Standard Chartered Bank v Pakistan National Shipping Corporation

The House of Lords held that a person who personally makes a fraudulent misrepresentation is liable in deceit for the loss caused, even if the representation was made on behalf of a company of which he is a director. The court rejected the Court of Appeal's conclusion that a director who perpetrates a fraud in the company's name can escape personal liability simply because the representation was attributed to the company.

The Lords also held that conduct by a claimant can amount to 'fault' under the Law Reform (Contributory Negligence) Act 1945 only if, at common law, it would give rise to a defence of contributory negligence. Applying authorities, they concluded there is no common law defence of contributory negligence to an action in deceit based on fraudulent misrepresentation; accordingly, the 1945 Act cannot be used to reduce damages in such a case (see sections 1(1) and the definition of 'fault' in section 4 of the Act).

This appeal arose from payments made by Standard Chartered Bank (SCB) under a confirmed letter of credit in reliance upon bills of lading and associated documents which were deliberately antedated and false. Oakprime Ltd was the beneficiary and Mr Mehra was its managing director. Cresswell J found that Mr Mehra knowingly arranged and presented the false documents with intent that SCB should pay, and entered judgment against him and Oakprime for deceit.

On appeal the Court of Appeal held that Mr Mehra was not personally liable because the representations were made by Oakprime and relied upon as such; they also considered whether SCB's conduct amounted to 'fault' under the Law Reform (Contributory Negligence) Act 1945. The House of Lords heard appeals by the parties.

(i) Nature of the claim: SCB sued for damages in deceit (fraudulent misrepresentation) for money paid under the letter of credit.

(ii) Issues framed: (a) Whether Mr Mehra was personally liable in deceit for representations made in documents presented in the name of Oakprime; and (b) whether SCB's conduct could be 'fault' under section 1(1) of the Law Reform (Contributory Negligence) Act 1945 so as to reduce damages.

(iii) Reasoning and decision: The Lords held that Mr Mehra was personally liable: a person cannot avoid liability for deliberate fraud by saying it was committed on behalf of a company. The House distinguished negligent misrepresentation authority (Williams v Natural Life) as concerned with assumption of responsibility in negligence; that reasoning does not apply to intentional deceit. On contributory negligence, the court construed the definition of 'fault' in section 4 as applying to plaintiffs only where their conduct would have been a defence of contributory negligence at common law; applying authorities the Lords concluded there is no common law defence of contributory negligence to deceit based on fraudulent misrepresentation, so no apportionment under the 1945 Act was available.

The court observed that concerns about indemnifiers are a matter for legislative or indemnity reform and noted that the settlement between some parties did not alter the legal conclusions reached.

Appeal allowed as to Mr Mehra. The House restored the first instance judgment against Mr Mehra, holding that a person who personally makes a fraudulent misrepresentation is liable in deceit even if the misrepresentation was made on behalf of a company; and that contributory negligence does not constitute 'fault' for the purposes of section 1(1) of the Law Reform (Contributory Negligence) Act 1945 where the claim is for deceit based on fraudulent misrepresentation, because there is no common law defence of contributory negligence to such a claim.

Trial: Cresswell J ([1998] 1 Lloyd's Rep 684) — judgment for Standard Chartered Bank for deceit against Oakprime and Mr Mehra. Court of Appeal: appeal by Mr Mehra allowed in part ([2000] 1 Lloyd's Rep 218); PNSC appeal on contributory negligence was heard and reported ([2001] QB 167). House of Lords: final determination [2002] UKHL 43 (6 November 2002).