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2012 MarsdenLR 1421
FEDERAL COURT PUTRAJAYA
AMBANK (M) BERHAD – Appellant
Versus
LUQMAN KAMIL MOHAMMED DON – Respondent
[Civil Appeal No: 02( )-35-2011(W)]
A letter of credit does not create contingent liability for a guarantor until payment is made; claims based on such liability must be properly pleaded.
Headnote:(A) Contract Law - Contingent liability - Guarantor's liabilities - The court held that the issuance of a letter of credit does not create an immediate contingent liability for the guarantor; rather, contingent liability arises when the relevant payment is made. (Paras 8, 11, 19, 22).
(B) Pleadings - A claim based on a letter of credit must be properly pleaded; failure to do so bars relief on that basis. The court dismissed the appellant's claim because it was not part of their pleaded case that the defendant was liable for the amounts related to the letter of credit issued post-guarantee discontinuance. (Paras 10, 20, 28).
Facts of the case:
The appellant bank issued a letter of credit for a borrower. The defendant was a guarantor. Payment was made pursuant to the letter of credit after the defendant's guarantee was effectively discontinued. Legal proceedings ensued for recovery of amounts owed.
Findings of Court:
The court found that contingent liability was not established at the time of issuing the letter of credit; it arose only when the payment under the trust receipt occurred after the defendant's guarantee was discontinued. Thus, the defendant was not liable.
Issues: Whether a contingent liability was created at the time of the letter of credit issuance, and the impact of the plaintiff’s failure to plead the contingent liability in the original claim.
Ratio Decidendi: The issuance of a letter of credit does not equate to an immediate liability, and claims must be clearly pleaded to warrant judgment.
Result: Appeal dismissed with costs.
| Table of Content |
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| 1. background facts and contractual agreements established. (Para 3 , 5 , 6 , 8) |
| 2. court's analysis on failed pleading and liability. (Para 10) |
[2] This Court heard the appeal on 4 October 11 and reserved its decision. We now give our judgment.
[3] The statements of agreed facts and the evidence given in the trial reveal the following brief facts. The defendant was a director of a company known as Technoeletrik Industries Sdn Bhd of 24, 1st Floor, Jalan 71C, Taman Tun Dr Ismail, 60000 Kuala Lumpur ["the borrower"]. At the request and on the application of the borrower, the plaintiff, vide the offer letter dated 5 March 1997 (referred to in the Statement of Claim as the first letter of offer), offered to the borrower the following banking facilities:
(a) Letter of Credit;
(b) Trust Receipt;
(c) Bank Guarantee;
(d) Shopping Guarantee; and
(e) Foreign Exchange Contract.
[4] Pursuant to the letter of offer dated 5 March 1997, on 19 March 1997 the borrower executed a "General Agreement by customers" ["the customer's agreement"].
[5] In consideration of the plaintiff granting or continuing to grant the banking facilities to the borrower, the defendant and three other persons executed a guarantee dated 19 March 1997 ("the guarantee"), whereby the defendant and the three other persons jointly and severally guaranteed the payment to the plaintiff on demand, of all monies and liability, whether actual, certain or "contingent now or hereafter owing or incurred or due and unpaid" to the plaintiff anywhere on any account whatsoever under the banking facilities. The guarantee is as follows:
"In consideration of Arab-Malaysian Bank Berhad (hereinafter called "the bank" which expression shall where the context admits include the banks successors and assigns) making or continuing advances or otherwise giving credit or affording banking facilities for as long as the bank may think fit or granting time to Tecknoelektrik Industries Sdn Bhd hereinafter called ("the customer") at my/our request, I/we hereby jointly and severally guarantee to the bank the payment of and undertake on demand being made to me/us or any of us by the bank to pay and satisfy to the bank forthwith all money or liability whether actual certain or contingent now or hereafter owing or incurred or due and unpaid to the bank anywhere on any account whatsoever whether from the customer solely or from the customer jointly with any other person or persons or from any firm in which the customer may be a partner including the amount of notes or bills discounted or paid and other loans credits or advances made to or for the accommodation or at the request either of the customer solely or jointly with any other person and in whatever name style or firm or of any such firm as aforesaid or for any money for which the customer may be liable as principal or surety in any other way whatsoever including:
(a) in the case of the death bankruptcy winding-up or liquidation of the customer all sums which would at any time have been owing to the bank by the customer if such death had occurred or such bankruptcy or winding-up or liquidation had commenced respectively at the time when the bank receives actual notice thereof and notwithstanding such death bankruptcy winding-up or liquidation;
(b) all monies obtained from or liabilities incurred to the bank notwithstanding that the borrowing or incurring of such liabilities may be invalid or ultra vires or in excess of the powers of the customer or of any director attorney agent or other person purporting to borrow or act on behalf of the customer and notwithstanding any other irregularity in such borrowing or incurring such liabilities;
(c) in the event of the discontinuance by any means of this guarantee all cheques drafts bills notes and negotiable instruments drawn by or for the account of the customer on the bank or its agents and purporting to be dated on or before the date when such discontinuance becomes known to the bank or its agents alt
