HSBC Bank Malta has been accused by an appeal court of being too rigid and mechanical in its document vetting processes that led it to refuse to honour payment on a EUR 200,000 (US$219,000) letter of credit (L/C) in favour of a supplier.

Overturning an earlier court decision, the appeal court in Malta said the bank should have honoured its obligation to pay because, in this case, documents specified that items listed on the L/C 'need not be identical but not in conflict' with items on the bill of lading and sea waybill.

Dispute

The disputed L/C involved the sale of goods by a Maltese company, Piccinino Franchising International, to a buyer in Libya, Omar Almhdi Hamrouni.

The buyer failed to pay, prompting Piccinino to request payment from HSBC under the terms of an irrevocable standby L/C.

Document discrepancies

The L/C specified items including lingerie, swimwear, women's clothing but not certain other items, including shop fittings, shoes, promotional material, that appeared on the bill of lading and sea waybill.

On the basis of these document discrepancies, HSBC refused the seller's request to pay the L/C and the first court agreed with the bank's decision.

Decision overuled

But the appeal court decided it was neither reasonable nor proportionate for HSBC to refuse to pay out on the L/C simply because of items which had not been mentioned in the documents.

While commending HSBC for its diligence in checking the documents, the court decided that the bank's document checking process was too rigid and mechanical.

Court decision

The appeal court therefore decided that the documents submitted to HSBC were in accordance with the L/C and that the bank failed to perform its obligation under the L/C.

The court decided that HSBC was responsible for the damages Piccinino may have suffered due to this failure and the bank must pay all costs associated with the proceedings in the first court and the appeal court.

The final judgment in the case, Piccinino Franchising International Limited (C59672) Vs HSBC Bank Malta (in Maltese) can be downloaded from here.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.