Thursday law report: Attempted deception did not defeat bank's claim

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The Independent Online
9 December 1999

Standard Chartered Bank v Pakistan National Shipping Corporation and others

Court of Appeal (Lord Justice Evans, Lord Justice Aldous and Lord Justice Ward) 3 December 1999.

WHERE A bank which had paid the price of goods to a seller upon presentation of a false bill of lading itself attempted to deceive the bank which issued the letter of credit, its claim in deceit against the shipowners was not thereby defeated.

The Court of Appeal dismissed the appeal of the Pakistan National Shipping Corporation (PNSC) against a decision that they were liable in deceit to Standard Chartered Bank (SCB), but allowed the appeal of a director of the seller.

A letter of credit issued by a Vietnamese bank in respect of a cargo of bitumen was confirmed by SCB. The seller presented false documents purporting to record shipment in compliance with the letter of credit to SCB. It was clear that the documents presented before expiry of the letter of credit were incomplete.

SCB sent the documents to the issuing bank under cover of a standard form letter which stated, falsely, that the documents had been received by SCB prior to the expiry date. When the issuing bank received the documents it was unaware both that the bill of lading was false and that the documents had been presented and negotiated outside the credit period. In due course the issuing bank refused payment by reference to discrepancies which had not been noted by SCB but which SCB accepted were material.

SCB recovered damages for deceit from PNSC and from other defendants, including the seller and a director thereof, Mr Mehra. PNSC appealed, submitting that SCB's action against it was not enforceable on the basis of the principle "ex turpi causa non orit ur actio". Mr Mehra appealed on the ground that he should not have been held liable for the false statements made by his company.

Jeffrey Gruder QC and Zwe O'Sullivan (Lovell White Durrant) for the bank; Timothy Young QC and Richard King (Amhurst Brown Colombotti) for the shipowners; John Cherryman QC and Lawrence Akka (Ashok Patel & Co) for Mr Mehra.

Lord Justice Evans said that the false statement made by SCB to the issuing bank that the documents had been presented within the period limited by the letter of credit was false to the knowledge of the maker, or had been made recklessly, in circumstances which would have exposed SCB to liability in deceit if the statement had been acted upon by the issuing bank, and it had thereby suffered loss.

Lord Justice Aldous said that in actions based upon contract, tort or recovery of property, public policy required that the courts would not lend their aid to a man who founded his action upon an immoral or illegal act. The action would not be founded up on an immoral or illegal act if it could be pleaded and proved without reliance upon such an act.

The immoral or illegal act relied upon by PNSC was the attempted deceit by SCB of the issuing bank. Whilst it was no doubt unethical for one bank to attempt to deceive another bank, it was doubtful whether an unsuccessful attempt amounted to an act which would prevent a good cause of action in deceit being enforced. In equity, where an unlawful act had not been carried into effect, the court was able to uphold, despite the attempted illegality, an equitable interest.

Furthermore, SCB's cause of action in deceit against PNSC did not require its attempted deceit of the issuing bank to be pleaded, nor did it involve any reliance upon it. SCB's case as pleaded and proved was that PNSC had made false statements in the bill of lading that the goods had been shipped by the due date. Those statements had been made knowing them to be false. SCB had relied on them and had suffered the loss of money it had paid to O Ltd. The judge had, accordingly, been right in holding that SCB's claim against PNSC should succeed.

He had, however, been wrong to find Mr Mehra liable to SCB. None of the circumstances in which a director could be held liable for tortious acts committed during the course of his employment applied.