Standard Chartered Bank v Pakistan National Shipping Corporation & Ors

Where deceit induces a claimant to acquire goods for which no available market exists, the loss directly flowing from the transaction is prima facie the difference between the money paid and the proceeds reasonably obtained on resale. The defendant bears the burden of proving both that the claimant acted unreasonably and that reasonable action would probably have reduced the loss.

An employee’s ordinary salary is not recoverable merely because the employee was diverted to deal with the consequences of the wrong. The claimant must show resulting disruption, lost profit, increased expenditure or another measurable loss.

A bank paid against documents that included a fraudulently dated bill of lading and thereby acquired a distressed cargo of bitumen. The cargo had defective drums, uncertain quality and no readily ascertainable market value. It was eventually sold for substantially less than the sum paid.

Toulson J, in [1999] 1 Lloyds Rep 747, held that the defendants had not proved a failure to mitigate and assessed damages at US$1,169,594.57 inclusive of interest. Pakistan National Shipping Corporation appealed on causation, mitigation, consequential expenses and its counterclaim. A further defendant advanced a separate causation argument contingent upon the restoration of the liability judgment against him.

The central questions were whether the bank’s handling and resale of the cargo broke the chain of causation or produced avoidable loss, and whether part of an employee’s ordinary salary was recoverable as consequential loss.

1. Appeal allowed only as to the employee’s salary; otherwise dismissed unanimously. Potter LJ delivered the judgment, with which Henry LJ and Wall J agreed. The bank’s resale loss remained directly attributable to the deceit. The award was reduced by US$30,261.70, representing the salary item.

2. Where fraud induces payment for goods having no ascertainable value in an available market, and the claimant is effectively locked into retaining them until a purchaser can be found, the shortfall between the payment and the reasonable resale proceeds is prima facie damage flowing directly from the fraudulent transaction. Defects already present in the cargo formed part of that loss. The subsequent resale did not constitute an independent cause merely because the bank had acted unreasonably in one respect.

3. Mitigation concerns avoidable loss and is closely connected with causation. Once the claimant establishes damage flowing from the wrong, the defendant must prove both that the claimant failed to act reasonably and that the proposed reasonable course would probably have reduced the loss. Proof of an imprudent transaction alone does not discharge that burden. The defendants failed to prove that exploration of markets outside Vietnam would have produced a more profitable sale. The trial judge was entitled to decline to speculate about an alternative price where the relevant expert evidence was unreliable and the cargo’s value depended on unresolved quality, inspection, freight and resale risks.

4. Mitigation is a question of fact, and an appellate court should rarely disturb a trial judge’s evidence-based conclusion. The finding that no avoidable loss had been proved was upheld, as was the dismissal of the shipowner’s counterclaim.

5. The ordinary salary paid to an employee diverted to Vietnam was not recoverable without evidence that the diversion caused significant business disruption, lost profit or increased expenditure. Travel, subsistence and other out-of-pocket expenditure remained recoverable. The further causation argument also failed: loss arose when the bank paid in reliance on the deceit. Negligent failure to notice documentary discrepancies was no defence to deceit, and the bank was not required to pursue reimbursement from another person before recovering from the fraudster.

1. Court of Appeal (Civil Division): By [2001] EWCA Civ 55, unanimously dismissed the appeal except as to US$30,261.70 awarded for an employee’s salary.
2. High Court, Commercial Court: Toulson J assessed damages at US$1,169,594.57 inclusive of interest and dismissed the shipowner’s counterclaim: [1999] 1 Lloyds Rep 747.
3. High Court, Commercial Court: Cresswell J had entered judgment for the bank on liability for deceit, conspiracy and negligent misrepresentation: [1998] 1 Lloyds Rep 684.