Standard Chartered Bank v Pakistan National Shipping Corporation and Others

JurisdictionUK Non-devolved
JudgeLORD HOFFMANN,LORD MUSTILL,LORD SLYNN OF HADLEY,LORD HOBHOUSE OF WOODBOROUGH,LORD RODGER OF EARLSFERRY
Judgment Date06 November 2002
Neutral Citation[2002] UKHL 43
CourtHouse of Lords
Date06 November 2002
Standard Chartered Bank
(Respondents)
and
Pakistan National Shipping Corporation
(Appellants)
Standard Chartered Bank
(Appellants)
and
Pakistan National Shipping Corporation

And Others and Another

(Respondents)

And Others

[2002] UKHL 43

Lord Hoffmann

Lord Mustill

Lord Slynn of Hadley Lo

Lord Hobhouse of of Woodborough

Lord Rodger of Earlsferry

HOUSE OF LORDS

LORD HOFFMANN

My Lords,

1

Mr Mehra was the managing director Oakprime Ltd, the beneficiary under a letter of credit which had been issued by Incombank, a Vietnamese bank, and confirmed by Standard Chartered Bank, London ("SCB"). The credit was issued in =connection with a cif sale of Iranian bitumen by Oakprime to Vietranscimex, a Vietnamese organisation. A condition of the credit was "Shipment must be effected not later than 25 October 1993". The last date for negotiation was 10 November 1993.

2

Loading was delayed and Oakprime was unable to ship the goods before 25 October 1993. But the shipping agents and shipowners (Pakistan National Shipping Corporation ("PNSC")) agreed with Mr Mehra to issue bills of lading dated 25 October 1993 and did so on 8 November 1993, before the goods had been shipped. On 9 November 1993 Oakprime presented the bill of lading and other documents to SCB under cover of a letter signed by Mr Mehra stating that (with one omission) the documents were all those required by the credit. This statement was false to the knowledge of Mr Mehra because he had himself arranged for the backdating of the bill of lading. The false statement was made to obtain payment under the letter of credit and it is agreed that if there had been no bill of lading or SCB had known that it was falsely dated, payment would not have been made. The omitted document was presented a few days later and certain other documents which had shown discrepancies from the terms of the credit were resubmitted after the final date for negotiation of the credit had passed. Notwithstanding that SCB knew that these documents had been presented late, it decided to waive late presentation. It authorised payment of US$1,155,772.77 on 15 November 1993.

3

SCB then sought reimbursement from Incombank. It sent a standard form letter that included a statement that the documents had been presented before the expiry date. This statement was known by a relevant employee of SCB to be false. Incombank, although unaware of both Mr Mehra's false dating of the bill of lading and SCB's false dating of the presentation of the documents, rejected the documents on account of other discrepancies which SCB had not noticed. Despite further requests, SCB was unable to obtain reimbursement.

4

SCB then sued the shipowners (PNSC), the shipping agents, Oakprime and Mr Mehra for deceit. They had all joined in issuing a false bill of lading intending it to be used to obtain payment from SCB under the credit. Cresswell J held that they were all liable for damages to be assessed: [1998] 1 Lloyd's Rep 684.

5

PNSC appealed on the ground that the loss suffered by SCB had been partly the result of its own "fault" within the meaning of section 1(1) of the Law Reform (Contributory Negligence) Act 1945 and that its damages should therefore be reduced to such extent as the court thought just and equitable. Sir Anthony Evans would have accepted this argument and reduced the damages by 25%. But the majority of the court (Aldous and Ward LJJ) ( [2001] QB 167) held that SCB's conduct was not "fault" as defined in the Act because it was not at common law a defence to an action in deceit: see the definition in section 4 of the Act.

6

Mr Mehra appealed on the ground that he had made the fraudulent representation on behalf of Oakprime and not personally. The court unanimously upheld this ground of appeal. It ordered SCB to pay Mr Mehra's costs before that court and three-quarters of his costs at trial: [2000] 1 Lloyd's Rep 218.

7

PNSC appealed to your Lordships' House against the decision that the damages could not be reduced and SCB appealed against the decision that Mr Mehra was not personally liable. Shortly before the hearing, PNSC agreed to pay SCB US$1.7m in full and final settlement of its claims to damages, interest and costs. There was no apportionment between these heads of claim and the settlement agreement expressly preserved SCB's claims against other parties. Your Lordships have allowed the petition of PNSC for leave to withdraw its appeal.

8

At the commencement of the hearing, Mr Cherryman QC submitted on behalf of Mr Mehra that the settlement gave SCB the whole of any damages to which it could be entitled against PNSC and Mr Mehra as joint tortfeasors. It would therefore be an abuse of the process of the court to pursue the appeal against Mr Mehra. The appeal should be stayed. He did not however propose that any change should be made to the Court of Appeal's order for costs in favour of Mr Mehra. Your Lordships refused the application for a stay on the ground that, quite apart from the question of whether the settlement moneys discharged the whole SCB's claim, it was entitled to proceed so as to have the order for costs set aside and to obtain an order in its favour.

9

Before your Lordships Mr Mehra argued that not only was he not liable at all, for the reasons given by the Court of Appeal, but that if he was liable, the damages should be reduced on account of the contributory negligence of SCB.

10

My Lords, I shall consider first the defence of contributory negligence. The relevant provisions of the 1945 Act are sections 1(1) and the definition of "fault" in section 4:

"1(1) Where any person suffers damage as the result partly of his own fault and partly of the fault of any other person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but the damages recoverable in respect thereof shall be reduced to such extent as the court thinks just and equitable having regard to the claimant's share in the responsibility for the damage …"

4. 85'fault' means negligence, breach of statutory duty or other act or omission which gives rise to a liability in tort or would, apart from this Act, give rise to a defence of contributory negligence."

11

In my opinion, the definition of "fault" is divided into two limbs, one of which is applicable to defendants and the other to plaintiffs. In the case of a defendant, fault means "negligence, breach of statutory duty or other act or omission" which gives rise to a liability in tort. In the case of a plaintiff, it means "negligence, breach of statutory duty or other act or omission" which gives rise (at common law) to a defence of contributory negligence. The authorities in support of this construction are discussed by Lord Hope of Craighead in Reeves v Commissioner of Police of the Metropolis [2000] 1 AC 360, 382. It was also the view of Professor Glanville Williams in Joint Torts and Contributory Negligence (1951) at p 318.

12

It follows that conduct by a plaintiff cannot be "fault" within the meaning of the Act unless it gives rise to a defence of contributory negligence at common law. This appears to me in accordance with the purpose of the Act, which was to relieve plaintiffs whose actions would previously have failed and not to reduce the damages which previously would have been awarded against defendants. Section 1(1) makes this clear when it says that "a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but [instead] the damages recoverable in respect thereof shall be reduced85"

13

The question is therefore whether at common law SCB's conduct would be a defence to its claim for deceit. Sir Anthony Evans thought that it would. He said that although the conduct of SCB in making a false statement about when the documents had been presented was intentional or reckless, the House of Lords had decided in Reeves's case [2000] 1 AC 360 that an intentional act could give rise to a defence of "contributory negligence" at common law and therefore count as "fault" for the purpose of the Act. I am not sure that it was necessary to rely upon Reeves for this purpose, because the Act requires fault in relation to the damage which has been suffered. That damage was SCB's loss of the money it paid Oakprime. In Reeves, the plaintiff's husband had intended to cause the damage he suffered. He intended to kill himself. But SCB did not intend to lose its money. It would be more accurate to say that it was careless in making payment against documents which, as it knew or ought to have known, did not comply with the terms of the credit, on the assumption that it could successfully conceal these matters from Incombank. In respect of the loss suffered, SCB was in my opinion negligent.

14

Be that as it may, the real question is whether the conduct of SCB would at common law be a defence to a claim in deceit. Sir Anthony Evans said that the only rule supported by the authorities was that if someone makes a false representation which was intended to be relied upon and the other party relies upon it, it is no answer to a claim for rescission or damages that the claimant could with reasonable diligence have discovered that the representation was untrue. Redgrave v Hurd (1881) 20 Ch D 1 is a well known illustration. That was not the case here. SCB should not have paid even if they could not have discovered that the representation about the bill of lading was untrue. But in my opinion there are other cases which can be explained only on the basis of a wider rule. In Edgington v Fitzmaurice (1885) 29 Ch D 459 the plaintiff invested A31,500 in debentures issued by a company formed to run a provision market in Regent Street. Five months later the company was wound up and he lost nearly all his money. He...

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