CIC FEEDS (PVT) LTD. VS. PAN ASIA BANK

CIC FEEDS (PVT) LTD.
VS.
PAN ASIA BANK

SUPREME COURT
EVA WANASUNDARA, PC J.
PRIYANTHA JAYAWARDENA, PC J,
ANIL GOONERATNE. J
S.C.(CHC) APPEAL NO 36/2004
CHC CASE NO. 169/2002 (1)
SEPTEMBER 17, 2015

Bank guarantees - Liability of a banker? -Is it an accessory contract ? -Should the intention to create legal relations be considered if the Bank refuses to issue a guarantee ? - Could one look at any undertaking in an express or implied agreement to issue a guarantee?

The Plaintiff Appellant Company instituted action against the Defendant Bank for the recovery of a certain sum of money on several causes of action.

The Plaintiff complained that when a Company not a party to the suit - who is a customer of the Plaintiff Appellant Company and who purchased animal feed on credit - Company A and a customer of the Defendant Bank was called upon to make arrangements with the Defendant Dank to issue a Bank guarantee for Rs. 8,000,000.00 in favour of Citi Bank (the Bank of the Plaintiff Appellant Company) - to secure Citi Bank against any dishonor of post dated cheques presented by A company, and enable Citi Bank to recover payment upon the guarantee, the Defendant Bank did not pay the amount guaranteed.

The High Court dismissed the action on the basis that, no cause of action accrued to the Plaintiff to sue the Defendant Bank.

On Appeal Held:

(1) there was an absence of intention of creating legal relations. Such an intention to create legal relations cannot be gathered or inferred from the available facts between the Plaintiff Company and the Defendant Bank.

Per Anil Gooneratne, J.

"It is elementary that for the formation of a contract or agreement the intention to create legal relations is an element necessary for the formation of a contract Both parties must have this intention."

(2) Defendant Bank has objected to the issue of a guarantee as A Company had not complied with the required documentation, which was essential to formation of the guarantee A request for documents by the Bank would be its normal business, to ensure smooth banking operations The Bank did not issue the guarantee due to the reason that the required documentation was not forthcoming from A Company.

Per Anil Gooneratne, J.

"The issuance of a guarantee would always be conditional upon happening of events, in the case in hand, it is the demand by the Bank for proper documentation, especially where a party is not a customer of the Bank. The Bank need to safeguard its own interest Such a demand cannot be construed to give effect to create legal relations Nor can a fiduciary relationship arise in the absence of some discretion or power."

APPEAL from the Commercial High Court.

Cases referred to:

1. Adaicappa Chetty Vs. Thomas Cook and Sons Ltd, 31 NLR 385.
2. Hemas Marketing (Pvt) Ltd. Vs. Chandrasiri 1994 (2) SLR 181.

Prasanna Jayawardena P.C., with Milinda Jayatilleke for the Plaintiff -  Appellant.

S.A. Parathalingam P.C., with Varuna Senadheera for the Defendant - Respondent. 

Cur.adv.vult.

March 16, 2016

ANIL GOONERATNE, J.

This was an action filed on or about 28.03.2001 against the Defendant Bank by the Plaintiff Company, carrying on business of manufacturing and marketing Animal Feed, for the recovery of a sum of Rs. 8,000,000.00 with interest thereon upon the 1st cause of action/ the five alternative causes of action as pleaded in the plaint. Learned High Court Judge of Colombo dismissed the plaint with costs on 24.03.2004. This appeal to the Supreme Court arises from the Judgment of the said date of the Colombo High Court.

The Attanagalla Livestock Development Company (Pvt) Limited was a customer of the Plaintiff Company who purchased animal feed from the Plaintiff Company on credit. The above named purchasing company was not a party to the suit. (hereinafter referred to as ALDC). ALDC was a customer of the Defendant Bank, and the Plaintiff company was a

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