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Faculty Of Civil Engineering


Formative Assessment 1


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The following is an article related to disputes in construction project.

CASE STUDY: Konajaya Sdn Bhd V Perbadanan Urus Air Selangor Bhd ([2009] 5 MLJ
Part 1: In reference to the this case, the Konajaya sdn Bhd (Konajaya) as a plaintiff and
Perbadanan Urus Air Selangor Bhd (Perbadanan) as a defendant had entered into a contract
for the Perbadanan to carry out certain design and construction works. Konajaya successfully
completed the works on 22 February 1999. In accordance to the contract, the Perbadanan
provided the Konajaya with a guarantee issued by Maybank Bhd ('MBB') for the design of the
works ('the guarantee'). The guarantee was to remain in force for 5 years and 6 months from
the date of completion of the works on 22 February 1999. So, the guarantee was to expire on
August 2004. On June 2003, Konajaya was notified by MBB that the Perbadanan had made a
call on the guarantee which Konajaya had not given other party any prior notice of any claim
on the guarantee.
Konajaya applied for an injunction to restrain Perbadanan from demanding and accepting any
moneys under the guarantee pending Konajayas application for a declaration that the
defendant had no right to call on the guarantee. After that, the Perbadanan who was the
defendant, failed to make any attempt to preserve the guarantee and it expired. In support of
its application, the plaintiff requested the guarantee to be required by the defendant to state
the defects or damage to the works when making a demand to MBB. If the defendant had
failed to do so in its demand, it will be assumed that the defendant's demand to MBB for
payment under the guarantee was invalid and ineffective. The defendant however countered
and said that the guarantee was a performance bond, which did not require anything more that
a demand in writing to call on the guarantee.
Part 2: Fortunately, after several appeals from the plaintiff, the court finds that the
defendant's letter of demand dated 27 June 2003, calling for the bank guarantee, failed to
comply with the conditions set out in the bank guarantee, and thus the defendant was not
entitled to call on the said bank guarantee. The plaintiff's originating summons was allowed
with costs.
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Identify the key issue of dispute. Analyze the situation in Part 1 is favourable to the
plaintiff or the defendant.