STANDARD CHARTERED BANK v. PAKISTAN NATIONAL SHIPPING CORPORATION AND OTHERS (No. 2)

A knowingly or recklessly false statement in a bill of lading can found liability in deceit where it was intended to be relied upon and materially contributed to loss. Commercial banks are subject to the same standard of honesty as other participants in a letter-of-credit transaction. Their documentary role does not prevent reliance on an implied representation that documents are genuine and truthful.

The ex turpi causa defence applies restrictively. A claimant’s unlawful conduct bars relief only where the claim is founded on, or sufficiently connected with, that conduct. A director is not personally liable merely because he acted for the company. Personal liability requires personal commission of the tort, assumption of personal responsibility, or properly pleaded procurement of the company’s tort.

Standard Chartered Bank paid Oakprime Ltd under a letter of credit supported by a bill of lading falsely stating that bitumen had been shipped by the contractual date. The bank recovered damages at trial from Pakistan National Shipping Corporation and others, including Arvind Mehra, a director of Oakprime. PNSC appealed on deceit, causation and illegality grounds. Mr Mehra appealed against the finding that he was personally liable for Oakprime’s torts.

The central issues were whether the bank’s later misleading statement to the issuing bank affected its claim, whether ex turpi causa defeated recovery, and whether Mr Mehra could be liable personally for representations made on behalf of Oakprime.

1. Disposition. The Court unanimously dismissed PNSC’s appeal and allowed Mr Mehra’s appeal. The question of contribution or apportionment between SCB and PNSC was left for a further hearing.
2. Deceit. A false statement is fraudulent in the civil tort sense if made knowingly, without belief in its truth, or recklessly, where it is intended to be acted upon. The rule in Derry v Peek (1889) 14 App Cas 337 applied. Brown Jenkinson v Percy Dalton (London) Ltd [1957] 2 Q.B. 621 showed that a genuine belief that false documents would facilitate trade did not prevent liability. SCB’s employees knowingly authorised a letter stating that presentation had been timely. The bank was therefore exposed to liability in deceit, even though the employee who signed the letter was unaware of the falsity.
3. Reliance and causation. The documentary principle in United City Merchants v Royal Bank of Canada [1982] 1 A.C. 168 did not prevent a confirming bank relying on the customer’s implied representation that tendered documents were genuine and truthful. In fraud, the misrepresentation need not be the sole cause of the claimant’s act. It is sufficient that it materially contributed to it, applying Edgington v Fitzmaurice (1888) 29 Ch. Div. 459.
4. Illegality. Aldous LJ, with Ward LJ agreeing on this issue, treated the governing principle from Holman v Johnson (1775) 1 Cowp 341 and Tinsley v Milligan [1994] 1 AC 340 as preventing recovery only where the claim was founded upon or required reliance on the claimant’s illegality. SCB’s claim was founded on PNSC’s false bill of lading and the bank’s reliance upon it, not on its attempted deception of Incombank. The ex turpi causa defence therefore failed. Evans LJ additionally considered SCB’s payment decision a contributory cause, but the wider effect of contributory deceit was reserved.
5. Mr Mehra. The representations were made by Oakprime. Applying the separate legal personality principle and Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830, Mr Mehra had not assumed personal responsibility towards SCB. A possible procurement claim had not been pleaded. It was too late to amend the claim to allege that he had procured a fraud.

• Court of Appeal (Civil Division) [1999] EWCA Civ 3028; reported at [2000] 1 Lloyd's Rep 218. PNSC’s appeal was dismissed and Mr Mehra’s appeal was allowed. A further hearing was directed on the apportionment issue.
• High Court of Justice, Queen’s Bench Division, Commercial Court. Cresswell J gave judgment on 1 April 1998, reported at [1998] 1 Lloyd's Rep 684, awarding SCB damages against PNSC and others, including Mr Mehra.