Pacific Carriers v. BNP Paribas

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Pacific Carriers Limited v BNP Paribas
Australia: High Court of Australia: Gleeson CJ, Gunmow, Hayne, Callinan and Heydon JJ.: 5 August 2004 

AN Jackson QC, AW Street SC and GJ Nell, instructed by Norton White, for PCLBW Rayment QC and IE Davidson, instructed by Corrs Chambers Westgarth, for BNP

In this case, the High Court of Australia unanimously held that the carriers, Pacific Carriers, were entitled to indemnity from BNP Paribas for the losses they had sustained pursuant to an arrest of their vessel as a consequence of delivering cargo without production of the relevant bills of lading against letters of indemnity to which the Bank were signatories. The Court found the letters in question had been counter-signed by the Bank in their capacity as indemnitors, and not simply as verifiers of their clients’ signature, as the Bank had claimed. In addition, the Bank were not entitled to rely on the signatory’s actual absence of authority, since they had – through their organizational structure and the absence of internal procedures to prevent unauthorised conduct - represented that the signatory did have the necessary authority.

DMC Category Rating: Confirmed

This case note is contributed by Drew James a partner in the firm of Ebsworth & Ebsworth in Sydney. Ebsworth & Ebsworth Lawyers are the International Contributors for Australia to the website.

This case concerned the shipment of peas from Australia to India by an Australian grain trader, New England Agricultural Traders Pty Ltd (NEAT), to Royal Trading Company (Royal), an Indian grain trader operating out of Calcutta. The respondent, BNP Paribas (BNP), was NEAT's Sydney banker, and was financing the export transaction. The appellant, PCL Carriers Limited (PCL), was the operator of the MV Nelson, the vessel on which the cargo was carried.

The cargo was delivered without production of the relevant bills of lading. Subsequently the vessel was arrested causing PCL significant losses. The particular matter giving rise to the appeal to the High Court concerned two letters of indemnity which were signed, or purportedly signed, by NEAT and BNP and addressed and delivered to PCL. PCL claimed, pursuant to those letters of indemnity, to be entitled to be indemnified by BNP in respect of the losses it had suffered. BNP's defence was that, on the true construction of the letters of indemnity, only NEAT was bound to indemnify PCL, and BNP's role was merely to verify or authenticate NEAT's execution of the documents (the construction issue). In addition, BNP argued that, if it failed on the construction issue, then it was not liable on the letters of indemnity because the officer who signed the letters of indemnity, Ms Dhiri, had no authority to bind the bank to an indemnity (the authority issue).

On 24 January 1999, the vessel arrived in India. The initial bills of lading covering the cargo were switched and split. There were delays in discharge. On 28 January, the brokers sent to NEAT a form of letter of indemnity signed by Royal, but with an endorsement by a bank which disclaimed any liability on the part of the bank and merely confirmed Royal's signature. This was rejected by PCL.

On 25 January 1999, an officer of NEAT spoke to Ms Dhiri of BNP. He referred to the possibility of "a back to back LOI". On 28 January, NEAT sent a facsimile to Ms Dhiri referring to the "need to get LOI in place at Calcutta to allow vessel to commence lightening ... ." Attached was the first of the two relevant letters of indemnity. Ms Dhiri was requested to have it signed and sent to PCL. Ms Dhiri signed it in the space reserved for "Banker's signature" and affixed BNP's stamp.

In February 1999, further difficulties were experienced in relation to discharge and delivery of the cargo. By 16 February, discussions had taken place between NEAT and Ms Dhiri about the issue of another letter of indemnity, this time in respect of part of the cargo. In a facsimile message, a copy of which went to Ms Dhiri, NEAT said: "Shipping company have once again advised they will not discharge cargo on to lighters without BNP counter signed NEAT LOI." On 18 February 1999, NEAT sent to BNP an "attached LOI in readiness for bank's signature to allow MV Nelson to recommence discharging..." The form was the same as the first letter of indemnity. Ms Dhiri was requested by NEAT to "fax it directly" to the shipping agent so that he "can then pass it directly onto vessel owners so discharging of vessel can commence as soon as possible." On 19 February 1999, Ms Dhiri signed the second letter of indemnity in the space reserved for "Banker's signature" and affixed BNP's stamp to it. The document was sent by facsimile to PCL, which then informed its agent in Calcutta that, since PCL was in possession of the letter of indemnity, the agent had authority to release the part cargo to Royal.

The trial judge found for PCL against BNP. BNP appealed. The Court of Appeal accepted the construction of the letter of indemnity for which PCL contended. However, it upheld BNP's defence based on lack of authority, holding that Ms Dhiri had neither actual nor ostensible authority to bind the bank to an indemnity. PCL appealed to the High Court (having first obtained special leave).

In a joint judgment, all five justices who heard the appeal held as follows.

The construction issue
The nature of the obligations undertaken by BNP in consequence of the signature and transmission to PCL of the letters of indemnity depended upon the meaning of the documents, the particular problem being the capacity in which, on the true construction of the documents, the bank was involved in the transaction. That question had a factual relationship to the question of Ms Dhiri’s authority, in that both she, and her superior, Mr Kavanagh, gave evidence that it was their understanding that all that BNP was doing was authenticating NEAT’s execution of the letters of indemnity.

However, what was important was not Ms Dhiri's subjective intention, or even what she might have conveyed, or attempted to convey, to NEAT about her understanding of what she was doing. Rather, the letters of indemnity were, and were intended by NEAT and BNP to be, furnished to PCL. PCL did not know what was going on in Ms Dhiri's mind, or what she might have communicated to NEAT as to her understanding or intention. The construction of the letters of indemnity was therefore to be determined by what a reasonable person in the position of PCL would have understood them to mean. That required consideration, not only of the text of the documents, but also the surrounding circumstances known to PCL and BNP, and the purpose and object of the transaction.

The heading of the document describes it as a "standard form of undertaking" to be given in connection with delivery of cargo "without production of the bills of lading". 

The primary indemnifying party was NEAT. The question concerned the effect of BNP's signature and stamp (leaving to one side the issue of authority). PCL argued that it was a bank endorsement under which BNP also accepted liability as an indemnifier. The commercial purpose was plain. PCL was being requested by NEAT to take a risk by delivering cargo to receivers who could not produce the appropriate bills of lading. PCL informed NEAT, and NEAT informed BNP, that PCL would not agree to take that risk unless NEAT's bank also signed the document. PCL had only limited knowledge of the financial capacity of NEAT to meet its obligations under the indemnity. The terms of the document, understood in the light of the surrounding circumstances and the purpose and object of the transaction, and the market in which the parties were operating, meant that BNP was undertaking an obligation of indemnity.

Relevant to the meaning of the document was not only what it said, but also what it did not say. There was nothing in the terms of the document to indicate that BNP was merely authenticating the execution by NEAT, and there was nothing in the surrounding circumstances to suggest that PCL would accept such authentication only. A reasonable reader in the position of PCL would have understood the document as a bank endorsed indemnity, and would have understood that the bank was undertaking liability as an indemnifying party to support the liability undertaken by NEAT. The decision of the Court of Appeal on the construction issue was therefore correct.

The authority issue
Ms Dhiri, who signed the letters of indemnity on behalf of BNP, and affixed BNP's stamp, was Manager of the Documentary Credit Department. Her evidence was that her duties included supervising the day-to-day handling of import/export letters of credit, the day-to-day handling of import/export collections, and the staff of the Documentary Credit Department. That is how it came about that NEAT dealt with her in relation to the whole transaction, including PCL's requests for letters of indemnity. The stamp was one that was used for the purposes of letters of credit.

The evidence showed that the issuing of indemnities and guarantees by BNP in Sydney was the function of the Guarantee Loan Department, not the Documentary Credit Department. Guarantees and indemnities were to be signed under power of attorney. All Commercial Bills of Exchange and Certificates of Deposit were to be signed by two persons, one of whom had to be an "A" Signatory. Other correspondence or documents to bind the bank had to bear two signatures. Ms Dhiri was an ordinary signatory, not an "A" signatory. The trial judge found that Ms Dhiri did not have actual authority to bind the bank to a guarantee or indemnity. That finding was not contested on appeal.

The unusual feature of the case was that Ms Dhiri had authority to sign the documents in one capacity but not in another, and the documents made no express reference to the capacity in which they were signed. 

In Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd., (1975) 133 CLR 72, and in Northside Developments Pty Ltd v Registrar-General, (1990) 170 CLR 146, the High Court followed and applied Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd, (1964) 2 QB 480 as to the general principles concerning the apparent or ostensible authority of an officer of a company dealing with a third party. Where an officer is held out by a company as having authority, and the third party relies on that apparent authority, and there is nothing in the company's constitution to the contrary, the company is bound by its representation of authority. 

In the present case, BNP insisted that the necessary representation had to be one made to PCL by BNP about Ms Dhiri, not merely one made by Ms Dhiri about herself. The point was regarded as decisive in the Court of Appeal. Sheller JA considered that "the only evidence of any representation by BNP to [PCL] has to be found in Ms Dhiri's signature on the NEAT LOIs. In other words the argument has to be that Ms Dhiri by herself signing the document represented that she had authority to and did bind BNP to a contract to indemnify." The High court considered that there was more to the case than that.

A kind of representation that often arises in business dealings is one which flows from equipping an officer of a company with a certain title, status and facilities. In Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd, for example, the High Court spoke of the representation that might flow from supplying a particular person with "a blank order form, thus arming him with a document which, when he signed it, would bear the hallmark of authenticity". The reference to corporate administrative procedures under which an officer is armed with a document to which he or she can, by signature, impart an appearance of authenticity is a reminder of the wider principle of estoppel which may be relevant to a question of ostensible authority. The holding out might result from permitting a person to act in a certain manner without taking proper safeguards against misrepresentation.

In Tobin v Broadbent (1947) 75 CLR 378, Dixon J referred to the conduct of a party which "induced or assisted" an assumption from which that party ought not to be permitted to depart. Commercial documents, such as the letters of indemnity in this case, are commonly relied upon, and intended to be relied upon, by third parties who act upon an assumption of authenticity created or reinforced by their mode of execution, and by the fact and circumstances of their delivery. Within a commercial enterprise, such as a bank, there will normally be internal lines of authority, and procedures, designed to ensure that, when documents are issued to third parties, appearances are reliable. Such an enterprise might induce or assist an assumption, not only by the representation conveyed by its organisational structure, and lines of communication with third parties, but also by a failure to establish appropriate internal procedures designed to protect itself, and people who deal with it in good faith, from unauthorised conduct.

Issuing a letter of indemnity which bound the bank was a transaction forming part of the ordinary course of business of a bank providing documentary credits in connection with international sale of goods transactions. The letters of indemnity in question were sought from, and provided by, the employee of the bank whom the bank described as the Manager of its Documentary Credit Department.

PCL's reliance upon the letters of indemnity was based upon their form and contents, the signature of a person who appeared to be (and was) an officer of the bank, the stamp or "chop", and the fact that PCL was sent copies of the documents, directly or indirectly, by BNP. The stamp was probably more significant to PCL than the signature, which was indecipherable. It was designed for use on letters of credit, and it allowed the person who was authorised to use it to give an appearance of authenticity to documents to which it was applied. The organisational structure of BNP in Sydney at the time was such that Ms Dhiri was the bank officer to whom PCL's request, would be, and was, communicated by NEAT. She was the person who dealt with the request, and who communicated BNP's response to PCL. That response, involving her signature of the letters of indemnity and fixing the bank's stamp to them, signified to a reasonable third party, and signified to PCL, agreement to what was requested. The stamp was not BNP's common seal, but placing it on a commercial document which named the bank as a party strongly enhanced the appearance that the document was signed on behalf of BNP. 

The importance to a third party, such as PCL, of the difference between a bank's signature to a letter of indemnity in the capacity of an indemnifying party, and a bank's signature by way of verification of the signature of another party, should have been, and was, obvious to officers of BNP. Ms Dhiri was the natural and appropriate person to whom PCL's request for signature of the documents by the bank was directed. If the role of the bank was to be merely that of authentication of NEAT's signature, then she was also the appropriate person to sign and stamp the documents on behalf of the bank. If the role of the bank was to be that of an indemnifying party, she was not the appropriate person. There were no procedures within BNP under which she was to seek legal advice about the manner and form of BNP's signature, or take other steps to see that it was communicated to PCL that the only role the bank was willing to undertake was one of authentication.

The assumption made by PCL, found by the trial judge to have been reasonable, upon which PCL acted to its detriment, was induced and assisted by the conduct of BNP in placing Ms Dhiri in a position which equipped her to deal with the letters of indemnity as requested by PCL. In those circumstances, the High Court held that it would be unjust to permit BNP to depart from the assumption.

Accordingly, PCL’s appeal was allowed and the matter was remitted back to the Court of Appeal to deal with determination of PCL’s damages.


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