Banco De Portugal v Waterlow and Sons, Ltd (Rrspondents)

JurisdictionUK Non-devolved
JudgeThe Lord Chancellor,Lord Warrington of Clyffe,Lord Atkin,Lord Russell of Killowen,Lord Macmillan
Judgment Date28 April 1932
Judgment citation (vLex)[1932] UKHL J0428-1
CourtHouse of Lords
Docket NumberParliamentary Archives, HL/PO/JU/4/3/866
Date28 April 1932
Banco De Portugal
Waterlow and Sons, Ltd.
Waterlow and Sons, Ltd.
Banco De Portugal
Rrspondents (Consolidated Appeals).

[1932] UKHL J0428-1

Lord Chancellor.

Lord Warrington of Clyffe.

Lord Atkin.

Lord Russell of Killowen.

Lord Macmillan.

Parliamentary Archives, HL/PO/JU/4/3/866


The Lord Chancellor .

These are the Appeals of the Banco de Portugal, hereinafter called "the Bank," and of Waterlow & Sons, Limited, hereinafter called "Messrs. Waterlow", from an Order of the Court of Appeal dated the 26th day of March, 1931, varying the Judgment and Order of the Honourable Mr. Justice Wright, dated the 12th day of January, 1931. The Learned Judge directed judgment to be entered for the Bank for £569,421 with costs. The Court of Appeal, by a majority consisting of Lord Justice Greer and Lord Justice Slesser, directed that judgment should be entered for the Bank for the reduced sum of £300,000, Lord Justice Scrutton dissenting from that Judgment, for in his view the Bank of Portugal was only entitled to the sum of £8,922, which was covered by a payment by the Defendants into Court of £10,000.


The Bank is the Central Bank of Portugal and is incorporated by Special Charter under the Laws of Portugal. Since 1887 it has held from the Government of Portugal an exclusive license for the issue of bank notes as legal tender in Portugal and the adjacent Portuguese Islands, but this license does not extend to the issue of bank notes for the Portuguese Colonies. At all dates material to this case the currency of Portugal was composed solely of notes issued by the Bank. The Bank act as Bankers to the Portuguese Government and carry on a general banking business, having a head office in Lisbon, a branch office in Oporto, and agencies and correspondents in various towns and places throughout Portugal and the Islands.


The Governor of the Bank is appointed by the Portuguese Government and presides at Directors' meetings. The Directors at all material times selected the names of three of their number, out of which the Government in its turn selected one to act as Vice-Governor. The Directors are appointed by the General Meeting of the Shareholders. The Government also at all material times appointed a Secretary-General whose duties were defined by Article 66 of the Statutes of 1892. This Article prescribed (inter alia) that he shall "satisfy himself of the strict observation of the Bank's Statutes and regulations … in order to be able to appreciate the situation of the Bank as regards the safeguard of the Public interest and of the fiduciary circulation." He did not vote at Directors' meetings.


Messrs. Waterlow are a well-known firm of printers having their registered office at 26, Great Winchester Street in the City of London. A considerable proportion of their business consists of bank note and security printing. Under a contract dated the 27th November, 1922, and a repeat order under that contract dated the 20th February, 1924, the Bank employed them to print and supply certain bank notes required by the Bank for issue in Portugal. Under this contract and repeat order Messrs. Waterlow supplied to the Bank 600,000 notes of a face value of 500 Escudos. The said notes contained on their face a portrait of Vasco da Gama and are referred to as 500 Escudos notes of the Vasco da Gama type. These notes were delivered to the Bank in 1923 and 1924 and all or nearly all of them were put into circulation. The value of the Escudo at dates material to this case was approximately Two Pence Halfpenny, so that a 500 Escudo note was worth approximately £5.


The notes of the Bank are at present inconvertible; that is to say, the Bank is under no obligation to replace them when presented by anything else than its own notes. The Learned Judge found, and the Court of Appeal agreed with him, that the prospect of the notes ever becoming convertible with gold was so remote that it might be disregarded. With that finding I agree. The amount of notes which could be issued was controlled by law. Within these limits it was subject to the policy of the Bank. The right was accompanied by conditions as to the maintenance of reserves and prohibitions as to certain classes of business.


For example:—By Article 28 of the Law of the 29th of July, 1887.


The Bank is expressly forbidden from carrying out the following operations:—

( a) To purchase for its own account any shares in the Bank.

( b) To rediscount its own bills.

3. To carry out any Stock Exchange operations which cannot be immediately liquidated even if for account of third parties.

4. To pay interest on any cash received in account current payable at sight.

5. To promote or take part in the creation of commercial banking or other undertakings.

( f) To undertake any risky negotiations or insurance.

( g) To buy and sell, for its own account, any commercial goods.

( h) To possess real estate and rights apart from the City premises necessary for the carrying out of its functions, except through the effect of any assignment or Public Sale, or in order to secure the repayment of credits, but it will have to proceed to the liquidation of such goods (or "estate") within the shortest period possible.


Again, there was an obligation upon them to issue notes on Government service. Finally, it must be remembered that the Bank is a Bank of Issue with control and management of the currency. Its directors were only entitled to issue notes as far as in their reasonable opinion it was right and proper for them to do so in their capacity as guardians of the currency of the country.


In the course of 1925 Messrs. Waterlow, as if has been found by the Courts below, and as they admitted on Appeal, were guilty of a breach of an absolute duty to the Bank under the contracts referred to because, without authority from or the knowledge of the Bank, they printed and delivered to one Marang van Ysselvere 580,000 notes of 500 Escudos of the Vasco da Gama type.


Marang was one of a group of criminals, among whom was the Portuguese Minister at the Hague. The criminals having obtained the notes from the Messrs. Waterlow introduced them into Portugal and proceeded to put a very large number of them into circulation there.


These notes were printed either from the same plates as had been used for the notes printed for the Bank or from plates made from the same die. Each of the Bank's notes bore a serial letter and number and the signatures of the Governor and one or other of the Directors. 490,000 of the said 580,000 were exact duplicates of notes printed for the Bank and were indistinguishable from the genuine notes delivered to and issued by the Bank except by certain tests unknown to the Bank and depending on data which were exclusively in the possession of Messrs. Waterlow. These tests involved various matters, such as the existence and the significance of minute letters on the genuine and the unauthorised notes and of minute differences between the genuine and the unauthorised notes in the distance from one typographical element to another on the face of the note. The notes were delivered to Marang as to 200,000 in February and March, 1925, and as to 380,000 from August to November, 1925.


In order to facilitate the putting into circulation of very large quantities of these notes the criminals formed a Bank known as the Banco Angola e Metropole. Under Portuguese law in order to constitute and operate a Bank it was necessary to obtain the authority of the Minister of Finance, who was advised on such matters by a body known as the Banking Council. The Minister of Finance on the 27th June, 1925, authorised the formation of the Banco Angola e Metropole on the condition, among others, that the capital of that Bank, the minimum figure for which he had previously fixed at 20,000,000 Escudos, should be fully subscribed. This condition was accepted and as the criminals had already received notes to an amount of 100,000,000 Escudos from Messrs. Waterlow, they were able promptly to comply with it.


The Banco Angola e Metropole, having been formed, proceeded to carry out transactions on a large scale, but their business fell under suspicion and upon the 19th November, 1925, the Minister of Finance instructed the Inspector of Banking Commerce to investigate their activities. On Friday, the 4th December, 1925, the Manager of a private Bank in Lisbon called upon Dr. Ulrich, a Director of the Bank, and informed him of certain suspicious dealings affecting the Banco Angola e Metropole at Oporto, and Dr. Ulrich communicated with the Assistant Judge of Criminal Investigation. On the evening of that day a number of officials both of the State and the Bank went to Oporto. On the following day the premises of the Banco Angola e Metropole were searched by the police. Many packets of 500 Escudo notes of the Vasco da Gama type were found, but apparently the notes, though new, were not consecutive, nor were the series the same. Instructions were given that all notes of this type in the Oporto branch of the Bank should be arranged in series, and also that 2,000 of the notes found on the premises of the Banco Angola e Metropole should lie similarly arranged. Late on the night of the 5th. Saturday, or early on the Sunday morning, the 6th. four notes, each in duplicate, making eight in all, were discovered among those in the Bank's Branch and this was conclusive proof of forgery.


The Bank's officials returned immediately to Lisbon, and on the Sunday evening a meeting of the Bank's Directors was held. The position was certainly alarming. It was obvious that there were forged notes in existence, but how, when, where and to what extent the forgeries had taken place was entirely unknown. After prolonged consideration, the Bank resolved to withdraw from circulation the notes of 500 Escudos, 2nd...

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