House of Lords
|Session 2001- 02
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|Judgments - Standard Chartered Bank (Respondents) v Pakistan National Shipping Corporation (Appellants) and Standard Chartered Bank (Appellants) v Pakistan National Shipping Corporation and Others and Another (Respondents) and Others
HOUSE OF LORDS
Lord Hoffmann Lord Mustill Lord Slynn of Hadley Lo Lord Hobhouse of of Woodborough Lord Rodger of Earlsferry
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
STANDARD CHARTERED BANK
PAKISTAN NATIONAL SHIPPING CORPORATION
STANDARD CHARTERED BANK
PAKISTAN NATIONAL SHIPPING CORPORATION AND OTHERS AND ANOTHER
(RESPONDENTS) AND OTHERS
ON 6 NOVEMBER 2002
 UKHL 43
1. Mr Mehra was the managing director of 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:  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) ( 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:  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 of 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:
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  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 reduced "
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  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 £1,500 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 sued the directors who had issued the prospectus, alleging that they had fraudulently or recklessly represented that the debenture issue was to raise money for the expansion of the company's business ("develop the arrangements for the direct supply of cheap fish from the coast") when in fact it was to pay off pressing liabilities. The judge found the allegation proved and that the representation played a part in inducing the plaintiff to take the debentures. But another reason for his taking the debentures was that he thought, without any reasonable grounds, that the debentures were secured upon the company's land. Cotton LJ said, at p 481, that this did not matter:
Bowen and Fry LJJ gave judgments to the same effect.
15. This case seems to me to show that if a fraudulent representation is relied upon, in the sense that the claimant would not have parted with his money if he had known it was false, it does not matter that he also held some other negligent or irrational belief about another matter and, but for that belief, would not have parted with his money either. The law simply ignores the other reasons why he paid. As Lord Cross of Chelsea said in Barton v Armstrong  AC 104, 118:
16. In Edgington v Fitzmaurice 29 Ch D 459 the defence was not that the plaintiff could have discovered that the representation was false. It was that he was also induced by mistaken beliefs of his own, but for which he would not have subscribed for the debentures. That is very like the present case. It is said here that although SCB would not have paid if they had known the bill of lading to be falsely dated, they would also not have paid if they had not mistakenly and negligently thought that they could obtain reimbursement. In my opinion, the law takes no account of these other reasons for payment. This rule seems to me based upon sound policy. It would not seem just that a fraudulent defendant's liability should be reduced on the grounds that, for whatever reason, the victim should not have made the payment which the defendant successfully induced him to make.
17. As Sir Anthony Evans correctly pointed out, the rule in Redgrave v Hurd 20 Ch D 1 applies to both innocent and fraudulent misrepresentations. The wider rule in Edgington v Fitzmaurice probably applies only to fraudulent misrepresentations. In Gran Gelato Ltd v Richcliff (Group) Ltd  Ch 560 Sir Donald Nicholls V-C said that, in principle, a defence of contributory negligence should be available in a claim for damages under section 2(1) of the Misrepresentation Act 1967. But since the alleged contributory negligence was that the plaintiff could with reasonable care have discovered that the representation was untrue, the rule in Redgrave v Hurd prevented the conduct of the plaintiff from being treated as partly responsible for the loss. This left open the possibility that, in a case of innocent representation, some other kind of negligent causative conduct might be taken into account.
18. In the case of fraudulent misrepresentation, however, I agree with Mummery J in Alliance & Leicester Building Society v Edgestop Ltd  1 WLR 1462 that there is no common law defence of contributory negligence. (See also Carnwath J in Corporacion Nacional del Cobre de Chile v Sogemin Metals Ltd  1 WLR 1396 and Blackburn J in Nationwide Building Society v Thimbleby & Co  Lloyd's Rep PN 359). It follows that, in agreement with the majority in the Court of Appeal, I think that no apportionment under the 1945 Act is possible.
19. Your Lordships were told that the Solicitors' Indemnity Fund, which not infrequently has to compensate mortgage lenders who have made loans on the strength of fraudulent statements by partners or employees of solicitors whom the fund has insured, has some concern about the rule that contributory negligence is no defence to a claim in deceit. For example, in Nationwide Building Society v Richard Grosse & Co  Lloyd's Rep PN 348 Blackburn J said that if contributory negligence had been a defence, he would have held that the plaintiff building society was two-thirds to blame and in Nationwide Building Society v Balmer Radmore  Lloyd's Rep PN 558 he would have said that it was three-quarters to blame. It is easy to see that a rule based upon moral disapproval of fraud is less attractive when the fraudster is not the person paying the damages. But the answer, in my opinion, is not to improve the position of fraudsters but to amend the terms upon which public indemnifiers like the fund are liable: compare paragraph 13(d) of the Criminal Injuries Compensation Scheme 2001.
20. My Lords, I come next to the question of whether Mr Mehra was liable for his deceit. To put the question in this way may seem tendentious but I do not think that it is unfair. Mr Mehra says, and the Court of Appeal accepted, that he committed no deceit because he made the representation on behalf of Oakprime and it was relied upon as a representation by Oakprime. That is true but seems to me irrelevant. Mr Mehra made a fraudulent misrepresentation intending SCB to rely upon it and SCB did rely upon it. The fact that by virtue of the law of agency his representation and the knowledge with which he made it would also be attributed to Oakprime would be of interest in an action against Oakprime. But that cannot detract from the fact that they were his representation and his knowledge. He was the only human being involved in making the representation to SCB (apart from administrative assistance like someone to type the letter and carry the papers round to the bank). It is true that SCB relied upon Mr Mehra's representation being attributable to Oakprime because it was the beneficiary under the credit. But they also relied upon it being Mr Mehra's representation, because otherwise there could have been no representation and no attribution.
21. The Court of Appeal appear to have based their conclusion upon the decision of your Lordships' House in Williams v Natural Life Health Foods Ltd  1 WLR 830. That was an action for damages for negligent misrepresentation. My noble and learned friend, Lord Steyn, pointed out that in such a case liability depended upon an assumption of responsibility by the defendant. As Lord Devlin said in Hedley Byrne & Co Ltd v Heller & Partners  AC 465, 530, the basis of liability is analogous to contract. And just as an agent can contract on behalf of another without incurring personal liability, so an agent can assume responsibility on behalf of another for the purposes of the Hedley Byrne rule without assuming personal responsibility. Their Lordships decided that on the facts of the case, the agent had not assumed any personal responsibility.
22. This reasoning cannot in my opinion apply to liability for fraud. No one can escape liability for his fraud by saying "I wish to make it clear that I am committing this fraud on behalf of someone else and I am not to be personally liable." Sir Anthony Evans framed the question ( 1 Lloyd's Rep 218, 230) as being "whether the director may be held liable for the company's tort." But Mr Mehra was not being sued for the company's tort. He was being sued for his own tort and all the elements of that tort were proved against him. Having put the question in the way he did, Sir Anthony answered it by saying that the fact that Mr Mehra was a director did not in itself make him liable. That of course is true. He is liable not because he was a director but because he committed a fraud.
23. Both Sir Anthony Evans and Aldous LJ treated the Williams case  1 WLR 830 as being based upon the separate legal personality of a company. Aldous LJ referred ( Lloyd's Rep 218, 233) to Salomon v A Salomon & Co Ltd  AC 22. But my noble and learned friend, Lord Steyn, made it clear (at p 835) that the decision had nothing to do with company law. It was an application of the law of principal and agent to the requirement of assumption of responsibility under the Hedley Byrne principle. Lord Steyn said it would have made no difference if Mr Williams's principal had been a natural person. So one may test the matter by asking whether, if Mr Mehra had been acting as manager for the owner of the business who lived in the south of France and had made a fraudulent representation within the scope of his employment, he could escape personal liability by saying that it must have been perfectly clear that he was not being fraudulent on his own behalf but exclusively on behalf of his employer.
24. I would therefore allow the appeal against Mr Mehra and restore the order which Cresswell J made against him. In enforcing this order, SCB will of course have to give credit for the money it has received from PNSC but how this sum should be apportioned is not a matter which your Lordships have been asked to consider.
25. I have had the advantage of reading in draft the opinion of my noble and learned friend, Lord Hoffmann. For the reasons he has given I would allow the appeal against Mr Mehra and restore the order which Mr Justice Creswell made against him.
LORD SLYNN OF HADLEY
26. I have had the advantage of reading in draft the opinion of my noble and learned friend, Lord Hoffmann. For the reasons he gives I would allow the appeal against Mr Mehra and restore the order of Mr Justice Cresswell against him.
LORD HOBHOUSE OF WOODBOROUGH
27. For the reasons given by my noble and learned friend, Lord Hoffmann, and to be given by my noble and learned friend, Lord Rodger of Earlsferry, I agree that the appeal against Mr Mehra should be allowed and the judgment of Mr Justice Cresswell against him restored.
LORD RODGER OF EARLSFERRY
28. I have had the advantage of reading the speech of my noble and learned friend, Lord Hoffmann, in draft. I agree with it and, for the reasons he gives, I too would allow the appeal and dismiss the cross-appeal. I add some observations of my own, first, on Mr Mehra's liability and then, briefly, on his defence of contributory negligence.
29. The appeal arises out of proceedings by Standard Chartered Bank ("Standard Chartered") against a number of defendants. Among them were the fourth defendant, a company, Oakprime International Ltd ("Oakprime"), and the fifth defendant, Mr Mehra, the managing director of Oakprime. Standard Chartered seek damages for loss which they suffered as a result of paying under a confirmed letter of credit in favour of Oakprime. The letter of credit was for payment for a cargo of bitumen which Oakprime had sold to Vietnamese buyers and which was to be sent by sea from Iran to Vietnam. Loading should have been completed by 25 October 1993 but was not in fact finished until 5 December. Despite this, the documents presented to Standard Chartered on 9 November included bills of lading falsely dated 25 October. In reliance on, inter alia, the false date on the bills of lading Standard Chartered paid Oakprime and, as Lord Hoffmann has explained, lost their money. Although the writ was served on Oakprime, the company was not represented and took no part in the proceedings. Eventually, after the trial, counsel for Standard Chartered stated in open court that they were not seeking to enter judgment against Oakprime. Judgment was entered against Mr Mehra, however, for having authorised, directed and procured the deceit of Standard Chartered. He appealed and the Court of Appeal allowed the appeal. They held in effect that, while Oakprime would have been liable in damages to Standard Chartered for the loss caused by the presentation of the false bills of lading, Mr Mehra was not. When Standard Chartered's case against Mr Mehra and the findings of the trial judge are considered, this is an untenable conclusion.
30. Cresswell J summarised Standard Chartered's case against Mr Mehra and Oakprime in this way ( 1 Lloyd's Rep 684, 696):
It should be noted that Standard Chartered's amended points of claim proceeded on the basis that both Mr Mehra and Oakprime had made false representations and that both were liable in damages for fraud and deceit.
31. Among the facts that Cresswell J found are the following. In about the middle of October 1993 Mr Mehra and two other defendants agreed on a plan which involved the issue of falsely dated bills of lading with a view to their presentation to Standard Chartered:  1 Lloyd's Rep 684, 688. On 9 November 1993 Mr Mehra himself presented to Standard Chartered what purported to be most of the documents required by the letter of credit, including the falsely dated bills of lading, and sought payment under the letter of credit:  1 Lloyd's Rep 684, 694. He presented them under cover of a letter dated that day and written on Oakprime notepaper. The relevant parts of the letter were in these terms:
The letter was signed "Arvind Mehra Managing Director". Mr Mehra appreciated that what he and the two other defendants were doing amounted to deliberate deception of Standard Chartered:  1 Lloyd's Rep 684, 690. Contemporary documents showed his intimate involvement in the fraud and "Mr Mehra (and through him Oakprime) intended SCB to suffer loss by making the payment":  1 Lloyd's Rep 684, 696. "Mr Mehra knew the true position as to the loading of Lalazar at all material times. He dishonestly presented antedated and false bills of lading and other false documents to SCB":  1 Lloyd's Rep 684, 700, 708.
32. Not surprisingly, therefore, having found that Standard Chartered relied on the accuracy of the bills of lading in making payment to Oakprime, Cresswell J concluded, at p 704:
When he came to hold Mr Mehra liable, however, Cresswell J put his conclusion in these terms, at p 706: