Central Bank of Yemen (Appellants Defendants) v Cardinal Financial Investments Corporation (Respondents Claimants)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE BROOKE,Lord Justice Aldous |
| Judgment Date | 23 October 2000 |
| Judgment citation (vLex) | [2000] EWCA Civ J1023-2 |
| Date | 23 October 2000 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2000/0433 |
[2000] EWCA Civ J1023-2
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
COMMERCIA L COURT
(Longmore J)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Aldous and
Lord Justice Brooke
Case No: A3/2000/0433
Michael Brindle QC and Akhil Shah (instructed by Slaughter and May for the Appellants)
Mark Hapgood QC (instructed by Clifford Chance for the Respondents)
This is an appeal by the defendants, the Central Bank of Yemen ("CBY"), against an order of Longmore J dated 13th April 2000 whereby he dismissed with costs their application for a declaration that the court lacked jurisdiction on the grounds that they were immune from suit.
In this action the claimants Cardinal Financial Investments Corporation ("Cardinal") claim US$8,237,684.71 from CBY under 15 promissory notes dated 8th August 1989 which were all payable in London on seven dates, spaced at six-monthly intervals, between 1st January 1996 and 1st January 1999. Although the promisor named in the notes was the Bank of Yemen, it was common ground that in 1990 CBY assumed the liabilities of the Bank of Yemen following the merger of the People's Democratic Republic of Yemen with the Yemen Arab Republic which led to the creation of the present Republic of Yemen.
The promisee named on each of the notes was Ceskoslovenska Obehodni Banka AS ("CSOB"). The notes were all payable to CSOB "or order". Each of them was in due course endorsed by CSOB and delivered to Cardinal. There was evidence that they were delivered to Cardinal for an agreed sale price, so that it was asserted that Cardinal became holders of the notes for value, but this evidence was put in issue and Cardinal was unwilling to tell the judge what value had been given. At all events, there was no dispute that Cardinal were both endorsees and holders of the notes. They bring this action in those capacities. There was evidence that before the endorsements took place each of the notes were presented for payment in London on their maturity dates, and none of them were paid.
Section 89(1) of the Bills of Exchange Act 1882 provides:
"(1) Subject to the provisions of this part, and except as by this section provided, the provisions of the Act relating to bills of exchange apply, with the necessary modifications, to promissory notes."
It has not been suggested that the provisions of the Act with which we are concerned in this appeal do not apply equally to promissory notes as they do to bills of exchange.
On this appeal we are concerned with issues relating to the liability of a promisor on promissory notes which were endorsed when they were already overdue. Relevant provisions of the Bills of Exchange Act, substituting "promissory note" for "bill" and "maker" for "acceptor" in the interests of greater clarity, and including provisions relating to the giving of value for a note, are these:
S27(1) Valuable consideration for a [promissory note] may be constituted by -
(a) Any consideration sufficient to support a simple contract;
S27(2) Where value has at any time been given for a [promissory note] the holder is deemed to be a holder for value as regards the [maker] …
S36(1) Where a [promissory note] is negotiable in its origin it continues to be negotiable until it has been (a) restrictively endorsed or (b) discharged by payment or otherwise.
S36(2) Where an overdue [promissory note] is negotiated, it can only be negotiated subject to any defect of title affecting it at its maturity, and thenceforward no person who takes it can acquire or give a better title than that which the person from whom he took it had.
S38 The rights and powers of the holder of a [promissory note] are as follows:
(1) He may sue on the [promissory note] in his own name."
There are four other preliminary matters which are worth mentioning at this stage. The first is that it is elementary law that a promissory note is a separate contract from the underlying agreement for which the note represents the instrument of payment. See, for example, Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GmbH [1977] 1 WLR 713, per Lord Russell of Killowen at p 732G :
"It is in my opinion well established that a claim for unliquidated damages under a contract of sale is no defence to a claim under a bill of exchange accepted by the purchaser; nor is it available as set-off or counterclaim. This is a deep rooted concept of English commercial law. A vendor and purchaser who agree upon payment by acceptance of bills of exchange do so not simply upon the basis that credit is given to the purchaser so that the vendor must in due course sue for the price under the contract of sale. The bill is itself a contract separate from the contract of sale."
The second is that liability on a promissory note attaches, and attaches only, to those who are named on the note. Even if the maker of the note is an agent for another party in the underlying transaction, it is liable on the note as a principal and the other party has no liability on the note. See Churchill & Son v Goddard [1937] 1 KB 92 per Lord Roche at p 103 ("the Law Merchant and Common Law founded thereon of themselves, as I think, had regard only to the parties to negotiable instruments") and per Scott LJ at p 111. See also Pollway Ltd v Abdullah [1974] 1 WLR 493 per Roskill LJ at p 496B-D. Mr Brindle sought to escape the effect of this rule by reference to dicta in the cases of Leadbitter v Farrow (1816) 5 M & S 345 and Elliott v Bax-Ironside [1925] 2 KB 301, but he eventually accepted that he could point to no decided case in the long history of the law merchant in which anyone had been held liable on a bill of exchange whose name did not appear on the bill. As Holroyd J said in Leadbitter v Farrow at p 350: "I apprehend that no action would lie on the bill, except against those who are the parties to it."
Section 26(1) of the Act, which is concerned with the case where a person signs a promissory note as maker and then adds words to his signature,...
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