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Note: Man Fai Tai Congo Holdings Ltd. Sari (Buyer) and Innovest Berhad (Seller), both based in the Republic of the Congo, contracted for the purchase of sixty-four units of machinery and equipment for the timber industry. The contract required a deposit of US$986,400 out of the total purchase price of $3,288,000. The $657,000 balance was to be paid "within fourteen (14) days from the date of this Agreement, by way of Irrevocable Letter of Credit ['LC'] issued by a reputable bank based in Hong Kong payable upon production of Cargo Receipt[s] duly executed by a staff of the [Buyer] duly authorized to execute the same and made in favor of the [Seller]'s Nominee" (first and second alterations in original).

Buyer proffered a commercial letter of credit from Dao Heng Bank Ltd. Hong Kong payable to Seller for the balance. The LC required presentations of "signed commercial invoices in quadruplicate; dated cargo receipt issued and signed by Pang Heng Cheong [Buyer's Agent] holder of passport No. S0123261D of applicant, whose signature(s) must be in conformity with the specimen held in L/C issuing bank, evidencing that the goods have been received in good order and condition, showing value of goods received, and this L/C number, as per attached specimen."

Seller rejected the proffered LC and notified Buyer by fax, suggesting amended terms excluding the requirement that the agent's signature match that which was on file with Issuer. Buyer declined Seller's request to remove this term because the term was mandated by Issuer.

Seller terminated the contract for refusal to proffer an LC in accordance with the terms of the contract. Buyer then sued Seller for damages. Seller counterclaimed. The High Court, Kuala Lumpur, Dato Kang Hwee Gee, J., dismissed both claims with costs to Buyer and Seller on their respective claims.

The Justice found the requirement that the agent's signature match the Issuer's specimen "constitutes a material departure from the original terms of [the SPA]" because it "would effectively destroy [the LC's] purpose by subjecting [Seller] to the risk of having the LC rejected by [Issuer] on the mere excuse that the signature of [Buyer's] employee . . . did not match the specimen held by [Issuer]." Noting that the goods had already been delivered, the Justice also noted that Seller might, through no fault of its own, be denied payment on the remaining balance of the deposit after possession of the first shipment had been transferred to Buyer. The Justice stated "The submission of the [Buyer] that Issuer from whom the letter of credit was purchased dictated the terms on the letter of credit and that the reason for insisting on the conformity of the signature with the specimen signature it had kept was to protect itself from fraudulent claim is unacceptable. Indeed if the purpose of verification of the signature of Pang Heng Cheong was required, this could easily be confirmed directly by the bank from [Buyer] before payment is made on the letter of credit. It should be well within the means of [Buyer] to obtain from an issuing bank a letter of credit which need not require the issuing bank to compare the signature of [Buyer's] staff with the specimen signature it kept." The Judge also found that, as provided by the contract, Seller was only entitled to keep the portion of the deposit that had already been paid.

[JEB/tbs]

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