Unconscionability serves as an independent ground for a restraining order against calls on guarantees, contingent on established strong evidence of bad faith or improper conduct by the beneficiary.

Mary Lim Thiam Suan JCA:

JUDGMENT OF THE COURT

[1]The appellant was unsuccessful in its application made pursuant to section 11(1)(f)(h) Arbitration Act 2005 [Act 646]

The guarantees

[2]There are two underlying contracts between the parties:

i.Contract No. UZ-10-8009-0706 dated 3.12.2010 where the respondent appointed the appellant as a contractor to supply technical documentation and equipment for the construction of gas-condensate fields of Adamtash, Gumbulak and Djharkuduk-Yangi Kizilcha in the Republik of Uzbekistan [Gissar Main Contract];

ii.Contract No. UZ-11-8009-0649 dated 3.10.2011 where the respondent appointed the appellant for the development of detailed design and supply of equipment for the “Booster Compressor Station in Khauzak Site” in the Republik of Uzbekistan [Khauzak Main Contract];

[3]Both contracts contain provisions for guarantees of different total amounts as follows:

i.Gissar Main Contract [totaling USD37 million]: Performance Guarantee No: 5789031; and Guarantee for Refund of Advance Payment No: 5789175

ii.Khauzak Main Contract [USD3 million]: Warranty Guarantee No: 5842339

[collectively referred to as “the guarantees”]

[4]On 27.11.2017, the respondent issued simultaneous demands on all three guarantees. This caused the appellant to file Civil Suit No: 22C-110-12/2017 at the High Court at Kuala Lumpur against both the respondent and Malayan Banking Berhad, the issuing Bank, seeking in substance to restrain any payments being made out or received under the guarantees. The appellant claimed that the demands were fraudulent and unconscionable.

[5]On 6.12.2017, the High Court granted an ex parte injunction against both the respondent and the issuing Bank.

[6]The respondent approached the Court to stay the appellant’s claim relying on section 10Arbitration Act 2005

[7]The order of stay was granted by consent. We understand that the arbitration somewhat stalled, with the parties unresolved as to who exactly was responsible for initiating the arbitration, the respondent or the appellant, with both parties pointing to the other. The appellant has since initiated the arbitration.

[8]By agreement, the present Originating Summons was then filed to determine the matter of whether interim injunctive orders may be granted on the calls on the guarantees under section 11Arbitration Act 2005

i.the Guarantee for Refund of Advance Payment under the Gissar Main Contract was not an unconditional demand bond;

ii.the calls were not in compliance with the terms of the Gissar Main Contract;

iii.in any event, the call was only available upon termination and that did not arise in the instant case;

iv.contemporaneous evidence and conduct of the parties, especially the respondent show that there was no objective entitlement