Standard Chartered Bank v Pakistan National Shipping Corp [2002] UKHL 43 (6 November 2002)
Citation:Standard Chartered Bank v Pakistan National Shipping Corp [2002] UKHL 43 (6 November 2002)
Rule of thumb:Where there is evidence of a fraudulent misrepresentation having been made, this will almost always be deemed an actionable misrepresentation if this causes a loss of trust in the relationship? Yes, even if the contract is functioning properly in practice, that can allow a contract to be reduced due to the loss of mutual trust which is an integral part of contract law.
Background facts:
The facts of this case were that Pakistan National Shipping Corporation needed a loan in order to establish and market their shipping business. In order to obtain this loan the shipping faked that they had orders and bills of lading. The bank then discovered that these were faked bills of lading and sought to reduce the contract and have their money returned in full, but Pakistan Shipping refused to do this.
Parties argued:
The bank argued that there was fraud in the application and so they did not want to deal with Pakistan Shipping any longer. Pakistan Shipping argued that they were running a good company and that this was a small part of the application which had little bearing.
Judgment:
The Court upheld the arguments of Standard Chartered. The Court affirmed that if someone finds fraud in an application, even if it only had a small bearing on them as believing the person they were dealing with was honest, then they are entitled to reduce the contract - when one of the parties in a contract is shown to have committed fraud as part of the negotiation process they have few rights to rely upon. The Court in this case confirmed that where someone states a fraud as part of the contract the other party is always allowed to rescind it because nobody wants to be involved in transactions with people who do this - reliance is immaterial in these circumstances, and, the Court further held that both the company and the director were both liable. The defendants in this case were unable to successfully argue that the bank had committed contributory negligence in not properly looking into the legitimacy of the bills of lading.
Ratio-decidendi:
‘if a fraudulent representation is relied upon, in the sense that the claimant would not have parted with his money if he had known that it was false, it does not matter that he also had some other negligent or irrational belief about another matter and, but for that belief, would not have parted with his money either. The law simply ignores the other reasons why he paid’, Lord Hoffman
Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.