Standard Chartered Bank v Pakistan National Shipping Corporation

JurisdictionEngland & Wales
JudgeHenry,Potter L JJ,Wall J.
Judgment Date26 January 2001
CourtCourt of Appeal (Civil Division)
Date26 January 2001

Court of Appeal (Civil Division).

Henry and Potter L JJ and Wall J.

Standard Chartered Bank
and
Pakistan National Shipping Corp & Ors.

Jeffrey Gruder QC and Zoe O'Sullivan (instructed by Lovell White Durrant) for the claimant.

Timothy Young QC and Richard King (instructed by Amhurst Brown Colombotti) for the first defendant.

Lawrence Akka (instructed by Ashok Patel & Co) for the fifth defendant.

The following cases were referred to in the judgment of Potter LJ:

Barton v ArmstrongELR [1976] AC 104.

Edgington v FitzmauriceELR (1888) 29 Ch D 459.

Elena D'Amico, TheUNK [1980] 1 Ll Rep 75.

Flannery v Halifax Estate AgenciesWLR [2000] 1 WLR 377.

Garnac Grain Co v Faure and FaircloughELR [1968] AC 1130.

Liverpool, The (No. 2)ELR [1963] P 64.

Owen (Edward) Engineering Ltd v Barclays Bank LtdELR [1978] QB 159.

Payzu v SaundersELR [1919] 2 KB 581.

Roper v JohnsonELR (1873) LR 8 CP 167.

Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1996] CLC 1958; [1997] AC 254.

Solholt, TheUNK [1983] 1 Ll Rep 605.

Tate and Lyle Distribution v Greater London CouncilWLR [1982] 1 WLR 149.

United City Merchants (Investments) Ltd v Royal Bank of CanadaELR [1983] 1 AC 168.

Watts v RakeUNK (1960) 108 CLR 158.

Shipping — Damages for deceit — Bank obtained judgment for damages to be assessed against shippers and carriers for tendering falsely dated bills of lading under letter of credit — Measure of damages — Causation — Whether deceit was cause of claimant's loss — Mitigation of loss — Whether defendant could show that claimant had incurred avoidable loss.

These were appeals by defendants from a judgment of Toulson J on the quantum of damages for deceit, holding that in relation to a non-contractual cargo the claimant bank was entitled to recover the difference between the amount paid to the seller and what it recovered on a sale of the cargo as a distressed cargo plus its additional costs of sale.

In 1993 “Oakprime” agreed to sell 20,000mt of Iranian bitumen to “Vietranscimex” for US$147 per mt. Payment was to be made by irrevocable letter of credit opened by a Vietnamese bank, “Incombank”, and confirmed in London by the claimant, “SCB”. A part cargo of 10,000mt was shipped on the MV Lalazar chartered by Oakprime from the first defendant, “PNSC”. When it became clear that the cargo would not be loaded by the last date for shipment under the letter of credit, PNSC agreed that falsely dated bills of lading would be issued. Documents including the falsely dated bills were presented to SCB. SCB permitted the late presentation of certain documents and paid Oakprime. SCB sought reimbursement from Incombank. Incombank rejected the documents on the ground of discrepancies rather than late presentation. When the Lalazar arrived at the discharge port in Vietnam it became apparent that the cargo might not all meet the contractual specification. SCB as the owner of the bitumen offered to sell it at the original contract price to Vietranscimex which made a counter offer, rejected by SCB. SCB offered the bitumen on the open market but eventually agreed revised terms with Vietranscimex. The cargo was unloaded and then rejected by Vietranscimex because it did not meet the revised terms. Another Vietnamese buyer was found which bought the deliverable quantity of 6,000 barrels for US$600,000 of which SCB received US$500,000.

SCB issued proceedings against among others PNSC, Oakprime and “M”, who controlled Oakprime, alleging deceit and conspiracy in relation to the falsely dated bills of lading. At a trial of liability, Cresswell J ([1998] 1 Ll Rep 684) gave judgment for SCB against PNSC in deceit and against M. The Court of Appeal dismissed PNSC's appeal but allowed an appeal by M on the basis that he was not personally liable for the acts of Oakprime ([2000] CLC 133). At the trial on quantum Toulson J ([1999] CLC 761) awarded as damages the difference between what SCB paid Oakprime (US$1.15m) and what it recovered on sale of the cargo, plus its expenses in trying to dispose of the cargo, including the salary of an employee who travelled to Vietnam and stayed there to negotiate the eventual sale. The judge rejected arguments that there was a “market value” for the bitumen when the vessel arrived and that SCB's failure to realise that value was its own fault. PNSC appealed arguing that SCB had incurred avoidable loss for which PNSC was not liable. M raised a separate argument on causation to the effect that SCB's loss did not flow directly from Oakprime's fraud.

Held dismissing the appeals:

1. The judge was right to hold as a matter of causation in a claim for deceit that the subsequent inability of SCB to dispose of the cargo at a value sufficient to recompense it for the moneys paid to Oakprime against the documents, because of defects which existed in the cargo at the time of such payment, constituted damage directly caused by the original transaction, subject only to the issue of failure to mitigate, as to which PNSC accepted that the burden of proof lay on it. The judge was right that it was not possible to compensate SCB on the basis of a market value of the bitumen when the cargo was subject to such deficiencies and question marks. SCB was “locked into” the cargo and its disposal price would clearly involve a substantial loss which would plainly be damage directly flowing from the original transaction, subject to the necessity for SCB to take reasonable steps to sell at the best price obtainable. (Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd[1996] CLC 1958; [1997] AC 254applied.)

2. PNSC was wrong to attempt to separate the issues of causation and mitigation. They were the opposite sides of the same coin. The doctrine of mitigation of damage was a rule as to avoidable loss. PNSC had to show not only that SCB failed to act reasonably but also that any such failure did in fact lead to a diminution of the price obtained. Success on the first issue did not shift the burden of proof onto SCB. The judge held that PNSC failed on the second issue in any event. The judge was right that PNSC failed to establish that SCB had incurred avoidable loss. There was no evidence that if SCB had not unloaded the cargo and had paid the additional freight involved in a sale outside Vietnam it would have obtained more than it eventually recovered.

3. SCB was not entitled to recover as consequential loss the salary of its employee for the time he was in Vietnam overseeing the sale. That was an overhead which was payable in any event.

4. PNSC's counterclaim for loss of employment of the vessel failed.

5. SCB suffered loss as soon as it paid Oakprime in reliance on the false bills. The cause of SCB's loss was the deceit. Even if SCB contributed to its own loss by negligently failing to spot the discrepancies in the documents that was no defence to its claim in deceit. Therefore M's argument on causation failed. Further there was evidence that possible fraud in the bills of lading was operating on the mind of Incombank when the documents were rejected.

JUDGMENT

Potter LJ: Introduction

1. This is the latest in a series of decisions involving litigation between the parties arising out of proceedings brought by the claimant Standard Chartered Bank (“SCB”) against Pakistan National Shipping Corp (“PNSC”), the first defendants, and others, following the issue and presentation to SCB of a falsely dated bill of lading which induced SCB, as the confirming bank under a letter of credit established by a Vietnamese state bank (“Incombank”), to take up the documents and make payment to Oakprime Ltd (“Oakprime”), the fourth defendants, who were the sellers of a cargo of Iranian bitumen to which the letter of credit related. On 1 April 1998 Cresswell J gave judgment for SCB against PNSC for damages to be assessed for deceit, conspiracy and negligent misrepresentation. He also gave judgment in similar terms against Mr Mehra, the fifth defendant, who was a director and the moving spirit of Oakprime. On 19 February 1999 Toulson J assessed SCB's damages in the sum of US$1,169,594.57 inclusive of interest ([1999] CLC 761). The judgment of Cresswell J against Mr Mehra was subsequently reversed by the Court of Appeal (see [2000] CLC 133) on the grounds that he was not personally liable for the misrepresentations made by Oakprime on the basis of SCB's pleaded case, which decision is currently the subject of a petition for leave to appeal to the House of Lords.

2. This is the appeal of PNSC, for whom Mr Timothy Young QC appears, against the findings of Toulson J on quantum. Mr Mehra, represented by Mr Akka, has also participated in the appeal against the event that the petition to the House of Lords may be successful. He has adopted the arguments of Mr Young and added an argument of causation relevant to Mr Mehra's position. Seaways Maritime Ltd, the second defendants in the action, take no part in this appeal. Proceedings against the former third defendants, SGS United Kingdom Ltd, were discontinued prior to the hearing before Cresswell J. Oakprime were never made the subject of a judgment, being in insolvent liquidation. I shall deal first with the appeal of PNSC, before turning to the point argued on behalf of Mr Mehra.

The factual background

3. A full account of the facts appears from the judgments of Cresswell J on liability reported at [1998] 1 Ll Rep 684 and the judgment of Toulson J on quantum reported at [1999] CLC 761. A summary of the facts relevant to this appeal is as follows.

4. Oakprime agreed to sell 20,000 mt of Iranian bitumen to Vietranscimex (a state-owned company responsible for road maintenance in Vietnam) at a contract price of US$147 per mt. Payment for the bitumen was to be made by irrevocable letter of credit opened by Incombank and confirmed in London by SCB. Part of the cargo was to be shipped in the MV “Lalazar”, a vessel owned by PNSC. Oakprime chartered the...

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