HCJ’) allowed all the four applications respectively. Dissatisfied, the plaintiff and the defendant appealed to the Court of Appeal against the decisions of the HCJ. Hence, the four appeals herein. The four appeals are:

(a)Civil Appeal No B-02(C)(A)-551–03 of 2020 (‘Appeal 551’) filed by the plaintiff in respect of encl 28;

(b)Civil Appeal No B-02(IM)(C)-552–03 of 2020 (‘Appeal 552’) also filed by the plaintiff, in respect of encl 35;

(c)Civil Appeal No B-02(C)(A)-579–04 of 2020 (‘Appeal 579’) lodged by the defendant in respect of encl 1; and

(d)Civil Appeal No B-02(C)(A)-581–04 of 2020 (‘Appeal 581’) also by the defendant in respect of encl 3.

[5]The HCJ had prepared one common grounds of judgment (‘judgment’) covering the court’s decisions for all the four applications/enclosures abovesaid.

[6]As agreed by both parties, we heard the four appeals together.

OUR DECISIONS AND FINDINGS

[7]Having appraised the records of appeal and having considered the submissions by the learned counsels, we unanimously found no merit in the appeals above mentioned. Hence, we accordingly dismissed each one of them and upheld the decisions/orders of the High Court.

[8]We dismissed the appeals on the following grounds.

FACTUAL BACKGROUNDS

[9]The plaintiff (KNM Process System) and Hitachi Zosen Corp of Japan (Hitachi) formed a consortium named ‘SHK Consortium’ (‘the Consortium’). Hereinafter, the plaintiff shall interchangeably be referred to as the Consortium. The Consortium was awarded a contract by the defendant (Cypark Sdn Bhd) for the procurement, construction and commissioning of a Solid Waste Treatment and Management plant in Negeri Sembilan (‘the contract’).

[10]Under the contract, among others:

(a)the plaintiff is responsible for the ‘on-shore portion’ of the contract (with a total value of RM137,013,083.50) whilst Hitachi is responsible for its ‘off-shore portion’ (with a value of JPY3,761,355,000); and

(b)the Consortium is required to provide two bank guarantees (‘BGs’) to the defendant as follows:

(i)an ‘Advance Payment Guarantee’ (APG) in a sum of RM13.3m issued by BNP Paribas Malaysia Bhd (BNP) to the defendant on 1 November 2016 and would lapse on 31 March 2022; and

(ii)a ‘Performance Guarantee’ (PG) for an amount of RM13.3m issued by Affin Bank Bhd (‘ABB’) to the defendant and would lapse on 30 September 2022.

[11]The contract also provided for an arbitration clause whereby parties agreed that all disputes under the contract shall be determined by way of arbitration.

[12]According to the plaintiff, sometime in January 2016, during excavation works, it encountered shallow hard rock at the work site which prevented it from proceeding with works and causing delay to the works as per scheduled. The plaintiff notified the defendant of the hard rock issue and applied for an extension of time (‘EOT’) but was refused by the defendant. The defendant then imposed damages for the delay totaling RM12.15m (‘delay damages’).

[13]The plaintiff disputed the defendant’s claim for the ‘delay damages’. Hence, by letter dated 6 April 2018, the Conso