Transfield’s argument that any dispute must first be resolved by the parties, whether through negotiations or

arbitration, before the beneficiary is entitled to call on the letter of credit in essence would convert the letter of credit
into a mere guarantee.

The independent nature of the letter of credit may be: (a) independence in toto where the credit is independent from
the justification aspect and is a separate obligation from the underlying agreement like for instance a typical standby;
or (b) independence may be only as to the justification aspect like in a commercial letter of credit or repayment
standby, which is identical with the same obligations under the underlying agreement. In both cases the payment
may be enjoined if in the light of the purpose of the credit the payment of the credit would constitute fraudulent
abuse of the credit.

Jurisprudence has laid down a clear distinction between a letter of credit and a guarantee in that the settlement of a
dispute between the parties is not a pre-requisite for the release of funds under a letter of credit. In other words, the
argument is incompatible with the very nature of the letter of credit. If a letter of credit is drawable only after
settlement of the dispute on the contract entered into by the applicant and the beneficiary, there would be no practical
and beneficial use for letters of credit in commercial transactions.

The engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the required
documents are presented to it. The so-called “independence principle” assures the seller or the beneficiary of prompt
payment independent of any breach of the main contract and precludes the issuing bank from determining whether
the main contract is actually accomplished or not. Under this principle, banks assume no liability or responsibility
for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general
and/or particular conditions stipulated in the documents or superimposed thereon, nor do they assume any liability or
responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the
goods represented by any documents, or for the good faith or acts and/or omissions, solvency, performance or
standing of the consignor, the carriers, or the insurers of the goods, or any other person whomsoever.