Hasan Lah JCA (delivering judgment of the court):

INTRODUCTION

This is the appellant’s appeal against the whole of the decision of the High Court. The respondent has also appealed against the decision but limited to the issue of quantum of damages awarded in its favour. The respondent in this appeal was the plaintiff in the court below and the appellant was the defendant. The crux of the plaintiff’s claim against the defendant was for breach of contract and negligence by the defendant as banker to fulfil their contractual obligation and duty of care to the plaintiff as their customer in respect of an international trade facility for the import of raw sugar and onward sale to a local buyer. This breach by the defendant resulted in the supply of raw sugar from the overseas supplier being aborted, and cancellation of the sale to the local buyer, hence the loss and damages claimed by the plaintiff against the defendant.

The defendant counterclaimed against the plaintiff for a total sum of RM651,878.80 in respect of processing fee, commission, telex charges, legal costs and loss in the forex contract.

FACTS

The essential facts are this. PW1 (Mohd Said bin Ab Latif) formed the plaintiff company in 1993 to trade in plastic packing. The company was his family company with his two cousins as directors. On 26 April 1994 Gula Padang Terap issued a letter of offer to the plaintiff to supply raw sugar to Gula Padang Terap. That letter reads as follows:

Re: Purchase of Raw Sugar From Meridian

International Inv. Inc. Oregon, USA

Further to our discussion on 24 April ’94, we are pleased to propose our terms and conditions on the said purchase as follows:

(B)As agreed, the 100,000 mt raw sugar is to be handled in the following manner:-

To ship the first 15,000 mt in June ’94 and this is to be considered as a ‘test’ cargo.

In the event that the first shipment is proven to be a success whereby it complies to all our terms, then GPT shall enter into the agreement to take delivery of the balance quantity of 85,000 mt i.e. 100,000 mt less 15,000 mt.

(C)For the purpose of B(2) above, we would appreciate if you can arrange to give a draft copy of the agreement as soon as possible.

PW1 then approached the defendant bank for credit facilities, followed by an ‘application for standby letter of credit’ dated 3 May 1994. On 12 May 1994 the defendant issued an offer of banking facilities for the import of 100,000 metric tons of raw sugar by the plaintiff. The offer was accepted by the plaintiff.

On 20 May 1994 the plaintiff entered into a contract with Meridian International Investment Incorporation (‘Meridian’) whereby Meridian agreed to sell and the plaintiff agreed to purchase 100,000 metric tons of Grade ‘E’ Raw Cane Sugar at a price of USD198 per metric ton, totalling USD19m. Regarding payment and documents, the contract provides:

Payment: ‘Full Standby letter of credit,’ irrevocable, transferable, assignable, divisible, unrestricted, unencumbered, and issued by a Prime World Bank acceptable to Seller, having a maturity date of twelve months and one day (herein referred to as ‘Financial Instrument’).

On 13 June 1994, the defendant issued a fresh letter of offer comprising a letter of credit, trust receipts and exchange forward line. This second facility is for the sum of RM53m. The security under this facility comprised of, inter alia, a debenture over the company’s fixed and floating assets and a joint and several guarantee of the directors of the plaintiff company. All fees and expenses in connection or incidental to the facility was to be borne by the plaintiff.

On 24 June 1994, the plaintiff instructed the defendant to issue the l