Duty of the Bank - Letter of Credit

MALAYAN BANKING BHD v. PUNJAB NATIONAL BANK

FEDERAL COURT, PUTRAJAYA

NALLINI PATHMANATHAN FCJ; ZALEHA YUSOF FCJ; HARMINDAR SINGH DHALIWAL FCJ

[CIVIL APPEAL NO: 02(f)-75-11-2020(W)]

23 MAY 2022

In dealing with letter of credit ('LC') transactions between the trading parties and the issuing and negotiating banks, including transactions under the Uniform Customs and Practice for Documentary Credits as issued by the International Chambers of Commerce vide its ICC Publication No. 600, one must bear in mind that the duty of a bank to negotiate under the LC is not subject to claims or defences taken under the underlying contract, that banks deal with documents and not with goods, services or performance to which the documents relate, that the issuing bank (herein Punjab National Bank), is irrevocably bound to honour the LC as of the time it issues the same, and that the issuing bank's undertaking to reimburse the nominated or negotiating bank is independent of the former's undertaking to the beneficiary. On the facts, the Court of Appeal erred in relieving Punjab National Bank of its duty to reimburse Malayan Banking Berhad for the USD1,983,763.65 the latter paid the seller under the LC; the documents as presented to and examined by MBB appeared on their face to constitute a complying presentation, more so when the bills of lading presented paralleled to Ocean Bills of Lading, and not to Freight Forwarder Bills as complained. Since the documents presented to MBB were not discrepant, and since the Notice of Refusal to reimburse by Punjab National Bank, which is a strict requirement of international LC transactions, is also faulty, Punjab National Bank cannot avoid its obligation to reimburse.

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