Lloyd's Maritime and Commercial Law Quarterly
Outlawing dishonest international traders
(Standard Chartered Bank
v. Pakistan National Shipping Corp.)
Paul Todd *
In Standard Chartered Bank
v. Pakistan National Shipping Corporation
(No. 2),1
the plaintiff, a confirming bank under a documentary credit, had been deceived by the defendants (who included the shipowners and the beneficiaries under the credit) into accepting and paying against a bill of lading which had been fraudulently backdated.2
The documents were also tendered late, but nonetheless accepted by the plaintiff. The problem the Court of Appeal had to consider was the effect of the plaintiff s own misconduct, in tendering the same documents to the issuing bank, knowing of, but not declaring, the late presentation.
Some background
It has been said that the “object of mercantile usages is to prevent the risk of insolvency, not of fraud”.3
The law has developed, apparently in accordance with commercial practice,4
to promote negotiability, but with that comes an inevitable increase in fraud risk.5
It would be a mistake to conclude from these sentiments that the law treats fraudsters lightly, and indeed, sentiments such as those expressed in the above paragraph presuppose that the fraudster has disappeared,6
in which case the victim of fraud is often unprotected. If the fraudster can be found and sued, the law is kinder to the victim.7
In an action for fraudulent misrepresentation, or deceit, for example, damages will fully compensate the
* Senior Lecturer in Law, University of Wales Swansea.
2. The shipowners, Pakistan National Shipping Corporation, were aware of the backdating, which had been deliberately procured by Oakprime, the beneficiaries under the credit.
3. Sanders
v. Maclean
(1883) 11 Q.B.D. 327, 343, per
Bowen, L.J.
4. The justification for the decision in Gill & Duffus SA
v. Berger & Co. Inc.
[1984] A.C. 382, which surely promotes negotiability at the expense of security, is that the contrary view, “if correct, would destroy the very roots of the system by which international trade, particularly in commodities, is enabled to be financed”: per
Lord Diplock, at p. 392.
5. A fairly extreme case, where the law could not be invoked to prevent what appears to have been a very clear fraud, is Discount Records Ltd
v. Barclays Bank Ltd
[1975] 1 W.L.R. 315; [1975] 1 Lloyd’s Rep. 444.
6. As in Discount Records, ibid.
Other examples are Glyn Mills Currie & Co.
v. East and West India Dock Co.
(1882) 7 App. Cas. 591 and Lloyds Bank
v. Bank of America National Trust and Savings Association
[1938] 2 K.B. 147. In all these cases the fraudster had disappeared, and the primary victim of the fraud attempted unsuccessfully to throw his loss on to another innocent party. Cf. Motis Exports Ltd
v. Dampskibsselskabet AF 1912, Aktieselskab
[1999] 1 Lloyd’s Rep. 837, noted [1999] LMCLQ 449, where the victim of a theft of cargo was able to throw the loss on to the shipowner; but, in this respect at any rate, Motis
is out of line with the other cases. Rix, J.’s decision was upheld in the Court of Appeal [2000] 1 Lloyd’s Rep. 211 but on the narrower issue of whether the shipowner was protected by an exemption clause in the bill of lading.
7. In Standard Chartered Bank
at p. 221 (para. 2), Evans, L.J., began his judgment with the observation that the “requirement of honest commerce is stringently enforced by the English Courts”.
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