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

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    33. Even on first reading, this was a strangely complex way to formulate Mr Mehra's liability. As the judge had spelled out, in what Evans LJ rightly called "devastating detail", Mr Mehra did not authorise, direct or procure other people to present the bills of lading and other documents: it was Mr Mehra himself who presented them to Standard Chartered, knowing full well that the bills of lading had been antedated and intending that Standard Chartered should suffer loss by paying Oakprime in reliance on the documents. It was these acts of his that were to be regarded as the acts of Oakprime.

    34. Standard Chartered's amended points of claim did not include a case to the effect that Mr Mehra should be held liable for authorising, directing and procuring the various deceitful acts. The pleader had rightly preferred the simpler - not to say, more accurate - allegation that Mr Mehra had done the various acts himself and should be held liable accordingly. Before the Court of Appeal counsel for Mr Mehra seized on this point. The amended statement of claim had not alleged that Mr Mehra was liable as a joint tortfeasor for procuring and inducing Oakprime to make the false representations. Cresswell J had, therefore, been wrong to find Mr Mehra liable on that basis. Counsel for Standard Chartered applied to amend to include such a case, but the Court of Appeal refused leave. It was in these circumstances that they went on to allow Mr Mehra's appeal against Cresswell J's decision: [2000] 1 Lloyd's Rep 218. The Court of Appeal's thinking can be seen in this passage from the judgment of Aldous LJ, at p 233:

    "14 Lord Justice Evans has referred to documents relied on as containing the misrepresentations. They are all on Oakprime headed paper or clearly stated to be from Oakprime. Mr Mehra's name appears as the person signing the documents as managing director of or on behalf of Oakprime. In my view the representations were made by Oakprime and all the evidence points to the conclusion that SCB relied upon them as being representations by Oakprime.

    15 Since Saloman v Saloman Co Ltd [1897] AC 22, companies have been recognized as separate legal entities to their shareholders, their directors and their employees. Leaving aside certain cases, not applicable in this case, where it has been held permissible to lift the corporate veil, e g where the company is a mere façade, directors or employees acting as such will only be liable for tortious acts committed during the course of their employment in three circumstances.

    16 First, if a director or an employee himself commits the tort he will be liable. An example is the lorry driver who is involved in an accident in the course of his employment Although Mr Mehra was the person who was responsible for making the misrepresentations, he did not commit the deceit himself. For reasons I have already stated the representations were made by Oakprime and not by him. Further, SCB relied upon them as representations by Oakprime and not as representations by Mr Mehra."

    35. The result of the Court of Appeal's reasoning really comes to this: a director can himself orchestrate and execute a scheme of deceit, can himself submit false documents to a bank with the intention that they should pay and suffer loss but, provided that he can be said to have carried out all these fraudulent acts "on behalf of" or "as" the company of which he is a director, he is not to be held personally liable for the resulting loss. Only the company - which in this particular case does not seem to have been worth powder and shot - is liable. The director himself can be held liable, it is said, only on "the converse of vicarious liability", by being held liable for the company's tort if "he ordered or procured the acts of other persons which render the company liable": [2000] 1 Lloyd's Rep 218, 230 per Evans LJ. So, in this case, Mr Mehra does the fraudulent acts as a director of Oakprime, Oakprime are accordingly liable for those acts but Mr Mehra cannot be held personally liable for his own acts because they did not involve ordering or procuring others to perform the fraudulent acts which make the company liable. Understandably, Evans LJ showed some signs of unease at the conclusion to which his reasoning had led him.

    36. The incorporation of companies is vitally important for commerce since it allows transactions to be entered into and carried out, property to be held and actions to be raised by, or against, a body which continues in existence despite changes in the individuals who conduct or invest in the business. The company is a separate entity, distinct from the directors, employees and shareholders. The law has rightly insisted that the distinction should be duly observed: Lee v Lee's Air Farming Ltd [1961] AC 12. In particular the company does not act as the agent of the directors and, in general, they do not incur personal liability for the acts of the company or its employees: Rainham Chemical Works Ltd v Belvedere Fish Guano Co Ltd [1921] 2 AC 465, 488 per Lord Parmoor. Directors may, however, be personally liable if they directed or procured the commission of a wrongful act. The exact scope of this type of liability has been discussed in a line of cases. Performing Right Society Ltd v Ciryl Theatrical Syndicate Ltd [1924] 1 KB 1, 14 per Atkin LJ and C Evans & Sons Ltd v Spritebrand Ltd [1985] 1 WLR 317 may serve as examples.

    37. A hallmark of modern companies is that the liability of the shareholders is limited. This is not a necessary characteristic of a commercial corporation. Indeed even for some time after the Limited Liability Act 1855 there were major trading entities which had been incorporated but the investors in which were exposed to unlimited liability for the corporation's debts. This could, and not infrequently did, result in the investors' ruin. By reducing and defining the potential risk to investors, limited liability opens the way for modern companies to raise the necessary capital for their business, either privately or on the stockmarket. For this reason, only in exceptional circumstances does the law allow a creditor of the company to pierce the veil of incorporation and fix the shareholders with personal liability: Salomon v A Salomon & Co Ltd [1897] AC 22.

    38. Although Aldous LJ referred to lifting the corporate veil, the question of the limited liability of shareholders is irrelevant to the present issue since Standard Chartered do not seek to make Mr Mehra liable as a shareholder in Oakprime. Nor do Standard Chartered seek to make Mr Mehra liable, by virtue of his position as a director, for the deceitful acts of Oakprime or its employees or other agents. Rather, they seek to do no more than hold him liable for deceitful acts that he himself performed. So no question arises as to whether he directed or procured the doing of tortious acts by others and the C Evans & Sons Ltd v Spritebrand Ltd line of cases is not in point.

    39. At the heart of the Court of Appeal's decision is the view that, because Mr Mehra was a director of Oakprime and acted as such when cheating Standard Chartered, his acts must be regarded solely as the acts of Oakprime and he should have no personal civil liability for them. As Mr Cherryman QC acknowledged, no man could escape the clutches of the criminal law by the simple device of showing that he had carried out his frauds in his capacity as a director of a company and in circumstances where his acts were to be attributed to the company (Meridian Global Funds Management Asia Ltd v. Securities Commission [1995] 2 AC 500). In R v ICR Haulage Ltd [1944] KB 551, 559, for example, both the managing director and, through him, the haulage company were convicted of conspiracy to defraud. His acts "were the acts of the company and the fraud of that person was the fraud of the company". In the world of tort, however, all was said to be more happily arranged for the fraudster. He could use the device of acting as a director to escape any liability to his victims: they were to be regarded not as his victims but just as the victims of the company's fraud. His fraud might be the fraud of the company but, somehow or other, it was not his own fraud.

    40. My Lords, the maxim culpa tenet suos auctores may not be the end, but it is the beginning of wisdom in these matters. Where someone commits a tortious act, he at least will be liable for the consequences; whether others are liable also depends on the circumstances. Here, as the facts make plain and as Cresswell J specifically found, "all the ingredients of the tort of deceit are made out against Mr Mehra (and Oakprime)." In other words Standard Chartered have proved all that is required to make Mr Mehra - and through him Oakprime - liable in deceit. That being so, there is no conceivable basis upon which Mr Mehra should not indeed be held liable for the loss that Standard Chartered suffered as a result of his deceit. If he had been a mere employee of Oakprime and had done the same things and written the same letters on behalf of the company in that capacity, it could never have been suggested that Mr Mehra was not personally liable for his fraudulent acts. His status as a director when he executed the fraud cannot invest him with immunity.

    41. The Court of Appeal sought support for their view that Mr Mehra should not be held personally liable in the speech of Lord Steyn in Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830, 834 - 835. In truth it provides no such support. The issue in that case related to the personal liability of a director for a misleading projection, prepared in large part by him and issued by the company, as to the profits which the plaintiffs might earn by opening a health food shop under a franchise. Lord Steyn, with whom the other members of the House concurred, said ([1998] 1 WLR 830, 835B-C):

    "But in order to establish personal liability under the principle of Hedley Byrne, which requires the existence of a special relationship between plaintiff and tortfeasor, it is not sufficient that there should have been a special relationship with the principal. There must have been an assumption of responsibility such as to create a special relationship with the director or employee himself."

Since the plaintiffs had failed to show a special relationship with the director himself, the House held that he was not liable. Lord Steyn was dealing with the tort of negligence where a claimant must establish that the defendant owed him a duty of care. There is no such requirement in the case of deceit. Liability for deceit is so self-evident that we do not consider it as resulting from a breach of duty (Tony Weir, Tort Law (2002), p 30). Mr Mehra set out by his fraudulent acts to make Standard Chartered pay under the letter of credit. He succeeded. He is accordingly personally liable for the loss which he thereby caused them.

    42. I turn now to the matter of contributory negligence. As Lord Hoffmann has explained, whether or not the defence of contributory negligence is available to Mr Mehra depends on whether Standard Chartered's payment of the sum under the letter of credit would, apart from the Law Reform (Contributory Negligence) Act 1945, give rise to a defence of contributory negligence. In agreement with Mummery J, as he then was, in Alliance & Leicester Building Society v Edgestop Ltd [1993] 1 WLR 1462, Lord Hoffmann has concluded that there is no common law defence of contributory negligence in the case of fraudulent misrepresentation. I respectfully regard that conclusion as compelling. As Mummery J pointed out, if the negligence of the plaintiff had been a defence to an action of deceit at common law, this would have meant that it would have been a complete defence, absolving the fraudulent defendant of all liability. Such an extreme doctrine could hardly have passed through the law without leaving its mark in the cases. But there is no trace of it. Indeed, the signs are that before 1945 the defence of contributory negligence was thought not to apply where the defendant intended to cause the plaintiff harm. I do not repeat the citations given by Mummery J but draw attention to two further indications of the way that the law was generally understood.

    43. In 1882 Sir Frederick Pollock drafted a Civil Wrongs Bill for the Government of India, the aim being to set out a codified, if slightly simplified, version of English tort law. To Pollock's lasting disappointment the Bill was never enacted. Pollock dealt with contributory negligence in clause 64 which, significantly, was drafted in such a way that it would operate as a defence only in the case of negligence by the defendant or someone for whose negligence he was answerable. Similarly, five years later in his Law of Torts (1887) Pollock treated contributory negligence in the chapter on negligence and indicated that the defence would not apply in the case of an intentional harm (Appendix D, p 484). He remained of this view more than forty years later in the last edition to come from his pen: Law of Torts 13th ed (1929), pp 615 and 675 - 676.

    44. Similarly, in an authoritative essay on "Contributory Negligence" in American law, written in 1908 and reprinted in his Studies in the Law of Torts (1926), pp 528 - 529, Bohlen stated:

    "If the defendant's wrong be intentional, only consent, express or necessarily implied from the circumstances, will bar recovery … the unanimous current of decision is that when the defendant's wrong is something more than mere negligence - when it involves an intent to cause harm - contributory negligence is no defense."

    

 
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