Mauri Garments Trading and Marketing Limited v The Mauritius Commercial Bank Limited

Carefully structured arrangements using separate and autonomous contracts do not give rise to tortious duties which cut across their terms or performance.

The autonomy of an on-demand letter of indemnity means that the beneficiary bank need only comply with the instrument’s terms. An underlying cross-claim or set-off between the contracting parties does not affect the bank’s right to demand payment. Any remedy lies against the underlying counterparty, even if that remedy is weakened by insolvency or receivership.

Mauri Garments Trading and Marketing Limited contracted to buy garments from Mauri Garments Co Ltd. At its request, Warburgs issued an on-demand letter of indemnity in favour of The Mauritius Commercial Bank Limited for up to FF5m. The bank demanded and received payment after advancing money against unpaid bills of exchange.

The appellant alleged that the bank knew the underlying debt was lower because of a cross-claim for raw materials and had therefore committed a tort under article 1382 of the Code civil. Devat J dismissed the claim on the basis that the indemnity was independent of the sale contract. The Court of Appeal of Mauritius upheld that decision. The central issue before the Board was whether the bank’s knowledge of the underlying account could make its demand tortious.

1. Disposition. The Board dismissed the appeal. It held that Devat J had reached the right conclusion for basically the right reasons and that the Court of Appeal had correctly upheld her decision.
2. Autonomous contractual scheme. Where parties enter carefully structured arrangements involving two separate autonomous contracts between different parties, the law cannot recognise tortious duties outside and cutting across the terms and performance of those contracts. The bank’s assumed knowledge of the account between the buyer and seller was therefore irrelevant.
3. Effect of the indemnity. The letter of indemnity was designed to protect the respondent bank against sums advanced to the seller under bills of exchange which had matured without payment. Its terms expressly required payment on first demand, irrespective of the validity or effect of the underlying contract, and waived objections and defences arising from that contract. The demand complied with those terms.
4. Letters of credit principles. The principles governing letters of credit apply equally to letters of indemnity of this nature and to other on-demand guarantees. As explained in R D Harbottle (Mercantile) Ltd v National Westminster Bank Ltd [1978] QB 146, the bank is concerned with compliance with its mandate and confirmation, not with the rights and wrongs of the underlying dispute.
5. Any cross-claim or set-off between the buyer and seller was irrelevant to the indemnity. The buyer’s remedy, if any, was against the seller. The fact that the seller was in receivership did not alter the position. The Board also rejected complaints concerning alleged judicial bias, the refusal of an adjournment, and the Court of Appeal’s discussion of factual issues.

• Privy Council: dismissed the appeal from the Court of Appeal of Mauritius on 24 March 2015.
• Court of Appeal of Mauritius: dismissed the appeal and upheld the judgment of Devat J dated 26 September 2012.
• First instance: Devat J dismissed the claim against the bank.