Company Law

Introduction

This case deals with the fact that the director can be personally liable for fraudulent representations which he made on behalf of the company and contributory negligence can never be defence to reduce an award of damages.

Facts

• Mr. Mehra, managing director of Oakprime Ltd, had a letter of credit from Incombank, confirmed by SCB, for a sale to Vietranscimex.
  • The credit required shipment by 25^th October 1993, which Oakprime missed.
• Mr. Mehra and shipping entities (Pakistan National Shipping Corporation (PNSC) agreed to backdate bills of lading to 25^th October 1993, though the goods weren't shipped until November 8, 1993.
• Oakprime, under Mr. Mehra's letter, presented these documents to SCB on 9th November 1993, with an omitted document and discrepancies.
• The omitted document was presented a few days later and certain other documents which had shown discrepancies in the terms of the credit were resubmitted after the final date for negotiation of the credit had passed.
• SCB, knowing the false presentation date, sought reimbursement from Incombank, which rejected the documents for other discrepancies.
• SCB sued PNSC, shipping agents, Oakprime, and Mr. Mehra for deceit.
  • Justice Cresswell held all liable for damages.
• Mr. Mehra appealed, arguing he acted on Oakprime's behalf, not personally.

Issue Involved

• Whether the conduct of SCB would at common law be a defence to a claim for deceit?
• Whether Mr. Mehra was liable for his deceit?

Observation

• The House of Lords stated that if a false representation is made and relied upon, it is irrelevant if the claimant could have discovered the truth with diligence.
• The House of Lord clarified that one cannot avoid liability for fraud by claiming to act on behalf of someone else.
  • Mr. Mehra was not sued for the company's wrongdoing but for his own actions, which constituted fraud.
• Being a director did not automatically make Mr. Mehra liable; it was his fraudulent conduct that led to his liability.
• Mr. Mehra personally presented the false documents to Standard Chartered Bank, intending to deceive them. His actions were attributed to Oakprime because he acted on its behalf.
• While a director can orchestrate deceitful schemes and submit false documents to a bank, they are not personally liable if these actions are deemed to be on behalf of the company.
• Directors can be held liable for the company's tort only if they ordered or facilitated actions that rendered the company liable.

Conclusion

• The House of Lords' ruling emphasizes that Mr. Mehra's liability stems from his fraudulent actions rather than solely from his position as a director.
• This distinction underscores the principle that individuals can be held personally accountable for fraudulent conduct, regardless of their corporate roles.
• In this case, Mr. Mehra's fraudulent behavior in arranging the backdating of the bill of lading led to his liability, highlighting the importance of personal responsibility in matters of deceit.