Bank für Gemeinwirtschaft Aktiengesellschaft v City of London Garages Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE DAVIES,LORD JUSTICE CAIRNS,LORD JUSTICE PHILLIMORE |
| Judgment Date | 19 November 1970 |
| Judgment citation (vLex) | [1970] EWCA Civ J1119-1 |
| Court | Court of Appeal (Civil Division) |
| Date | 19 November 1970 |
[1970] EWCA Civ J1119-1
Lord Justice Davies
Lord Justice Phillimore and
Lord Justice Cairns
In The Supreme Court of Judicature
The Court of Appeal
MR B. FINLAY, Q. C. and MR L. JOSEPH, (instructed by Messrs. Watts, Vallance & Vallance) appeared on behalf of the Appellants (1st, 2nd and 3rd Defendants).
MR R. MacCRIDLE, Q. C. and MR R. SOUTHWELL, (instructed by Messrs. Herbert Smith & Co.) appeared on behalf of the Respondents (Plaintiffs).
I will ask Lord Justice Cairns to deliver the first judgment.
This is an appeal by the Defendants from part of an Order made by Mr. Justice Mocatta in chambers in a case, in the Commercial List. By that Order, made on an application under Order 14, he directed that judgment should be entered for the Plaintiffs for a large sum of money against three of the four Defendants in the action. Those Defendants now appeal and say that they should have unconditional leave to defend.
The action is on bills of exchange. The Plaintiffs are a German bank and claim as holders of ten bills, having received them for collection from a German company called Internationale Genossenachaftsbank Aktiengesellschaft (whom I shall call Ingeba), who the Plaintiffs say were holders in due course of the bills. Each bill was drawn in London on the 12th December, 1969, by the Second Defendants, National Sales Corporation Ltd., on the First Defendants, City of London Garages Ltd., in the sum of 250, 000 deutschmarks, payable on the 12th June, 1970. Each bill was accepted by the First Defendants payable at L. Behrens & Sohne (hereinafter called Behrens) at an address in Hamburg. Each bill was endorsed by each of the first two Defendants, and by the third Defendant, Mr. Wexler, and by a Mr. Patel, purporting to sign on behalf of the fourth Defendants, The Central Bank of India Ltd. I shall refer to the four Defendants as" "National"," "City"," "Wexler" and" " C. B. I." Wexler is a director of City and National. The bills were all duly presented for payment and were dishonoured, and notice of dishonour was duly given.
On the Order 14 proceedings the defenses raised by City, National and Wexler were that the drawing, acceptance and negotiation of the bills was affected by fraud, and that the transactions under which Ingeba became holders of the bills were tainted with illegality under the provisions of the ExchangeControl Act 1947. C.B. I. contended that Patel (who had been their London manager) was not authorised to bind them by his sole signature to an endorsement. Mr. Justice Mocatta gave leave to C.B.I. to defend, and gave leave to the other three Defendants to defend as to one bill, but directed that judgment be entered against those three on the other nine bills for the amounts of the bills, with interest and expenses, a total of over £250,000. Those three Defendants now appeal against that judgment.
The Affidavit upon which the first three Defendants sought leave to defend was made by Wexler. In it he deposed that in May, 1965, he was introduced to Patel and arranged with him for the opening of various accounts with C.B.I. and for credit facilities for himself and his companies on those accounts. Patel appeared to have full authority to act for C.B. I. Wexler wanted to have large funds available so that at some convenient C time he could purchase a public company or a property portfolio, and it was arranged that this should be achieved through the medium of bills of exchange. Bills wore drawn by National, accepted by City, endorsed by C.B.I. and discounted through bill brokers in London, Mabey & Gill. Between August, 1967 and May, 1969 this was done on about ten occasions. The proceeds were paid into accounts with C.B.I. When bills matured Wexler relied on Patel to make inter-account transfers so that City could meet them. Prom time to time Patel brought Wexler fresh bills for signature. He always assured Wexler that funds remained available in the accounts. Prom time to time a possible purchase was considered, but Patel always eventually turned it down. Prom the middle of 1968 Wexler could not get Patel to produce bank statements, and it was not until May, 1970 that he obtained statements, which showed many unauthorised withdrawals and large deficiencies.
Meanwhile, in December, 1968 it became difficult to discount in London bills endorsed by C.B.I., so Patel arranged on behalf of Wexler and his companies for future bills to be discounted througha German bank, Bank Alexander Levy, which later merged with Behrens. The first set of bills so dealt with was a set of ten, each for 250, 000 deutschmarks, dated 16th December, 1968, due on the 16th June, 1969. Wexler always acted on the directions and advice of Patel, who frequently said that he had arranged with one Di Racca, who was associated with Behrens, to revolve bills 30 that funds could be kept available. When the December, 1968 bills matured they were replaced by a second set maturing In December, 1969, and those in turn were replaced by a third set, the bills sued upon. On the 9th May, 1969 there was an unauthorised debit to the account of National with C.B.I. of nearly £250, 000, and Wexler's submission is that the issue of the bills dated June and December, 1969 was intended by Patel to conceal this false debit (presumably arising from Patel's defalcations), and accordingly was effected by fraud on Patel's part. Further, Wexler says that there appears to have been no discounting charge when replacement bills were taken up by Behrens or Di Racca, and he invites the court to infer from this and other matters that Behrens and Di Racca were cognisant of the irregularity in the bills. It was in April, 1970 that Wexler's suspicions were first aroused, and conversations which he had with Patel and Di Racca in that month tended to confirm that Behrens knew, or ought to have known, of the irregularities. I interpose here that in the course of the hearing of the appeal evidence was by leave of the court introduced with a view to showing some interlocking of interests between Behrens and Ingeba. I do not think that this amounted to anything that would have a bearing on our decision. Patel apparently left for South America in May, 1970, and he has since returned to this country and now awaits committal for trial. It should be made clear that nothing said in this judgment constitutes in any way a finding that Patel has been guilty of any of the conduct of which Wexler accused him. I am merely setting out what Wexler alleges, which may or may not be true. The contentionsthat the export and negotiation of the bills was illegal is briefly dealt with in Wexler's Affidavit. He says that, to the best of his knowledge, no Treasury permission was ever obtained for such export, as required by Section 22 of the Exchange Control Act 1947.
To this Affidavit Mr. Wellings, a representative of the Plaintiffs' solicitors, replied. He said, on information and belief, that the business was dealt with on behalf of Ingeba by Herr Mathias, their executive director. It was introduced by Di Racca in December, 1968, who said that the purpose of drawing and discounting the bills was to obtain further funds to enable Wexler's companies to pay import deposits, and that C.B.I. would back the bills, Herr Mathias obtained satisfactory reports on Wexler and his companies, and he was satisfied with the status of C.B.I. The first set of bills was discounted at 7 per cent per annum, the second set at 7 per cent per annum, and the third set at 9 per cent. per annum, Herr Mathias being satisfied on each occasion that the endorsement was guaranteed by C.B.I. Such endorsement or guarantee was always signed by Patel alone, but Herr Mathias had no cause to question his authority: he had confirmed his signature by comparison with a list issued by C.B.I. which gave no indication that Patel was not authorised to sign alone on behalf of C.B.I. On each occasion it was only nine of the ten bills in the set that Ingeba were asked to discount. The tenth bill of the final set was not endorsed to them until the 5th May, 1970, and as leave to defend has been given in respect of this one, I need say no more about it. The bills were endorsed by Ingeba to the Plaintiffs for collection. Ingeba and the Plaintiffs disclaim all knowledge of the dealings between Wexler and Patel described in Wexler's Affidavit. Mr. Wellings's Affidavit also deals briefly with the illegality issue.
Supporting documents were exhibited to the Affidavit.
Mr. Finlay's first contention on behalf of the Defendants was founded an section 30 of the Bills of Exchange Act 1882, which provides as follows:" "(1) Every party whose signature appears on a bill is prima facie deemed to have become a party thereto for value. (2) Every holder of a bill is prima facie deemed to be a holder In due course; but if in an action on a bill it is admitted or proved that the acceptance, issue, or subsequent negotiation of the bill is affected with fraud, duress, or force and fear, or illegality, the burden of proof is shifted, unless and until the holder proves that, subsequent to the alleged fraud or illegality, value has in good faith been given for the bill."
The first question to be considered is whether the drawing, acceptance or negotiation of the bills sued upon was affected by fraud, Mr. Finlay's main contention is that Patel's purpose in getting the bills issued, accepted and discounted was to conceal his defalcations, and that this fraudulent purpose affected all these transactions on the bills. The Plaintiffs answer is that nobody was defrauded in connection with these bills. The defalcations had taken place before they were issued. Despite the...
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