In the recent High Court case of SN Akmida Holdings Sdn Bhd v MTD Construction Sdn Bhd (and Another Originating Summons) [2021] 1 AMR 479, the plaintiff sought to rely on the Prevention and Control of Infectious Diseases (Measures Within Infected Local Areas) Regulations 2020 (‘Regulations’) as an event of force majeure to oppose the defendant’s calls on the two bank guarantees on grounds of “unconscionability”. Although the case turned on several legal issues, our commentary will focus solely on the novel point of one party’s reliance of the Covid-19 Regulations as an event of force majeure in restraining calls on bank guarantees.   
 
Brief facts and findings of the High Court
 
The plaintiff appointed the defendant as the project’s nominated sub-contractor for the construction of two Mass Rapid Transit stations. The plaintiff then provided a performance bond and procured an advance payment guarantee in favour of the defendant, as required by the sub-contract.
 
The defendant subsequently terminated the sub-contract allegedly breached by the plaintiff and demanded payment under both the performance bond and the advance payment guarantee (‘the bank guarantees’). The plaintiff filed two applications to restrain the defendant’s call on the bank guarantees pending arbitration of the dispute. One of the plaintiff’s contentions was that the defendant’s call on the bank guarantees were unconscionable due to an event of force majeure i.e. the enforcement of the Regulations. The plaintiff contended that (i) the enforcement of the Regulations resulted in the plaintiff’s inability to carry out the works; and (ii) it was unconscionable for the defendant’s two calls to be made in view of the enforcement of the Regulations and its three extensions thereafter.
 
The learned Judge, relying on the Federal Court’s decision in Sumatec Engineering and Construction Sdn Bhd v Malaysian Refining Company Sdn Bhd [2012] 4 MLJ 1, held that a party (‘X’) must satisfy two tests, to show that the call on a bank guarantee by its beneficiary (‘Y’) is unconscionable, namely that:

The High Court, applying the tests laid down in Sumatec Engineering, was satisfied that the defendant’s calls on the bank guarantees were not unconscionable and dismissed the plaintiff’s applications. The Court held, inter alia, that:

In arriving at its finding that the calls were not unconscionable, the High Court had to consider inter alia the plaintiff’s reliance on the enforcement of the Regulations as a force majeure event, within the sub-contract provisions. The High Court rejected the plaintiff’s contentions on the following grounds inter alia:

Comments
 
This is the first reported case where a party attempts to rely on the enforcement of the Regulations as an ‘event of force majeure’ within contractual provisions.
 
On the facts, it is observed that Clause 41(a) in the sub-contract does not include Acts of Government or ‘outbreak of pandemic, epidemic and/or endemic’ as ‘force majeure’ events. Hence, it remains to be seen if the enforcement of the Regulations will be considered as an event of force majeure if any of the aforesaid events are incorporated as ‘force majeure’ events in the contract between parties.
 
Henceforth, contracting parties should consider revisiting and revising the force majeure clauses in their contracts to include all circumstances within their contemplation as a proactive step in risk management.
 
Case commentary prepared by Jeremiah Ch’ng (Associate) of the Construction and Engineering Practice of Skrine.