Nam Fatt Corporation Berhad v Petrodar Operating Co. Ltd., 02-11-2010

CourtFederal Court (Malaysia)
Judgment Date02 November 2010
Record NumberS-22-315-2010



SUIT NO: S-22-315-2010










(Court Enclosure 3)


The facts of this case have largely been set out in the case of Nam Fatt Corporation Berhad & Anor v. Petrodar Operating Co. Ltd &amp Anor [2010] 1 LNS 997 and are repeated here to the extent as they may be relevant to the inter-partes hearing of an application in Enclosure 3 by the Plaintiffs for an interim injunction to:

    1. Restrain the 1st Defendant from receiving the money it demanded in respect of the Performance Guarantee dated 22.2.2010 issued by the 2nd Defendant and

    2. Restrain the 2nd Defendant from paying out the Guarantee money.

Central to the issue above is whether the Performance Guarantee (PG) can be paid out when there is allegation of fraud and unconscionable conduct on the part of the beneficiary of the BG that is the 1st Defendant herein and that this Court having granted an Ad-Interim Order to that effect can now proceed to affirm the injunction given or to dismiss the Plaintiffs’ application for such an injunction.

At the hearing of the 1st Defendant’s application to set aside the Ad-Interim Injunction I had held that on the surface at least I was satisfied that there are serious questions for trial and that a more mature consideration of this issue of a serious question to be tried can be further had at the hearing at the inter-partes stage.

The time has now come for the hearing at the inter-partes stage and for that more mature consideration alluded to.


As can be gleaned from the case of Nam Fatt Corporation Berhad (supra) the 1st Plaintiff is a public listed company listed with Bursa Malaysia and now under PN 17. The 2nd Plaintiff is a subsidiary of the 1st Plaintiff and it entered into a contract (the Contract) with the 1st Defendant to build, construct and commission a one thousand kilometer pipeline and pumping facilities for the passage of crude oil through it for an agreed contract sum of US$180 million under an ‘Engineering, Procurement, Construction and Commissioning of Pumping Facilities Contract’ (hereinafter referred to as the Project) through the vehicle of a Joint-Venture company called Bentini-NF Energy JV; a Joint-Venture company between the 2nd Plaintiff and Bentini S.p.A.

The 1st Defendant is an off-shore company incorporated in British Virgin Islands and having its office in Khartoum. The 2nd Defendant is an off-shore bank in Labuan with a place of business in Kuala Lumpur.

The 1st Plaintiff had at the request of the 2nd Plaintiff provided the 2nd Defendant with the necessary security for the issuance of a Performance Guarantee ('PG') for US$18 million in favour of the 1st Defendant in the Standard Form prescribed in the Contract. The security furnished by the 1st Plaintiff in favour of the 2nd Defendant were a Fixed Deposit of RM20 million, a corporate guarantee and indemnity and a piece of land.


The Project was substantially completed though not without its complications and challenges. The complaint of the 2nd Plaintiff was that there were repeated attempts to delay and drag the payments due to them from the 1st Defendant. There was also the complaint that the 1st Defendant had refused to approve any variation order even though those variations were at the orders of the 1st Defendant. There were various negotiations but to no avail and when things came to the hilt the 1st Defendant made a demand on the 2nd Defendant to pay the sum of US$18 million under the PG.

As can be anticipated, the claims of the contractor for variation order and cost and expense were met by the principal's claim for liquidated and ascertained damages ('LAD') and cost of rectification as well besides calling upon payment under the PG which was procured at the commencement of the construction.

The parties have agreed that Sudan law shall be the applicable law governing the contract as well as the PG.

The 1st Defendant sent their representative to the 2nd Defendant’s office in Kuala Lumpur for a formal demand to be made.


The Plaintiffs’ counsel submitted that there is:

  1. More than a bona fide serious issue to be tried as at the very least there is a dispute as to what is Sudan law with respect to a demand made on a PG;

  2. Fraud and Unconscionability on the part of the 1st Defendant in the Contract such as to invalidate their call on the PG;

  3. Knowledge of the 2nd Defendant now being made aware of the fraud and unconscionable conduct on the part of the 1st Defendant such that the 2nd Defendant would be a party to the fraud if payment under the PG is made out;

  4. The Balance of Convenience favouring the Plaintiffs because irreparable damage and/or harm would be caused and the Plaintiff’s reputation as a company would be damaged.

Bona fide serious issues to be tried

The Plaintiff submitted that under the law of Sudan which governs the PG sharia principles are applicable in interpreting the PG. It was submitted that the PG is a conditional guarantee and that the 1st Defendant must prove breach and loss before it can demand or receive money under the Guarantee. As this has not been proved by the 1st Defendant they are not entitled to receive the payment. Likewise too the 2nd Defendant (the surety) must ascertain that the breach and loss have been proved before it can make any payment under the PG.

The Plaintiffs’ counsel further submitted that from the expert opinion of one Mr Abdul Mahmoud Salih Mahmoud, a Sudanese lawyer of more than 40 years of legal experience in various capacities, it can be summarised and stated that:

  1. As Sudanese Law requires the surety to ascertain the condition restriction and description tied to the payment, and coupled with Sharia principles that prohibits unjust enrichment, it is practically impossible to perceive of a guarantee which qualify as an on-demand guarantee under Sudanese law.

  2. The effect of the application of Sharia principles in the context of the commercial law of Sudan is such that the Owner is not allowed by law to make a call on the guarantee without proof of default or damages losses or expenses sustained due to default or amount of the damages, losses or expenses sustained thereby.

The Plaintiff has also fortified the above opinion with another opinion of one

Prof. Dr. Samy Abdelbaki, the Assistant Professor in Commercial, Maritime and Aviation Law, Faculty of Law, Cairo University where the said Dr. Samy said inter alia that a letter of guarantee is a Kafala contract under Islamic jurisdiction of Sharia principles whereby only confirmed liability of a guaranteed person creates a confirmed liability on the guarantee.

If that were the position of Sudan law then I must say it is poles apart with respect to what is generally understood as the law with respect to PG and the principle of sanctity of bonds. Fearing that an element of uncertainty might be introduced by reference to the law of Sudan, the parties had agreed in Clause 13.2 of the Contract under the title of “Laws to be Observed” that:

If the CONTRACTOR (the 2nd Plaintiff here) discovers any discrepancy or inconsistency between the CONTRACT and the LAWS, the CONTRACTOR shall immediately report the same in writing to the OWNER (the 1st Defendant here) setting out his proposals for overcoming the discrepancy or inconsistency (as the case may be). In the event that the OWNER disagrees with the proposals made by the CONTRACTOR under this Condition 13.2, he will advise the Contractor and will issue instructions as to how the discrepancy or inconsistency is to be overcome. The implementation of the CONTRACTOR’S proposals or the instruction of the OWNER (as the case may be) shall be undertaken by the CONTRACTOR at his own cost and without any right to an extension of time.” (the words in italics are added to clarify the parties referred to)

The 2nd Defendant’s counsel submitted that the 2nd Plaintiff knew in 2006 about the Sudanese law argument and yet it did not immediately disclose that to the 1st Defendant despite having a clear contractual obligation to do so. I find merits in that argument. I also agree with the 1st Defendant that instead and even as late as March 2010, the 2nd Plaintiff unequivocally confirmed that they have provided the 1st Defendant with an unconditional bond and asserted that the 1st Defendant was always in possession of a valid bond.

In order not to lose out and to counter the so-called expert opinion of the Plaintiffs, the 1st Defendant has exhibited the opinion of their experts, Dr Mohamed El Fat and Dr Abdalla Idris Mohamed. The former is the Head of Department of Commercial law, Faculty of Law, University of Khartoum and the latter is a former Dean, Faculty of Law, University of Khartoum and a past General Counsel and Director of the Legal Department of the Islamic Development Bank and a current Fellow of the Faculty of Law, University of Kartoum. Their opinion reads inter alia:

The terms of the Performance Guarantee leaves no room for doubt that it is an unconditional on demand...

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