STANDARD CHARTERED BANK V. PAKISTAN NATIONAL SHIPPING COP. (2003) 1 ALL ER 173 (HL)

STANDARD CHARTERED BANK V. PAKISTAN NATIONAL SHIPPING COP. (2003) 1 ALL ER 173 (HL)

FACTS

• Mehra was the managing director of Oakprime Ltd, the beneficiary of a letter of credit issued by Incombank and confirmed by SCB.
• The letter of credit was for a sale of Iranian bitumen by Oakprime to Vietranscimex, with a condition that shipment must be effected by 25 October 1993.
• Due to delays, Oakprime could not ship the goods on time, but SCB waived the late presentation of documents.
• SCB sought reimbursement from Incombank and later sued PNSC (shipowners), shipping agents, Oakprime, and Mr. Mehra for deceit.
• The court ordered SCB to pay Mr. Mehra's costs and three-quarters of his trial costs.
• PNSC appealed against the damages decision, but settled with SCB before the hearing.

ISSUE

• Whether SCB's conduct could be a defence to its claim for deceit under common law?
• Whether Mr. Mehra could be held personally liable for fraud committed as a director of Oakprime?

HELD
The appeal was allowed against Mr Mehra and the order by Cresswell J was restored. In enforcing this order, SCB will of course have to give credit for the money it has received from PNSC but how this sum should be apportioned is not a matter which your Lordships have been asked to consider.        

• SCB's conduct of paying Oakprime despite knowing about the late presentation could not absolve it from liability for deceit.
• Mehra's representation on behalf of Oakprime was relied upon as a representation by Oakprime, but he was held liable for fraud, not just as a director but as a perpetrator of the fraud.
• The Court of Appeal's decision that Mr. Mehra should not be personally liable was overturned, and the order against him was restored.
• The limited liability of shareholders did not shield Mr. Mehra from personal liability for his fraudulent acts.
• SCB had proven the liability of Mr. Mehra and Oakprime for deceit, and his status as a director did not grant him immunity from personal liability.

COMMENTARY

“Deceit is a tort. It means fraud. Anyone who has been induced to invest money in a company by a fraudulent statement in a prospectus can sue the persons responsible for issuing it. If his action is successful he recovers full compensation for the loss sustained by him directly as a result of the fraud. But the burden of proof lies on him to establish the following main points of the action. When a claim under the tort of deceit has been established, the amount of damages would not be reduced on the ground of contributory negligence, if any, on the part of the claimant.”-