1. This order will dispose of the above two applications filed by the plaintiff under Order 38 Rule 5 and Order 39 Rules 1 & 2 read with Section 151 CPC and under section 9 read with Order 38 Rule 5 and Order. 39 Rules 1 and 2 read with Section 151 CPC praying therein, to restrain the defendant No. 2 from remitting US$208,412,00 and US $ 106,646.40 in the hands of defendant No. 2 as the defendant No. 1 has no assets in Pakistan to recover the amount as claimed by the plaintiff. The defendant No. 2 may be restrained from making payment of the said amount to the defendant No. 1 or to the negotiating bank.
2. The facts leading to the riling of the above applications are that in due course of its business the plaintiff entered into 9n agreement with defendant No. 1 for the supply of 600 metric tons of 8 MM 99,97% Non-Oxygen-Copper Wire Rod, Oxygen 4.2 PPM. It is alleged' in the plaint that in order to fulfill their obligations for the supply of above material the plaintiffs obtained Import Licence and (hereafter established ' a letter of' credit for US $ 11,33,200 with defendant- No. 2 and as per terms and conditions of letter of credit partial. Shipment was allowed. The plaintiff received consignment of about 250 metric tons which was found to be correct in all respects and the' letter of credit for the consignments was duly paid -by the defendant No. 2, to the defendant No. 1: However, when the consignment of about 100 metric tons arrived at Karachi port, the plaintiffs found that the consignment was short and its weight was not according to the documents. The plaintiffs by their telex immediately informed defendant No. 1 that weight was short. The plaintiff approached Lloyd's agent in Pakistan. The survey was conducted jointly by Messrs Joseph Lobo (1935) Surveyors and Lloyd's who gave their reports showing shortage of 10,214 Kilograms in weight of the wire rod which was sent by the defendant No. 1 to the plaintiffs. The result of survey reports-was communicated to the defendant No. 1 by telex. The plaintiffs thus suffered losses amounting to Rs. 772,791. It is further alleged' that the defendant No. 1 by its telex dated 28-3-88 informed the plaintiffs that they cannot ship the balance on account of control imposed- by" their Government. It, therefore; appears that the defendant No. 1 will not deliver the balance 200 metric tons out of 600 metric tons contracted with them and the last consignment of about 100 metric tons which is short by 10,214 kilograms will.
3. Also be not exported by the defendant No. 1 to the plaintiffs. The plaintiffs claimed Rs. 34,22,691 as damages.
4. It is further alleged that the 4cfcndant No. 2 is likely to remit the, amount of letter of credit against Bill of Entry and invoice of 44 pallets received at Karachi on Vessel GOLDEN BEAR as per invoice the defendant No. 2 will remit US $ 2,08,412.40 to the defendant No. 1 by 3-8-1988 and another bill Accept No. 2488 will mature for payment on 10-8-1988. The defendant No. 1 has no assets in Pakistan for the satisfaction of the decree of the plaintiffs which may be passed in this case except the above assets. The plaintiffs have sought injunction in the above suit. Alongwith the suit, the plaintiffs also filed an application being Application No. 3835 of 1988.
5. Notice of this application was issued to the defendant No. 2 who filed counter-affidavit on 3-8- 1988. The learned counsel. For the defendant No. 2 stated that payment has already been made to the negotiating bank. He was directed to produce the documents but he did not produce any document showing that the payment has already been made by the defendant No. 2 to the negotiating bank.
6. The plaintiffs .Filed another application (C.MA. No. 3875 of 1988) praying for attachment of the amount.
7. I have heard the learned counsel for the parties at length. The main controversy is whether the Court should in a transaction between a banker and negotiating bank grant an injunction or attach the amount lying with the banker.
8. The plaintiffs entered into a contract with the defendant No: 1 for the purchase of 600 metric tons Non-Oxygen Copper Wire Rods. In pursuance of that contract the plaintiffs opened a confirmed irrevocable and divisible letter of credit through the defendant No. 2 for the entire value of the consignments i.e. US $ 11,33,200 in favour of the, defendant No. 1 negotiable through Bank of China. .Under the said letter of credit the defendant No. 2 was required to pay to the defendant No. 1 on production of the documents particularised in the letter of credit alongwith the drafts. The agreement entered into between the defendant No.' 2 and the plaintiffs is subject to the Uniform Customs and Practice of Documentary Credits (1983 Revision) International Chamber of Commerce. Article 3 of the brochure says that: "(a)An irrevocable credit constitutes a definite undertaking of the issuing bank, provided that the terms and conditions .Of the credit are complied with (i)To pay, or that payment will be made, if the credit provides for payment, whether against a draft or not; , . , (ii)to accept drafts if the credit provides for acceptance by the issuing bank or to be responsible for their acceptance and payment at maturity if the, credit provides for the acceptance of drafts drawn on the applicant for the credit or any other drawee specified in the credit;. .
9. (iii)to purchase/negotiate, without recourse to drawers and/or bona fide holders, drafts drawn by the beneficiary, at sight or at a tenor, on the applicant for the credit or on any other drawee specified in the credit, or to provide for purchase/negotiation by another bank, if the credit provides for purchase/negotiation.
10. (b)'An irrevocable credit may be advised to a beneficiary through another bank (the advising bank) without engagement on the part of that bank, but when an issuing bank authorises or requests another bank to confirm its irrevocable credit and the latter does so, such confirmation constitutes a definite undertaking of the confirming bank in addition to the undertaking of the issuing bank, provided that the terms and conditions of the credit are complied with; (i)to pay if the credit is payable at its own counters, whether against a draft or not, or that payment will be made if the credit provides for payment elsewhere; (ii)to accept drafts if the credit provides for acceptance by the confirming bank, at its own counters, or to be responsible for their acceptance and payment at maturity if the credit provides for the acceptance of drafts drawn on the applicant for the credit or any other drawee specified in the credit (iii)to purchase/negotiate, without recourse to drawers and/or bona fide holders, drafts drawn by the beneficiary, at, sight or at a tenor, on the issuing bank, or on the applicant for the credit car on any other drawee specified in the credit, if the credit provides for purchase/negotiation. .
11. (c)such undertakings can neither be amended nor cancelled without the agreement of all parties thereto, partial acceptance of amendments is not effective without the agreement of all parties thereto."
12. Article 8,of the brochure says: "(a) In documentary,: credit` operations all parties concerned,. Deal in documents and not in goods.
13. (b)Payment, acceptance or negotiation against documents which appear on their face to be in accordance with the terms. And conditions of a credit by a bank authorised to do so,, binds the party giving the authorisation to take up the documents and reimburse the bank which has effected the payment, acceptance or negotiation.
(c) ...........................................................................................................
(d) ...........................................................................................................
(e) ...........................................................................................................
(f) ...........................................................................................................
(g) ...........................................................................................................
14. The other Article in that brochure which is relevant for the present purpose is Article 9 which reads:- "Banks assume no liability or responsibility for the form, sufficiency, accuracy genuineness, falsification or legal effect of any documents or for the general and/or particular conditions stipulated in the documents or superimposed thereon, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented thereby, or for the good faith or acts and/or omissions, solvency performance or standing of the consignor, the carriers or the insurers 'of the goods or any other person whomsoever."'
15. On the strength of the aforementioned contract, the defendant No. 1 supplied 400 metric tons. It is complained to the defendant No. .l that about 10;214 kilograms in weight was short. In that connection the plaintiffs sent telex to the defendant No. 1. The plaintiffs instituted the above suit.
16. The scope of an irrevocable letter of credit is' explained thus in Halsbury's Laws of England 3rd Edition (Vol. 34, paragraph .319 at page 185) which reads as under:-- "It is often made a condition of a mercantile contract that the buyer shall pay for the good, by means of a confirmed credit, and it is then the duty of the buyer to procure his bank, known as the issuing or originating bank, to issue an irrevocable credit in favour of the seller by which the bank undertakes to the seller, either directly or through another bank in the seller's country known as the correspondent or negotiating bank (a), to accept drafts drawn upon it for the price of the goods, against tender by the seller of the shipping documents (b). The contractual relationship between the issuing bank and the buyer is defined by the terms of the agreement between them under which the letter opening the credit is issued (c) and as between the seller and the bank, the issue of the credit duly notified" to the seller (d) creates a new contractual nexus and renders the bank directly liable to the seller to pay the purchase price or to accept the bill of exchange upon tender of the documents (e). The contract thus created between the seller and the bank is separate from, although ancillary to, the original contract between the buyer and the seller, by reason of the bank's undertaking to the seller, which is absolute (f). Thus the bank is not entitled to rely upon terms of the contract between the buyer and the seller, which might permit tile buyer to reject the goods and to-refuse payment therefore (g); and, conversely, the buyer is not entitled to an injunction restraining the seller from dealing with the letter of credit if the goods are defective.
17. Chambers on "Bills of Exchange" explains the legal position in these words.
18. "The modern commercial credit serves to interpose between a buyer and seller a third person of un-questioned solvency,, almost invariably a banker of international repute; the banker on the instructions of the buyer issues the letter of credit and thereby undertakes to act as paymaster upon the seller performing the conditions set out in it. A letter of credit may be in any one of a number of specified forms and contains the undertaking of the banker to honour all bills ' of exchange drawn thereunder. It can hardly be over-emphasised that the banker is not bound or entitled to honour such bills of exchange unless they, and such accompanying documents as may be required thereunder, are in exact compliance with terms of the credit. Such documents must be scrutinised with meticulous care, the maxim deminimis non curat lex cannot be invoked where payment is made by the letter of credit. If the seller has complied with the terms of the letter of credit, however, there is an absolute obligation upon the banker to pay irrespective of any disputes there may be between the buyer and the seller as to whether the goods are up to contract or not.
19. The legal position as set out' above is not controverted by Mr.- Fazle Ghani Khan, the learned counsel for the plaintiffs. So far as the defendant No. 2 is concerned it admits its liability to honour the letter o1' credit and express its willingness to abide by its terms.
20. The main grievance of the learned counsel for the plaintiffs is that if the defendant No. 1 is allowed to take away the money secured to it by letter of credit, it cannot effectively enforce their claims arising from the breach of the contract it complains of Mr. Fazle Ghani Khan has urged that the defendant No. 1 has no assets in this country and therefore any decree that they may be able to obtain cannot be executed. The allegation that defendant No. 1 has no assets in this country is made in the pleadings. I think this allegation has no relevance in the instant case. An irrevocable letter of credit has a definite implications. It is a mechanism of great importance in international trade. Any interference with that mechanism is bound to have serious repercussions on the international trade of this country. I am of the humble view that except under very exceptional circumstances, the Courts should not interfere with that mechanism.
21. I have earlier referred to Halsbury's laws of England & Chambers on "Bills of Exchange". Now I shall proceed to consider the decisions bearing on the question.
22. A case somewhat (similar) to the one before me came up for consideration before the Queens Bench Division in England in Hamseh Walas and Sons v. British Imex Industries Ltd., (1988)2 QB 127.
23. The plaintiffs, a Jordanian lira a contracted to purchase from the defendants, a British firm, a large quantity of reinforced steel rods, to be delivered in two installments. Payment was to be effected by opening in favour of the defendant of two confirmed letters of credit with the Midland Bank Ltd., in London, one in respect of each instalment. The letters of credit were duly opened and the first was realized by the defendants on the delivery of the first instalment. The plaintiffs complained that instalment way defective and sought an 'injunction to bar the defendants from realizing the second letter of credit. Donovan, Jr, the trial Judge refused the application in appeal Jankins, Sellers and Pearce L., JJ, confirmed the decision of the trial Judge. In Jenkins L. J., who spoke for the Court thus: "We have been referred to a number of authorities, and it seems to b; plain enough that the opening of a confirmed letter of credit constitutes a bargain between the banker and the vendor of the goods, which impose,, upon the banker an absolute obligation to pay, irrespective of any dispute there may be between the parties as to whether the goods are up to contract or not. An elaborate commercial system has been built up on the footing that bankers confirmed credits are of that character, and, M my judgment, it would be wrong for this Court in the present case to interfere with that established practice.
24. Where is this to be remembered, too. A vendor of goods selling against a confirmed letter of credit is selling under the assurance that nothing will prevent him from receiving the price. That is of no mean advantage when --goods manufactured in one country are being sold in another. It is furthermore, to be observed that vendors` are often reselling goods bought from third parties.
25. When they are doing that, and when they are being paid by a confirmed letter of credit, their practice is--and I think it was followed by the defendants in this case--to finance the payments necessary to be made to their suppliers against the letter of credit. That system of financing these operations, as I see it, would break down completely if a dispute as between the vendor and the purchaser was to have the effect of "freezing" if I may use that expression, the sum in respect of which the letter of credit was opened."
26. "It has been long established that when a letter of credit is issued and confirmed by a bank, the bank must pay it if the documents are in order and the terms of the credit are satisfied. Any dispute between buyer and seller must be settled between themselves. The bank must honour the credit.
27. That was clearly stated in Ealas (trading as Hamzeb Mallas & Sons) v. British Imex Industries Ltd.
28. (1988) 1 All ER 262 at 363, (1958) 2 QB 127 at 129. Jenkins LJ, giving the judgment of this Court, said "-- ----It seems to be plain enough that the opening of a confirmed- letter of credit constitutes a bargain between the bankers and the vendor of the goods, which imposes upon the banker an absolute obligation to pay; irrespective of any dispute which there may be between the parties on the question. Whether the goods are up to contract or not. An elaborate commercial system has been built up on the footing that banker confirmed credits are of that character, and, in my judgment, it would be wrong for this Court in the present case to interfere with that established practice". To this general principle there is an exception in the Case of what is called established or obvious fraud to the knowledge of the bank.'
29. "On this question of recognition, I must draw attention to the importance of letters of credit in international trade. They are the means by which goods are supplied all the world over. It is vital that every bank, which issues a letter of credit should honour its obligations. The bank is in no way concerned with any dispute that the buyer may have with the seller. The buyer may say that the goods arc not up to the contract nevertheless the bank must honour its obligations. The buyer may say that he has a cross-claim in a large amounts. Still the bank must honour its obligations. A letter of credit is like a bill of exchange given for the price of goods. It ranks as cash and must be honoured. No set-off or counter-claim is allowed to detract from. All the more so with a letter of credit. Whereas a bill of exchange is given by buyer to seller, a letter of credit is given by a bank to the seller with the very intention of avoiding any thing in the nature of a set-off or counter-claim.
30. This is borne out by the Uniform Customs and Practice for Documentary Credits which have been adopted by the banks in all or practically all, the countries of the world, from China to Andorra, from Cuba to Nauru."
31. The nature of the contractual obligations following from a Bankers letter of irrevocable credit and more particularly, the rights of the seller/employer as the accredited party or beneficiary of the credit, against the issuing and drawee bank was dealt with by me in Suit No. 565 of 1986, Pakistan Engineering Consultants v. P.I.A. And another. It was held that the Bank Guarantee Performance Bond/Performance Guarantee/Letters of Credit constitute a bargain between the bankers and seller employer, which impose on the bankers an absolute obligation to pay.
32. No injunction can be granted under Order 39, Rules 1 and 2 of the Code of Civil Procedure unless the plaintiffs establish that they have a prima facie case. Meaning thereby that there is a bona fide contention between the parties or a serious question to be tried. The question that must necessarily arise is whether in the facts and circumstances of the case, there is a prima facie case, and if so, as between whom? In view of the legal principles applicable, it is difficult for me to C say on the material on record that the plaintiffs have a prima facie case.
33. The learned counsel for the plaintiffs has contended that the balance of convenience lay in granting injunction since the defendants will not be put to any harm because the defendant No. 2 can debit the account of the plaintiffs. I am afraid these considerations cannot prevail.
34. The learned counsel for the plaintiffs has contended that the amounts can be attached as the defendant No. 1 has no assets in this country. Reliance is also placed on a number of decisions by the learned counsel for the plaintiffs. The decisions cited by the learned counsel for the plaintiffs are not relevant in the instant case. I am afraid this consideration cannot prevail.
35. Lastly the learned counsel for the plaintiffs has submitted that the above principles are not applicable as I am dealing with complaint of fraud. The facts pleaded in the plaint do not amount to a plea of fraud despite the assertion of the plaintiffs that the defendant No. 1 is guilty of fraud.
36. MA.K./A-522/K