East Coast Economic Region Development Council v Inai Kiara Sdn Bhd (W-02(IM)(NCVC)-1048-05/2018)

Page 1 of 25 CIVIL APPEAL NO: W-02(IM)(NCVC)-1048-05/2018

1. (Company No: 325709-V)

2. (Company Registration No: 85892544) (HEARD TOGETHER WITH) CIVIL APPEAL NO: W-02(IM)(NCVC)-1049-05/2018

1. (Company No: 325709-V)

2. (Company Registration No: 85892544) (HEARD TOGETHER WITH) CIVIL APPEAL NO: W-02(IM)(NCVC)-1050-05/2018 Page 2 of 25

1. (Company No: 325709-V)

2. (Company Registration No: 85892544) (AND HEARD TOGETHER WITH) CIVIL APPEAL NO: W-02(IM)(NCVC)-1488-07/2018

1. (Company No: 325709-V)

2. (Company Registration No: 85892544) (In the matter of High Court of Kuala Lumpur Suit No. : WA-22NCVC-621-11/2017 Between

1. Inai Kiara Sdn Bhd (Company No: 325709-V)

2. Hwa Chi Construction Co Ltd (Company Registration No: 85892544) … Plaintiffs And East Coast Economic Region Development Council … Defendant) Page 3 of 25 CORAM ABDUL RAHMAN BIN SEBLI, JCA SURAYA BINTI OTHMAN, JCA STEPHEN CHUNG HIAN GUAN, JCA JUDGMENT OF THE COURT The Appeals [1] The Respondents formed a joint venture company (Inai Kiara-Hwa Chi JV) to undertake a project known as the ‘Proposed Construction and Completion of Breakwater for the New Deep Water Terminal at Kuantan Port, Pahang’ for the East Coast Economic Region Development Council, (ECERDC) (the Appellant) pursuant to a contract dated 23.7.2013. [2] By a notice dated 25.11.2016, the Appellant terminated the contract. By a notice, on the same date, the Appellant called upon Malayan Banking Berhad (Maybank) to pay a sum of RM40,416,511.11 under a bank guarantee as stipulated in the contract. [3] On 9.11.2017 the Respondents filed Kuala Lumpur High Court Suit No. WA-22NCvC-621-11/2017 (the KL Suit) against the Appellant, including for a declaratory order that the contract was reinstated and binding on the parties and for specific performance and injunctive relief. [4] The next day, by Enclosure 5, the Respondents applied for an interim injunction to restrain the Appellant from effecting any claim Page 4 of 25 against the bank guarantee until the disposal of this suit and was granted an ex-parte injunction. By Enclosure 10, the Appellant applied to set aside the ex-parte injunction. At the inter-partes hearing, the learned judge allowed Encl. 5 (Appeal No. 1050) and dismissed Encl. 10 (Appeal No. 1049). Hence these two appeals. [5] By an Originating Summons (Enclosure 35), the Respondents applied to expunge certain letters marked ‘without prejudice’ which were referred to and annexed as exhibits in the Affidavit of one Arizan bin Arifin, affirmed on behalf of the Appellant, to be used in Encl.5 and Encl. 10. The learned judge allowed the OS application. The Appellant has filed an appeal against that decision. This is Appeal No. 1048. [6] By Enclosure 22, the Appellant applied to stay the proceedings of this suit pending reference of the parties’ disputes to arbitration. The learned judge dismissed the application. The Appellant filed an appeal (Appeal No. 1488) against that decision. [7] The parties agreed that the four appeals be heard together and that parties would submit on Appeals 1049 and 1050 together first and then submitted on Appeal 1048 and Appeal 1488. Background Facts [8] By a letter of acceptance, dated 19.03.2013, and a contract, dated 23.07.2013, the Respondents were appointed the contractor for the project. Clause 51 of the contract required the Respondents to provide a performance bond equivalent to 5% of the total contract sum of RM808,330,222.20 by way of an irrevocable and unconditional bank guarantee for the due performance and observance of the contract Page 5 of 25 and this was provided via a Maybank bank guarantee in the sum of RM40,416,511.11. [9] The project commenced in April, 2013. By a notice, dated 15.11.2016, Maybank appointed Duar Tuan Kiat of Messrs Ernst & Young as the Receiver and Manager (R & M) of the 1st Respondent. [10] Pursuant to the notice to appoint the R&M, on 25.11.2016 the Appellant gave notice to terminate the contract pursuant to clause 51.2 of the contract and gave notice to demand payment of the sum of RM40,416,511.11 under the bank guarantee. [11] On 30.11.2016 the Respondents filed an Originating Summons (OS No. 24NCvC-349-11/2016) in the High Court, Kuantan (the Kuantan Suit) against the Appellant for unlawful termination of the contract and for an injunction to restrain the Appellant from effecting the demand for payment under the bank guarantee. On the same day, the Respondents filed and obtained an ex-parte injunction restraining the Appellant and Maybank from effecting the notice of demand. The Appellant also filed an application to stay the proceedings pending reference to arbitration. [12] At the inter-partes hearing, the High Court dismissed the Respondents’ application for interim injunction and allowed the Appellant’s application for stay of the proceedings under section 10 of the Arbitration Act 2005. [13] The parties subsequently entered into negotiations through an intermediary (Minister of Finance II) to formulate the terms and Page 6 of 25 conditions to reinstate the contract (reinstatement agreement). One of the terms and conditions was that the appointment of the R&M be uplifted by 10.2.2017. By a letter dated 07.03.2017, Messrs Ernst & Young confirmed that Duar Tuan Kiat had ceased to be the R&M. [14] The Appellant issued a notice, dated 25.04.2017, for the Respondents to remove the equipment and machinery from the site. On 7.7.2017 the Appellant appointed a new contractor to complete the project. The Respondents then filed the KL Suit seeking for declaratory orders. Our decision [15] We have read and heard the submissions and the case authorities cited by the parties. Instead of setting out the submissions, we shall deal with these submissions in our decision. [16] In applying to set aside the injunction, the Appellant raised three issues:

(ii) that the Respondents’ claim amounted to abuse of process and ought to be barred due to res judicata in the broader sense; and

(iii) that the learned judge erred in applying the relevant laws to the facts. [17] Counsel for the Appellant submitted it is trite that in an ex-parte application, an applicant is legally bound to disclose to the court all matters which are within their knowledge that are material to the Page 7 of 25 proceedings and which are and/or may be in favour of the absent party. There was utter failure on the part of the Respondents to highlight the material facts to the learned judge that the Respondents failed and/or neglected to raise the issue on the alleged existence of the purported reinstatement agreement before the Kuantan High Court during the Kuantan Suit and the fact that the Respondents actually attempted to discontinue the Kuantan Suit with liberty to file afresh but was withdrawn and struck off on 1.11.2017 after the Defendant objected to the same. [18] It was submitted that if the learned judge had properly considered the facts presented by the Appellant and the contents and true nature of the Kuantan Suit, he would have undoubtedly reached the irresistible conclusion that the Respondents' claim against the Appellant amounted to abuse of process and ought to be barred due to res judicata in the broader sense. [19] The Appellant submitted that the Respondents alleged that the Kuantan Suit was premised on the unlawful termination of the contract by the Appellant whereas the KL Suit is premised on the purported breach of the reinstatement agreement (which the Appellant maintains do not exist in the first place) and that this was wholly misconceived because the parties in the Kuantan Suit are exactly the same as the parties in the KL Suit and the subject matter of the Kuantan Suit was premised on the same contract and/or facts in the KL Suit. It was argued that a plain reading of the relief prayed for in the Kuantan Suit and the ones sought in the KL Suit would show the net effect of both injunctive relief sought in the two suits are the same. Page 8 of 25 [20] The Appellant submitted that the learned judge was plainly wrong in concluding that the Respondents had duly complied with the provisions of Order 29 Rule 2A of the Rules of Court 2012 and misapplied the law to the facts in dismissing the Appellant's setting aside injunction application. [21] On the performance bond, the Appellant contended that it was an undisputed fact that the bank guarantee is an on-demand bank guarantee. Based on the authorities cited, the test that ought to be applied by the court is whether the party applying for an injunction can establish a strong prima facie case that there is fraud and/or unconscionability on the part of the beneficiary in calling the bank guarantee. There must be placed before the court manifest or strong evidence of some degree in respect of the alleged unconscionable conduct complained of and if so, the court will have to consider where the balance of convenience lies. [22] The Appellant submitted that the Respondents' failure to allege fraud and/or unconscionability and their failure to provide any particulars or exhibits in support of their allegation was telling and the fact of the matter was that there was nothing unconscionable in the Appellant's conduct against the Respondents. [23] The Respondents submitted that it was pertinent to note that the Respondents had abandoned prayer 1.1 of Enclosure 5 which was for an injunction against the Appellant's and/or the Appellant's agents and/or Appellant's adviser and/or Appellant's consultants and/or Appellant's employees and/or Appellant's servants including any bank Page 9 of 25 from taking any steps in accordance with or as a result of the notice of termination. [24] It was submitted that Appeal 1050 and Appeal 1049 are apparently premised on the following grounds, summarily:

(ii) there is no issue of unconscionability in this case;

(iii) bank guarantee is an on-demand bond which has been properly called;

(iv) damages is an adequate remedy for the Respondents;

(vi) no full and frank disclosure in an ex-parte application. [25] The Respondents submitted that the position taken by the Appellant in insisting on the termination of the contract and hence calling the performance bond without regard to the reinstatement agreement was unconscionable and this became particularly apparent when a new contractor was appointed in July 2017 in place of the Respondents while the reinstatement agreement was still alive and subsisting. This demonstrated the lacking of good faith on the part of the Appellant. [26] It was submitted that there was no abuse of process and that no issue of res judicata came into play. It was submitted that the learned judge had rightly and judicially exercised his discretionary power in granting the injunction whereby the Appellant's refusal in recognizing the reinstatement agreement and the subsequent conducts were found to be unconscionable and as such the decision in granting the interim injunction should not be disturbed. The purported non-disclosure of Page 10 of 25 facts did not affect the learned judge’s exercise of discretion in granting the injunction. [27] On the first issue, it is trite that in an application for an interlocutory injunction, there must be full and frank disclosure. Failure to disclose material facts can be a ground to refuse the injunction: see Lim Sung Huak v Syarikat Pemaju Tanah Tikam Batu Sdn Bhd [1994] 1 CLJ 264; Kosma Palm Oil Mill Sdn Bhd v Koperasi Serbausaha Makmur Bhd [2004] 1 MLJ 316. As submitted above, the Appellant contended that the Respondents failed to disclose the purported reinstatement agreement before the Kuantan High Court during the Kuantan Suit and also failed to disclose that their application to discontinue the Kuantan Suit, but this time referring to the purported reinstatement agreement, with liberty to file afresh, was struck off. It was argued that in failing to make full disclosure, the Respondents had distorted and gave a misleading picture of the relevant events leading to the grant of the ex-parte order which the learned judge otherwise would not have made. On the other hand, the Respondents submitted that the Respondents in the affidavits in support of their application for the interim injunction had disclosed the Kuantan Suit and the reinstatement agreement which was annexed as exhibit GM-11. In reply, the Appellant countered that it was incumbent on the Respondents in the ex-parte application not only to make full disclosure but also to draw attention to all relevant factors so as not to mislead the court into making an order that it would not have necessarily made and that the Respondents failed to satisfy the threshold. Page 11 of 25 [28] To begin with, we are of the view that the alleged failure to disclose the reinstatement agreement in the Kuantan Suit has no bearing on the KL Suit. The KL Suit in fact is premised on the reinstatement agreement which has been pleaded in the writ and statement of claim. In paragraphs 15, 16, 17, 19, 20, 22 and 26 of the affidavit in support of Encl. 5, the Respondents have set out the material facts and exhibited the reinstatement agreement. These material facts were disclosed and before the learned judge when he heard the application for the interim injunction. [29] In paragraphs 9 to 14 of the grounds of judgment, the learned judge had directed himself whether the Respondents had failed to make full and frank disclosure of material facts and the duty to draw attention to all relevant factors so as not to mislead the court during the ex-parte application for the injunction. The learned judge then ruled that whilst the Appellant may be right in contending that not each and every related fact was disclosed to the court for purposes of an ex-parte application, the learned judge took the view that the purported non-disclosure was immaterial and would not have affected his exercise of discretion in granting the injunction. [30] In exercising his discretion, the learned judge was entitled to take into account how innocent or culpable the non-disclosure. On the affidavits and submissions, there was no evidence that there was a deliberate non-disclosure or that there was a deliberate suppression of material facts which distorted the facts which misled the learned judge into making the decision which he otherwise would not have made: see Kepong Industrial Park Sdn Bhd & Ors v Teoh Seng Aun & Ors [1999] 6 MLJ 342; Tay Long Kee Impex Pte Ltd v Tan Beng Huwah (t/u Sin Page 12 of 25 Kwang Wah) [2000] 2 SLR 750. On the appeal record, the learned judge has correctly exercised his discretion as such: see Vasudevan v T. Damodaran & Anor [1981] 2 MLJ 150. We are of the view that there is no merit on this issue. [31] In determining whether to grant an interim injunction, the court must consider: (i) whether there is a serious question to be tried; (ii) whether damage is an adequate remedy; and (iii) the balance of convenience or the justice of the case: Keet Gerald Francis Noel John v Mohd Noor @ Harun b Abdullah & Ors [1995] 1 MLJ 193. The Appellant submitted that the Respondents’ claim and application for the interim injunction in the KL Suit tantamount to an abuse of process and ought to be barred by res judicata in the broader sense. [32] Our first consideration is whether there is a serious question to be tried. The applications in the court below and the appeals before us are based on affidavit evidence, including the documents as exhibited. The facts are not in dispute. On 30.11.2016, the Respondents filed the Kuantan Suit for a declaratory order that the Appellant’s termination of the contract was unlawful and applied for the interim injunction to restrain the Appellant and Maybank from effecting the demand against the bank guarantee which was opposed by the Appellant. On 4.1.2017 the Appellant applied to stay the proceedings in the Kuantan Suit pending reference of the dispute to arbitration. On 30.10.2017 the Respondents applied for leave to discontinue the suit with liberty to file afresh. On 1.11.2017, the Kuantan High Court dismissed the Respondents’ application for the interim injunction with costs, struck out the Respondents’ application to discontinue the suit and allowed Page 13 of 25 the Appellant’s application for stay with costs. About a week later, on 9.11.2017, the Respondents filed the KL Suit. [33] It is clear that the Respondents did not succeed in obtaining the interim injunction to restrain the Appellant from effecting the demand against the bank guarantee and also could not proceed with the Kuantan Suit as it had been stayed pending reference to arbitration. The Respondents did not appeal against those decisions. Instead the Respondents applied for leave to discontinue the suit with liberty to file afresh which was struck out. Again there was no appeal against that decision. The Respondents then filed the KL Suit against the Appellant. The Respondents contended that there is no abuse of process and that res judicata does not apply on the facts of the case. The Respondents argued that the Kuantan Suit is in respect of the unlawful termination of the contract whereas the KL Suit is in respect of the reinstatement agreement and that there are two separate and different causes of action. [34] The Respondents submitted that at the material time the reinstatement agreement was yet to be contemplated by the parties and hence no cause of action based on the reinstatement agreement. There is a fallacy in this submission. The reinstatement is to reinstate the contract terminated by the Appellant following the notice issued by Maybank to appoint the R&M, which termination the Respondents contended to be unlawful. Following the R&M notice, the Appellant demanded payment under the bank guarantee pursuant to the contract and which the Respondents complained to be unconscionable. Although the language used in the two suits may be slightly different, Page 14 of 25 the causes of action and issues in both suits arose out of the same sets of facts. [35] The facts showed that in December, 2016 and January, 2017 the parties were in negotiations to reinstate the contract. Subsequently, in April, 2017, the Appellant gave notice to the Respondents to remove their machineries from the site and the Appellant in July, 2017 appointed a new contractor to complete the works under the contract. Therefore we agreed with the submission of the Appellant that the Respondents could have easily applied to amend the pleadings to incorporate the reinstatement agreement in the Kuantan Suit. Since April until November, 2017, the Respondents had ample time to amend the pleadings but did not do so. Further, the Respondents chose to apply to discontinue the Kuantan Suit with liberty to file afresh which was struck out. As stated, there was no appeal against that decision. However, about a week later, the Respondents filed the KL Suit based on the same facts which we considered to be an abuse of the process of court, bearing in mind the proceedings in the Kuantan Suit had been stayed pending reference of the dispute to arbitration. On the facts and the series of events, it is our considered view that the learned judge had misdirected himself on the facts and had erred in his findings that it was not possible for the Respondents to amend the cause of action to include the reinstatement agreement and that the Respondents’ cause of action in the Kuantan Suit is different from the cause of action in the KL Suit. [36] It has been held that when a matter between two parties and their privies has been adjudicated by a court of competent jurisdiction, the parties and their privies are not permitted to litigate once more the res Page 15 of 25 judicata. The doctrine of res judicata is not confined to causes of action or issues which the court is actually asked to decide or has already decided. It covers also causes of action or issues or facts which, though not already decided as a result of the same not being brought forward due to negligence, inadvertence or deliberately, are so clearly part of the subject matter of the litigation and so clearly could have been raised, that it would be an abuse of process of the court to allow a new proceeding to be started in respect of them: Henderson v Henderson [1843-60] All E.R. Rep 378; Asia Commercial Finance (M) Berhad v Kawal Teliti Sdn Bhd [1995] 3 CLJ 783. The Respondents’ application for the interim injunction in the Kuantan Suit had been dismissed by the court. On the facts and circumstances of the case, it follows that the Respondents was abusing the process of the court in again filing the application for the interim injunction to restrain the Appellant from effecting the demand under the bank guarantee in the KL Suit. [37] The Respondents had contended that the refusal of the injunction sought on the calling of the bank guarantee would affect their financial standing especially when the parties had agreed to reinstate the contract and should not be allowed to call on the guarantee. It was submitted the refusal of the injunction would allow the Appellant who defaulted to enjoy the funds of the innocent party i.e. the funds of the Respondents. It was contended that this amounted to unconscionable conduct. In his grounds of judgment, the learned judge stated that he was constrained to hold that the Respondents had placed sufficient evidence before him to establish a strong prima facie case that the Appellant had indeed acted in an unconscionable manner inter alia, that the Respondents’ contract was terminated on the sole ground that Page 16 of 25 a R&M had been appointed by Maybank which triggered the termination on 25.11.2016 and that the Appellant remained silent when the Respondents failed to procure the removal of the R&M on 10.2.2017. The learned judge went on to say that the reinstatement had neutralized the trigger effect. It must be noted that the Respondents did not plead fraud or unconscionability. [38] We refer to clause 37 of the contract which provides for the performance bond. Clause 37.1 provides that the contractor (i.e. the Respondents) shall, as a condition precedent to the commencement of any work under this contract, deposit with the employer a performance bond equal to 5% of the contract sum for the due observance and performance of the contract. Clause 37.2 states as follows: “The Performance Bond shall be held or shall remain valid and effective for such period until the issuance of Final Certificate. The Performance Bond shall be from a licensed bank established in Malaysia and shall be irrevocable and payable forthwith on demand unconditionally, notwithstanding any objection, contestation, arbitration, legal proceedings or protest by the Contractor or any other third party and without any further proof or conditions and without any right of set-off or counterclaim.” [39] Reading clause 37.2, it is a pure on-demand guarantee. Such a performance bond is separate and independent of the underlying contract between the disputing parties and it is not open for the courts to inquire into any breach of obligations in the underlying contract except in clear cases of fraud and or unconscionability of which the bank has notice: see Esso Petroleum Malaysia Inc v Kago Petroleum Sdn Bhd [1995] 1 MLJ 149; Sumatec Engineering and Construction Sdn Bhd v Malaysian Refining Co Sdn Bhd [2012] 4 MLJ 1. Page 17 of 25 [40] Under clause 37.5, in the event the contractor’s employment is terminated under clause 51, the performance bond or any balance thereof shall be forfeited. As stated, the Appellant had issued the clause 51 notice to terminate the contract following Maybank’s notice to appoint the R&M and called upon the performance bond under clause 37. We do not wish to make any comment whether the notice to terminate is valid or otherwise which is pending arbitration. We take note that the demand on the performance bond was made on 25.11.2016 and the negotiations to reinstate the contract was subsequent to that. [41] It has been held that in an application to restrain an on-demand performance bond, ‘serious issue to be tried’ is not one of the grounds upon which a court may grant an injunction against the beneficiary to stop payment by a bank under a performance bond: Deutsche Ruckversicherung v Walbrook Insurance Co Ltd & Ors [1995] 1 WLR

1017. The ‘balance of convenience’ principle is also not applicable: see Howe Richardson Scale Co Ltd v Polimex-Cekap and National Westminster Bank Ltd [1978] 1 Lloyd’s Rep 161; LEC Contractors (M) Sdn Bhd (formerly known as Lotterworld Engineering & Construction Sdn Bhd) v Castle In Sdn Bhd [2000] 3 MLJ 339. An ongoing arbitration between the parties is also not a reason to stop the call on the performance bond: Bocotra Construction Pte Ltd v AG [1994] 3 SLR(R)

723. [42] Further, the balance of convenience is not in favour of the Respondents. Firstly, the Appellant is a statutory body established under the East Coast Economic Region Development Council Act

2008. There is no evidence that the Appellant is not financially sound Page 18 of 25 or unable to pay back the monies under the performance bond or that the appeal or the arbitration may become nugatory. Secondly, the claim against the Appellant is for breach of contract. In April, 2017 the Appellant demanded the Respondents to remove their machineries from site and in July, 2017 the Appellant had appointed a new contractor to complete the contract. In the event the Respondents succeed against the Appellant for breach of the contract, we are of the view that damages is an adequate remedy and the injunction should not have been granted. Thirdly, the Respondents did not sue or join Maybank as a party nor applied to restrain Maybank from making payment out on the bond once the call had been made. Since there is nothing to stop Maybank from paying under the bond, the Respondents’ application for the interlocutory injunction is in that sense of no effect or academic. [43] On affidavits, there is no evidence of any unconscionable conduct on the part of the Appellant in demanding payment on the performance bond or any complicity between the Appellant and the bank. On affidavits, the Respondents failed to establish a strong prima facie case that the Appellant had acted in an unconscionable manner in calling upon the performance bond, bearing in mind that the Respondents never pleaded fraud and or unconscionability. We are of the view that the learned judge had failed to appreciate the evidence and the principles applicable. For the reasons given, we find that the learned judge had erred in dismissing the Appellant’s application to set aside the injunction and in granting the interlocutory injunction. [44] In respect of Appeal 1048, as stated, the four letters complained of, to be expunged, are annexed as exhibits to the affidavit of Arizan Page 19 of 25 bin Arifin. The learned judge found that the 4 letters contained genuine proposals to settle the dispute between the parties but the parties did not reach any settlement be it on the termination or purported reinstatement agreement. He also ruled that the Respondents never consented and/or waived their right to the veil of privilege at any point in time. [45] The Appellant submitted as follows:

(ii) even if the impugned letters were truly communication made without prejudice, they fell within the exceptions to the "without prejudice" rule such that they ought to be made admissible;

(iii) where the issue is whether there was a concluded agreement, the 'without prejudice' communications could be admitted as evidence so as to ascertain that;

(iv) the Appellant should be allowed to admit "without prejudice" communications to correct a wrong assertion of fact; and