Gammerlite Sdn Bhd v 1. ) Jambatan Kedua Sdn Bhd (WA-24C-22-02/2023)

JAMBATAN KEDUA SDN BHD (Company No.: 824573-U)

CIMB BANK BERHAD (Company No.: 13491-P) …DEFENDANTS GROUNDS OF JUDGMENT (Enclosure 1 & 2) Introduction [1] Gammerlite Sdn Bhd (“Plaintiff”), the Plaintiff herein is seeking in enclosure 1 hereto (Enclosure 1) for inter alia a declaration that Jambatan Kedua Sdn Bhd (“D1”) demand/call on the Bank Guarantee/Performance Bond dated 28.1.2015 (“PB”) issued by CIMB Bank Berhad (“D2”) is deemed null and void. S/N GbxzbAgahkyEVfLSUgeYeQ [2] This Court had on 7.3.2023 with the consent of both sides made an Ad Interim Order pursuant to enclosure 2 (Enclosure 2) for an injunction to prevent D1 from receiving the sums under the said PB until full disposal of enclosure 1 herein. [3] The decision herein is thus for the prayers in Enclosure 1 and the Inter Partes hearing of Enclosure 2 after hearing the respective counsels submitting on the same. [4] For the record, counsel for D2 had informed this Court that their client is not taking any position on the aforesaid enclosures and will abide by the Order of this Court. Brief Background [5] By way of a Letter of Acceptance of Tender dated 12.1.2015, D1 engaged the Plaintiff as a contractor for the design, establishment, development, implementation, and maintenance of the integrated asset management system for Jambatan Sultan Abdul Halim Muadzam Shah (“Works”) for a contract sum of RM133,168,000.00 (“Contract”). The Contract's conditions are governed by the Standard Form of Design and Build Contract, PWD Form DB (Rev.1/2010). [6] On 9.12.2016, D1 issued a Variation Order No. 1 in the sum of RM1,065,179.85, and the total variation works of the Contract amounted to RM1,112,728.15. S/N GbxzbAgahkyEVfLSUgeYeQ [7] The relevant clauses of the Contract that are relevant to these are as follows:

7.1 Clause 53.2 of the PWD Form DB (Rev.1 /2010) The Plaintiff shall submit to the project director at such times and in such form as the project director may prescribe a written application for interim payments showing the amounts which in the Plaintiff’s opinion are due under the Contract payments.

7.2 Clause 53.3 of the PWD Form DB (Rev.1 /2010) The project director shall within twenty-eight (28) days from the date of receipt of the application for Interim Payments, inspect and verify the Works, make a valuation of the same and issue an interim Payment Certificate stating the amount due to the Claimant from the JKSB provided the total value in each monthly valuation shall not be less than the sum referred to on Appendix 1 of the Contract.

7.3 Clause 53.4 of the PWD Form DB (Rev.1 /2010) The amount stated as due in an interim Payment Certificate shall be the estimated total value of the Works done and properly executed and up to ninety (90) percent of the value of any goods or fixed materials delivered to or adjacent to the site intended for use or to be incorporated into the Works up to and including the date the valuation was made, less any payments (including Advance Payment) previously paid under this Contract provided that such Certificate shall only include the value of the said goods or unfixed materials as S/N GbxzbAgahkyEVfLSUgeYeQ and from such time as they are reasonably and properly and not prematurely delivered to or adjacent to the site and adequately protected against weather, damage or deterioration.

7.4 Clause 49.1 of the PWD Form DB (Rev.1 /2010) Upon it becoming reasonably apparent that the progress of the Works is delayed, the Claimant shall forthwith give written notice to the project director, as to the causes of delay and relevant information with supporting documents enabling the said officer to form an opinion as to the cause and the length of the delay.

7.5 Clause 10.4 of the PWD Form DB (Rev.1 /2010) Notwithstanding anything contained in this Contract, if the Plaintiff fails to perform any of his obligations under the Contract and such failure is not remedied in accordance with this Contract, D1 shall be entitled to call upon the Performance Bond, wholly or partially. [8]

8.1 The Plaintiff failed to perform any of his obligations under the Contract; and 8.2 Such failure is not remedied in accordance with this Contract. S/N GbxzbAgahkyEVfLSUgeYeQ [9] On 28.1.2015 at D1’s request, D2 issued a PB for the sum of RM6,658,400 to secure the due performance by the Plaintiff of its obligations under the Contract. [10] Disputes arose between the Plaintiff and D1 concerning amongst others, non-payment, under certification of work done by the Plaintiff under the Contract and the alleged unlawful imposition of Liquidated Ascertained Damages (“LAD”). [11] On 13.7.2022, the Plaintiff commenced adjudication proceedings against D1, arising out of the dispute. (“Adjudication”). [12] Whilst the adjudication proceedings were ongoing, without prior notice to the Plaintiff, D1 through its letter of 13.2.2023 to D2 demanded payment on the PB in the sum of RM6,658,400.00 (“Demand”). [13] D1 in its Demand, inter alia, alleged that the Plaintiff had failed to perform its obligations under the Contract and failed to complete the works by the extended Date of Completion hence entitling D1 to impose and recover LAD. [14] The Plaintiff was only informed of the Demand by D2 by way of a letter dated 14.2.2023. [15] Contending the Demand to be unconscionable, fraudulent and/or unlawful, the Plaintiff had filed these proceedings for the appropriate reliefs from this Court. S/N GbxzbAgahkyEVfLSUgeYeQ [16] The Adjudication decision was delivered on 28.4.2023 wherein a sum of RM7,881,924.96 and costs in the amount of RM255,603.00 was awarded to the Plaintiff (“Adjudication Decision”). Court’s Findings The Contract, Performance Bond & The Dispute [17] I have read the Letter of Acceptance of Tender dated 12.1.2015 (“LA”), whereby D1 engaged the Plaintiff to design, implement, develop and maintain an integrated asset management system (Works) for Jambatan Sultan Abdul Halim Muadzam Shah for a sum of RM133,168,000 which is governed by the terms as per the Standard Form of design and Build Contract, PWD Form Db (Rev.1/2010) (“PWD Form”) and its Addendum (collectively “Contract”). [18] I have found that it was stated at clause 10.1 of the PWD Form that the Plaintiff as the Contractor, shall as a condition precedent to the commencement of any work, deposit with D1 as the Employer, a PB to secure the due performance of the Plaintiff’s obligations under the Contract. [19] The Plaintiff had however submitted that under clause 10.4 of the PWD Form, D1 was only entitled to call upon the PB upon:

19.1 the Plaintiff having failed to perform any of its obligations under the Contract;

19.2 such failure is not remedied in accordance with the Contract. S/N GbxzbAgahkyEVfLSUgeYeQ [20] From the facts before me, the PB was issued by D2 at the request of D1 on 28.1.2015 for a sum of RM6,658,400 to secure the due performance by the Plaintiff of its obligations under the Contract. This can be seen at exhibit WR-3 in enclosure 10. [21] It is also clear based on the chronology of events that:

a dispute arose between the Plaintiff and D1 concerning an alleged non payment and under certification of work as well as the imposition of Liquidated Ascertained Damages (“LAD”) amongst others;

(ii) due to the above said dispute, the Plaintiff commenced adjudication proceedings on 13.7.20222 (“Adjudication”);

(iii) whilst the Adjudication was on going, D1 had on 13.2.2023 demanded from D2 (Demand) the sum of RM6,658,400

(iv) the Demand had stated therein that the Plaintiff “has failed to perform its obligations under the Contract and failed to complete the Works” and accordingly the Plaintiff demanded for payment of the sum of RM6,658,400. [22] The Plaintiff then submits:

22.1 that they have at all material times carried out the Works properly and diligently as per the Contract and that the call/ Demand on the PB was made in bad faith and is unconscionable; S/N GbxzbAgahkyEVfLSUgeYeQ 8 22.2 in the Adjudication they have been awarded the sum of RM7,881,924.96 after taking into account D1’s argument that it was entitled to LAD; and 22.3 D1 had through its payment certificates deducted the LAD in arriving at the final sums said to be due from the Plaintiff;

22.4 as a result of the same the Demand would be an unjust enrichment. [23] I have considered the Plaintiff’s arguments and find that clause 10.7 of the PWD Form had also stated “...in the event this Contract is terminated under clause 60 and 61 the said Performance Bond or any balance thereof shall be forfeited”. [24] I have also after reading the PB found that the same had expressly stated that: a. it was an irrevocable guarantee; and b. on the “first written demand, the Guarantor shall ...pay to the Employer the amount specified in such demand notwithstanding any contestation or protest by the Contractor... and without any proof or conditions”. [25] Based on the above, I do hold that the PB is an on demand and unconditional Performance Bond. [26] I do note that there is requirement that a Certificate of Completion (“CNC”) be issued if the Plaintiff fails to complete the Works by the Date of Completion or any extended time thereto pursuant to clause 45 of the PWD Form and based on the facts before me the CNC S/N GbxzbAgahkyEVfLSUgeYeQ was only issued on 9.3.2022 i.e after the Demand was made on 13.2.2023. [27] To this, the Plaintiff had argued that Clause 45 of the PWD Form had expressly stated that D1 can only claim for LAD for non completion after the CNC has been issued, and counsel for the Plaintiff referred to the said clause and submitted that there are 2 limbs contained therein i.e D1 must first issue CNC and only then can D1 call on the PB as damages for debt due if there are monies due to contractor and unable to recover. [28] With respect, after reading the said Clause 45 of the PWD Form which comes under the heading “Damages For Non Completion”, I have observed that the said clause also contains the express term as follows “The P.D may deduct such damages from any money due or to become due to the Contractor, failing which such damages shall be recovered from the Performance Bond or as a debt due from the Contractor...”. Following from this I hold that the aforesaid words only mean and provide that D1 has the discretion and is entitled to deduct the LAD from any money due or to become due to the Plaintiff should D1 chose to do so as the words “may’ therein dictate that it is not obligatory or a mandatory provision for D1 to do the same. I therefore reject the Plaintiff’s argument on this point that D1 must first issue the CNC and only then can D1 call on the PB as damages for debt due. [29] As this Court has made a finding that the PB is an on demand and unconditional Performance Bond, the further argument by the Plaintiff with regards the CNC only being issued after the Demand, S/N GbxzbAgahkyEVfLSUgeYeQ is with respect, untenable and nothing stands on the fact that the Demand was well within D1’s rights and entitlement. [30] It is trite that unconscionability is a ground to restrain a beneficiary from making a claim under the PB as per the Federal Court in Sumatec Engineering And Construction Sdn Bhd v Malaysian Refining Co Sdn Bhd [2012] 4 MLJ 1; [2012] MLJU 152; [2012] 3 CLJ 401; [2012] 2 AMR 673 where our Apex Court held: “A determination on whether unconscionability applies in a particular case would therefore depends largely on the material facts. Coincidentally, the same learned appeal judge wrote the lead judgment in Kindenko and in this case. The injunction was allowed in Kindenko and refused in this case. So, to answer the question posed to us, we say yes, unconscionability may now be raised as a distinct ground, to restrain a beneficiary under a bank guarantee or performance bond.” [31] There is therefore the issue of the Plaintiff alleging that:

the LAD imposed has not complied with the conditions of the Contract as D1 had failed to inter alia give written notice to the Plaintiff specifying the Plaintiff’s default and to remedy the alleged defects within 14 days and thus the imposition of LAD is wrongful;

(b)the PB is merely a security for the Plaintiff to pay damages if it breaches its primary contractual obligations to D1;

(c)the PB is to be only called upon for the purposes of engaging a third party contractor to complete the works left uncompleted;

(d)the Demand was done in bad faith as the same was done with full knowledge of the dispute concerning D1’s entitlement to LAD which was the subject matter of the Adjudication proceedings;

(e)D1 had imposed and deducted the LAD even prior to the Demand and thus the monies under the PB would result in over securitization on the part of D1 which is unconscionable. [32] From the facts before me, D1 had imposed LAD on the Plaintiff at the rate of RM1,732.80 per day from 1.10.2017 until 17.2.2022 amounting to RM2,730,892.80 for the Development Stage Works and this amount was deducted from the monies payable to the Plaintiff under Interim Payment Certificates (“IPC”) No 23 to 75. After the issuance of the CNC, D1 imposed LAD at the rate of RM49,609.90 per day from 18.2.2022 which continues until issuance of the CPC and is reflected in IPC No 75 and 76. [33] D1 submits that they have had to engage a third party contractor to carry out and complete the Works and estimates a cost of RM7,820,238.16 and therefore at the date of the Demand there is therefore a sum of RM23,462,797.60 payable by the Plaintiff to D1. D1 thus submits that they are well entitled to call on the PB. [34] In Sumatec Engineering And Construction Sdn Bhd (supra), the Federal Court had held: S/N GbxzbAgahkyEVfLSUgeYeQ “As in the case of fraud, to establish ‘unconscionability’ there must be placed before the court manifest or strong evidence of some degree in respect of the alleged unconscionable conduct complained of, not a bare assertion. Hence, the respondent has to satisfy the threshold of a seriously arguable case that the only realistic inference is the existence of ‘unconscionability’ which would basically mean establishing a strong prima facie case. In other words, the respondent has to place sufficient evidence before the court so as to enable the court to be satisfied, not necessarily beyond reasonable doubt, that a case of ‘unconscionability’ being committed by the beneficiary (the appellant) has been established to an extent sufficient for the court to be minded to order injunction sought. This additional ground of ‘unconscionability’ should only be allowed with circumspect where events or conduct are of such degree such as to prick the conscience of a reasonable and sensible man.” [35] I have taken cognizance of the issues and facts above as submitted by both sides and after assessing the totality of the circumstances, I hold that:

35.1 the Plaintiff has failed to satisfy this Court on a balance of probabilities that a strong prima facie case, which barrier has been set at such a high level, as per the Singapore Court of Appeal in BS Mount Sophia Pte Ltd v Join-Aim Pte Ltd [2012] 3 SLR 352, that a case of ‘unconscionability’ has been committed by D1; S/N GbxzbAgahkyEVfLSUgeYeQ 13 35.2 the alleged non compliance and/or non conformity of the terms under the Contract by either side is, with respect, purely with regards contractual disputes between the parties and do not per se constitute unconscionability, see the judgement of Lim Chong Fong J (as he then was) in SN Amkida Holdings Sdn Bhd v Ahmad Zaki Sdn Bhd [2020] 4 CLJ 564 and Lee Swee Seng J (as His Lordship then was) Chengaljati Sdn Bhd v Turnpike Synergy Sdn Bhd & Anor [2019] MLJU 316; [2019] MLJU 345.

35.3 there is no element of unfairness and unclean hands as alleged by the Plaintiff as I do not prima facie consider the conduct of D1 imposing and deducting the LAD even prior to the Demand or that the monies under the PB would result in over securitization on the part of D1 which the Plaintiff alleges is unconscionable as the facts as mentioned above prima facie shows that the sum owed by the Plaintiff to D1, rightly or wrongly, is well above the amounts which the Plaintiff states it is entitled to; and 35.4 at the risk of repetition, as this Court has made a finding that the PB is an on demand and unconditional Performance Bond, once the Demand is made by D1, there is no necessity to prove any default of the Contract by the Plaintiff. It suffices for this Court to refer to China Airlines Ltd V Maltran Air Corp Sdn Bhd (Formerly Known As Maltran Air Services Corp Sdn Bhd) And Another Appeal [1996] 2 MLJ 517 to which I am bound and where in that case the Federal Court had held: S/N GbxzbAgahkyEVfLSUgeYeQ “A bank guarantee is a performance bond. There are two types of performance bond. The first type is a conditional bond whereby the guarantor becomes liable upon proof of a breach of the terms of the principal contract by the principal and the beneficiary sustaining loss as a result of such breach. The guarantor's liability will therefore arise as a result of the principal's default. The second type is an unconditional or ‘on demand’ performance bond which is so drafted that the guarantor will become liable merely when demand is made upon him by the beneficiary with no necessity for the beneficiary to prove any default by the principal in performance of the principal contract. According to the learned authors of The Modern Contract of Guarantee (2nd Ed) at p 664, the tendency of the English courts (since, according to the authors, that the Australian courts have not yet been faced with the same problems of construction) has been to treat the performance bonds as unconditional if there was a clear statement that the amount guaranteed was payable by the bank simply upon a written demand being made, even though there might be some indications to the contrary elsewhere in the document.” [36] Accordingly, I hold that in this case before me, the PB is automatically triggered by the Demand. Please see Esso Petroleum Malaysia Inc v Kago Petroleum Sdn Bhd [1995] 1 MLJ 149 where the Federal Court held: “Looking at the performance bond (bank guarantee No 065-92- 106) as set out above, it was stated to be an ‘unconditional’ guarantee. The onlyother thing of note would be the stated S/N GbxzbAgahkyEVfLSUgeYeQ requirement that all claims must be made in writing. This performance bond was, on a true construction, a pure on demand guarantee, and all that was required to trigger it was a demand in writing. It would not be dependent or conditional on the production of a document, eg a certificate from some nominated independent person like an architect as in some building contracts, etc. Neither was it worded to make it conditional for Bank Bumiputra, the issuer of the performance bond, to inquire into the existence or otherwise of any breach of any contractual obligation between the beneficiary of the bond, ie the buyer in this case, and the seller; at the behest of the latter itself, the performance bond was issued. It was not even worded to make it conditional on a simple declaration by the beneficiary, without proof to its issuer, that the seller had not paid damages to the buyer after the release by the buyer of the sum of DM466,562. In fact, the present performance bond, had it been worded, eg to require any proof of breach by the buyer so as to deserve any payment, then, in such event, its commercial acceptability as a performance bond, would be mostly lost. Dealing further with the construction of the performance bond, since we found it was an on demand performance bond, this would, in our view, make the present performance bonds independent of any underlying contract, ie any contract between the buyer and the seller. We thought, therefore, it was not open to his Lordship in the court below to impart into this on demand guarantee, by implication, a requirement to have regard to, or to inquire into any breach of any obligation of such underlying contract, and this seemed to have been done. The next and only other question from the instant performance bonds would be as to what sort of demand it would be as required by its wording.” S/N GbxzbAgahkyEVfLSUgeYeQ [37] I believe that it is not amiss to also to refer to Kerr J in Harbottle v National Westminster Bank [1978] QB 146 at pp 155–156 [1977] 2 All ER 862 at p 870 [1977] 3 WLR 752 at p 761, which was also quoted by our Federal Court in Esso Petroleum Malaysia Inc (supra) where Kerr J had stated: “It is only in exceptional cases that the courts will interfere with the machinery of irrevocable obligations assumed by banks. They are the life-blood of international commerce. Such obligations are regarded as collateral to the underlying rights and obligations between the merchants at either end of the banking chain. Except possibly in clear cases of fraud of which the banks have notice, the courts will leave the merchants to settle their disputes under the contracts by litigation or arbitration as available to them or stipulated in the contracts. The courts are not concerned with their difficulties to enforce such claims; these are risks which the merchants take.” Adjudication Decision [38] Finally, I would like to refer to the issue of the Adjudication Decision in favour of the Plaintiff. I have looked at the issues raised by the Plaintiff re the Adjudication decision and the fact that the Learned Adjudicator had in the Adjudication Decision decided inter alia that the LAD sum of RM1,258,443 was deducted from the Plaintiff’s entitlement thereto and the Adjudicator then awarded the sum of RM7,881,924.86 to the Plaintiff in the Adjudication proceedings. To this it was submitted by the Plaintiff that it ought not to be deprived of the fruits of its litigation and that the demand made by D1 here S/N GbxzbAgahkyEVfLSUgeYeQ would reverse the effect of the Adjudication Decision which was contrary to the intention and purpose of CIPAA. [39] After due consideration of the above, I hold that this is not a factor to be given much weight by this Court to decide the matter before me as I am herein deciding on the issue of whether the call via the Demand was lawful or unconscionable and based on my reasons in my decisions herein, the alleged disputes do not come in my view within the definition of ‘unconscionability’. Is Damages An Adequate Remedy [40] I have also therefore taken into consideration whether damages would be an adequate remedy in the circumstances before me and I am of the view that the Plaintiff herein can be compensated by damages should further legal proceedings, be it by way of Arbitration or via the Courts, ultimately decides that the disputes between the parties are in favour of the Plaintiff. [41] I reject the arguments on the commercial reputation of the Plaintiff being impacted or the negative publicity which would allegedly impact the Plaintiff’s business and financial operations as I hold that the calling of the PB is a normal and expected occurrence in the construction industry and the impact if any would be very nominal as there is no ‘guilt’ necessarily attached to a call on such a PB.

[42] In the circumstances, I hereby dismiss Enclosure 1 and 2 herein with costs. S/N GbxzbAgahkyEVfLSUgeYeQ Dated: 5th day of July 2024 sgd. NADZARIN WOK NORDIN HIGH COURT JUDGE CONSTRUCTION COURT 1 COUNSEL FOR THE PLAINTIFF: Ashok Kandiah, Celinne Teh, Ashvinderjeet Kaur and Marcelle Sinnape (Messrs Haris Ibrahim Kandiah Partnership (Petaling Jaya)] COUNSEL FOR THE 1st DEFENDANT: Victoria Loi, Kienan Yeo and Jaclyn Wee (Messrs Shook Lin & Bok (Kuala Lumpur)] COUNSEL FOR THE 1st DEFENDANT: Tiffany Low Jia Qi (Messrs Lee Hishammuddin Allen & Gledhill (Kuala Lumpur)] S/N GbxzbAgahkyEVfLSUgeYeQ