Generale Bank Nederland NV (formerly Credit Lyonnais Bank Nederland NV) v Export Credits Guarantee Department
| Jurisdiction | England & Wales |
| Judge | Longmore J. |
| Judgment Date | 29 September 1995 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 29 September 1995 |
Queen's Bench Division (Commercial Court)
Longmore J.
Andrew Smith QC and Richard Slade (instructed by Linklaters & Paine) for the bank.
Jonathan Hirst QC, Graham Dunning and John Snider (instructed by Clyde & Co) for ECGD.
The following cases were referred to in the judgment:
Armagas Ltd v Mundogas SA (“Ocean Frost”)ELR [1986] AC 717; (1986) 2 BCC 99,197.
Banque Financiers de la Cite SA v Westgate Insurance Co LtdELR [1991] 2 AC 249.
Black King Shipping Corp v Massie (“The Litsion Pride”)UNK [1985] 1 Ll Rep 437.
Commercial Bank of Australia Ltd v AmadioUNK (1983) 151 CLR 447.
First Energy UK Ltd v Hungarian International Brink LtdUNK [1993] 2 Ll Rep 194.
First Sport Ltd v Barclays Bank plcWLR [1993] 1 WLR 1229.
Hamilton v WatsonENR (1845) 12 Cl & Fin 109.
Koursk, TheELR [1924] P 140.
Levett v Barclays Bank plcWLR [1995] 1 WLR 1260.
London General Omnibus Co Ltd v HollowayELR [1912] 2 KB 72.
National Provincial Bank of England v GlanuskELR [1913] 3 KB 335.
Uxbridge Permanent Benefit Building Society v PickardELR [1939] 2 KB 248.
Fraud — breach Of Contract — breach Of Duty — deceit — bills Of Exchange — export Credit Guarantees — comprehensive And Specific Bank Guarantees — fictitious Contracts Of Sale To Foreign Buyers Supported By Fraudulent Bills Of Exchange Underwritten By Export Credit Guarantees — scheme Facilitated By Corrupt Officer In Ecgd — fraudster Obtained £10m From Bank And Disappeared — whether Ecgd Liable To Bank For Breach Of Contract, Deceit And Breach Of Duty.
Contract — Comprehensive bank guarantee — Duty to investigate — Misrepresentation — Bills of exchange to be “accepted”— Whether genuine buyer required — Whether bank under duty to investigate underlying transactions when applying for ECGD — Whether inaccurate information about companies by bank to ECGD amounted to misrepresentation — Whether ECGD entitled to rescind guarantees for misrepresentation.
Contract — Specific bank guarantee — Acceptability — Non-disclosure — Requirement of validity and enforceability of bills of exchange in buyer's country — Whether ECGD officer authorised to waive requirement — Whether non-disclosure by bank — Whether non-disclosures related to transaction between banker and customer.
Tort — Insufficient care in underwriting guarantees due to corruption of ECGD officer — Whether ECGD officer liable in deceit — Whether ECGD liable for actions of corrupt officer — Whether actions of ECGD officer caused loss to bank.
This was an action by a bank against the Export Credit Guarantee Department (“ECGD”) to recover losses resulting from fraudulent bills of exchange underwritten by ECGD guarantees.
The plaintiff bank was defrauded of £10m by Chong by means of fictitious contracts for the sale of goods supported by fraudulently drawn bills of exchange with forged acceptances in the name of imaginary foreign buyers. Chong persuaded the bank that he was a considerable exporter of commercial goods to Nigeria and America, and obtained money from the bank by selling to it accepted bills of exchange using money he acquired from the bank's purchases of later bills of exchange. The bills of exchange were underwritten by ECGD guarantees, the obtaining of which was facilitated by the corruption of a senior officer of ECGD. The bank, however, supplied information to ECGD concerning the business affairs of the companies involved in the bogus transactions without checking the factual accuracy of that information. Chong disappeared after receiving £10m from the bank, which sued ECGD on its various guarantees.
ECGD issued nine comprehensive bank guarantees (“CBG”) in favour of the bank, which purchased a number of bills of exchange under each CBG. The guarantees were supported by a comprehensive short-term guarantee, a credit insurance policy issued by ECGD. A number of specific bank guarantees were also issued. The action for breach of contract, deceit and breach of duty concerned the bills of exchange purchased under CBG 8, the purported exporters being various companies controlled by Chong. ECGD counterclaimed under the interest equalisation agreement, which was conceded in the event of the bank's claim failing.
Held, giving judgment for ECGD oh its counterclaim and awarding damages accordingly:
1. A comprehensive bank guarantee required in terms that the bill of exchange “be accepted”. Since none of the bills of exchange were in fact accepted by a genuine buyer that requirement had not been fulfilled.
2. There was no general duty on bankers when making application for guarantees to ECGD to enquire as to the genuineness of the underlying transactions, and no duty to disclose to ECGD any unusual matters.
3. In reporting to ECGD on the exporting companies the bank was making a representation that the maker of the statement had a genuine factual basis for the opinion expressed as to the companies concerned. Since the bank had no factual basis for certain crucial answers as to the management of the companies, their overdraft facilities and the difficulties in operating the facility due for renewal, the bank's answers amounted to a material misrepresentation. Having relied on that information in deciding to issue the guarantees, ECGD were therefore entitled to rescind the guarantees for misrepresentation.
4. On the evidence the bank's general conduct of the Chong companies' account was not that of a prudent banker, who would have appreciated that the manner in which transactions were conducted was most unusual.
5. The requirement of confirmation of the validity and enforceability of the bills of exchange in the buyer's country were an essential requirement of the SBGs and a vital protection for ECGD in the event of default on the part of the buyer. Accordingly the ECGD officer had no actual or ostensible authority to sign “acceptability” letters depriving ECGD of that essential protection.
6. A bank was under an obligation to reveal to a surety anything in the transaction between the banker and customer which revealed the position of the customer as different from that which the surety would normally expect, particularly if it affected the nature or degree of the surety's responsibility. The non-disclosures in relation to the specific bank guarantees alleged against the bank concerning the purported export contracts and their financing did not relate to the transaction between banker and customer. Suspicions as to the genuineness of Chong's export contracts did relate to such a transaction, but since the bank was required to disclose knowledge not suspicions the claim for non-disclosure was not made out.
7. Although the senior ECGD officer corrupted by Chong did not exercise the proper and requisite care of a civil servant in his position in underwriting the guarantees, he did not have the requisite knowledge of Chong's deceit to be a joint tortfeasor. Further, the evidence was insufficient to found a secondary liability in deceit in the form of assistance in the commission of a civil wrong. In any event the bank's loss was caused not by the deceit but by the bank's failure to confirm the validity and enforceability of the bills.
8. ECGD did not deliberately conceal the termination of the policy granted to the exporter which underlay CBG 8, but on the contrary genuinely attempted to warn the bank that termination was likely to occur. There was therefore no breach of duty in tort to the bank by ECGD. Further, the bank's loss was not caused by any breach of duty but by the bank's failure to require the exporter to correct the defaults which led to termination and its deliberate assumption of the risk of termination in the light of the explicit warning given by ECGD. Accordingly the bank's claims in contract and tort against ECGD failed.
Longmore J: Introduction
Credit Lyonnais Bank Nederland (“the bank”) has suffered serious losses as a result of the fraudulent activities of an ingenious rogue calling himself Roland Chong. He came to England from Singapore in about 1980 and obtained an introduction to the bank. He knew about ways of financing international trade and persuaded the bank that he was a considerable exporter of commercial goods. to Nigeria and America. He was aware that exporters could get insurance from the Export Credit Guarantee Department (“ECGD”) against the risk of non-payment by the foreign buyer; he was also aware that the bank could be induced to purchase bills of exchange drawn by an exporter on foreign buyers against a guarantee from ECGD that the foreign buyer would pay for the goods in due course according to the contract of sale. Chong had the bright idea of conjuring up wholly imaginary contracts for the sale of goods supported by fraudulently drawn bills of exchange with forged acceptances in the name of imaginary buyers. He obtained money from the bank by selling to it these pieces of paper in the form of accepted bills of exchange; he initially covered his tracks by causing early bills of exchange to be paid off, using for this purpose money he acquired from the bank's purchases of later bills of exchange. He corrupted a senior officer of ECGD, Mr Pillai, who dealt with the underwriting of ECGD guarantees, inducing him to oil the wheels and ensure no awkward questions would be asked. When he had obtained over £10m of the bank's money, he disappeared. The bank now sues the department on its various guarantees.
ECGD was, at the time of Chong's frauds the department of Government whose purpose was to assist UK exporters by guaranteeing that, in the event of default on the part of their overseas buyers, the exporter would be paid 90 per cent of the: purchase price. A substantial part of this function has now been privatised. Many exporters would wish to obtain immediate finance to support their commitments and would look to their bankers to provide such finance either by means of ordinary...
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