International Financial and Banking Law - Law Assignment Help

Assignment Task

QUESTION ONE
Answer both part (a) and part (b). 
(a) In Sumatec Engineering & Construction Sdn Bhd v Malaysian Refining Co Sdn Bhd [2012] 4 MLJ 1, Abdull Hamid Embong FCJ in the Federal Court of Malaysia remarked as follows:“[19] The fundamental principle behind a bank guarantee, or performance bond, is that it is separate and independent of the underlying contract between the disputing immediate parties and the contract between the account party and the banHowever the rigidity of this autonomy principle could sometimes produce injustice. In Englishlaw the now well accepted single exception of fraud was recognised by the courts to counter anyinjustice that may arise from a call or payment on the bank guarantee. And the reason is this; thecertainty of payment to the beneficiary under the autonomy principle has tipped the balance of riskheavily in favour of the beneficiary, sometimes resulting ininequitable result to the account partywhilst achieving the desired commercial resulUnconscionability as an added and distinct exception to restrain payments in on demandguarantees has lately made some inroad into some common law jurisdictions.”To what extent do these remarks correctly state difficulties associated with performance bonds? Explain any methods used by banks to protect themselves when paying performance bonds. 

(b) In an article by William Dixon: As good as cash? The Diminution of the Autonomy principle in2007) Australian Business Law Review 32(6) 391-406. The author observed:“[Under a letter of credit arrangement] the independence of the contract between the issuing bank and the beneficiary and the underlying contract is described as the ‘autonomy principle’. Due to the autonomy principle, provided the beneficiary presents documents which comply with the credit, the beneficiary will be paid regardless of whether or not the actual goods in question conform with the terms of the underlying contract and regardless of any dispute under the underlying contract. It is this independence from the performance of the underlying contract which gives documentary letters of credit ‘their international commercial utility and efficacy’. Part of the attraction of the operation of the letter of credit, from a beneficiary's viewpoint, is the primary obligation owed by the issuing bank. To a large extent the operation of the autonomy principle means that from a beneficiary's viewpoint, such instruments are the equivalent of cash in hand. This is important given the reliance placed on such letters of credit. As well as being ‘regarded by merchants the world over as equivalent to cash’ the autonomy principle is also of relevance to the issuing bank or financier. Banks who charge a service for the provision of such facilities did not wish to be drawn into disputes arising from the performance or otherwise of the underlying contract.” To what extent do these remarks correctly state difficulties associated with letters of credit? Explain any methods used by banks to protect themselves when paying letters of credit. 

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