An appeal court in Malta has found in favour of a bank that paid out on a letter of credit (L/C) to a foreign supplier for goods, even though those goods were of inferior quality.

This confirmed an earlier decision made by a lower court that determined that the bank was right to pay out on the L/C, even though documentation was apparently missing.

Inferior quality

Malta's First Hall Civil Court in 2005 agreed with the bank that it should have paid the foreign supplier, even though the documents presented to the bank did not include a declaration regarding the quality of the goods (apples) that the plaintiff required. As a result, the goods received were technically of an inferior quality.

However, the lower court took the view that since the Maltese importer had sold the consignment of apples, the bank was right to pay out on the L/C.

Bank success

The importer disagreed with this determination and appealed against the decision. The bank also appealed on the grounds that the lower court had ordered it to pay legal costs, which it felt it was not obliged to pay.

As well as confirming the First Hall Civil Court's decision to support the bank's actions, the appeal court quashed the lower court's order for the bank to pay legal costs.

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