Performance Guarantee Agreement Template for Malaysia

The Performance Guarantee Agreement is a crucial financial security instrument in Malaysian business transactions, particularly in construction, infrastructure, and large commercial projects. It is utilized when one party (the beneficiary) requires security for the performance obligations of another party (the principal) under a primary contract. The agreement, governed by Malaysian law, establishes the guarantor's commitment to pay a specified sum upon valid demand if the principal fails to meet their contractual obligations. It must comply with both the Financial Services Act 2013 and, where applicable, the Islamic Financial Services Act 2013, reflecting Malaysia's dual banking system. The document includes specific provisions for demand mechanisms, expiry conditions, and claim procedures, providing clarity and certainty for all parties involved.

1. Parties: Identifies the Guarantor (typically a bank/financial institution), the Beneficiary, and the Principal (party whose performance is being guaranteed)

2. Background: Describes the underlying transaction/agreement and explains why the guarantee is being provided

3. Definitions and Interpretation: Defines key terms used in the agreement and sets out interpretation rules

4. Guarantee and Indemnity: Core section detailing the guarantee obligations, maximum liability amount, and indemnity provisions

5. Demand Requirements: Specifies the process and requirements for making a valid demand under the guarantee

6. Duration and Expiry: Sets out the guarantee period, expiry conditions, and any extension provisions

7. Payment Terms: Details the payment obligations, currency, timing, and method of payment

8. Representations and Warranties: Standard representations and warranties from the Guarantor

9. Bank's Rights and Obligations: Outlines the rights, protections, and obligations of the Guarantor bank

10. Governing Law and Jurisdiction: Specifies Malaysian law as governing law and sets out jurisdiction for disputes

11. Notices: Details how formal notices should be given between parties

12. General Provisions: Standard boilerplate clauses including severability, amendments, and counterparts