Hilary
Term
[2015] UKPC 14
Privy
Council Appeal No 0053 of 2014
JUDGMENT
Mauri
Garments Trading and Marketing Limited
v
The
Mauritius Commercial Bank Limited
From the Court
of Appeal of Mauritius
before
Lord
Mance
Lord
Clarke
Lord
Sumption
Lord
Carnwath
Lord
Toulson
JUDGMENT
GIVEN ON
24
March 2015
Heard
on 25 February 2015
Appellant
Rex
Stephen
Ike
Ehiribe
(Instructed
by Astor Law International)
Respondent
Gilbert Ithier SC
(Instructed by Blake Morgan
LLP)
Lord Mance
Introduction
1.
The appellant, Mauri Garments Trading
and Marketing Ltd (“T&M”), appeals against the dismissal of its claim
against Mauritius Commercial Bank Ltd (“MCB”) by Devat J by judgment dated 26
September 2012, which was upheld by the Court of Appeal by judgment dated 1
October 2013.
2.
By sale and purchase contract dated 25
November 1992, T&M contracted to buy shirts from Mauri Garments Co Ltd
(“Mauri Garments”). The contract provided for the issue of a bank guarantee up
to FF5m, and for this, when issued, to evidence the binding nature of the sale
and purchase contract. A letter of indemnity No 685 was accordingly issued by
Banque S G Warburg Soditic SA of Zurich (“Warburgs”) in favour of MCB for any
amount up to FF5m. Its terms were no doubt agreed between T&M and Mauri
Garments, and they have in any event clearly been accepted as complying with
the sale contract, which was thereafter performed.
3.
Under the letter of indemnity (as
extended in validity until 30 June 1994), MCB made a demand on 30 June 1994 for
FF5m, on the basis that “We have not received payments for goods supplied” to
T&M by Mauri Garments totalling FF6,734,152.17. Warburgs made the payment.
It is not suggested that MCB’s demand did not satisfy the terms of letter of
indemnity or that Warburgs could have refused to make the payment.
4.
What is suggested is that Mauri
Garments has a claim in tort against MCB, for having claimed more than was
actually due from T&M to Mauri Garments. It is alleged that T&M only
owed Mauri Garments FF2,536,386 (the equivalent of Rs7,989,617). Further, MCB
had caused a receiver to be appointed over Mauri Garments on 1 April 1994, and
the receiver in a statement of affairs dated 6 May 1994 had identified that sum
as outstanding. With that knowledge, it is said, MCB had no basis for demanding
more.
The contractual documentation
5.
The sale agreement provided:
“Re: Contract for the supply of
garments between MAURI GARMENTS CO LTD and MAURIGARMENT TRADING AND MARKETING
HK.
This contract is
entered into on the 25th November 1992 between MAURI GARMENTS CO LTD and
MAURIGARMENT
TRADING AND MARKETING HK under the following
terms:
(a)
TRADING guarantees the quantity
110,000 pieces of shirts per month or 1,320,000 pieces of shirts per year.
MAURI agrees to supply the said quantity to TRADING.
(b)
During the term of this contract.
TRADING will despatch its technician(s) to MAURI for the technical assistance
to MAURI. All fees relating to the technician(s) will be borne by MAURI.
(c)
Pricing will be calculated on a CIF
basis.
For a long sleeved shirt, fabric
consumption will be based on 2.25 m2 and for a short sleeved shirt 1.28 m2 plus
FRF13.50 which represent the CMT charges as well as freight charges and
profits.
Pricing for old stock/shirts? will be based on a
FRF6 per meter.
(d)
Payment will be 150 days from Bill of
Lading date/AWB date.
(e)
A bank guarantee up to FRF5,000,000
will have to be set up.
(f)
The bank guarantee once issued would
be the evidence of the contract binding both parties.”
6.
The letter of indemnity provided:
“Your customer Mauri Garments concluded a contract
with Mauri
Garments Trading and Marketing on 25.11.1992 for
the supply of
garments. As security for the payment of the
merchandise, an indemnity by a bank shall be furnished.
At the request of Mauri Garments
Trading and Marketing we, BANK S G WARBURG SODITIC AG, Zurich/Switzerland,
hereby irrevocably undertake to pay you on first demand, irrespective of the
validity and the effects of the above mentioned contract and waiving all rights
of objection and defence arising from said contract, any amount up to
FF5,000,000 — (French Francs five million 00/00)
Upon
receipt of your written and duly signed request for payment and your written
confirmation that you have not received payment at maturity for the sum claimed
under this letter of indemnity.
The total amount of this indemnity will be reduced
by any payment effected by us hereunder.
For the purpose of identification,
your request for payment and your confirmation hereunder have to be presented
through the intermediary of a first rate bank confirming that the signatures
thereon are binding for your firm.
Our undertaking is valid until June
30, 1993 (nine-three), and expires in full and automatically if your written
request for payment and your written confirmation, together with a first rate
bank’s verification of your signatures, are not in our possession on or before
that date.
This indemnity is governed by Swiss law, place of
jurisdiction is Zurich.”
The case has been conducted on the basis that the
law of Mauritius applies to T&M’s claim against MCB.
The judgments below
7.
The judge, after hearing evidence,
found that MCB had discounted the full value of export bills of exchange
presented to it by Mauri Garments totalling as at 30 June 1994 FF6.7m (or, more
precisely no doubt, FF6,734,152.17) in respect of goods shipped to T&M
under the sale contract. The difference between this total and the FF2,536,386
shown in the receiver’s statement was due primarily to (a) the offsetting of
sums due from Mauri Garments to T&M in respect of raw materials paid for by
T&M, but in part also due to (b) the deduction of certain invoices which
T&M denied receiving or in respect of which T&M denied receiving any
goods. The total of the invoices in (b) was only FF1,133,109, so that, even
deducting them in full from the FF6,734,152.17, the balance was well in excess
of the FF5m which MCB claimed and received under the letter of indemnity.
8.
The critical difference was and is
therefore the offset claimed by T&M in respect of the price of raw
materials supplied to Mauri Garments. The judge recorded that there was
agreement between counsel at the close of both parties’ case that the only issue
for the court was therefore whether the price due for the purchase of the raw
materials ought to have been deducted from the amount claimed by MCB. T&M
take issue with the accuracy of this statement, but the basis on which it does
so is that the courts below did not focus on the fact that its claim was put in
tort and in reliance on the receiver’s own statement of the accounting position
between T&M and Mauri Garments, of which MCB must have been aware (having
put Mauri Garments into the receivership).
9.
T&M also argued before the judge
that MCB was bound by the terms of the sale contract, pursuant to which the
letter of indemnity was issued, and that T&M was not concerned with any
discounting arrangement between MCB and Mauri Garments. Devat J rejected the former
argument by reference to very well-known authorities on the autonomy of letters
of credit from the underlying sales or other contract: Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978]
QB 159, cited with approval in Saint
Michel Marketing Co Ltd v South East Asian Bank Ltd [1996] MR 144, and Power Curber International Ltd v National
Bank of Kuwait SAK [1981] 1 WLR 1233.
10.
More generally, Devat J held that
Warburgs’ obligation to pay under the letter of indemnity was independent from
the underlying sale and purchase contract between Mauri Garments and T&M.
MCB having negotiated bills of exchange was entitled to look to Warburgs by
making a demand under the letter of indemnity. Any adjustment that required to
be made regarding the purchase price of the raw materials was a matter between
T&M and Mauri Garments. On that basis, she dismissed the claim.
11.
The Court of Appeal (Yeung Sik Yuen CJ
and Fekna J) dismissed T&M’s appeal. It saw no merit in grounds of appeal
which included a complaint that the judge had not addressed the actual cause of
action in tort relied on against MCB for unduly obtaining and/or enriching
itself by soliciting and obtaining money to T&M’s detriment. But it also
questioned the existence on the evidence of any set off as between Mauri
Garments and T&M.
12.
On appeal to the Board, T&M
reiterates that its claim is in tort. Mr Rex Stephen representing T&M draws
the Board’s attention to the broad terms of article 1382 of the Code civil, the
first article under the head Des délits
et des quasi-délits:
“1382. Tout fait quelconque, de l'homme, qui cause
à autrui un dommage, oblige celui par la faute duquel il est arrivé, à le
réparer.”
13.
There is no allegation that MCB acted
other than in good faith, but it is submitted that MCB is liable because it
claimed more than it is said that it knew to be due from T&M to Mauri
Garments and that in so doing it committed some sort of faute. The question is
whether such a claim is maintainable in law.
14.
However, the submission is put, the
Board has no hesitation in saying that Devat J arrived at the right conclusion
for basically the right reasons, and that the Court of Appeal was correct to
uphold her decision. Where parties have, as here, entered into carefully
structured contractual arrangements, involving two separate and autonomous
contracts each between different parties to the other, it is impossible for the
law to recognise tortious duties outside and cutting across the terms and
performance of those contracts. In that respect, the knowledge which the Board
is prepared to assume that MCB had of the state of account between T&M and
Mauri Garments is in the Board’s view irrelevant.
15.
The letter of indemnity was given in
terms by one bank (Warburgs) to another (MCB). It was given “as security for
the payment of the merchandise”. More specifically, it was given to cover MCB
in respect of sums which MCB had not received, since it was payable on “your
written confirmation that you have not received payment at maturity for the sum
claimed under this letter of indemnity”. It was therefore given to cover
precisely the situation that occurred, a situation in which MCB was out of
pocket in respect of monies advanced to Mauri Garments under bills which had
matured without payment being made. Its autonomy from the underlying sale
contract (which would anyway normally be implicit) was furthermore explicitly
recognised by its very terms – “we [WARBURGS] hereby irrevocably undertake to
pay you on first demand, irrespective of the validity and the effects of the
above mentioned contract and waiving all rights of objection and defence
arising from said contract”. Any cross-claim or set-off which might exist as
between T&M and Mauri Garments, whether under the sale contract or under
any separate arrangement, was therefore irrelevant. There is in fact no
provision in the sale contract for T&M to fund the purchase cost of any
materials, so, as far as appears, this must have taken place under some
separate arrangement. But, even if it had taken place under the terms of the
sale contract, it would have been irrelevant under and in the context of the
letter of indemnity, which protects MCB in respect of sums advanced to Mauri
Garments and not received by MCB.
16.
T&M’s attempt to assert a tortious
duty owed to it by MCB would undermine and conflict with the deliberate and
familiar contractual scheme agreed between the parties. The principles
governing letters of credit are as much applicable to letters of indemnity of
the present nature, as well as other forms of on demand guarantee. As Kerr J
said in R D Harbottle (Mercantile) Ltd v
National Westminster Bank Ltd [1978] QB 146, 156B-C:
“[The authorities] were mostly
concerned with confirmed letters of credit, but they equally apply to confirmed
performance guarantees. In both cases the banks are only concerned to ensure
that the terms of their mandate and confirmations are complied with, eg of
[sic] the conformity of the documents presented. ... This is unfortunate for
the plaintiffs, but it is what they have agreed. Banks are not concerned with
the rights or wrongs of the underlying disputes but only with the performance
of the obligations which they themselves have confirmed.”
17.
So here, T&M have committed
themselves to a situation in which their bank,
Warburgs, may have to pay up to FF5m to Mauri
Garments’ bank, MCB, under an on demand letter of indemnity. Provided that the
terms of the letter of indemnity are complied with, as it is common ground that
they were, T&M can have no complaint against Warburgs. Still less can they
have any complaint against MCB. T&M’s remedy, if it has a right for
material paid for, is against Mauri Garments. The fact that that remedy may be
valueless or less valuable, because Mauri Garments is in receivership is
irrelevant. T&M could in fact have protected itself in respect of
cross-claims, whether arising out of the sale contract or from some separate
arrangement, by itself requiring cash in advance or itself stipulating for a
letter of indemnity from a bank before paying for such material.
18.
The notice of appeal raised a number
of other complaints. One was that the judge was biased, because she stated at
one point “That’s clear”. This was in the course of the evidence of a witness
using a blackboard, who in fact asked whether there was “any question or that’s
clear enough”. The judge’s response “That’s clear” appears to the Board
entirely innocuous, and, in any event, irrelevant to the point of law on which
this case in the Board’s view turns. The letter of indemnity explains in its
own terms that it was to protect MCB in respect of anticipated advances which
MCB would be making (to Mauri Garments) relying on its protection.
19.
Another complaint is that the Court of
Appeal did not have, and proceeded without, the benefit of Mr Stephen’s
advocacy, because he had been unfortunate enough for unspecified reasons to
miss his flight back to Port-Louis from Rodrigues. The Court of Appeal refused
a short adjournment to enable Mr Stephen to arrive and argue the appeal. But he
had filed a skeleton argument in writing and he was substituted at the hearing
by Mr Moirt, who made brief submissions. The Board cannot regard this course of
events as representing any form of denial of appellate justice, with which it
can or should interfere. But in any event T&M has now had a full
opportunity of arguing the case, with Mr Stephen’s advocacy, before the Board.
20.
A third complaint is that the Court of
Appeal engaged itself in determining factual issues. It is right, as the Board
has observed, that the Court of Appeal concluded by expressing doubts about
whether there was any sufficient proof of any cross claim for the price of raw
materials which could give rise to a set off. The Board has, in contrast,
proceeded on the basis that a cross claim did exist in the full amount
indicated by the receivers’ statement and underlying documents. The critical
issue on that basis is the issue of law, whether it is open to a company in
T&M’s position to bring a tort claim against a bank such as MCB on the
basis that awareness on the bank’s part of the state of account between the
parties to the underlying sale and purchase contract precludes the bank from
claiming an indemnity in respect of advances in respect of the price of goods
for which it has not been repaid.
Conclusion
21. No other points have
been raised which require specific mention. For the reasons given, the Board
concludes that this appeal must be dismissed.
