KNM PROCESS SYSTEMS SDN BHD 1. ) CECA GOLD COMPANY LIMITED 2. ) MBSB BANK BERHAD

KNM PROCESS SYSTEMS SDN BHD 1. ) CECA GOLD COMPANY LIMITED 2. ) MBSB BANK BERHAD

The Court allowed the appeal, holding that s.11 Arbitration Act 2005 authorizes the court to grant declaratory and interim relief including against an issuing bank to preserve the arbitration process; s.7 of Act 829 applies as a defence because substantial performance was to occur in Malaysia and COVID-19 measures prevented performance, and the beneficiary's call was unreasonable/unconscionable given ongoing negotiations and agreed extensions; accordingly the demand was declared invalid and the 1st respondent restrained from receiving proceeds, and the High Court order was set aside.

Citation
B-02(C)(A)-1701-09/2021 (Mahkamah Rayuan)
Parties
Appellant: KNM Process Systems Sdn Bhd; 1st Respondent: CECA Gold Company Limited; 2nd Respondent: MBSB Bank Berhad
Court
C
Jurisdiction
Malaysia
Judgment Date
17 January 2022
Case Number
B-02(C)(A)-1701-09/2021 (Mahkamah Rayuan)
Procedural Posture
Civil Appeal / Court of Appeal Judgment (grounds of Judgment)
Outcome
Appeal allowed; High Court order set aside
Legal Topics
Interim Measures Under Arbitration Law, Declaratory Relief, On Demand Bank Guarantee, Unconscionability as Defence to Demand, Choice of Law and Lex Fori, Extra Territorial Application of Statute, Temporary Measures for COVID 19 Act 2020 S.7
Source Language
Malay/English
Arbitration Contract Banking (bank Guarantees) Statutory Interpretation Conflict of Laws Public Emergency Legislation Interim Measures Under Arbitration Law Declaratory Relief +5 more

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Parties

KNM Process Systems Sdn Bhd

Appellant

CECA Gold Company Limited

1st Respondent

MBSB Bank Berhad

2nd Respondent

Procedural Posture

Civil Appeal / Court of Appeal Judgment (grounds of Judgment)

Legal Issues

  1. 1 Whether a declaratory order and interim measures can be granted under s.11 Arbitration Act 2005 to restrain a call on an on-demand bank guarantee
  2. 2 Whether the issuing bank (non-party to arbitration) can be restrained from honoring the call
  3. 3 Whether s.7 of the Temporary Measures for Reducing the Impact of COVID-19 Act 2020 (Act 829) protects the appellant from liability and prevents the beneficiary calling the guarantee

Ratio Decidendi

The Court allowed the appeal, holding that s.11 Arbitration Act 2005 authorizes the court to grant declaratory and interim relief including against an issuing bank to preserve the arbitration process; s.7 of Act 829 applies as a defence because substantial performance was to occur in Malaysia and COVID-19 measures prevented performance, and the beneficiary's call was unreasonable/unconscionable given ongoing negotiations and agreed extensions; accordingly the demand was declared invalid and the 1st respondent restrained from receiving proceeds, and the High Court order was set aside.

Court Disposition

Appeal allowed; High Court order set aside

Orders

  • Declaration that the demand made by the 1st Respondent on the bank guarantee is invalid and unlawful
  • Order restraining the 1st Respondent from receiving the proceeds of the bank guarantee