Standard Bank London Ltd v Bank of Tokyo Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Waller J. |
| Judgment Date | 13 March 1995 |
| Date | 13 March 1995 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench (Commercial Court).
Waller J.
Christopher Carr QC and Jeffrey Gruder (instructed by Mishcon de Reya) for Standard.
David Hunt QC and Mark Howard (instructed by Norton Rose) for Sudwest.
David Donaldson QC and Christopher Butcher (instructed by Clifford Chance) for BOT.
The following cases were referred to in the judgment:
Arbuthnott & Ors v Fagan and Feltrim Underwriting Agencies Ltd & Ors [1994] CLC 918; [1994] 3 WLR 761; [1995] 2 AC 145.
Bank Tejarat v Hong Kong & Shanghai Banking Corp (CI) Ltd & AnorUNK [1995] 1 Ll Rep 239.
Banque Keyser Ullmann SA v Skandia (UK) Insurance Co LtdELR [1990] 1 QB 665 (CA); [1991] 2 AC 249 (HL).
Belmont Finance Corp Ltd v Williams Furniture Ltd & OrsELR [1979] Ch 250.
Berry v British Transport CommissionELR [1962] 1 QB 306.
Building Estates Brickfields Co, Re (Parbury's Case)ELR [1896] 1 Ch 100.
Central Trust Co v Rafuse (1986) 31 DLR (4th) 481.
Cockburn v EdwardsELR (1881) 18 Ch D 449.
Eagle Star Insurance Co Ltd v SprattUNK [1971] 2 Ll Rep 116.
Esso Petroleum Co Ltd v MardonELR [1976] QB 801.
European Asian Bank AG v Punjab & Sind Bank (No. 2)WLR [1983] 1 WLR 642.
Feuer Leather Corp v Frank Johnstone & Sons [1981] Com LR 251.
Greer v Downs Supply CoELR [1927] 2 KB 28.
Hambro v Burnand & OrsELR [1904] 2 KB 10.
Hammond & Co v BusseyELR (1888) 20 QBD 79.
Manchester Trust v FurnessELR [1895] 2 QB 539.
Midland Bank Trust Co Ltd & Anor v Hett, Stubbs & Kemp (a firm)ELR [1979] Ch 384.
Rafsanjan Pistachio Producers Co-operative v Bank Leumi (UK) plcUNK [1992] 1 Ll Rep 513.
Underwood (A L) Ltd v Bank of Liverpool & MartinsELR [1924] 1 KB 775.
United City Merchants (Investments) Ltd v Royal Bank of CanadaELR [1983] 1 AC 168.
Letters of credit — Forgery — Letters of credit confirmed by “tested telexes”— Telexes authenticated authorised signatory of letters and confirmed acceptance of all liabilities under letters — Letters and telexes forged by fraudsters at issuing bank — Whether advising bank and beneficiary on notice of fraud — Whether issuing bank estopped from denying validity of letters of credit — Whether advising bank negligent misrepresented validity of letters of credit to assignee.
These were two actions concerning three forged letters of credit.
Three letters of credit with a total face value of US$19.8m appeared to have been issued by the Bank of Tokyo (“BOT”) in Kuala Lumpur, the beneficiary of each being Standard Bank London Ltd (“Standard”). Standard retained the first letter of credit, but assigned the second and third to Sudwestdeutsche Landesbank Girozentrale (“Sudwest”). Each of the documents was forged. Standard and Sudwest received “tested telexes” from BOT confirming and authenticating the authorised signatory of the letters of credit and confirming that BOT accepted all responsibilities and liabilities under those letters of credit. Tested telexes were designed to be conclusive proof of the authenticity of the signature of the sender. The “tested telexes” in question were produced by fraudsters. Relying on the authenticity of the letters of credit supported by tested telexes, Standard and Sudwest completed the transactions.
Standard brought an action against BOT to recover sums paid out under the letters of credit. Sudwest brought an action against BOT and Standard seeking to recover on the letters of credit. It was BOT's case that Standard had notice that fraudsters were at work at BOT.
Held, granting declarations sought by Standard and Sudwest:
1. Since Standard had no actual knowledge of the fraud, and relied in the ordinary course of business on a general representation by BOT as to the authenticity of a telex which came by “tested telex”, a duty to inquire as to fraud would only be imputed if wilful blindness on the part of Standard could be shown.
2. Standard as advising bank and beneficiary owed no duty in law to BOT as issuing bank. Standard accordingly was under no duty to investigate the transactions for BOT's benefit or to warn BOT of any facts that might be discovered. Standard's investigations into the underlying transaction were made on its own behalf and that of Sudwest, to whom it did owe a duty.
3. The evidence failed to establish that Standard was put on notice that either the underlying transactions were fraudulent, or in particular that the tested telexes coming from BOT in Kuala Lumpur were themselves produced by fraudsters.
4. BOT was estopped from denying the authenticity of the first letter of credit because of the tested telex. Standard was accordingly entitled to present a conforming document under the letter of credit.
5. BOT was negligent in sending out the tested telexes relied on as negligent misrepresentation by Sudwest in relation to the second and third letters of credit. Since Sudwest would not have advanced money to Standard by reference to those letters of credit without the tested telexes, Sudwest was accordingly entitled to damages in the sums paid by them.
6. Standard was not liable in respect of any damage suffered by Sudwest. The question of a contribution from Standard in BOT's favour therefore did not arise. There was no basis on which Sudwest could claim from Standard any costs irrecoverable from BOT.
Waller J:
There are two actions before the court. They concern three letters of credit with a total face value of US$19.8m. The letters of credit give the appearance of having been issued by the Bank of Tokyo (“BOT”). Standard Bank London Ltd (“Standard”) is the beneficiary named in each of the letters of credit. Standard retained the first letter of credit and is currently the holder of it. Standard assigned each of the second and third letters of credit to Sudwestdeutsche Landesbank Girozentrale (“Sudwest”). The amount of the first letter of credit was US$5m; the amount of the second letter of credit was US$4.8m; and the amount of the third letter of credit was US$ 10m.
The date of expiry of the first letter of credit is expressed to be 20 March 1995; the date of expiry of the second letter of credit is expressed to be 13 April 1995; and the date of expiry of the third letter of credit is 17 May 1995.
All three letters of credit are purported to have been signed and stamped by Mr Zainal Arifin Bin Semaon. It is clear on the evidence that the signature on each of the three documents was forged: that was the uncontradicted evidence of Dr Audrey Giles.
Standard and Sudwest do not, however, rely merely on the letters of credit; they rely on the receipt by each of them of “tested telexes” sent by or on behalf of BOT confirming and authenticating the authorised signatory of the letters of credit as Zainal Arifin Bin Semaon (“Zainal”) and confirming that they, BOT, would, or did accept, all responsibilities and liabilities under the respective letters of credit.
Those “tested telexes” did not come directly from BOT Kuala Lumpur because BOT KL did not have as between itself and Standard or Sudwest a means of directly authenticating telexes, but came via other banks, which, as between themselves, did have such a system. Thus, in relation to the first letter of credit, the chain was BOT KL to Bank of Tokyo, London, to Standard Chartered Bank London, and thus to Standard Bank. On the second letter of credit, Standard received an equivalent tested telex via the same chain which it passed on to Sudwest, and Sudwest received further tested telexes directly from BOT London and a further tested telex via BOT Frankfurt. In relation to the third letter of credit, Sudwest received a tested telex from BOT London which had itself received a tested message from BOT KL via BOT Paris. Sudwest itself also received a tested telex from BOT Paris confirming the telex received from BOT London.
Thus in short tested telexes came out of BOT KL in respect of all three letters of credit and down a tested telex chain to Standard and/or Sudwest.
Putting the matters broadly for the moment, it is BOT's case:
(1) that fraudsters within BOT KL or with the complicity of employees within BOT KL, managed to produce tested telexes from BOT KL and that thus the tested telexes were unauthorised and not what they appeared to be. They accept that the telexes must be treated as authorised statements of BOT unless the recipients were on notice or put on inquiry as to whether the telexes were not what they purported to be. They do not allege as against Sudwest that there were factors which should have put Sudwest on notice that the telexes were not what they purported to be, but they do so assert as against Standard;
(2) that neither Sudwest nor Standard can present conforming documents under the letters of credit; and
(3) that if BOT are for any reason liable to Sudwest, BOT have a claim over against Standard for an indemnity based on a duty owed by Standard to warn BOT, or alternatively for a contribution under the Civil Liability Contribution Act 1978.
Other issues raised (again putting the matter broadly) are:
(1) in relation to the conforming documents point, apart from asserting that documents do conform, both Sudwest and Standard say that but for the tested telexes they would not have entered into these transactions at all, and that thus they are entitled to recover sums paid out whether or not conforming documents could be presented;
(2) Sudwest makes a claim against Standard; that claim is both an alternative to its claim against BOT and additional thereto in that Standard assert that even if they recover on the letters of credit from BOT and obtain an order for costs against BOT, they are entitled to recover such costs of the action as they may not recover from BOT from Standard;
(3) if Standard were found liable to Sudwest, Standard makes a claim against BOT:
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(a) for a complete indemnity based on alleged warranties or representations made in the tested telexes; or alternatively
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(b) for a...
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...Ex p, Inland Revenue Commissioners v The debtor [1996] 2 All ER 345, Ch D, and Standard Bank London Limited v Bank of Tokyo Limited [1995] CLC 496; [1996] 1 CTLR (18.) UNCITRAL Model Law on Electronic Commerce (1996), available in electronic format at http://www.jus.uio.no/lm/un.electronic.......