KNM PROCESS SYSTEMS SDN BHD LUKOIL UZBEKISTAN OPERATING COMPANY LLC

KNM PROCESS SYSTEMS SDN BHD LUKOIL UZBEKISTAN OPERATING COMPANY LLC

The Court allowed the appeal, set aside the High Court refusal, and granted an interim injunction restraining the respondent from calling on or receiving proceeds of the three guarantees pending final determination by arbitration because the appellant established a strong prima facie case of unconscionability/bad faith and that the guarantees were conditional in substance; damages were not an adequate protective remedy and the balance of convenience favoured preserving the status quo to support the arbitration.

Citation
W-02(C)(A)-1504-07/2018 (Mahkamah Rayuan)
Parties
Appellant: KNM Process Systems Sdn Bhd; Respondent: Lukoil Uzbekistan Operating Company LLC
Court
C
Jurisdiction
Malaysia
Judgment Date
14 May 2019
Case Number
W-02(C)(A)-1504-07/2018 (Mahkamah Rayuan)
Procedural Posture
Civil Appeal Arbitration/interim Injunction / Court of Appeal Judgment (appeal Allowed)
Outcome
Appeal allowed; High Court order set aside; interim injunction granted restraining calls on guarantees pending arbitration; costs to appellant
Legal Topics
Interim Injunctions Pending Arbitration, On Demand Guarantees and Performance Bonds, Unconscionability and Fraud, Adequacy of Damages and Balance of Convenience, Interpretation of Contractual Preconditions for Calls
Source Language
Malay/English
Arbitration Law Contract Law Equity Banking and Guarantees International Commercial Arbitration Interim Injunctions Pending Arbitration On Demand Guarantees and Performance Bonds Unconscionability and Fraud +2 more

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Parties

KNM Process Systems Sdn Bhd

Appellant

Lukoil Uzbekistan Operating Company LLC

Respondent

Procedural Posture

Civil Appeal Arbitration/interim Injunction / Court of Appeal Judgment (appeal Allowed)

Legal Issues

  1. 1 Whether the High Court ought to grant an interim injunction restraining calls on bank guarantees and performance bonds pending arbitration under s11 Arbitration Act 2005
  2. 2 Whether the guarantees were unconditional on‑demand instruments or conditional in terms of the underlying contracts
  3. 3 Whether there was manifest evidence of fraud or unconscionability to justify restraining calls

Ratio Decidendi

The Court allowed the appeal, set aside the High Court refusal, and granted an interim injunction restraining the respondent from calling on or receiving proceeds of the three guarantees pending final determination by arbitration because the appellant established a strong prima facie case of unconscionability/bad faith and that the guarantees were conditional in substance; damages were not an adequate protective remedy and the balance of convenience favoured preserving the status quo to support the arbitration.

Court Disposition

Appeal allowed; High Court order set aside; interim injunction granted restraining calls on guarantees pending arbitration; costs to appellant

Orders

  • Set aside the High Court decision refusing interim injunctive relief
  • Restrained the respondent from calling on or receiving any proceeds of Performance Guarantee No. 5789031, Guarantee for Refund of Advance Payment No. 5789175 and Warranty Guarantee No. 5842339 pending final determination by the arbitral tribunal