Being a businessman for many decades and dealing with the intricacies of the banking system, international trade and UCP rules(Uniform Customs and Practice) for Documentary Credits and reading the frivolity of the explanation given by the private secretary to the Yang DiPertuan Besar of Negeri Sembilan Tuanku Jaafar goes to show that the private secretary has little grasp of how the banking system operates.
It is true Tuanku Jaafar didn't take a direct loan from the bank but he has irrevocably committed himself to pay the amount of the Standby Letter of Credit in the event of a drawdown.
Standard Chartered Bank(SCB) must have with the agreement of Tuanku Jaafar issued an 'Irrevocable Standby Letter of Credit' to Connecticut Bank of Commerce (CB) for a specified validity period which means the LC cannot be revoked before its expiry or without expressed consent of the beneficiary. Tuanku Jaafar has also agreed to pledge his fixed deposit as security to SCB which is also irrevocable.
A Standby LC is a form of guarantee issued by banks to other banks either for a third party specific performance or for the beneficiary bank to give credit to a third party whom the beneficiary bank may not be comfortable with unless the party concerned can provide tangible security usually in the form of 'Banker's Guarantee'.A Standby LC instead of 'Letter of Guarantee' is the preferred instrument if the transaction is in a foreign country.
Other instrument used to make advance payment to a third party overseas is 'Red Clause Letter of Credit', mainly used for short-term trade transactions where the supplier may need additional working capital to complete the goods purchased by an overseas buyer.Such arrangement is only possible between parties that have long term business relationship and trust each other.
By the arrangement with SCB Tuanku Jaafar become a guarantor to any liability incurred under the Standby LC.Disputes about the beneficiary’s right to draw should be settled outside the letter of credit transaction.It means SCB cannot become a party in the dispute.
An injunction issued by the Seremban High Court and served on CB which is in America may not be enforceable.
The statement further said “It is clear from the facts that Tuanku Ja’afar did take steps to rescind the LC and prevent a call on the LC before any alleged funds were released by CB to Texas Encore. Despite these steps, CB called on the LC and payment was made by the bank,”.You can't legally rescind something that clearly says 'Irrevocable'.
It is not about Tuanku Jaafar took a loan or not from the bank, it is about probity, that's why the court ruled in favour of SCB.