Contract law – Call on performance bond – Whether demand unconscionable  
 
The Court of Appeal in Pengerang Refining Company Sdn Bhd v Sinopec Engineering (Group) Co Ltd (W-02(IM)(C)-558-04/2025) heard appeals against the dismissal of an application to set aside an Ex-Parte Order of the Kuala Lumpur High Court (“Setting Aside Application”) and the granting of an application for an Injunction Order on an Inter -Partes basis (“Inter-Partes Application”)
 
Both Orders restrained the Appellant from calling and/or receiving monies or payment pursuant to a Performance Bond in the sum of USD132,902,900.00 pending a final award in the arbitration.
 
Background Facts
 
The parties had entered into an agreement in August 2014 (“EPCC Contract”) under which the Respondents had agreed to engineering, procurement, construction and commission works for the Refinery and Petrochemical Integrated Development Project at Pengerang, Johor. In accordance with the EPCC Contract, the Respondents procured the following securities:- 

Subsequently, the Respondents issued a Notice of Dispute to the Appellant and commenced arbitral proceedings. In response to the same, the Appellant made a demand on the Performance Bond.
 
The Respondents applied to the Kuala Lumpur High Court for an interim measure to restrain the Appellant’s call on the Performance Bond. The Ex-Parte Order was granted, followed by an Inter-Partes Order. The Setting Aside Application was dismissed on the same day as the granting of the Inter-Partes Order.
 
The Appellant appealed against the dismissal of the Setting Aside Application and granting of the Inter-Partes Application
 
Court of Appeal
 
The issue before the Court of Appeal was whether the Appellant’s demand on the Performance Bond was unconscionable.
 
In determining the issue, the Court of Appeal first set out the test which the Respondents were required to satisfy, namely:- 

The Court of Appeal also reiterated the settled legal position that where the works are completed, any demand on the Performance Bond will be unconscionable.
 
Applying the above legal test to the facts of the appeals before them, the Court of Appeal found that the Appellant had deliberately withheld the issuance of the approved Performance Test Report to the Respondents. This deliberate withholding was so the Appellant could avoid having to issue the Certificate of Provisional Acceptance despite the project having been completed. Among others, this was seen by the Appellant notifying the Respondent that it was not entitled to the Certificate of Provisional Acceptance because the Respondent had not paid the Appellant the delay damages  purportedly owed in the amount of RM132,902,900.00.  However, the Court of Appeal found that the Respondent was in fact not entitled to the said damages as the facility had been completed and handed over to the Appellant, who was operating the facility and generating revenue from it.
 
Having considered the above, together with the fact that the Respondents had made full and frank disclosure at the High Court, the Court of Appeal dismissed the appeals and concluded that the calling of the Performance Bond by the Appellant was against the purpose of the same.
 
 
Case Note by Nimalan Devaraja (Partner) of the Dispute Resolution Practice of Skrine.
 
 
This case note was originally published in the Malaysian Bar Council’s Highlights from the Appellate Courts (No. 1/2026) (Circular No. 020/2026) and is republished with the kind permission of the Malaysian Bar Publications Committee.