Claiming the Performance Bond: Need the original bond?

For this purpose, the writer submits the case of Karya Lagenda Sdn Bhd v Kejuruteraan Bintai Kindenko Sdn Bhd & Anor.[i] In this case, the plaintiff, at the request of the first defendant, issued a bank guarantee dated 27 June 2003 for the sum of RM2,075,700.94 (‘the bank guarantee’) in favour of the second defendant. The bank guarantee was arranged for by the first defendant as required in the building contract between the first and second defendant. Disputes subsequently arose between the first and second defendant in the performance of the building contract, and the second defendant made a demand on the bank guarantee. As the first defendant challenged the validity of the demand, the plaintiff did not make any payment to the second defendant. The first defendant then demanded the release of its fixed deposit funds — secured for the granting of the bank guarantee — to which the plaintiff did not accede. The plaintiff commenced an interpleader proceeding in the High Court to determine whether, inter alia, there was liability to pay on the bank guarantee. The first defendant in turn counterclaimed against the plaintiff for the release of its fixed deposit funds. The High Court decided in favour of the second defendant and dismissed the first defendant’s counterclaim, resulting in the present appeal. Since the main question in this appeal concerned the validity of the second defendant’s demand for payment of the bank guarantee, one of the issues in this appeal requiring determination is whether the original bank guarantee must be presented at the time of the demand before payment could be made. Raus Sharif JCA in delivering the judgment of the court states that the failure to present the original bank guarantee at the time of demand was a non-issue. It was further held that the payment mechanism as contained in the bank guarantee made no reference to any requirement that the original bank guarantee must be produced at the time of the demand before payment could be made, but, in this case, it was not a contractual requirement that must be complied with.

[i] [2007] 6 MLJ 72; [2007] 6 CLJ 18 (CA).

The above is part of an article, Abdul Aziz Hussin. (2011) Unperformed performance bond in construction industry. Malayan Law Journal. [2011] 1 MLJ cxxxix-clii.

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