The Payment And Performance Guarantee is a crucial financial and legal instrument widely used in Malaysian commercial transactions, particularly in construction, infrastructure, and development projects. This document becomes necessary when a party requires security for both payment obligations and performance commitments from another party. It combines elements of traditional bank guarantees with performance bonds, providing comprehensive protection against both payment defaults and performance failures. The guarantee is structured to comply with Malaysian legal requirements, including the Contracts Act 1950 and relevant banking regulations, and can be issued by either financial institutions or corporate entities. It typically specifies a maximum liability amount, validity period, and precise conditions for claims, while also detailing the scope of guaranteed obligations and claim procedures. This type of guarantee is particularly important in large-scale projects where both financial security and performance assurance are critical.
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1. Parties: Identifies the Guarantor, Principal (the party whose obligations are being guaranteed), and Beneficiary
2. Background: Describes the underlying transaction or agreement that necessitates the guarantee
3. Definitions: Defines key terms used throughout the guarantee document
4. Guarantee and Indemnity: The core section establishing the guarantee obligations, including both payment and performance aspects
5. Scope of Guarantee: Detailed description of what obligations are covered by the guarantee
6. Maximum Liability: Specifies the maximum amount for which the guarantor can be held liable
7. Duration and Validity: Specifies the commencement date and expiry date of the guarantee
8. Demand Requirements: Procedures and conditions for making a claim under the guarantee
9. Payment Terms: Timeframe and method for payment upon valid demand
10. Guarantor's Obligations: Detailed listing of the guarantor's responsibilities and commitments
11. Non-discharge Clause: Circumstances that do not discharge the guarantor from obligations
12. Governing Law and Jurisdiction: Specifies Malaysian law as governing law and jurisdiction for disputes
1. Counter-Indemnity: Used when the principal provides indemnity to the guarantor, typically in bank guarantees
2. Step-In Rights: Include when the guarantor has the right to take over performance of the underlying obligations
3. Assignment Restrictions: Include when there are specific restrictions on transferring or assigning the guarantee
4. Multiple Guarantors Clause: Required when there is more than one guarantor, establishing joint and several liability
5. Islamic Banking Compliance: Include when the guarantee needs to comply with Shariah principles
6. Currency Provisions: Include when the guarantee involves foreign currency transactions
1. Form of Demand: Template for making a valid demand under the guarantee
2. Underlying Agreement: Copy or summary of the agreement being guaranteed
3. Payment Schedule: If applicable, schedule of guaranteed payments or milestones
4. Performance Criteria: Detailed specifications of the performance standards being guaranteed
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