Panzana Enterprise Sdn Bhd v. Turnpike Synergy Sdn Bhd (CA)
Civil procedure – Injunction to restrain call of bank guarantee – Unconscionability – S. 7 of the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020 – Contract law – Termination of construction contract
The key issue in the appeal of Panzana Enterprise Sdn Bhd v. Turnpike Synergy Sdn Bhd (Civil Appeal No. B-02(C)(A)-516-03/2022) is whether the application of section 7 of the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020 (“Covid-19 Act”) renders call on the Bank Guarantees unconscionable. The Court of Appeal allowed the appeal against the Learned Judge’s decision of allowing the Respondent’s application to set aside the ex-parte injunction to restrain the call on the Bank Guarantees for the following reasons.
Background Facts
The material facts are as follows:
a) The Respondent is responsible for overseeing the construction of the Damansara-Shah Alam Elevated Expressway (DASH) and the Appellant is the Main Contractor – the project was expected to complete on 28.2.2019 and later extended to 30.12.2020;
b) The Appellant provided two Bank Guarantees in favour of the Respondent as performance bonds;
c) On 10.2.2021, the Appellant was served with a Notice of Default, alleging that the Appellant failed to proceed with the works regularly and diligently which was responded by the Appellant stating that the Project Consultant should not have rejected the Appellant’s application for an extension of time;
d) On 29.3.2021, the Appellant was served with a Notice of Termination;
e) Aware of the demand for the release of the two Bank Guarantees by the Respondent, the Appellant obtained an injunction to restrain the Respondent from receiving the proceeds from the Bank Guarantees;
f) The Respondent’s application to set aside the injunction was allowed;
g) The Learned Judge granted an Erinford injunction, restraining the Respondent from receiving the proceeds of the Bank Guarantees pending disposal of the appeal;
h) The Appellant appealed on the successful setting aside of the injunction and the dismissal of the OS (“the appeals”).
The Decision
The Court of Appeal began by stating that there is a legally recognised exception to restrain from calling a Bank Guarantee or Performance Bond as set out in the case of Sumatec Engineering & Construction Sdn Bhd v Malaysian Refining Co Sdn Bhd [2012] 4 MLJ 1 which is the principle of unconscionability.
The Court of Appeal observed that the Notice of Termination was issued during the period covered by the Covid-19 Act, operation of section 7 of the Covid-19 Act, which was extended to 31.3.2021.
The moment the Covid-19 Act comes into operation, the obligations of the Appellant are suspended during that period in that the inability of the Appellant to perform the Contract within that period shall not give rise to the other party or parties exercising his or their rights under the Contract.
On the argument by the Respondent that the Appellant must prove how the delay is related to the measures prescribed under the Covid-19 Act, the Court of Appeal viewed that, at least at this juncture, the Appellant need not prove anything other than they could not discharge their contractual obligation under the Contract because of the different and various measures taken by the Government under the Covid-19 Act.
The Court of Appeal viewed that the Covid-19 Act should be applied generously considering the special purpose for which the Act was enacted to relieve the suffering of those affected by the Covid-19 Act pandemic, where movements of labour and materials were severely affected. In any event, section 7 of the Covid-19 Act is broad enough to cover the reason behind the call of the Bank Guarantees, which is the purported termination of the Contract due to the breach by the Appellant in failing to proceed with the works regularly and diligently.
Therefore, call on the Bank Guarantees is unconscionable as the Covid-19 Act was fully applicable to the parties to the construction contracts and there was in place, a temporary suspension of all contractual obligations of the parties. In short, the Notice of Default and Notice of Termination were null and void under section 7 of the Covid-19 Act.
Appeals allowed with costs.
Written by
Sandhya Saravanan
Member, Publications Committee
Credit: This case note was also published in the Highlights of the Appellate Court by the Publications Committee of the Malaysian Bar (2024/2025).