Niru Battery Manufacturing Company & Anor v Milestone Trading Ltd & Ors

An inspection company which issues a certificate to enable payment under a letter of credit may assume responsibility to the buyer for the accuracy of every matter it certifies. The scope of that responsibility is determined objectively from the certificate, the surrounding commercial arrangements and the regulatory context. It may require reasonable steps to verify that inspected goods have been loaded, rather than reliance on a transport document alone.

A recipient of money paid by mistake cannot establish a change-of-position defence merely because it acted without dishonesty. The question is whether restitution would be inequitable. A recipient which knows facts indicating that the payment was mistaken must ordinarily make enquiry of the payer before paying the money away.

Niru bought lead from Milestone under a contract financed by a letter of credit issued by Bank Sepah. The credit required a FIATA multimodal bill of lading and an SGS inspection certificate. Maritime issued a false bill of lading before the lead had left the warehouses, and SGS certified that the goods had been loaded. Bank Sepah paid CAI under the credit, although CAI had already sold the warrants representing the lead and then paid the proceeds away on its customer's instructions.

Moore-Bick J held SGS liable in negligence and CAI liable in restitution, but rejected a claim that CAI had acted deceitfully. CAI and SGS appealed against the liability findings. The claimants challenged the rejection of deceit.

1. Appeals dismissed. The court upheld SGS's liability in negligence, CAI's liability in restitution, and the dismissal of the deceit claim against CAI.

2. SGS had objectively assumed responsibility to Niru. In the commercial and Iranian regulatory context, its certificate was not confined to quality, quantity and packing. It certified that the inspected goods had been loaded. SGS therefore owed Niru a duty to take reasonable care before making that certification. The analysis of assumption of responsibility in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, Henderson v Merrett Syndicates [1995] 2 AC 145 and Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 applied.

3. SGS could not reasonably issue the certificate by relying only on the FIATA bill of lading. Reasonable enquiry, including of the warehouse, would have shown that the lead had not been loaded and that control had not passed to the freight forwarder. The inaccurate certificate was an effective cause of Niru's loss because it enabled payment under the letter of credit.

4. The court would not disturb the trial judge's finding that Mr Francis neither knew that the bill of lading was false nor was reckless as to its truth. An appellate court should interfere with a fact-sensitive acquittal of fraud only where the judge was plainly wrong. The judge had assessed the witness evidence against the documents and probabilities and was entitled to reject deceit.

5. The defence of change of position turns on whether, in all the circumstances, it would be inequitable or unconscionable to require restitution. Dishonesty is not a necessary condition for defeating the defence. CAI knew that it had sold the lead, that the transaction could not be completed, and that Bank Sepah had probably paid under a mistake. Good faith required enquiry of Bank Sepah before the funds were paid away. CAI's failure to make that enquiry made it inequitable to deny restitution.

• Court of Appeal (Civil Division): In [2003] EWCA Civ 1446 , dismissed CAI's and SGS's appeals and dismissed the respondents' challenge to the rejection of deceit.
• High Court, Commercial Court: Moore-Bick J's judgment of 11 July 2002 held SGS liable for breach of duty and CAI liable in restitution, while dismissing the deceit claim against CAI. The consequential order was dated 17 July 2002.