STANDARD CHARTERED BANK v (1) PAKISTAN NATIONAL SHIPPING CORPORATION (2) SEAWAYS MARITIME LIMITED (4) OAKPRIME INTERNATIONAL LIMITED (5) ARVIND MEHRA (3) SGS UNITED KINGDOM LIMITED [2001] EWCA Civ 55

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION, COMMERCIAL COURT

(Mr Justice Toulson)

[2001] EWCA Civ 55

Case No Case No: A3/1999/0872 A3/1999/0873

Venue Royal Courts of Justice, Strand, London, WC2A 2LL, Friday 26th January 2001

Between

STANDARD CHARTERED BANKClaimant

(1) PAKISTAN NATIONAL SHIPPING CORPORATION (2) SEAWAYS MARITIME LIMITED (4) OAKPRIME INTERNATIONAL LIMITED (5) ARVIND MEHRA (3) SGS UNITED KINGDOM LIMITED

Defendants Part 20 Defendant (3rd Party)

Before

Lord Justice Henry

Lord Justice Potter

Mr Justice Wall

Jeffrey Gruder Esq QC & Miss Zoe O'Sullivan

(instructed by Messrs Lovell White Durrant for the Claimant)

Timothy Young Esq QC & Richard King Esq

(instructed by Messrs Amhurst Brown Colombotti for the First Defendant)

Lawrence Akka Esq

(instructed by Messrs Ashok Patel & Co for the Fifth Defendant)

Date 26 January 2001

LORD JUSTICE POTTER:

INTRODUCTION

[1]This is the latest in a series of decisions involving litigation between the parties arising out of proceedings brought by the claimant Standard Chartered Bank ("SCB") against Pakistan National Shipping Corporation ("PNSC"), the first defendants, and others, following the issue and presentation to SCB of a falsely dated bill of lading which induced SCB, as the confirming bank under a letter of credit established by a Vietnamese State bank ("Incombank"), to take up the documents and make payment to Oakprime Limited ("Oakprime"), the fourth defendants, who were the sellers of a cargo of Iranian bitumen to which the letter of credit related. On 1 April 1998 Cresswell J gave judgment for SCB against PNSC for damages to be assessed for deceit, conspiracy and negligent misrepresentation. He also gave judgment in similar terms against Mr Mehra, the fifth defendant, who was a director and the moving spirit of Oakprime. On 19 February 1999 Toulson J assessed SCB's damages in the sum of US$ 1,169,594.57 inclusive of interest. The judgment of Cresswell J against Mr Mehra was subsequently reversed by the Court of Appeal (see

[2000] 1 Lloyds Rep 218

) on the grounds that he was not personally liable for the misrepresentations made by Oakprime on the basis of SCB's pleaded case, which decision is currently the subject of a petition for leave to appeal to the House of Lords.

[2]This is the appeal of PNSC, for whom Mr Timothy Young QC appears, against the findings of Toulson J on quantum. Mr Mehra, represented by Mr Akka, has also participated in the appeal against the event that the petition to the House of Lords may be successful. He has adopted the arguments of Mr Young and added an argument of causation relevant to Mr Mehra's position. Seaways Maritime Limited, the second defendants in the action take no part in this appeal. Proceedings against the former third defendants, SGS United Kingdom Limited, were discontinued prior to the hearing before Cresswell J. Oakprime were never made the subject of a judgment, being in insolvent liquidation. I shall deal first with the appeal of PNSC before turning to the point argued on behalf of Mr Mehra. THE FACTUAL BACKGROUND

[3]A full account of the facts appears from the judgments of Cresswell J on liability reported at

[1998] 1 Lloyds Rep 684

and the judgment of Toulson J on quantum reported at

[1999] 1 Lloyds Rep 747

. A summary of the facts relevant to this appeal is as follows.

[4]Oakprime agreed to sell 20,000 MT of Iranian bitumen to Vietranscimex (a state-owned company responsible for road maintenance in Vietnam) at a contract price of US$ 147 per MT. Payment for the bitumen was to be made by irrevocable letter of credit opened by Incombank and confirmed in London by SCB. Part of the cargo was to be shipped in the MV "Lalazar", a vessel owned by PNSC. Oakprime chartered the Lalazar from PNSC to carry 10,000 tons of bitumen from Bandar Abbas to Ho Chi Minh City. The last date for shipment under the letter of credit was 25 October 1993. When it became apparent that loading would not be completed by that date, PNSC agreed that false bills of lading would be issued showing that the goods had been so shipped. False bills dated 25 October 1993 were accordingly issued, and the bills and other documents called for were presented to SCB who, relying upon them, paid the sum of US$ 1,155,772.77 to Oakprime on 16 October 1993. SCB permitted late presentation of certain documents and failed to notice other discrepancies in the documents, which failure was described by Cresswell J as "most regrettable". However, having found that SCB's document checkers were negligent but honest, he accepted SCB's case that payment would not have been made to Oakprime but for the issue and presentation of the fraudulently dated bills.

[5]SCB sought reimbursement from Incombank as the issuing bank under the letter of credit. Incombank rejected the documents on the grounds of discrepancies rather than late presentation. SCB's conduct in claiming indemnity against Incombank was described by the Court of Appeal as deceitful: see

[2000] 1 Lloyd's Rep 218

at 223-5. However, it was held that the conduct criticised did not break the chain of causation between the fraud of PNSC and payment by SCB to Oakprime as beneficiaries.

[6]On 5 January 1994 the Lalazar arrived at Ho Chi Minh City and gave notice of readiness. Mr Brinsden, the chief executive of SCB in Vietnam, quickly learned that Vietranscimex had instructed Vietnam Overseas Shipping Agency ("VOSA") who were agents for PNSC not to let the vessel dock until they had concluded a new agreement with Oakprime. On 6 January, Mr Brinsden wrote to Incombank correctly pointing out that Vietranscimex were only the notify party and not the consignee (which was Incombank), and thus had no right or title to the goods, nor any right to give instructions concerning the ship in which the goods were carried and that, as they had rejected the documents, the ownership of the goods remained in SCB for whom Incombank were in a trustee relationship in respect of the documents of title. Thus it was with SCB that Vietranscimex would have to negotiate any new agreement.

[7]On 7 January 1994, Mr Brinsden had a meeting with representatives of Vietranscimex and Incombank during which his staff overheard discussion about Vietranscimex using the position to obtain a reduction in the price. As a result SCB decided to do all it could to ensure that the vessel did not discharge immediately and to order an SGS inspection to establish that the quality was that called for under the letter of credit. On 8 January, Mr Brinsden wrote again to Incombank to make the position clear to Vietranscimex that they would have to negotiate any future sale as a new and separate deal with SCB, who reserved the right to negotiate the sale of the goods at a fair market price which, given a recent increase in the world price of bitumen, might mean a higher price. He added:

"In principle, of course, we would be more than happy to settle for the original price but, if Vietranscimex are not able to reach a satisfactory agreement with us, we are free to find other buyers elsewhere, including outside Vietnam."

[8]On 10 January 1994 the Lalazar docked and was visited by Mr Brinsden, representatives of Incombank and Vietranscimex, and surveyors from SGS. On questioning the master Mr Brinsden had his suspicions confirmed that the bills of lading had been falsely dated and reported back to Mr Bishop and Mr Griffiths the servants of SCB in London who were in day-to-day charge of the transaction:

"My impression …. is that the cargo is onboard and that the final solution will depend on the negotiations between ourselves and Vietranscimex as to price. We have some advantage as long as Lalazar does not unload (Vietranscimex and the owners are both trying to get this expedited) and, furthermore, the Vietranscimex officials are somewhat under fear of disciplinary action over this deal."

[9]As a result of the SGS inspection it became apparent that there were difficulties with the cargo. Vietranscimex's contract with Oakprime not only contained a detailed specification in relation to the quality of the bitumen, but also required that it be packed in new 24 gauge steel drums as per ISO standards. The documents presented by Oakprime to SCB included certificates as to quality and the other requirements of the letter of credit. However SGS made it clear that while, from visual examination of sample drums taken from the top, the quality of the bitumen was probably as specified, the drums appeared to be clearly second-hand and generally poor and rusted. In depth examination of the cargo, particularly the lower level of the drums was recommended, but this was impossible before the vessel was unloaded. On 18 January, an SGS report based on two samples randomly drawn from the top layer of four holds found compliance with the contractual specification of the bitumen, although some figures were marginal (the reported figure for penetration was 60 as against a contractual requirement of 60-70).

[10]On 21 January, Mr Brinsden wrote to Mr Long, the Director-General of Vietranscimex, offering to sell the cargo at the original contract price of US$ 147 per tonne, stating that this was a reasonable figure since the world price for the product had now risen to US$ 152 per tonne. On 26 January Vietranscimex countered with an offer to pay the price asked for contract quality cargo in new drums and US$ 130 per tonne for contract quality cargo in used drums of 24 gauge, stating that bitumen not meeting the contractual specification or in used drums which were not of 24 gauge would be rejected. Payment was to be 180 days after receipt. Mr Brinsden rejected that offer and pressed for an immediate answer whether Vietranscimex would take up the goods at the contract price, which was now below the current market price. On 28 th January, Vietranscimex wrote offering as its "ultimate decision" terms which, translated into English, were as follows: 1. We accept the result of SGS's quality inspection you have sent us (though it showed REL DENSITY is only 1/006). 2. We accept the price US$ 147/mt for the bitumen in the new drums which are about forty per cent of the total shipment (that is the contractual price). 3. The price of the bitumen in the old drums which quality meets the contractual requirement is US$ 135/mt 4. The price of bitumen in old drums (not 24 gauge) will be settled later between the two parties. 5. Method of payment TTR after 180 days. 6. SGS is to inspect the quantity and number of drums "Reference our telephone conversation re the latest letter from Vietranscimex making their final offer for the cargo of Lalazar. The feeling in the UK is one of bitter disappointment, in view of the position the bank has taken in protecting the Vietnamese interest. The offer is totally unrealistic, in particular the open ended nature of item 4 in the expectation that we should finance them for a further 180 days with no security. We endorse the view that we should seek an alternative buyer at US$ 147 Tonne with immediate effect." On 28 January, Mr Brinsden passed on that reaction to Vietranscimex, informing them that he was now instructed to sell the cargo elsewhere and was arranging to do so. "a. Must ensure we take reasonable steps to mitigate loss. b. Offering cargo on market right step to take. c. Whoever buys cargo buys "sold as seen" and is responsible for delivery." Thereafter Mr Brinsden consulted Continental Indochine, an organisation based in Vietnam which traded petroleum products in Cambodia and Laos about the possibility of finding a buyer for the bitumen in those countries, but they were only able to suggest the names of traders already known to Mr Brinsden. Mr Brinsden also spoke to a number of general traders to see if they knew of anyone who might be interested in buying bitumen which might or might not meet the full standards for Vietnam road building. However, no interest was expressed. THE JUDGMENT OF TOULSON J. "The orthodox view is that the rule as to avoidable loss is merely an aspect of the fundamental principle of causation that a plaintiff can recover only in respect of damage caused by the defendant's wrong. The rule is not that the plaintiff owes any obligation to the wrongdoer to mitigate his loss (despite the much repeated use of the phrase "duty to mitigate"), but that he cannot recover for a loss avoidable by reasonable action on his own part, because, if he could reasonably have avoided it, it would not be regarded as caused by the wrongdoer." (p.758) a) There was no market in the documents readily available to SCB while the vessel was en route and there was a dispute between the buyer and the seller. Thereafter, once the vessel had arrived and it was known that the bills of lading were fraudulently ante-dated, no self-respecting bank could have attempted to market the documents. b) Nor was there a market readily available to SCB in respect of the cargo itself before or at the time of its arrival on 10 January 1994. c) Following its arrival, it became clear that SCB had been deceived about the date of shipment, that many of the drums were second-hand and in poor condition contrary to the specification in the contract and the documents presented to SCB. While samples from drums on the top layer in each hold suggested that the contents were up to specification, the condition of the lower layers (drums and contents) was unknown; thus, the cargo could not be regarded as one with "a standard market price". d) SCB's decisions from 10 January 1994 onwards about how to dispose of the cargo could not sensibly be regarded as decisions independent of PNSC's fraud in the sense used by Robert Goff J in the Elena D'Amico e) No valid criticism could be made of steps taken by SCB up to 28 January 1994, all steps prior to that date having been reasonable. f) Mr Brinsden's evidence that he and his staff tried to discover what alternative buyers there might be within Vietnam without success was accepted and his view that the prospects were poor in that regard was reasonable. g) As at 27 January 1994 it was reasonable for SCB to consider the amount being offered by Vietranscimex was unacceptable and that it should take immediate steps to seek an alternative buyer. h) SCB's advice from its solicitor to offload the cargo on the market on a "sold as seen" basis was prudent because, although the SGS survey of 18 January provided hope that the bitumen met the standards specified in the original contract there was no certainty and Mr Brinsden was concerned about the condition of the lower drums in the holds. i) Consequently, by entering thereafter into the contract with Vietranscimex on 24 February 1994 which provided that Vietranscimex were entitled to reject any part of the commodity which did not meet the original quality specification, SCB knowingly took a risk of the goods being rejected. j) The only reasonable justification for SCB entering into a contract with Vietranscimex on the terms that it did would have been if SCB were unable to find a better offer elsewhere, despite taking all reasonable steps to find one. In this respect there was no satisfactory evidence that SCB had made reasonable efforts outside Vietnam. k) It was common ground that the burden lay on PNSC as the defendants to establish not only that SCB acted unreasonably but that, if it had acted reasonably, its loss would have been reduced. l) The defendants had failed so to establish. m) In this respect

the judge said:

"It may well be that a prospective purchaser would have wanted further tests done, but I do not think that it follows that no buyer could have been found for the cargo without SCB warranting its specification. I accept that the market in Vietnam was limited and that a buyer outside Vietnam would obviously have wanted a discount for all sorts of reasons – particularly the fact that the bitumen was from Iran, the known condition of the drums, the element of uncertainty as to the bitumen (despite such tests as might have been done), the cost of freight to an alternative destination (wherever it may have been) and the need for the buyer (probably a middleman) to be able to make a sufficient turn on the deal to make the purchase of the cargo attractive. How much an alternative buyer would have been willing to pay without a warranty of quality I find an enigma." n) Having rejected the evidence and conclusions of Mr Berman the expert for PNSC as neither reliably based on personal trading experience nor on the calculations set out in his report, the judge stated: "

I have considered whether the material enables me to make a reasonable assessment of what figure might have been obtained from an alternative buyer, but I have concluded that any figure which I might come up with would in truth be nothing but a guess. Mr Young submitted as a fall back position that the sale to Vietranscimex provided firm evidence that the realisable value of the cargo was not less than US$ 120 per tonne. But that was a re-sale price to a buyer in Vietnam. For SCB to have found an alternative buyer to Vietranscimex in Vietnam before the goods were landed would have been difficult. I accept Mr Brinsden's evidence that he and his staff tried to discover what alternative buyers there might be within Vietnam without success and he came to the reasonable view that the prospects were poor. In short, the defendants have not established as a matter of probability what the result would have been if SCB had taken all reasonable steps in January and February 1994 to try to find an alternative buyer for the cargo outside Vietnam." o) Finally, the judge rejected any criticism made of SCB's contract with Tigon following rejection by Vietrancimex, stating that, by that stage SCB's position was desperate and it had not been established that it had any better opportunity available to it. He also accepted that, by July 1994, the state of the cargo was such that Mr Griffiths' estimate that there were only some 6,000 tonnes available for resale was genuine and reasonable and he held that SCB's settlement with Tigon on the basis of 6,000 tonnes at US$ 85 per tonne was also reasonable. p) It followed therefore that PNSC had not established SCB's failure to mitigate its loss. PNSC's counterclaim, which was based on its proposition that SCB ought to have concluded an earlier contract, also failed. "I consider that SCB is entitled to recover Mr Griffiths' salary while he was in Vietnam on the basis that during that time SCB was deprived of his services for the normal purposes for which he was employed and which it had to continue to pay him, and that it is reasonable to value those services at the rate at which he was paid." THE GROUNDS OF APPEAL Causation/Mitigation a) that the bitumen was marketable elsewhere in South-East Asia without SCB warranting its specification; b) SCB acted unreasonably in negotiating only with Vietranscimex in Vietnam and on the basis of a right to reject for failure to comply with the specification, rather than on a sold 'as seen' basis, so creating the disadvantageous position of having to dispose of the bitumen once landed, whereby SCB became locked into the internal Vietnamese market. c) SCB unreasonably failed to market the goods in South-East Asia or to seek expert assistance in that regard. Notional resale outside Vietnam . "Where the dispute involves something in the nature of intellectual exchange, with reasons and analysis advanced on either side, the judge must enter into the issues canvassed before him and explain why he prefers one case over the other. This is likely to apply particularly in litigation where, as here, there is disputed expert evidence; but it is not necessarily limited to such cases." Mr Young submits that, had the judge listed the issues, analysed the evidence and made specific findings of fact, he would have appreciated that he had sufficient evidence to demonstrate that, on any view, a better price than US$ 85 per tonne would have been obtainable. a) US$ 120 per tonne was the actual price negotiated by Tigon as experienced traders with Unimex, which represented a discount of US$ 40 per tonne against the market price for good quality bitumen in Vietnam by the time of the sale and reflected all the frailties of the goods as effectively a distressed cargo. b) So far as the market outside Vietnam was concerned (on the assumption that the bitumen had remained aboard the Lalazar) it was the evidence of SCB's own expert that the FOB Singapore market price for Shell bitumen was US$ 140-145 per tonne in respect of which a discount of about US$ 15 per tonne would be necessary for Iranian bitumen, giving a price of US$ 125-130 per tonne. The February 1994 contract with Vietranscimex involved negotiated discounts for the drums on board of US$ 7 per tonne for old drums and US$ 4 per tonne for drums which were non-24 gauge. On the assumption that effectively all the drums were both old and non-24 gauge, that yielded a further discount of US$ 11 (say 10) per tonne to give a price of US$ 115 to US$ 120 for the notional resale, from which a further US$ 5 per tonne brokerage would fall to be deducted, to give a final price of US$ 110-115. Finally, in relation to the market outside Vietnam, he submitted that the judge should not have concerned himself with the impact of freight costs, (as to which the vessel's agent made an "off the shelf" estimate of £200,000). Mr Young submitted that no deduction was called for because ex hypothesi the goods would have remained aboard the Lalazar, which was owned by PNSC, any freight payable by SCB thus being recoverable back from PNSC as damages. Consequential Expenses CAUSATION/MITIGATION "the causative influence of the fraud is not significantly attenuated or diluted by other causative factors acting simultaneously with or subsequent to the fraud." The judge concluded:

"In this case the defects in the quality of the bitumen drums existed at the time when SCB was fraudulently induced to accept the documents, and therefore the consequences of those defects lie (like the consequences of the horse's latent disease) with the defendants." "(1) The defendant is bound to make reparation for all the damage directly flowing from the transaction; (2) although such damage need not have been foreseeable, it must have been directly caused by the transaction; (3) in assessing such damage, the plaintiff is entitled to recover by way of damages the full price paid by him, but he must give credit for any benefits which he has received as a result of the transaction; (4) as a general rule, the benefits received by him include the market value of the property acquired as at the date of acquisition; but such general rule is not to be inflexibly applied where to do so would prevent him obtaining full compensation for the wrong suffered; (5) although the circumstances in which the general rule should not apply cannot be comprehensively stated it will normally not apply where either (a) the misrepresentation has continued to operate after the date of the acquisition of the asset so as to induce the plaintiff to retain the asset or (b) the circumstances of the case are such that the plaintiff is, by reason of the fraud, locked into the property. (6) In addition the plaintiff is entitled to recover consequential losses caused by the transaction; (7) the plaintiff must take all reasonable steps to mitigate his loss once he has discovered the fraud." "

The law of course places upon a plaintiff who sues in tort for unliquidated damages the burden of satisfying the tribunal of fact of the damages he has suffered both special and general and of the quantification in money that should be adopted in the sum awarded. That is the legal burden of proof which rests upon him throughout. Only in one respect is the burden of proof upon the defendant and this is when he sets up matters in mitigation of damages. If it appears satisfactorily that damage in a particular form or to a particular degree has been suffered by the plaintiff as a result of the wrong but the defendant maintains that the plaintiff might have avoided or mitigated that consequence by adopting some course which it was reasonable for him to take, it seems clear enough that the law places upon the defendant the burden of proof upon the question whether by the course suggested the damage could have so been mitigated and upon the reasonableness of pursuing that course …" (emphasis added) NOTIONAL RE-SALE OUTSIDE VIETNAM CONSEQUENTIAL LOSS - THE SALARY OF MR GRIFFITHS "I have no doubt that the expenditure of managerial time in remedying an actionable wrong done to a trading concern, can properly form the subject matter of a head of special damage. In a case such as this it would be wholly unrealistic to assume that no such additional managerial time was in fact expended. I would also accept that it must be extremely difficult to quantify. But modern office arrangements permit of the recording of the time spent by managerial staff on particular projects. I do not believe that it would have been impossible for the plaintiff in this case to have kept some record to show the extent to which their trading routine was disturbed by the necessity for continual dredging sessions. In the absence of any evidence about the extent to which this occurred the only suggestion Mr Clarke can make is that I should follow Admiralty practice and award a percentage on the total damages … . While I am satisfied that this head of damage can properly be claimed, I am not prepared to advance into an area of pure speculation when it comes to the quantum. I feel bound to hold that the plaintiffs have failed to prove that any sum is due under this head." MR MEHRA'S SEPARATE ARGUMENT ON CAUSATION "A possible third cause, which has not been explored in argument, was SCB's failure to observe the discrepancies later relied upon by Incombank to justify payment, and which SCB accepts were material. If the failure was negligent, then in my view this too was a contributory cause of the loss which SCB sustained. There is no express finding of negligence in this respect, though it may well be covered by the judge's references to incompetence and gross negligence quoted. Without a finding, this failure can only be identified as a possible third cause. Even if it was negligent, it does not provide a defence to the claim for damages for deceit …" "Incombank's legal grounds for refusing to pay under the letter of credit were the discrepancies, but on Nov 25, 1993 (before Incombank's first rejection of the documents) Vietranscimex informed Incombank that it was beginning to suspect fraud on the part of Oakprime, because Oakprime had telexed Vietranscimex to notify the arrival of shipments of bitumen on Nov 15 and 23, but the ships did not appear. It was unsurprising that in such circumstances Vietranscimex would take any technical point available to it and (as Mr Brinsden was subsequently told) intended to witness the shipment before accepting discrepancies. To suggest, therefore, that possible fraud in the bills of lading was not one of the factors operating on the mind of Vietranscimex and Incombank at the time of their first rejecting of the documents, and thereafter, is contrary to the contemporaneous evidence." PNSC's COUNTERCLAIM CONCLUSION MR JUSTICE WALL:

LORD JUSTICE HENRY:

Order

Appeal dismissed except in regard to recoverability of $30,26.70 re Mr Griffiths' salary; costs and notice of appeal submissions to be made at later date. (This order does not form part of approved judgment)