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

Deceit requires a knowingly or recklessly false representation intended to induce reliance, actual reliance and resulting loss. A benign commercial motive does not excuse knowingly misleading another party. A confirming bank may rely on the genuineness and accuracy of documents despite its obligation to examine their conformity with a credit.

A claimant's own illegality does not bar recovery where its claim can be pleaded and proved without reliance on that illegality. A causal connection between the wrongdoing and the loss does not itself establish the defence.

Representations made and relied upon as those of a company were insufficient to establish its director's personal liability. Personal assumption of responsibility required an objective foundation in dealings with the claimant. A distinct allegation of procuring the company's fraud required pleading. Possible apportionment for contributory deceit remained undecided.

Standard Chartered Bank confirmed a letter of credit issued by Incombank for Vietnamese buyers purchasing bitumen from Oakprime Ltd. Pakistan National Shipping Corporation supplied the carrying vessel. Arvind Mehra, Oakprime's managing director, arranged the presentation of documents which falsely stated that loading had been completed within the credit's shipment period. The shipping corporation knowingly participated in issuing the antedated bill of lading.

The bank paid Oakprime although the complete documents were presented after the credit expired. Its document checkers knowingly caused a letter to be sent to Incombank stating that presentation had been timely. Incombank rejected the documents for other material discrepancies. The bank subsequently sold the cargo and claimed its remaining loss in deceit.

Cresswell J awarded damages against the shipping corporation, Oakprime, its shipping brokers and Mehra: [1998] 1 Lloyd's Rep. 684. The shipping corporation and Mehra appealed. The issues included reliance on the false documents, the effect of the bank's attempted deception of Incombank, Mehra's personal liability for representations made for Oakprime, and possible contribution or apportionment.

1. The shipping corporation's appeal was dismissed and Mehra's appeal was allowed. All three judges agreed on that disposal. A further hearing was directed on the apportionment issue.

2. Evans LJ, with Ward LJ expressly agreeing, concluded that the bank knowingly or recklessly misled Incombank. Aldous LJ also accepted that the bank attempted to obtain payment by deceit. Under Derry v. Peek, (1889) 14 App Cas 337, a commercial motive to facilitate trade did not excuse a knowingly false statement intended to induce action. The innocent employee who transmitted the letter did not prevent attribution to the bank: the employee authorising its transmission knew both its contents and their falsity. Incombank suffered no resulting loss, so the attempted deception did not establish a completed damages claim against the bank.

3. The bank had relied on the false shipping documents. Aldous LJ adopted Evans LJ's reasons for rejecting Mehra's contrary submission. A confirming bank's concern with documentary conformity did not prevent reliance on the customer's implied representation that the documents were, to its knowledge, genuine and truthful.

4. On illegality, Aldous and Ward LJJ supplied the majority reasoning. The same principle applied to contract, tort and property claims: the court would refuse assistance where the claimant founded its action on its own immoral or illegal act. A claim capable of being pleaded and proved without reliance on that act remained enforceable. The bank's deceit claim required proof of the defendants' false representations, reliance and loss, rather than its attempted deception of Incombank. Even accepting that the bank would not have paid without deciding to deceive Incombank, that causal connection did not establish the defence.

   Evans LJ reached the same result through a restrictive, pragmatic assessment of the connection with the loss, relative wrongdoing and responsibility. His reasoning did not command the majority on this issue.

5. Evans and Aldous LJJ, with Ward LJ agreeing in their reasons, concluded that the relevant representations were made and relied upon as Oakprime's representations. Mehra had acted for the company and had conveyed no assumption of personal responsibility. Aldous LJ applied the objective approach in Williams v Natural Life Ltd, [1998] 1 WLR 830, to deceit.

6. Procurement of the company's fraud was a distinct basis of liability which had not been pleaded. An allegation of procuring fraud should have been pleaded at the outset. Amendment on appeal was refused, and the finding on that basis could not stand. Whether Mehra's conduct otherwise satisfied procurement liability was left undecided. Aldous LJ also rejected the pleaded conspiracy case because Mehra had acted in his corporate capacity; Evans LJ considered a conclusion on conspiracy unnecessary.

7. The possible effect of contributory deceit on fraud causation rules, and any resulting scope for statutory apportionment, remained for further argument. The court made no final determination on apportionment.

• Court of Appeal (Civil Division): [2000] 1 Lloyd's Rep 218 ; [1999] EWCA Civ 3028. Allowed Mehra's appeal, dismissed the shipping corporation's appeal and directed a further hearing on apportionment.
• High Court, Queen's Bench Division, Commercial Court: Cresswell J, 1 April 1998, [1998] 1 Lloyd's Rep. 684. Awarded the bank damages against the shipping corporation, Oakprime, the shipping brokers and Mehra. The personal liability finding against Mehra was reversed on appeal.