Standard Chartered Bank v Pakistan National Shipping Corporation [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Toulson J. |
| Judgment Date | 19 February 1999 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 19 February 1999 |
Queen's Bench Division (Commercial Court).
Toulson J.
Jeffrey Gruder QC and Zoe O'Sullivan (instructed by Lovell White Durrant) for the plaintiff.
Timothy Young QC, Richard King and J Davies (instructed by Amhurst Brown Colombotti) for the first defendant.
John Cherryman QC and Lawrence Akka (instructed by Ashok Patel) for the fifth defendant.
The following cases were referred to in the judgment:
Banco de Portugal v Waterlow & Sons LtdELR [1932] AC 452.
Banque Keyser Ullmann SA v Skandia (UK) Insurance Co LtdELR [1991] 2 AC 249.
British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railways Co of London LtdELR [1912] AC 673.
Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129.
Corporación Nacional del Cobre de Chile v Sogemin Metals Ltd [1997] CLC 435; [1997] 1 WLR 1396.
County Personnel (Employment Agency) Ltd v Alan R Pulver & Co (a Firm)WLR [1987] 1 WLR 916.
Doyle v Olby (Ironmongers) LtdELR [1969] 2 QB 158.
Hayes v James & Charles Dodd (a Firm)UNK [1990] 2 All ER 815.
Koch Marine Inc v D'Amica Societa di Navigazione ARL (“The Elena D'Amico”)UNK [1980] 1 Ll Rep 75.
Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1996] CLC 1958; [1997] AC 254.
Sotiros Shipping Inc v Sameiet SolholtUNK [1983] 1 Ll Rep 605.
Target Holdings Ltd v Redferns (a Firm) [1995] CLC 1052; [1996] AC 421.
Twycross v GrantELR (1877) 2 CPD 469.
Wilson v BrettENR (1843) 11 M & W 113.
Shipping — Deceit — Damages — Plaintiff bank fraudulently induced to pay against falsely dated bills of lading — Documents rejected by buyer's bank — Plaintiff sold cargo at a loss — Measure of damages — Value of cargo — Date for assessment of damages — Whether bank had failed to mitigate its loss — Whether test of mitigation different in cases of fraud.
This was a trial for the assessment of damages.
The plaintiff bank obtained a judgment against the first, second and fifth defendants for damages to be assessed for deceit and conspiracy (see [1998] 1 Ll Rep 684). The defendants fraudulently antedated bills of lading relating to a cargo of 10,000 mt of drummed Iranian bitumen sold CIF to a Vietnamese company for US$147/mt. The bills were dated October 1993 although loading was not completed until December 1993. The bills and other documents were presented to the bank in November 1993 and the bank paid out US$1,155,772 to the sellers on the basis that shipment had been within the period stipulated in the letter of credit. The judge held that payment would not have been made but for the issue and presentation of the bills. The documents were rejected by the buyers' bank for discrepancies before the vessel arrived in Vietnam. The bank commenced negotiations with the buyers believing that they were still interested in the goods subject to agreement on price. However when the vessel arrived the bank discovered that the bills of lading had been falsely dated and that the bitumen did not comply with the contractual specification. The bank could not reach agreement with the buyers and the cargo was eventually sold in July 1994 for US$510,000 on the basis that the saleable quantity was only 6,000 mt at US$85/mt. The bank claimed the difference between what it paid out and the amount recovered on sale of the cargo plus additional expenses incurred in trying to dispose of the cargo. The defendants argued that the right measure of damages was to compare what the bank paid the sellers with what the cargo was then worth, that the market value of the bitumen was more than the amount the bank paid, and that the bank failed to achieve the market value on sale and thereby failed to mitigate its loss. The bank submitted that the test of mitigation was more favourable to the plaintiff in a case of deceit.
Held ruling accordingly:
1. The rule as to avoidable loss was merely an aspect of the fundamental principle of causation that a plaintiff could only recover in respect of damage caused by the defendant's wrong. The rule was not that there was a duty on the plaintiff to mitigate but that he could not recover for a loss avoidable by reasonable action on his part because if he could reasonably have avoided it, it would not be regarded as caused by the wrongdoer. (The Elena D'AmicoUNK[1980] 1 Ll Rep 75andSotiros Shipping Inc v Sameiet SolholtUNK[1983] 1 Ll Rep 605applied.)
2. The test of whether the plaintiff had acted reasonably was the same in the case of fraud. Once a plaintiff discovered that he was a victim of fraud the same rule about avoidable loss applied for the purpose of assessing damages in an action for deceit or conspiracy as would apply in any action for tort or breach of contract. (Doyle v OlbyELR[1969] 2 QB 158andSmith New Court Ltd v Scrimgeour Vickers (Asset Management) Ltd[1996] CLC 1958; [1997] AC 254applied; Canson Enterprises Ltd v Boughton & Co(1991) 85 DLR (4th) 129not followed.)
3. Damages should be assessed at the date of trial in the ordinary way. Where a person who had been fraudulently induced to buy property thereafter freely decided to retain it, he would have adopted the transaction and so the fair measure of his loss would ordinarily be the excess which he had paid over market value at the date of its acquisition, plus any consequential expenses. If he did not wish to retain the property, whether it was fair that he should give credit for its market value at that date or some other date depended on its marketability and on his state of knowledge. The defendants' submissions that the date for assessment of damages should be some earlier date such as the date of payment by the bank or when the vessel arrived ignored the continuing operation of the defendants' fraud. There was no available market for the documents or the cargo until the vessel arrived. It then became clear that the bills had been falsely dated and that the cargo was not up to specification. The bank's decisions thereafter about how to dispose of the cargo were not independent of the defendants' fraud. The defects in the quality of the cargo existed at the time the bank was fraudulently induced to accept the documents and therefore the consequences of those defects lay with the defendants. (The Elena D'AmicoUNK[1980] 1 Ll Rep 75andSmith New Court Ltd v Scrimgeour VickersELR[1997] AC 254applied.)
4. The bank did not act unreasonably in not seeking an alternative buyer until after it had tried to sell the cargo to the original buyer. But it then entered into a contract with the original buyer which gave the buyer a right to reject if the bitumen was not up to specification which the bank in the circumstances must have known was a real risk. The only reasonable justification for entering into such a contract was that the bank was unable to obtain a better offer elsewhere but there was no evidence that the bank had made reasonable efforts to sell the cargo elsewhere. However the defendants had not established what would have happened if the bank had taken steps to find another buyer and that the bank could thereby have reduced its loss. The defendants had not established failure by the bank to mitigate its loss.
Toulson J:
On 1 April 1998 Cresswell J gave judgment for the plaintiff (“SCB”) against the first, second, and fifth defendants (“PNSC”, “Seaways” and Mr Mehra) for damages to be assessed for deceit and conspiracy. SCB's claim against the third defendants (“SGS UK”) had previously been settled. The fourth defendant (“Oakprime”) was found to have been dishonest but as it was insolvent SCB did not ask for judgment against it.
This trial has been for the assessment of damages. The main protagonists have been SCB and PNSC. Seaways and Oakprime have not appeared or been represented. Mr Mehra has been represented by solicitors and counsel, but their attendance at the trial was limited to making submissions.
Cresswell J's judgment is reported at [1998] 1 Ll Rep 684 That makes it unnecessary to recite his findings of fact in any detail. In summary, the fraud involved the ante-dating of bills of lading relating to a consignment of drummed Iranian bitumen which was the subject of a CIF sale by Oakprime to a Vietnamese company called Vietranscimex for US$147/mt. Payment was to be by a letter of credit opened by Vietranscimex with a bank in Vietnam called Incombank and confirmed by SCB. Oakprime chartered the MV Lalazar from PNSC to carry 10,000 tonnes of bitumen from Bandar Abbas to Ho Chi Minh City. Delays in loading meant that there was no prospect of shipment by the last date permitted by the letter of credit, so the defendants agreed on the issue of falsely dated bills. The bills were dated 25 October 1993, although loading was not completed until 5 December 1993. The bills and other documents were presented to SCB, who paid US$1,155,772.77 to Oakprime on 16 November 1993.
The issue on the trial of liability was whether SCB was induced to make that payment under the deception that shipment had been within the period stipulated in the letter of credit. There were discrepancies on the face of the documents presented to SCB which would have entitled it to refuse payment under the letter of credit, and which were either ignored or overlooked by SCB's document checkers. Cresswell J heard evidence from the document checkers and concluded that they were negligent but honest. He accepted SCB's case that payment would not have been made to Oakprime but for the issue and presentation of the fraudulently dated bills.
SCB ultimately received US$500,000 for the sale of the bitumen in August 1994. Its claim is for the difference between the amount which it paid to Oakprime and the amount which it recovered on sale of the cargo, plus its additional expenses incurred in trying to dispose of it. The defendants attack SCB's claim in a number of ways. They say that the proper approach to the assessment of damages in this...
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