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Consequently, their Lordships upheld the decision of the Court of Appeal in that in cases of fraudulent misrepresentation there is no common law defence of contributory negligence.
In relation to the second issue on appeal, Lord Hoffmann thought it irrelevant that Mr Mehra had made the representation on behalf of Oakprime and that the representation had been relied upon as a representation made on behalf of Oakprime. Mr Mehra was being sued on behalf of his own tortious actions, all the elements of which had been made out.
A relevant employee of SCB knew this statement to be false.
Incombank, which was unaware of Mr Mehra's false backdating on the bill of lading and of the falsity of SCB's statement that the documents had been presented in time, nevertheless rejected the documents on the grounds of other discrepancies that SCB had not noticed.
SCB sued Mr Mehra, Oakprime and PNSC for deceit and succeeded at first instance.
PNSC brought an unsuccessful appeal to the Court of Appeal on the ground that the loss suffered by SCB ought to be reduced under the Law Reform (Contributory Negligence) Act 1945 to such extent as the court thought just and equitable.
SCB was 'careless in making payment against documents which, as it knew or ought to have known, did not comply with the terms of the credit, on the assumption that it could successfully conceal these matters from Incombank'.
Thereafter, SCB made its claim for reimbursement against Incombank.
SCB sent a standard form letter that, among other matters, stated that the relevant documents had been presented before the expiry date of the credit.
This case has several important consequences, all of which will assist a bank in the position of an innocent party to a fraud.
Firstly, banks that suffer as a consequence of a fraudulent misrepresentation made on behalf of a company will be able now to pursue both the company and the maker of the fraudulent representation.
In these circumstances, SCB's conduct would not amount to a defence to its claim for deceit.