Standard Chartered Bank v. Pakistan National Shipping Corporation[2003] 1 All ER 173 (HL)

Case Summary

Full Case Details

LORD HOFFMANN – 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
3. 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.
4. 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.
5. 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.
6. 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 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:
    “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 …
11. …’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.”
12. 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 318 (1951).

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 case 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:
    “It is true that if he had not supposed he would have a charge he would not have
    taken the debentures; but if he also relied on the misstatement in the prospectus, his
    loss nonetheless resulted from that misstatement. It is not necessary to shew that the

misstatement was the sole cause of his acting as he did. If he acted on that
misstatement, though he was also influenced by an erroneous supposition, the
defendants will still be liable.”
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 [(1976)
    AC 104, 118]:
    “If…Barton relied on the [fraudulent] misrepresentation Armstrong could not
    have defeated his claim to relief by showing that there were other more weighty
    causes which contributed to his decision to execute the deed, for in this field the court
    does not allow an examination into the relative importance of contributory causes.
    ‘Once make out that there has been anything like deception and no contract resting in
    any degree on that foundation can stand’: per Lord Cranworth LJ in Reynell v. Sprye
    [(1852) 1 De G M & G 660, 708].”
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. [(1992) 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. [(1993) 1 WLR 1462] that there is no
    common law defence of contributory negligence. 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. [(1999) 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 [(1999) Lloyd’s Rep PN 558] he would have said that it was threequarters 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. [(1998) 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
    [(1964) 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 [(2000) 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 [(1998) 1 WLR
    830] as being based upon the separate legal personality of a company. Aldous LJ referred
    [(2000) Lloyd’s Rep 218, 233] to Salomon v. A Salomon & Co. Ltd. [(1897) 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.