Karafarin Bank v Dara

Where a cheque is governed by foreign law, the measure of damages for dishonour is determined by that governing law rather than automatically by section 57 of the Bills of Exchange Act 1882. Accordingly, an English court may award inflation-based damages for late payment where the foreign law governing the cheque provides for them, including where interest is unavailable because of restrictions on interest.

Under the applicable Iranian law, a person signing cheques for a corporate account may be jointly liable with the account-holder. That liability is not necessarily ended by the signatory’s later resignation. Proper notice of dishonour and proof that the cheques secured outstanding debts remain necessary.

The claimant Iranian bank brought a substantive claim in England against the defendant for the equivalent of Iranian Rials 30,981,176,480 under thirteen cheques. The transactions, accounts and cheques were connected with Iran, but the defendant was resident in England.

The cheques had been signed by the defendant, including twelve drawn on the account of a company of which he had been managing director. They were issued undated as security for facilities provided by the bank, later dated and presented, and dishonoured. The defendant raised several defences under Iranian law, including lack of personal liability, resignation from the company, late presentation, insufficient connection with the secured debts and inadequate notice of dishonour.

The central issues were whether the defendant was personally liable under Iranian law and whether the bank could recover inflation-related damages for late payment in addition to the principal sums.

1. Liability on the cheques. The court accepted the claimant’s Iranian law evidence. Under Article 19 of the Iranian Cheque Act 2003, where a cheque is signed by representation or attorneyship for an account-holder, the signatory and account-holder are jointly liable. The defendant was therefore liable on the twelve company cheques, while the personal-account cheque independently engaged his liability.
2. The cheques were not invalid merely because they were undated when signed. Iranian customary law permitted undated cheques to be provided as security and impliedly authorised the holder to insert the date and present them when necessary. The defendant’s later resignation did not remove his liability, which arose from his signature; in any event, the resignation had not been advertised as required under Iranian law.
3. The fifteen-day presentation period in Article 315 of the Iranian Commercial Code applied to an endorser, not the drawer. The defence based on late presentation therefore failed. The bank was also entitled under Article 282 of the Iranian Civil Code to apply payments against the relevant indebtedness, and the evidence showed that the cheques did not exceed the debts secured. Notice of dishonour had been properly given.
4. Late-payment damages. Section 57 of the Bills of Exchange Act 1882 fixes the measure of damages under English domestic law. It is not a conflict-of-laws rule. Since the contractual obligations on the cheques were governed by Iranian law, the measure of damages was determined by that law.
5. Article 522 of the Iranian Civil Procedure Code permitted an additional award where the relevant consumer-price index had materially changed between due date and payment. The court accepted the calculation based on the Central Bank of Iran’s inflation index and held that such damages were recoverable. Judgment was therefore given for the principal sums and inflation-based late-payment damages up to judgment. Different considerations might arise for the judgment debt itself.

First-instance judgment. No appellate history was stated in the judgment.