BNP Paribas v Pacific Carriers Ltd [2002] NSWCA 379 (29 November 2002)

Last Updated: 2 December 2002

NEW SOUTH WALES COURT OF APPEAL

CITATION: BNP PARIBAS v PACIFIC CARRIERS LTD [2002] NSWCA 379 revised - 29/11/2002

FILE NUMBER(S):

40852/01

HEARING DATE(S): 23, 24, 25, 26 September 2002

JUDGMENT DATE: 29/11/2002

PARTIES:

BNP Paribas - Appellant/Cross Respondent

Pacific Carriers Limited - Respondent/Cross-Appellant

JUDGMENT OF: Handley JA Sheller JA Giles JA

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): 8/99

LOWER COURT JUDICIAL OFFICER: Hunter J

COUNSEL:

BW Rayment QC/IE Davidson/AB Gruzman - Appellant/Cross-Respondent

AW Street SC/GJ Nell/EGH Cox - Respondent/Cross-Appellant

SOLICITORS:

Corrs Chambers Westgarth - Appellant/Cross-Respondent

Norton White - Respondent/Cross-Appellant

CATCHWORDS:

ADMIRALTY - bills of lading - split bills of lading - letters of indemnity required for discharge of legumes - effect of signature of bank employee on letters of indemnity - CONTRACT - whether bank was contractually bound to indemnify - P and I Clubs standard form - NEGLIGENCE - whether bank negligent in execution of letters of indemnity - TRADE PRACTICES ACT - whether bank misrepresented effect of letters of indemnity - OSTENSIBLE AUTHORITY - no representations by bank that employee had authority to indemnify

LEGISLATION CITED:

Trade Practices Act 1974 (Cth)

DECISION:

1 Appeal allowed

2 Set aside the judgment and orders 1, 2 and 4 in the Court below

3 In lieu thereof order that

(a) PCL's summons be dismissed with costs

(b) PCL pay BNP's costs of the first cross-claim

4 Cross-appeal dismissed with costs

5 Judgment for BNP against PCL for US$4,378,788.49 by way of restitution for the sum paid by BNP to PCL on 15 November 2001 together with interest thereon at the rate of 3.83% per annum from 15 November 2001

6 Judgment for BNP against PCL for US$10,108.40 by way of restitution for the sum paid by BNP to PCL on 26 November 2001 together with interest thereon at the rate of 3.83% per annum from 26 November 2001

7 PCL to pay BNP's costs of the appeal and cross-appeal but to have a certificate under the Suitors' Fund Act 1951, if so qualified

8 Liberty to either party to apply within seven days to vary orders 5 and 6.

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40852/01

ED 8/99

HANDLEY JA

SHELLER JA

GILES JA

BNP PARIBAS v PACIFIC CARRIERS LTD

The appeal was brought from a decision of Hunter J in judgments given on 16 and 24 October 2001. The plaintiff was awarded the sum of approximately US$4,378,000.00 damages and interest thereon against the first defendant.

The appeal on liability was directed to the meaning of two letters of indemnity dated respectively 28 January and 19 February 1999 addressed to the plaintiff and executed by an Australian grain trader and exporter, New England Agricultural Traders Pty Ltd (NEAT) and signed by an employee (Ms Dhiri) of the first defendant, which was NEAT's banker. The questions for decision were whether under the two letters of indemnity (the NEAT LOIs):

- the first defendant became contractually bound to indemnify the plaintiff or, alternatively,

- in the circumstances in which Ms Dhiri signed the NEAT LOIs the first defendant was liable for negligence in the execution of the NEAT LOIs or for breaches of the Trade Practices Act 1974 (Cth) (the Act) by misrepresenting their effect or the authority of the employee who signed them.

Hunter J held the first defendant not bound by contract but liable in negligence to pay the damages awarded. This finding was appealed against by the first defendant. The plaintiff cross-appealed against the trial Judge's decision that the first defendant was not contractually bound by the NEAT LOIs and also on other grounds based on the Act and in negligence.

The events which led to the execution and signing of the NEAT LOIs arose from the sale and shipment of approximately 10,000 metric tonnes of chick peas and 10,000 metric tonnes of dun peas from NEAT to an Indian grain trader (Royal Trading Company) operating out of Calcutta. While the vessel carrying the legumes was at sea, Royal Trading Company requested that NEAT "split" the bills of lading. Problems arose when the ship was ready for discharge and the plaintiff, the time charterer of the vessel, stipulated that if the original bills of lading were not to be presented at discharge it would require a letter of indemnity from NEAT.

NEAT approached the first defendant and Ms Dhiri signed the first NEAT LOI in the space reserved for "Banker's signature" and affixed the first defendant's stamp. The second NEAT LOI was signed and stamped in the same manner. Evidence was given at the hearing by Ms Dhiri that she intended to do no more than verify the signatures of those who had signed the letters of indemnity on behalf of NEAT. She did not have authority to grant an indemnity or execute a guarantee on behalf of the first defendant. The plaintiff submitted that Ms Dhiri had apparent or ostensible authority to bind the first defendant to agree to indemnify the plaintiff.

The trial Judge did not accept the first defendant's case that the execution of the NEAT LOIs by the first defendant was expressly made known to NEAT as being for verification of signatures only.

HELD (per Sheller JA, Handley JA and Giles JA concurring):

Contract

1. The NEAT LOIs followed in large part a standard form (to be given in return for delivering cargo without production of the original bill of lading). Ordinarily one would not expect the standard form to be signed "for and on behalf of" a bank unless the bank was satisfied that the requestor had an entitlement to the delivery of the goods, and had assets sufficient to enable it to meet the indemnity. The bank would normally require security from the requestor. However, no evidence was given in this case about usage or practice in banking or shipping to assist in understanding the language of the NEAT LOIs.

2. The standard form failed to achieve its purpose once it was signed for and on behalf of a bank when "we" in the expression "we hereby agree" did not include the first defendant as a party to the agreement. The obvious purpose of the LOI required that "we" be defined by reference to the parties whose signatures appeared in the subscription rather than by reference to the party or parties who made the request.

Ostensible Authority

3. The challenges to the trial Judge's findings as to the reliability of Ms Dhiri's evidence could not be sustained. The trial Judge saw Ms Dhiri give her oral evidence. This was not a case where in a complex pattern of events incontrovertible evidence could only be fitted into the pattern if a different view of the credibility of Ms Dhiri were taken by the Court: Agbaba v Witter (1977) 51 ALJR 503 at 508; Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434 at 448.

4. The commonest form of a representation which creates "apparent" or ostensible authority is representation by conduct, that is, by permitting the agent to act in some way in the conduct of the principal's business with other persons: Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 503-4. In the present case it was hard to see what conduct of any person other than Ms Dhiri amounted to a representation that Ms Dhiri had authority by her signature alone to enter into a contract of indemnity on behalf of the first defendant.

5. The only representation by the first defendant to the plaintiff had to be found in Ms Dhiri's signature on the NEAT LOIs. There was no evidence that the first defendant knowingly permitted Ms Dhiri alone to enter into such contracts on its behalf. There was no evidence that the plaintiff or its officers had any belief about who had executed the documents on behalf of the first defendant or what the authority of that person was beyond what appeared on the documents themselves; compare Freeman & Lockyer at 509. Similarly, there was no evidence of any representation to the plaintiff by the first defendant that Ms Dhiri had any authority so to bind the first defendant.

6. Even if it could be said that the plaintiff assumed Ms Dhiri had authority, which she had exercised to bind the first defendant to an agreement to indemnify the plaintiff, the first defendant had not contributed to the adoption of that assumption and should not be held to it.

Section 52 of the Act

7. Unless it could be found that the first defendant represented to the plaintiff that it had executed the NEAT LOIs in such a manner as to be bound as a co-indemnifier, there was no breach of s52 of the Act: see Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191. There was no evidence that such representations were made. Neither the pleaded case nor the case as represented was that the plaintiff had been misled or deceived by uncertainty about the first defendant's obligation to indemnify.

Negligence

8. The submission that the first defendant was under a duty of care to the plaintiff which required it to go further and indicate on the document the limited purpose for which Ms Dhiri signed it must fail. The duty of care does not extend so far.

9. If the first defendant made no representation that Ms Dhiri had the necessary authority, the plaintiff could not circumvent the first defendant's non-agreement to indemnify it by alleging that the first defendant, owed a duty of care to inform the plaintiff, by qualification of the document, that it was not a party to the contract.

10. The doctrine of promissory estoppel is not relevant in this case. The plaintiff simply proceeded on the mistaken belief that the first defendant had agreed to indemnify when it had not. That belief was not encouraged by any representation made by the first defendant.

Legislation cited:

Trade Practices Act 1974 (Cth)

Cases cited:

Agbaba v Witter (1977) 51 ALJR 503

Armagas Ltd v Mundogas SA [1985] UKHL 11; [1986] AC 717

British Thomson-Houston Co v Federated European Bank Ltd [1932] 2 KB 176

Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd [1975] HCA 49; (1975) 133 CLR 72

Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd & Anor [1964] QB 480

Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310

Houghton & Co v Nothard, Lowe and Wills Ltd [1927] 1 KB 246

Northside Developments Pty Ltd v Registrar-General [1990] HCA 32; (1990) 170 CLR 146

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191

Perre v Apand [1999] HCA 36; (1999) 198 CLR 180

R v Toohey & Anor; Ex parte The Attorney-General for the Northern Territory of Australia [1980] HCA 2; (1980) 145 CLR 374

Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434

Royal British Bank v Turquand (1856) 6 E & B 327; 119 ER 886

State Rail Authority of NSW v Earthline Constructions Pty Ltd (In Liquidation) [1999] HCA 3; (1999) 73 ALJR 306

Sullivan v Moody [2001] HCA 59; (2001) 75 ALJR 1570

Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507

Walton Stores (Interstate) Ltd v Maher & Anor [1988] HCA 7; (1988) 164 CLR 387

ORDERS

1. Appeal allowed;

2. Set aside the judgment and orders 1, 2 and 4 in the Court below;

3. In lieu thereof order that

(a) PCL's summons be dismissed with costs;

(b) PCL pay BNP's costs of the first cross-claim;

4. Cross-appeal dismissed with costs;

5. Judgment for BNP against PCL for US$4,378,788.49 by way of restitution for the sum paid by BNP to PCL on 15 November 2001 together with interest thereon at the rate of 3.83% per annum from 15 November 2001;

6. Judgment for BNP against PCL for US$10,108.40 by way of restitution for the sum paid by BNP to PCL on 26 November 2001 together with interest thereon at the rate of 3.83% per annum from 26 November 2001;

7. PCL to pay BNP's costs of the appeal and cross-appeal but to have a certificate under the Suitors' Fund Act 1951, if so qualified;

8. Liberty to either party to apply within seven days to vary orders 5 and 6.

**********

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40852/01

ED 8/99

HANDLEY JA

SHELLER JA

GILES JA

Friday, 29 November 2002

BNP PARIBAS v PACIFIC CARRIERS LTD

Judgment

1 HANDLEY JA: I agree with Sheller JA.

2 SHELLER JA:

Introduction

This appeal is brought from a decision of Hunter J, the reasons for which are found in judgments given on 16 and 24 October 2001. His Honour awarded the plaintiff and respondent, Pacific Carriers Ltd (PCL or Pacific), damages of US$4,378,488.49 and interest thereon against the first defendant and appellant, BNP Paribas (BNP).

3 The appeal on liability was directed to the meaning of two letters of indemnity (LOIs) dated respectively 28 January and 19 February 1999 addressed to PCL and executed by an Australian grain trader and exporter, New England Agricultural Traders Pty Ltd (NEAT), and, significantly, signed by an employee of BNP, which was NEAT's banker. I shall refer to these two letters of indemnity as the NEAT LOIs. The questions for decision were whether, under the NEAT LOIs, BNP became contractually bound to indemnify PCL or, alternatively, BNP was liable, in the circumstances in which its employee signed the NEAT LOIs, for negligence in their execution or for breaches of the Trade Practices Act 1974 (Cth) by misrepresenting their effect or the authority of the employee who signed them. Hunter J held BNP not bound by contract but liable in negligence to pay the damages awarded. PCL cross-appealed against Hunter J's decision that BNP was not contractually bound by the NEAT LOIs and also on other grounds based on the Trade Practices Act and in negligence.

Sale and sea carriage of goods

4 For present purposes the events which led to the execution and signing of the NEAT LOIs can be stated shortly. In 1998 NEAT sold to Royal Trading Company (Royal), an Indian grain trader operating out of Calcutta, approximately 10,000 metric tonnes of chick peas and approximately 10,000 metric tonnes of dun peas. (1 tonne equals 1 metric ton (MT). In the documents the expressions metric tonne, a tautology, and metric ton or MT have been used indiscriminately). The sales were on the terms of four contracts numbered and dated as follows:

070798A for 6,000 metric tonnes of chick peas dated 9 July 1998;

070798B for 6,000 metric tonnes of dun peas dated 9 July 1998;

060898A for 4,000 metric tonnes of chick peas dated 6 August 1998;

060898B for 4,000 metric tonnes of dun peas dated 6 August 1998.

In each contract the quantity was expressed as 5 per cent more or less.

5 Under the two chick peas contracts the shipment period was 15 November 1998 to 15 December 1998 at seller's option ex-Australia both days inclusive. The buyer agreed to extend the shipment period if required by the seller due to delay of harvest. Under the two dun peas contracts the shipment period was 1 December to 31 December 1998 at seller's option ex-Australia both days inclusive with a similar extension provision. The discharge port was Calcutta. The discharge terms included the following:

"Normal discharge by lighters at Diamond Harbour where 7m draft obtainable. Lighterage costs for buyer's account.

If vessel over 7m or port's drafts for entering Calcutta, lighterage costs at Sagar/Haldia shipper's account."

Payment

6 Under the contracts payment was to be by an irrevocable 90 days letter of credit "to be opened and payable in Sydney with" BNP Sydney "by a first class international bank acceptable to BNP Sydney" payable "against shipping documents listed below". The letter of credit was to be opened at the latest 15 days prior to first date of shipment period "through First Class Prime Bank in Singapore or through Nationalised India Bank acceptable to BNP Sydney". In late September or early October 1998 Royal requested Swiss Singapore Overseas Enterprises Pte Limited (SSOE) to finance Royal's purchase of goods from NEAT. On 19 October 1998, at Royal's request, the contracts were amended to allow the letters of credit to be opened by SSOE. It was confirmed that Royal would "remain" as buyer and as the "notify party".

7 On 23 October 1998 SSOE applied to Bangkok Bank Public Company Ltd (Bangkok Bank) at its Singapore Branch to open a 90 day documentary letter of credit in the sum of US$1,112,000. The expiry date was expressed to be 31 December 1998 and the beneficiary was identified as NEAT. The credit related to a shipment of 4,000 metric tonnes of Australian chick peas to Calcutta from Australia, with the "latest shipment date" 15 December 1998. In the list of documents required were "signed commercial invoices in 1 original plus 3 copies certifying that the goods shipped as per beneficiary's contract No 060898A" but the clean on board bills of lading were to be endorsed "notify applicant", that is SSOE. This change was unexplained. The letter of credit was opened on 27 October 1998 and forwarded by Australia and New Zealand Banking Group Limited to BNP on 28 October 1998. It is referred to as the first letter of credit.

8 On 28 October 1998 on the application of SSOE, Bangkok Bank issued a second 90 day documentary letter of credit (the second letter of credit) in respect of the first chick peas contract in the sum of US$1,650,000. Erroneously it referred to the goods by reference to the second chick peas contract number. That was amended on 27 November 1998.

9 In the case of the dun peas contracts it was necessary to extend the date by which the letter of credit was to be opened. In mid-November the date was extended to 30 November 1998 and, in conformity with that extension, on that date Bangkok Bank opened a letter of credit (the third letter of credit) in the amount of US$2,032,000 to cover the two dun peas contracts.

Carriage

10 Through brokers Anderson Hughes Group (Brisbane), NEAT negotiated a voyage charter with PCL dated 8 December 1998. An addendum dated 9 December 1998 nominated the MV Nelson as the vessel. The MV Nelson was owned by Bolton Navigation SA (Bolton). The voyage charter provided that the vessel was to discharge at Diamond Harbour but that should the vessel arrive at the discharging point with a draft exceeding 7m any time lost awaiting sufficient water or lightering costs to be for owner's time and account. On 9 December 1998 PCL entered into a time charter with Bolton for one time charter trip from an Australian port to Calcutta for the carriage of grain in bulk. PCL appointed Multimode Maritime Pvt Ltd to represent it in Calcutta.

11 The MV Nelson arrived at Fremantle on 16 December 1998. Loading of dun peas began on 23 December 1998 and was completed on 24 December 1998. A bill of lading dated 24 December 1998 and signed on behalf of the Master issued acknowledging shipment of 5,762.58 metric tonnes of dun peas (B/L 1). In conformity with the arrangement involving the establishment of the letters of credit by SSOE, NEAT was shown as the shipper and SSOE, not Royal, identified as the party to be notified.

12 On 27 December 1998 the vessel resumed loading dun peas at Esperance. Two bills of lading issued, each dated 27 December 1998, one acknowledging shipment of 537.42 metric tonnes (B/L 2) and the other shipment of 4,169.23 metric tonnes of dun peas (B/L 3). The bills of lading were executed in similar form and to like effect as B/L 1.

13 The vessel was loaded with 9,273.96 metric tonnes of chick peas at Brisbane on 4 January 1999. Ten bills of lading issued each dated 4 January 1999 acknowledging the shipment of this total amount in similar form and to like effect as B/L1. B/L 4A, B/L 4B and B/L 4C each acknowledged shipment of 1,000 metric tonnes and B/L 4D 800 metric tonnes. B/L 5A, B/L 5B, B/L 5C, B/L 5D, B/L 5E and B/L 5F, which are not relevant to this appeal, acknowledged shipment of the balance of the chick peas.

14 While the vessel was at sea between Esperance and Brisbane, Royal requested NEAT to "split" the bills of lading. NEAT agreed on condition that this take place in Singapore to avoid what was said to be the cost of splitting the bills of lading in Australia. The vessel sailed from Brisbane to Calcutta on the evening of 4 January 1999 before the bills of lading were split.

Discharge

15 On 24 January 1999 the MV Nelson arrived at Sagar Roads anchorage at the mouth of the Hugli River some 50 or 60 kilometres from Diamond Harbour, the ultimate port of discharge for Calcutta. The vessel was over 7m draft so it was necessary to lighten it at Sagar Roads by off-loading approximately 7,000 metric tonnes of peas into barges. In the meantime, there had been a sharp drop in the grain market for legumes. As a result, considerable delays followed in negotiating the discharge of the cargo.

16 For the purpose of acceptance of documents under the letters of credit opened on SSOE's application, on or about 27 December 1998, NEAT raised commercial invoices addressed to SSOE identifying the subject matter by reference to the Royal dun peas contract numbers. On 4 January 1999 NEAT issued similar commercial invoices to SSOE identifying the subject matter by reference to the Royal chick peas contract numbers. The invoices mirrored the terms of the contracts between NEAT and Royal. The invoices were not submitted directly to SSOE. They were provided through the banking system for the purpose of acceptance under the letters of credit opened by Bangkok Bank on SSOE's application, pursuant to the express terms of the NEAT/Royal contracts.

17 Hunter J was satisfied that SSOE was not a purchaser of the cargo from NEAT. However, as though it was a purchaser for on-sale to Royal, SSOE raised two forms of sales contracts, which Royal never executed, for the sale to Royal of the chick peas and the dun peas respectively dated 2 October 1998 and 20 November 1998. The prices followed the sales prices to Royal with what was described as "a margin" to be added to the Royal contract prices of $5 per metric tonne in the case of the chick peas and $7 per metric tonne in the case of the dun peas. Payment terms were described as "by irrevocable L/C at sight or D/P at sight." One condition of the "sales contract" was that:

"the seller [would] make every endeavour to negotiate and/or send the documents at the earliest but in any case if the same [was] not available before the arrival of the vessel then the buyer to arrange the discharge of cargo immediately against letter of indemnity duly signed by their bankers."

Royal did not pay for any part of the cargo other than that the subject of B/L 2. SSOE did not avail itself of its entitlement to cancel the contract and took no action in respect of Royal's failure to pay the deposit or to recover any payment by Royal under either contract, notwithstanding delivery of a substantial portion of the cargo to Royal without payment to SSOE.

Switched bills of lading

18 On 4 January 1999 Derek Kilby and Associates (Kilby), maritime consultants retained by NEAT, provided details of PCL's agents in Singapore (Beaufort (Singapore)) to "arrange against presentation of the [initial] B ladings issued in Australia". That information was sent to the assistant manager for shipping and marketing for SSOE and to Beaufort (Singapore). It was common ground that PCL raised no objection to the issuing of switched bills of lading in the splitting exercise. In the draft bills proposed by SSOE, SSOE was shown as the shipper in place of NEAT and Royal was the designated notify party.

19 On 12 January 1999 Kilby informed Anderson Hughes that the initial bills of lading were in the banking system. On the same date SSOE sent NEAT draft switched bills of lading which NEAT in turn sent to G C Goil Commodity Corporation (Goil) which had negotiated the sales as brokers. NEAT also sent the draft switched bills of lading to Anderson Hughes and Kilby. The draft switched bills of lading made the following changes to the original bills of lading:

(a) the shipper was changed to SSOE (instead of NEAT)

(b) the notify party was changed to Royal (instead of SSOE); and

(c) the date and place of issue was changed

(i) in the case of switched B/L 1A-1F which replaced B/L 1, to Singapore as at Fremantle dated 24 December 1998;

(ii) in the case of B/L 2 and 3A-3E which replaced B/L 2 and 3, to Singapore as at Esperance dated 27 December 1998; and

(iii) in the case of switched B/L 4A-4D which replaced B/L 4A-4D, to Singapore as at Brisbane, Australia dated 4 January 1999.

20 On 12 January 1999 PCL advised Beaufort (Sydney) that the original bills of lading 1, 2, 3, 4A to 4D and 5A to 5F would be presented to Beaufort (Singapore) and the original bills of lading would be destroyed and new bills of lading raised.

21 Following receipt of the draft switched bills of lading from NEAT, Goil advised NEAT of his concerns over the switch and remarked that he thought "something is very fishy about the whole thing".

22 When the MV Nelson was approximately 12 days out of Sagar Roads the documents under the letter of credit opened by Bangkok Bank had not been accepted. On 13 January 1999 SSOE sent a fax to PCL for the attention of its employee Captain Liang Kok Beng. Faxed therewith were the draft "switch" bills of lading. The fax continued:

"Please also instruct your discharge port agent to release the cargo to the notify party against banker's guarantee."

23 By 15 January 1999 the commercial relationship between Royal and SSOE was not acceptable to SSOE. Royal owed SSOE considerable amounts of money in respect of other shipments of cargo.

24 The delay in the negotiation of the bills of lading introduced further complications in the relations between the parties. Anderson Hughes faxed Kilby on 18 January 1999 pointing out that if original bills of lading were not to be presented at discharge they would need a letter of indemnity from the charterers, namely NEAT.

Delays in discharge

25 Hunter J described the various matters which governed the conduct of the parties in the second half of January 1999 until lightening or lightering (both words were apposite to the operation and each was used to describe it) began at Sagar Roads on 10 February 1999. One of these was the absence of bills of lading to be presented by the receivers of the goods when the vessel arrived at Diamond Harbour. Consequently, the attention of the parties was directed to the provision of LOIs. Another issue was the stress imposed upon the vessel in unloading part of the cargo. In the result on 19 January 1999 Bolton's manager sought an LOI from PCL and provided its standard form of wording for an indemnity to be given in return for delivering cargo without production of the original bill of lading. As will appear later in this judgment, the standard form was substantially one issued for that purpose in December 1998 by the international group of P & I Clubs (mutual insurance entities comprised of shipowners) and recommended for use by members (the 1998 standard form). Kilby forwarded the 1998 standard form to NEAT on 21 January 1999 with a covering note: "Attached is the LOI requested by owners. Pls call me to discuss once you have read it. RGDS."

26 On the same day NEAT sent Goil a facsimile stating that it appeared that the receivers would have difficulty in ensuring that original bills of lading would be available at Calcutta for vessel discharging. The facsimile stated:

"To avoid delay in discharge we have prepared LOI text for Royal to open to shipping company to commence discharging against LOI pending B/Ls arrival. This needs to be signed by Royal Trading's bank and original lodged with shipowner agent in Calcutta: please fax us copy of LOI which has been lodged."

The form of LOI forwarded with this facsimile included the changes to the 1998 standard form which were later found in the NEAT LOIs. The writer asked for urgent advice that the LOI was in place. By 23 January 1999 Bolton had indicated that the LOI should be signed by PCL and that Bolton could not accept Royal's LOI.

27 PCL replied on 23 January 1999 that LOIs would be faxed to Bolton on 24 January 1999. PCL then informed Anderson Hughes that it would be giving its LOI to Bolton but would require a similar LOI from NEAT.

28 The executed LOI which PCL forwarded to Bolton on 24 January 1999 followed the 1998 standard form omitting any reference to a bank and, as Hunter J observed, appeared to conform with the requirements of cl 63 of the time charter whereunder PCL agreed to issue a telexed or telefaxed LOI in the form of Bolton's P & I Club wording "but no bank guarantee or counter signature of Owners' bank is required". In the result Bolton treated the position as being that the master would be allowed to begin the discharge of cargo without presentation of original bills of lading. However, on the instructions of PCL, the master was to release the cargo to consignees only after he received receiver's LOI or specific instructions directly from PCL. Royal saw the emerging predicament as one in which it was appropriate to demand that the full cost of lighterage would be at seller's account.

29 On that same day NEAT informed Goil that it had to put in place an LOI and therefore required immediately an LOI from Royal. This took the same form as that forwarded to Goil on 21 January 1999.

30 On 25 January 1999 Peter Sniekers, a director and the company secretary of NEAT, spoke by telephone to Era Dhiri, the manager of BNP's documentary credits department, who had overseen the documentation for the opening of the letters of credit by the Bangkok Bank, indicating that NEAT had to get an LOI in place. Mr Sniekers was recorded as saying: "I guess we need to open a back to back LOI with the shipowner" interrupted by Ms Dhiri saying: "Yeah". Hunter J accepted Mr Sniekers' evidence that by 25 January 1999 he had disclosed to Ms Dhiri that the initial bills of lading were to be "cut" or switched.

31 On 28 January 1999 Goil forwarded the Royal LOI to NEAT by facsimile. The LOI was dated 27 January 1999 and related to some of the switched bills of lading. It was in the form as presented to Goil by NEAT but the provision for execution by the bank was left blank and the following endorsement inserted:

"Without any liability on the part of the Bank or its signing officer we confirm that the signature of Gopal Chand Bhura agrees with (indecipherable) for BANK OF AMERICA NT & SA."

Below that appeared the signature of an "authorised signatory". However, PCL was not prepared to discharge unless the LOI was endorsed by a reputable bank.

32 On 28 January 1999 NEAT sent the following facsimile to Ms Dhiri at BNP:

"Dear Era

As discussed this morning please find attached LOI to cover discharge of field peas at Calcutta.

Could you please peruse and advise.

We need to get LOI in place at Calcutta to allow vessel to commence lightening pending documents acceptance for the chickpeas.

I will be travelling but Murali and Peter Howard have their collective fingers on the pulse.

If possible would like to get LOI fax signed and returned to shipowners agents by this afternoon/tomorrow morning.

Thanks and regards

Peter Sniekers

AS SOON AS YOU GET FORMAL O.K. ON FIELD PEA DOCS, COULD WE PLEASE PUT THIS LOI IN PLACE. MANY THANKS."

The attached LOI was the first NEAT LOI.

33 Hunter J said:

"126 It is pertinent to note that NEAT had executed the LOI prior to forwarding this facsimile copy to BNP: further, that Dhiri was requested to `get' facsimile `signed and returned to ship owners'. That is of significance as the request gives no indication that BNP's role in `signing' the LOI was expected to be limited in any way. Perhaps more significantly, the facsimile makes it clear that, once the LOI had been `signed' by BNP, it was to be given immediately to `shipowners'."

34 I shall return to the form of the NEAT LOI attached to the facsimile of 28 January 1999. Hunter J stated that he had considerable reservations about the reliability of hand-written notes made by Ms Dhiri on the facsimile received on 28 January 1999 and the facsimile from NEAT to BNP of 18 February 1999 seeking urgent execution of a second NEAT LOI. A further note was to be found on the back of the first NEAT LOI retained by BNP.

35 Ms Dhiri's signed the first NEAT LOI in the space reserved for "Banker's signature" and affixed BNP's stamp. The signed LOI was forwarded to NEAT, which had already executed it, at about 2.30 pm on 29 January 1999. It went forward to and reached PCL later that afternoon. In sending it on Anderson Hughes wrote "Please find following copy of LOI issued by [NEAT] and counter-signed by their bank covering the shipment of dun peas on this vessel." The first NEAT LOI referred to the total shipment of dun peas under B/L1, B/L2 and B/L3.

36 It is not necessary to chronicle all the difficulties which followed and which Hunter J referred to. By 3 February 1999 despite receipt of the NEAT LOI the commencement of lightering the vessel was no closer. By 16 February 1999 discussions had taken place between NEAT and Ms Dhiri about the issue of another LOI in respect of part of the cargo of chick peas. On that date NEAT faxed Mr Goil as follows:

"As stressed to you yesterday, BNP will not counter-sign NEAT's LOI without the formal Bangkok Bank's advice that documents have been accepted.

The only way I see out of the problem is for an executive of Bangkok Bank to contact BNP Sydney directly and without delay giving the assurance that documents are accepted. I understand that it is a public holiday in Singapore but please do your utmost to see if something can be done. Shipping company will only accept LOI counter-signed by our Bank and our bank will only counter-sign LOI on Bangkok Bank's formal advice."

A copy of that fax went to Ms Dhiri. In a later fax of the same date to Mr Goil, 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 faxed BNP attention Ms Dhiri:

"Dear Era

Please find attached LOI in readiness for bank's signature to allow MV Nelson to recommence discharging grain at Calcutta."

The LOI had already been executed by NEAT. The cargo referred to was 3,800 metric tonnes of Australian chick peas and the bills of lading B/L 4A, B/L 4B, B/L 4C and B/L 4D. Otherwise the form was the same as the first NEAT LOI. On 18 February 1999 NEAT faxed SSOE:

"As discussed please urgently advise your senior Bangkok Bank contact so we can secure bank's confirmation of documentary acceptance so we can put in place our LOI without further delay and so continue with vessel discharging immediately."

A copy of this fax was sent to Ms Dhiri.

37 On 18 February 1999 NEAT faxed Ms Dhiri:

"In the unlikely event that you receive something before you go home this evening ref confirmation of documentary acceptance, could you please have the LOI signed and then fax it directly to our shipping agent [Kilby & Anderson Hughes].

He can then pass it directly onto vessel owners so discharging of vessel can commence as soon as possible."

38 On 19 February 1999 Ms Dhiri signed the second NEAT LOI, which was, mutatis mutandis, in the same form as the first NEAT LOI, in the space reserved for Banker's signature and affixed BNP's stamp to it. The second NEAT LOI so executed and signed was sent to PCL which on 19 February 1999 faxed its agent in Calcutta that it was in possession of the LOI. "Consequently, you have our authority to release 3,800 mts chick peas to Royal Trading Co likewise, our SPORE office will instruct master accordingly."

39 Referring to one of the facsimiles, Hunter J said:

"186 This facsimile further evidenced the fact that Dhiri was made well aware of the purpose for which NEAT required BNP's execution of the second NEAT LOI and that it would be forwarded directly to the `owners' once signed by the bank `so discharging' could commence. After numerous telephone communications of 19 February 1999, Dhiri executed the second NEAT LOI in the same way as the first LOI had been executed by her. It also bore the stamp of Banque Nationale de Paris."

40 Hunter J quoted from recorded telephone conversations to which Ms Dhiri was a party and observed that the exchanges between NEAT and BNP fitted uncomfortably beside BNP's case that the execution of the NEAT LOIs by BNP was expressly made known to NEAT as being for verification of signatures. They also evidenced that the use to be made of the LOIs once signed on behalf of BNP was made clear to Ms Dhiri.

41 With the second NEAT LOI in place lightering resumed with the discharging of both dun peas and chick peas on 19 February 1999. On 27 February 1999 Multimode was able to notify the harbourmaster of the Calcutta Port Trust that the vessel had achieved the permissible draft of 6.6m coming up river to Diamond Harbour. The vessel arrived at Diamond Harbour on 5 March 1999 and began again discharging dun peas. This continued until 10 March 1999 when the discharge of all cargo stopped. On 16 March 1999 the vessel was removed from its Diamond Harbour anchorage to Calcutta dock where it remained until it was arrested on 31 March 1999 on SSOE's application. At that time 3,800 metric tonnes of chick peas and approximately 9,072 metric tonnes of dun peas had been discharged - 5,500 metric tonnes of chick peas and 1,500 metric tonnes of dun peas remained on board.

42 The vessel remained in Calcutta under arrest until 29 June 1999 when it was released by court order. On 11 May 1999 the High Court of Calcutta ordered the cargo remaining on the vessel to be barged and delivered to court appointed receivers. That final discharge took place between 30 May and 26 June 1999.

Pleading

43 In the summary of contentions in its further amended summons to which both BNP and NEAT were defendants, PCL claimed relief under the following heads:

Breach of contract (paras 4-23);

Representations in breach of the Trade Practices Act that BNP was a party to the NEAT LOIs and that Ms Dhiri had authority to sign the NEAT LOIs on its behalf (paras 24-37); and

Negligence in the execution of the NEAT LOIs (paras 39-46)

44 PCL alleged that by the first NEAT LOI of 28 January 1999 both NEAT and BNP agreed to indemnify PCL in respect of liability for loss or damage which might be sustained by reason of delivering the goods to Royal as directed by Royal and in particular agreed that if in connection with the delivery of the cargo the ship should be arrested, NEAT and Royal would on demand provide bail or other security as might be required to secure release of the vessel. The liability to indemnify was joint and several. PCL alleged that the vessel was arrested by SSOE and that on PCL's demand, NEAT and BNP failed and refused to provide bail and/or security for the release of the vessel from such arrest. The same claim was made based on the second NEAT LOI of 19 February 1999. These contractual claims failed before Hunter J.

45 In the alternative, PCL alleged that by the NEAT LOIs NEAT and BNP represented that BNP was a party to the NEAT LOI and agreed to be bound and liable under them and represented that Ms Dhiri had authority to execute or sign the NEAT LOIs on behalf of BNP in breach of ss52 and 51A of the Trade Practices Act.

46 The third way of putting the case is best explained by quoting paras 39 - 45 of the summary of plaintiff's contentions:

"39 Further or in the alternative, [PCL] says that in and prior to 19 February 1999, [BNP] in the course of its banking business was required to execute or sign agreements in its documentary credit department that would be provided to and relied on by customers of [BNP] and by parties identified in the agreements as being an execution or signature that would be authorised by and bind [BNP].

40 [BNP] knew that the class of persons, being the customers of [BNP] or parties to the agreements, would be likely to suffer economic loss if [BNP] failed to exercise reasonable care in executing or signing such agreements.

41 On or about 28 January 1999 and again on or about 19 February 1999, [BNP] in its documentary credit department was requested by its customer, [NEAT], to execute or sign an agreement being an agreement to which [PCL] was a party.

42 [PCL] was vulnerable to suffering economic loss, if [BNP] failed to exercise reasonable care in executing or signing agreements in its documentary credit department, by permitting delivery or continued delivery of cargo without surrender of original bills of lading.

43 [BNP] knew or ought to have known that [PCL] would be provided with agreements executed or signed by [BNP] and that [PCL] would be likely to suffer economic loss if [BNP] failed to exercise reasonable care in executing or signing the agreements.

44 In the premises [BNP] owed [PCL] a duty of care in executing or signing the agreements dated on or about 28 January 1999 and 19 February 1999.

45 In breach of the said duty of care, [BNP] was negligent.

Particulars of negligence

[BNP] by itself, its servants and agents was negligent by:

(a) failing to provide any or any proper instructions for the execution or signing of agreements in its documentary credit department;

(b) failing to provide any or any proper instructions for differentiating between execution or signing of an agreement and verification of an agreement;

(c) failing to supervise the execution or signing of agreements being letters of indemnity by [BNP];

(d) failing to implement any or any proper system in relation to the execution or signing of agreements in its documentary credit department for the purpose of verification only by [BNP];

(e) executing or signing the agreement dated on or about 28 January 1999 and/or the agreement dated on or about 19 February 1999;

(f) executing or signing the agreement dated on or about 28 January 1999 and/or the agreement dated on or about 19 February 1999 without express qualification as to the purpose for which [BNP] was executing or signing the same;

(g) failing to provide any or any proper instructions in its documentary credit department for the execution or signing of letters of indemnity;

(h) failing to instruct Ms Era Dhiri not to execute or sign the agreement dated on or about 28 January 1999 and/or the agreement dated on or about 19 February 1999;

(i) failing to instruct Ms Era Dhiri not to countersign letters of indemnity without express qualification;

(j) failing to issue any or any proper instructions to Ms Era Dhiri as to her authority to execute or sign agreements."

47 Of particular significance were paras (e) and (f). The contentions alleged negligence separate from any allegation of unlawful representation. In substance the allegation was that the NEAT LOIs were negligently executed by BNP in particular because the signature was not qualified.

48 Hunter J held that the NEAT LOIs should be read as BNP's assurance that NEAT was good for the subject indemnity and that BNP was liable in negligence for giving such an assurance even though PCL treated the NEAT LOIs as contracts by BNP to indemnify it.

Grounds of appeal

49 BNP's grounds of appeal against PCL were grouped under several headings.

1. Denial of natural justice

BNP claimed that Hunter J's finding that by signing the NEAT LOIs, BNP gave its assurance that NEAT was good for the subject indemnities involved a denial of natural justice.

2. Duty of care

BNP claimed that Hunter J erred in law in holding that in the circumstances of the case BNP owed a duty of care to PCL not to cause it any economic loss.

3. Breach of duty

BNP claimed that Hunter J erred in holding that BNP was in breach of any duty of care owed by it to PCL or that any carelessness of Ms Dhiri breached any duty of care by her to PCL for which BNP was vicariously responsible.

4. Exhaustion of letters of indemnity

BNP claimed that Hunter J erred in failing to hold that even if BNP were liable as if it were a co-indemnifier under the NEAT LOIs, the NEAT LOIs on their true construction were discharged or spent upon cancellation of the original bills of lading.

5. Causation

BNP claimed that Hunter J erred in holding that any damage suffered by PCL was caused by any breach of duty on the part of BNP. His Honour should not have held that it was reasonable for PCL to rely as it did upon BNP signing of the LOIs.

6. Contributory negligence

BNP claimed that Hunter J erred in failing to hold that any damage otherwise recoverable by PCL ought to have been reduced by reason of PCL's contributory negligence.

7. Damages

8. Findings in relation to Ms Dhiri

The grounds were:

"25 That his Honour erred in:

(a) finding that Ms Dhiri understood that the initial bills of lading would be switched;

(b) not accepting the reliability of notes made by Ms Dhiri relating to the letters of indemnity;

(c) finding that Ms Dhiri did not communicate to any representative of NEAT her intention that she was signing the letters of indemnity merely for verification of signatures;

(d) concluding that both NEAT and Ms Dhiri assumed that, once payment under the letters of credit was assured by acceptance of discrepant documents, the provision of the letters of indemnity was risk free to NEAT;

(e) relying on transcripts of phone conversations which were incomplete and omitted important phone conversations to reject evidence of Ms Dhiri;

(f) not finding that had Ms Dhiri known that the initial bills of lading would be `switched', she would have advised NEAT against signing the LOIs and would not have counter-signed them."

9. Interest allowed

Cross-appeal

50 PCL cross-appealed principally on the bases that Hunter J should have held that the terms of the NEAT LOIs included BNP as a party, making it jointly and severally liable thereunder. Hunter J should have held that Ms Dhiri had actual authority or implied or ostensible authority to perform the act of signing the NEAT LOIs so as to make BNP a party thereto even though her method of performing the act of signing was negligent. PCL claimed that the trial Judge should have held that the execution of the NEAT LOIs amounted to misleading conduct engaged in by BNP in contravention of s52 of the Trade Practices Act.

Contract

51 Since it will reflect upon the claims under the Trade Practices Act and the claims in negligence it is convenient that I first consider the contract claim which PCL argued in its cross-appeal. The NEAT LOIs derived from the precedent letter of indemnity PCL provided to Anderson Hughes, NEAT's brokers. As I have mentioned the terms of the NEAT LOIs followed in large part the 1998 standard form to be given in return for delivering cargo without production of the original bill of lading, issued in December 1998 by the international group of P and I Clubs and recommended for use by members. See Gaskill, Asariotis & Baatz, Bills of Lading: Law and Contracts (2000) London, LLP Publishing at p 445.

52 The 1998 standard form was headed "Standard Form Letter of Indemnity to be given in return for delivering cargo without production of the original Bill of Lading" and was directed to the owners of the vessel which, together with the voyage (load/discharge port, as stated in the bill of lading), cargo, by description, and bill or bills of lading by identification number, date, place of issue, it identified. The 1998 standard form, by way of recital, gave a short history of the shipment with the name of the shipper and consignee or party to whose order the bill of lading was made out and the delivery port. The 1998 standard form continued "but the bills of lading have not arrived and we, [insert name of party requesting delivery], hereby request you to give delivery of the said cargo to [insert name of party to whom delivery is to be made] without production of the original Bill(s) of Lading."

53 The substance of the 1998 standard form was:

"In consideration of your complying with our above request, we hereby agree as follows:

1. To indemnify you ... in respect of any liability, loss, damage or expenses of whatsoever nature which you may sustain by reason of delivering the cargo in accordance with our request."

54 Among clauses 2-7 that followed were:

"...

3. If, in connection with the delivery of the cargo as aforesaid, the ship or any other ship or property belonging to you should be arrested or detained or if the arrest or detention thereof should be threatened to provide on demand such bail or other security as may be required to prevent such arrest or detention or to secure the release of such ship or property and to indemnify you in respect of any liability, loss, damage or expenses caused by such arrest or detention or threatened arrest or detention whether or not such arrest or detention or threatened arrest or detention may be justified.

...

5. The liability of each and every person under this indemnity shall be joint and several and shall not be conditional upon your proceeding first against any person, whether or not such person is party to or liable under this indemnity.

6. The liability of each and every person under this indemnity shall in no circumstances exceed 200% of the CIF value of the above cargo.

7. The indemnity shall be governed by and construed in accordance with English law and each and every person liable under this indemnity shall at your request submit to the jurisdiction of the High Court of Justice of England."

PCL alleged a breach of cl 3 as it appeared in the NEAT LOIs.

55 After those seven clauses the 1998 standard form concluded as follows:

"Yours faithfully

For and on behalf of

[insert name of Requestor]

.........................

Signature

For and on behalf of

[insert name of bank]

.........................

Signature"

56 Paying attention only to the words on its face, a bank would have no reason to sign the 1998 standard form in the space reserved for a signature for and on its behalf unless the bank agreed to join with the requestor in giving the indemnity. However the words used, which I have quoted, suggest a construction, which Hunter J favoured, that even if the bank so signed, it was only the requestor that agreed to the terms in the seven numbered clauses and in particular to give the indemnity.

57 In evidence was an LOI dated 26 September 1997 executed by NEAT and BNP in favour of the owners/manager/masters/agent of the vessel "Alam Tangkas" in return for delivering cargo without production of the bills of lading (the Alam Tangkas LOI). Although the Alam Tangkas LOI predated the 1998 standard form and was in some respects different, it also contained the phrase "We hereby request you to deliver such goods" and was subscribed "For and on behalf of" NEAT with the signatures of directors and "For and on behalf of" BNP with BNP's seal and the signatures of Era Dhiri and P Arndell written over name stamps identifying them. One distinction was that the name of the party requesting delivery was not inserted after the word "we" before the words "hereby request". BNP conceded that it had joined in the indemnity in favour of the owners by the signatures under its seal on the Alam Tangkas LOI.

58 The learned authors of Gaskill, Asariotis & Baatz at p426 say that the 1998 standard form "is designed as a letter of indemnity to be provided by those who want to have the cargo delivered to them but do not have the bill. It provides protection for the carrier up to a certain figure set out in paragraph 6 (200 per cent of the CIF value of the goods). It will normally be backed by a bank." I repeat that I cannot conceive of any other reason for the 1998 standard form to be signed "for and on behalf of" a bank. Ordinarily one would not expect a bank to do so unless it was satisfied that the requestor, no doubt its client, had an entitlement to the delivery of the goods, and had assets sufficient to enable it to meet the indemnity. The bank would, I expect, require security from the requestor.

59 The NEAT LOIs signed for and on behalf of NEAT by its directors and for and on behalf of BNP by Ms Dhiri varied from the 1998 standard form in various ways. The first NEAT LOI proceeded as follows:

"STANDARD FORM OF UNDERTAKING TO BE GIVEN BY CARGO RECEIVERS IN RETURN FOR RECEIVING CARGO WITHOUT PRODUCTION OF THE BILLS OF LADING

To PACIFIC CARRIERS LTD

The owners of the M/V NELSON

c/- MULTIMODE MARITIME PVT. LTD

53-A MIRZA GHALIB STREET

CALCUTTA 700016

TEL: [phone]

FAX: [phone] / 5353 MR BIBLAP RAY

FROM:

NEW ENGLAND AGRICULTURAL TRADERS PTY LTD

PO BOX 770

ARMIDALE NSW 2350

TEL: [phone]

FAX: [phone]

Dear Sirs,

SHIP: S.S./M.V NELSON

VOYAGE: FREMANTLE/ESPERANCE/BRISBANE, AUSTRALIA TO CALCUTTA, INDIA

CARGO & ORIGINAL BILLS OF LADING NUMBERS:

10,469,23 METRIC TONNES AUSTRALIAN FIELD (DUN) PEAS FARMER DRESSED

BILLS OF LADING NOS: 1 DATED 24/12/98

2 DATED 27/12/98

3 DATED 27/12/98

The above goods were shipped on the above vessel by Messrs NEW ENGLAND AGRICULTURAL TRADERS PTY LTD (and consigned to order) for delivery at the port of CALCUTTA, INDIA, but the Bills of Lading have not yet arrived and we, NEW ENGLAND AGRICULTURAL TRADERS PTY LTD hereby request you to give delivery of the said cargo to:

RECEIVERS AS DIRECTED BY

M/S ROYAL TRADING COMPANY

NO 2, CLIVE GHAT STREET

5TH FLOOR, ROOM NO. 8

CALCUTTA 700 001 (W.B)

without production of the original Bills of Lading.

In consideration of your complying with our above request we hereby agree as follows:

1. To indemnify you, your servants and agents and to hold all of you harmless in respect of any liability loss or damage of whatsoever nature which you may sustain by reason of delivering the goods to

RECEIVERS AS DIRECTED BY

M/S ROYAL TRADING COMPANY

NO 2, CLIVE GHAT STREET

5TH FLOOR, ROOM NO. 8

CALCUTTA 700 001 (W.B)

in accordance with our request."

60 There followed the six further clauses 2 - 7 already referred to and in part quoted. The subscription was as follows:

"Your (sic) Faithfully,

[The stamped name, address and ACN of NEAT]

[Two signatures]

................................

For and on Behalf of

[the name of NEAT with its postal address

and telephone and fax numbers]

Name(s) Peter P Sniekers Peter M Howard

Designation(s) Director Director

For and on Behalf of BANQUE NATIONALE DE PARIS

12 CASTLEREAGH ST

SYDNEY NSW 2000

AUSTRALIA

(insert name of bank)

Banker's signature [Ms Dhiri's signature and the stamp of the bank]"

61 One variation from the 1998 standard form heading was to use the word "undertaking" and another to introduce the words "by cargo receivers". The word "original" before "bills of lading" was omitted. Also added as part of the heading was the word "from" followed by NEAT's name and address. The second NEAT LOI incorporated the same changes.

62 Ms Dhiri's signature does not to the untutored eye reveal her name which is not, unlike her signature on the Alam Tangkas LOI, identified by a name stamp. She is not elsewhere mentioned in the NEAT LOIs. Again the NEAT LOIs unquestionably identified NEAT as the requestor. At least at first blush it was NEAT, as requestor, that agreed to indemnify.

63 No evidence was given about usage or practice in banking or shipping to assist in understanding the language of the NEAT LOIs, other than BNP's acceptance of its agreement to indemnify under the Alam Tangkas LOI. Ms Dhiri's evidence was accepted that in signing the document she intended to do no more than verify the signatures of Mr Sniekers and Mr Howard who signed on behalf of NEAT.

64 Hunter J said:

"282 As a matter of construction of the NEAT LOIs, BNP contended that it was not a party to either LOI. The first thing to note about those LOIs is that their description as a `STANDARD FORM OF UNDERTAKING TO BE GIVEN BY CARGO RECEIVERS IN RETURN FOR RECEIVING CARGO WITHOUT PRODUCTION OF THE BILLS OF LADING' is an inappropriate description. Neither NEAT nor BNP were receivers of the cargo. It is addressed to Pacific as the owners of the MV Nelson. Pacific was not the owner.

283 The form of the `Undertaking' is that of a letter, the body of the `letter' commencing with `Dear Sirs' and concluding with `Your (sic) Faithfully'. The request to deliver the cargo to Royal is that of NEAT, the relevant part of the `undertaking' being 'NEW ENGLAND AGRICULTURAL TRADERS hereby request you to give delivery ...without production of the Original Bills of Lading'. Furthermore, I think the agreement to indemnify is clearly that of NEAT, the introduction to the indemnity being as follows:

`In consideration of your complying with our above request we hereby agree as follows...'

In my view, the reference to `our' and, consequently, to `we' should be taken as referring to NEAT.

284 The terms of the indemnity itself in cl 1 is an indemnification in relation to delivery `in accordance with our request': referring, I think, to NEAT's request. The provision for joint/several liability under par 5 of the undertaking only has significance in its capacity to embrace more than one indemnifier. It does not convey an intention that the indemnity is given by more than one indemnifier. It follows that the proper construction of the undertaking, request and indemnity is that they are made or given by NEAT. What effect, then, should be given to the execution of the document `For and on Behalf of ...[BNP]' with execution in the form of the `Banker's signature' accompanied by an official stamp of BNP?"

65 His Honour quoted from R v Toohey & Anor; Ex parte The Attorney-General for the Northern Territory of Australia [1980] HCA 2; (1980) 145 CLR 374 at 386 to make the point that the phrase "on behalf of" is not an expression which has a strict legal meaning:

"Context will always determine to which of the many possible relationships the phrase `on behalf of' is in a particular case being applied; `the context and subject matter' (per Dixon J in the Ex parte Federated Clerks Union of Australia case [1949] HCA 53; (1949) 79 CLR 428 at 438) will be determinative."

66 In Hunter J's view there was no warrant in giving the phrase anything other than its ordinary meaning of conveying that the signatory, Dhiri, beside the words "Banker's signature" was the signatory as agent for, or the instrument of, BNP in executing the NEAT LOIs. Hunter J continued:

"289 It has been submitted on behalf of BNP that the execution of the document merely conveys some form of authentication of the execution by NEAT. I have significant difficulty with that proposition as a matter of construction of the document. If it was a matter merely of authentication one would expect to find words so designating the effect of Dhiri's signing the document on behalf of BNP. In my view, in so executing the document, BNP must be taken as being involved in some fashion in the operation of the document.

290 The conclusion I have reached is that it is neither an indemnification of Pacific in terms of the document, nor is it merely signifying some form of authentication of execution of the document by NEAT. I am satisfied that it carries an assurance that NEAT's undertaking and indemnification comes from an entity that can make good that undertaking and indemnity.

291 Construed in that way, BNP could not be held liable as indemnifier, nor as guarantor, as distinct from any liability that might arise from any negligent or misleading conduct in providing that form of assurance to Pacific.

292 So much for the document as a matter of construction of its terms and manner of execution. For the reasons that follow, the evidence is clear that Dhiri had no authority to commit BNP to a liability as a party to the LOI. Further, there was no commercial arrangement between NEAT and BNP for the bank to provide such a facility."

67 Turning to the 1998 standard form Hunter J said:

"294 As a matter of construction, the form of that standard letter of indemnity carries with it the same difficulties which, in my view, face Pacific in construing NEAT's LOIs as ones given jointly by NEAT and BNP. In fact, the pro forma document more clearly distinguishes between the party giving the indemnity, referred to as the `Requestor', and the bank. That distinction is made clear by so much of the document which identifies the party agreeing to indemnify the ship owners with the party `requesting delivery'. That dichotomy is preserved in the manner of execution which provides for execution `For and on behalf of [Insert name of Requestor]' separately from the execution `For and on behalf of [Insert name of Bank]': leaving the unanswered question - what, precisely, is the function of the bank in executing such a document? It was in a form issued by `PCL's P & I C', referring to SKULD, the mutual insurance entity comprised of shipowners. The tonnage represented by the membership was in the order of 60,000,000 gross tonnes. The evidence did not establish any usage or practice in relation to the standard form which would provide any aid to the construction of the NEAT LOIs."

68 Hunter J referred to the Alam Tangkas LOI which he set out and concluded, I think correctly, that this LOI was indistinguishable from the NEAT LOIs in terms of its execution though he observed the Alam Tangkas LOI did not as clearly identify the party or parties requesting delivery of goods without production of the bills of lading. In consequence, his Honour thought that the terms of the Alam Tangkas LOI were capable of embracing requests by both NEAT and BNP in addition to encompassing an agreement by each of them to indemnify the owners of the subject vessel.

69 I find it odd that the international group of P & I clubs should issue and recommend for use by its members a form which carries within its language, at the very least, ambiguity about whether or not a bank by executing it agrees to join in the indemnity and is contractually bound thereto. As I have said I cannot imagine that a reputable bank would execute such a document, by the signature of an authorised employee, unless it intended to be bound by the indemnity and I would not be surprised if this was the accepted practice. However, as I have said, apart from the Alam Tangkas LOI, not one shred of evidence about banking or shipping usage or practice was put to the Court to explain the language of the 1998 standard form.

70 That said if it had been shown that Ms Dhiri had authority on behalf of BNP to agree to indemnify PCL on the terms of the 1998 standard form, the nature and intention of the LOI as essentially a document of indemnity would lead me to the conclusion that by authorising Ms Dhiri to sign it on its behalf BNP agreed to join with the requestor, NEAT, as a co-indemnifier. I appreciate the force of what Hunter J concluded which particularly derived from the word "from" followed by NEAT's name and address and the combination of the words "with our above request" and the following words "we hereby agree". As I have said the requestor was unquestionably NEAT. But to my mind the 1998 standard form would fail to achieve its purpose once it is signed for and on behalf of a bank if "we" in the expression "we hereby agree" does not include the bank as a party to the agreement. The obvious purpose of the LOI requires that "we" be defined by reference to the parties whose signatures appear in the subscription rather than by reference to the party or parties who made the request. Neither party sought any comfort from cl7 of the NEAT LOIs.

71 I respectfully agree with this statement in the judgment of Kirby P, as his Honour then was, in Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313-4:

"Whoever may be the parties to the agreement, it is the fundamental rule, that a court should give the words of a written agreement the natural meaning that they bear. Subject to that rule, in giving meaning to the words of an agreement between commercial parties, courts will endeavour to avoid a construction which makes commercial nonsense or is shown to be commercially inconvenient. This is because courts will infer that commercial parties would not themselves normally agree in such a way."

72 The contest is between, on the one hand, language which might be read so as to limit to one party, the requestor alone, an agreement to indemnify, and on the other hand, the clear purpose of the 1998 standard form to be used as a joint indemnity by the requestor and a bank. It was intended that if a signature appeared for and on behalf of the bank that would indicate that the bank "backed" the indemnity. The natural meaning of the words accords as well with a construction which achieves this purpose as with the alternative construction which Hunter J preferred. In my opinion, the words should be read in the way I have suggested to achieve that purpose.

Authority

73 The real difficulty with PCL's claim in contract flows from Hunter J's finding that Ms Dhiri was manager of the department in BNP known as documentary credits with duties which involved the supervision and the handling of import/export letters of credit and, as she was well aware, that that department was not authorised to issue bank guarantees or indemnities. When she was vigorously cross-examined by counsel for PCL, Ms Dhiri insisted that in signing the NEAT LOIs she intended to do no more than verify the signatures of those who had signed on behalf of NEAT.

74 Hunter J quoted parts of Ms Dhiri's evidence. He concluded (at para 333) that the evidence of BNP's witnesses was incontrovertible. Ms Dhiri did not have authority to grant an indemnity or execute a guarantee on behalf of BNP. Hunter J said (para 308) that he had great difficulty in deciding where the truth lay between the evidence of Ms Dhiri that, while executing the NEAT LOIs, she repeatedly informed NEAT that execution by BNP was only for verification of the signatures and NEAT's denial of these conversations. Hunter J said:

"309 In the case of Sniekers, during interlocutory proceedings in this Court, his evidence was that he could not recollect Dhiri informing him that BNP's role was simply that of verification of NEAT's signatories to the LOI. That was within a matter of months after the event. In the case of Howard, on 16 March 1999 he forwarded the second NEAT LOI to SSOE with the note beside BNP's purported execution of it as follows:

`Signatures confirmed by BNP'.

310 Howard explained that note as one reflecting, not his view, but the position asserted at that time by BNP. I accepted Howard's evidence that it was not until the crisis arose in March, with SSOE's intervention, that he was made aware by BNP that its role in executing the NEAT LOIs was limited in that way.

311 I formed a favourable opinion of both Howard and Sniekers. Howard was open with his responses which were given promptly without any apparent indication of `tailoring' his answers. He was convincing in his denial of awareness of the suggested limited role of BNP. Sniekers appeared to give his answers carefully and directly. He showed a clear awareness of the issues but not to a point of unacceptable advocacy. If I was forced into a criticism of the evidence of Dhiri it would be that it was very self serving, not totally responsive, nor convincing.

312 However, the repercussions of the events the subject of these proceedings must have been considerable in terms of her responsibilities within BNP.

313 As earlier noted, there are internal records which, on Dhiri's evidence, were made by her during the course of her dealings with Sniekers. In relation to the first NEAT LOI Dhiri noted on the facsimile from NEAT of 28 January 1999, which attached the LOI, as executed by NEAT, as follows:

`Advised Peter that we are only verifying sigs and we will fax to you not to shipping co as we have no arrangement with them.'

314 That note is initialled. On the facsimile from NEAT of 18 February 1999 seeking urgent execution of the second NEAT LOI her note read as follows:

`Peter advised that we are not party to it we are merely verifying sigs. Fax will be sent to [NEAT] only we have no arrangements with ship co.'

315 On the back of the first NEAT LOI she has noted:

`Okay I.K to co sign as verifying sigs.'

316 However, I have considerable reservations about the reliability of the accuracy of those notes. It is almost inexplicable why some endorsement would not have accompanied her execution of the two NEAT LOIs, given the clear understanding that immediately upon her signing the documents they were to be sent, via NEAT, to Pacific in order to enable discharge of the peas to commence, or to continue.

317 Moreover, in the extensive record, albeit incomplete, record of telephone communications between her and NEAT there is no indication of any communication by her of the limited role of BNP in executing the two NEAT LOIs.

318 There are numerous occasions, evidenced in the transcripts of those conversations, when the opportunity was afforded to her to emphasise the limited function that BNP was called upon to play in relation to the two LOIs. That opportunity was never availed of and the whole tenor of those conversations is contrary to Dhiri's evidence of repeated insistence on the limited function of BNP in her execution of the NEAT LOIs.

319 Further, the evidence established that Dhiri refused to execute the LOIs until the discrepant documents in relation to the subject letters of credit had been accepted. On the face of it, such acceptance would have been irrelevant to her involvement in simply verifying the signatures of NEAT's execution of the two LOIs. Dhiri explained her conduct on the basis that she was acting in the interest of NEAT. I did not find that the most convincing explanation.

320 Kavanagh corroborated Dhiri's evidence of receiving his instructions to sign the first NEAT LOI only as verification of NEAT's execution of the documents. His evidence of his communications with Dhiri on the 28 and 29 January I found quite confusing. However, I have no reason to think that that was the result of anything other than a difficulty in recalling the precise sequence of events that occurred on those days in relation to the first NEAT LOI."

75 Hunter J went on to illustrate the difficulty he experienced in accepting Ms Dhiri as a reliable witness by referring to her cross-examination and extracts from her telephone conversations. His Honour continued:

"324 In my view those exchanges are at odds with Dhiri's evidence of repeated notifications to NEAT of BNP's limited function of verification of NEAT's signatures on the [NEAT] LOIs.

325 (b) The telephone communications reveal that Dhiri was open to the suggestion that the NEAT LOIs, once signed by her on behalf of BNP, should be forwarded by her to third parties.

326 (c) Those conversations reveal Dhiri in the role of `signing off' on the NEAT LOIs once acceptance of discrepant documents had been formally acknowledged and payment assured under the subject letters of credit.

327 (d) It is likely that Howard forwarded the Royal LOI to BNP as undertaken by him in the course of those exchanges.

328 (d) It is inexplicable that there was no external record made by Dhiri in executing the NEAT LOI on behalf of BNP - either on the LOI itself as returned to NEAT, or in an accompanying communication - disclosing the limited function of BNP's execution of those documents.

329 (e) I am unable to reconcile the following exchange with Dhiri's evidence that NEAT had informed her that SSOE and Royal were the same entity:

`Mrs Dhiri: Got your fax. How do you know that they're waiting for a transfer of funds?

Mr Sniekers: Murali spoke to a guy called, not PK Jain, someone from Singapore, this is what Bangkok Bank are telling me. Royal Trading paid some fees to Swiss Singapore but they paid it in the wrong bank so Swiss Singapore are transferring it from some bank to Bangkok Bank.

...

Mr Sniekers: Yes, and we're told today that yes, Swiss Singapore accepted the documents on Monday and the bank's saying `We didn't receive it until we came back from the Chinese New Year' so they don't check their - they just let it sit on the machine and didn't act upon it until Thursday whereas Swiss Singapore say they sent it on Monday. It's a joke.'

330 On 14 January 1999 NEAT forwarded to BNP, Royal's facsimile which noted that `all documents with discrepancy [would] be accepted by [Royal]'. Clearly, Royal and SSOE were known to be different entities and treated as such."

76 In ground 25 of its notice of appeal BNP challenged Hunter J's findings of fact about Ms Dhiri adverse to BNP's interests. BNP supported the argument by reference to the use of the word "cut" in conversations with Mr Sniekers and assertions that Ms Dhiri was not cross-examined about her notes on the documents. Hunter J saw Ms Dhiri give oral evidence. In my opinion this was not a case where, in the words of Jacobs J in Agbaba v Witter (1977) 51 ALJR 503 at 508, in a complex pattern of events incontrovertible evidence could only be fitted into the pattern if a different view of the credibility of Ms Dhiri were taken by this Court. See generally State Rail Authority of NSW v Earthline Constructions Pty Ltd (In liquidation) [1999] HCA 3; (1999) 73 ALJR 306; Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434 at 448 para [41].

77 Hunter J made a finding at para 344 that BNP's execution was "NEAT's banker's assurance that its customer was good for the subject indemnity". This was the only way his Honour was able to read the unqualified form of BNP's execution of the NEAT LOIs. In my opinion, subject only to the question of whether Ms Dhiri by her signature could bind BNP, the NEAT LOIs were in form contracts by BNP to indemnify PCL.

78 Hunter J accepted the evidence of Mr Ryan, the New South Wales State Manager of BNP, that Ms Dhiri, the Manager of the Documentary Credit Department at BNP, had no authority to sign guarantees/letters of credit under which BNP was a party, Ms Dhiri being only a BNP signatory for bank to bank communication and not for external documents which bound BNP to an obligation to third parties. Mr Ryan accepted that Ms Dhiri subsequent to May 1998 was authorised by BNP to sign documents to bind it so long as there was another signatory whose name appeared on the list. The Alam Tangkas LOI was signed under BNP's seal by Ms Dhiri and Mr Arndell.

Ostensible authority

79 Accepting, as Hunter J's finding on the evidence requires, that Ms Dhiri had no actual authority to bind BNP to agree to indemnify PCL, could it be said that she had apparent or ostensible authority to do so? PCL submitted that she did. The essence of this claim must be that BNP by its words or conduct represented to PCL that Ms Dhiri had such authority. In Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd & Anor [1964] 2 QB 480 a director of a company instructed the plaintiffs, who were architects, to apply for planning permission to develop an estate, the property of the company, and to do certain work connected therewith. The plaintiffs having done the work sought to recover unpaid fees from the company. It was held that the director was not clothed with actual authority to do what he did (489). The question was whether the director had ostensible authority. The following matters were significant:

· It was in the interest of the company that the work be done.

· The director was responsible for the expenses of maintaining the property and had authority for day to day management.

· The director acted as though he was the managing director, to the knowledge of the board of the company.

Reference was made to the internal management rule namely that when persons conduct the affairs of the company in a manner which appears to be perfectly consonant with the Articles of Association, those so dealing with them, externally, are not to be affected by any irregularities which may take place in the internal management of the company; Royal British Bank v Turquand [1856] EngR 470; (1856) 6 E & B 327; 119 ER 886.

80 At 503 Diplock LJ said:

"An `apparent' or `ostensible' authority ... is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the `apparent' authority, so as to render the principal liable to perform any obligations imposed upon him by such contract. To the relationship so created the agent is a stranger. He need not be (although he generally is) aware of the existence of the representation but he must not purport to make the agreement as principal himself. The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. It is irrelevant whether the agent had actual authority to enter into the contract."

81 Diplock LJ went on to say that the commonest form of a representation which creates "apparent" authority is representation by conduct, that is, by permitting the agent to act in some way in the conduct of the principal's business with other persons.

"By so doing the principal represents to anyone who becomes aware that the agent is so acting that the agent has authority to enter on behalf of the principal into contracts with other persons of the kind which an agent so acting in the conduct of his principal's business has usually `actual' authority to enter into." (503-4)

82 At 506 Diplock LJ said that it must be shown:

"(1) that a representation that the agent had authority to enter on behalf of a company into a contract of the kind sought to be enforced was made to the contractor;

(2) that such representation was made by a person or persons who had `actual' authority to manage the business of the company either generally or in respect of those matters to which the contract relates;

(3) that he (the contractor) was induced by such representation to enter into the contract, that is, that he in fact relied upon it; and

(4) that under its memorandum or articles of association the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent."

83 In the present case it is hard to see what conduct of any person other than Ms Dhiri amounted to a representation that Ms Dhiri had authority by her signature alone to enter into a contract of indemnity of behalf of BNP. The cargo, the delivery of which NEAT requested in the NEAT LOIs, had a C & F value in excess of US$4 million. By cl 6 of the NEAT LOIs the liability of the indemnifier was up to twice that.

84 On 7 April 1999 PCL's solicitors in Singapore wrote to BNP referring to the two NEAT LOIs "furnished by you to our clients on or about 6 February 1999 and 19 February 1999." The writer continued: "These letters of indemnity were given by you to indemnify our clients against all liabilities, losses or damage of whatever nature that our clients may sustain by reason of delivering cargo without the production of the original bill of lading." On 8 April 1999 BNP responded in a facsimile message signed by the state manager, Mr Ryan, and Ms Dhiri:

"1. Contrary to your assertion, BNP Sydney has not furnished letters of indemnity to Pacific Carriers Ltd.

2. BNP is aware that our client New England Agricultural Traders Pty Ltd has provided letters of indemnity dated 28 January 1999 and 19 February 1999. BNP has verified the signatures on these LOIs by a fax copy received from our client and returned to them by fax.

3. Following further contact from our client (in respect of the LOIs) requesting that BNP correspond with PCL, we have taken the initiative, for the sake of clarity, to advise Pacific Carriers Ltd (per our letter received by their Melbourne office on 16 March 1999), that BNP is not a party to the letters of indemnity. This has been reiterated in our fax of 7 April 1999 to Pacific Carriers Ltd (responding to their fax of 6 April 1999).

4. It would appear that your client has misconstrued the role of BNP in verifying the signatures. To the degree that your client required indemnification from a bank, we fail to understand why would they release the cargo without first holding an original indemnity or confirming with the bank that such indemnity was forthcoming.

We have had no communication with your client prior to our letter referred to above."

85 It follows 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. There was no evidence that BNP knowingly permitted Ms Dhiri alone to enter into such contracts on its behalf. In Freeman's case the findings, at 509, were that the board of the company knew that the director had throughout been acting as managing director in various ways and permitted him to do so and by such conduct "represented that he had authority to enter into contracts of a kind which a managing director or an executive director responsible for finding a purchaser would in the normal course be authorised to enter into on behalf of the company." There was no evidence that PCL or its officers had any belief one way or another about who had executed the document on behalf of BNP or what the authority of that person was beyond what appeared on the document itself.

86 In Armagas Ltd v Mundogas SA [1985] UKHL 11; [1986] AC 717 at 777 Lord Keith of Kinkel, with whose reasons the other members of the House of Lords agreed, said:

"Ostensible authority comes about where the principal, by words or conduct, has represented that the agent has the requisite actual authority, and the party dealing with the agent has entered into a contract with him in reliance on that representation. The principal in these circumstances is estopped from denying that actual authority existed. In the commonly encountered case, the ostensible authority is general in character, arising when the principal has placed the agent in a position which in the outside world is generally regarded as carrying authority to enter into transactions of the kind in question. Ostensible general authority may also arise where the agent has had a course of dealing with a particular contractor and the principal has acquiesced in this course of dealing and honoured transactions arising out of it."

87 Plainly ostensible authority of that general character was not proved. Lord Keith went on:

"It is possible to envisage circumstances which might give rise to a case of ostensible specific authority to enter into a particular transaction, but such cases must be very rare and unusual. Ex hypothesi the contractor knows that the agent has no general authority to enter into the transaction, as was the position here. The principal might conceivably inform the contractor that, in relation to a transaction which to the contractor's knowledge required the specific approval of the principal, he could rely on the agent to enter into the transaction only if such approval had been given. In such a situation, if the agent entered into the transaction without approval, the principal might be estopped from denying that it had been given. But it is very difficult to envisage circumstances in which the estoppel could arise from conduct only in relation to a one-off transaction such as this one was."

88 The most that can be said was that BNP permitted Ms Dhiri to put her signature on the NEAT LOIs in the place reserved for the Banker's signature for the purpose, not of agreeing to indemnify, but to verify the signatures of NEAT's officers. Ms Dhiri had BNP's authority to sign the NEAT LOIs for that limited purpose.

89 No where in the evidence did any officer of PCL assert that he recognised the signature of Ms Dhiri on the NEAT LOIs in the space for Banker's signature, or knew or assumed the office or authority of the signatory and that in reliance upon that knowledge, assumed that the person signing had authority to bind BNP to the indemnities. At best the officers of PCL assumed that whoever signed in the space reserved for the Banker's signature had BNP's authority to bind it to the indemnity. There was no evidence of any representation to PCL by BNP that Ms Dhiri had any authority so to bind BNP. There was no evidence that anyone at PCL was aware of the Alam Tangkas LOI.

90 Chua Say Ong, PCL's Owner's Representative in Australia referred to the facsimile from Anderson Hughes to PCL dated 29 January 1999 which took the following form:

"TO PCL, MELBOURNE - CHUA

FM ANDERSON HUGHES, BRISBANE - JOHN

DD 29/01/99

RE NELSON/NEAT CP 08/12/98 - LOI

PLEASE FIND FOLLOWING COPY OF LOI ISSUED BY CHRS AND COUNTER-SIGNED BY THEIR BANK COVERING THE SHIPMENT OF DUN PEAS ON THIS VESSEL.

CHRS ARE WAITING ON THE CHICK PEA LOI AND WILL REVERT SOONEST

RGS

JOHN"

To this was attached was a copy of the first NEAT LOI.

91 In his affidavit of 14 April 1999 Mr Chua said:

"My belief that [BNP was providing a bank guarantee in support of the indemnity being provided by NEAT] was based on the fact that [BNP's] signature and stamp appeared on the Letters of Indemnity and [BNP] had executed the documents `For and on Behalf of' themselves which was the same way that [NEAT] had executed the documents. My belief was also based on the fact that I had also read the Letters of Indemnity when I received them and had understood from clause 5 that if you signed the document you would be bound by it."

He said he would not have authorised the release of the cargo had he known that the bank guarantees were not in place or BNP was not bound by the NEAT LOIs.

92 In cross-examination Mr Chua agreed that on receiving the faxed copy of the NEAT LOI he did not communicate in any way directly with BNP with respect to the "counter signature".

93 Tan Chin Hee, an executive director of PCL in charge of the commercial division said that he had formed the view that it was only prudent that PCL get a bank to endorse a letter of indemnity if cargo was to be delivered without original bills of lading and that otherwise he would not allow release of the cargo. He was aware of the format of the pro forma letter of indemnity. In his affidavit of 7 June 2000, he said:

"5. I received a copy of the first letter of indemnity executed by BNP shortly after 29 January 1999 and before commencement of lightering of cargo on 10 February 1999. I examined the endorsement by BNP and I was satisfied that BNP had accepted liability as a party to the letter of indemnity. I formed this view based on the words `For and on behalf of' being the same form of introduction for the execution by NEAT, as well as the name and stamp of BNP and the signature. I believed the signature must have been by a person authorised to sign the letter of indemnity for BNP and the use of the stamp of BNP reinforced this belief. I would have caused an instruction to issue not to deliver the cargo to Royal Trading Company without production of the original bills of lading if I had been informed that the person who signed the letter of indemnity had no authority to sign the letter of indemnity on behalf of the Bank as a party to and so as to be liable under the letter of indemnity. If BNP had purported to verify the signatures only or made an endorsement indicating the absence of acceptance of liability, I would have immediately caused the issue of an instruction that the cargo was not to be delivered to Royal Trading Company without production of the original bills of lading. I was also provided with a copy of the second letter of indemnity on or about 19 February 1999 and again checked the endorsement by BNP. I was satisfied that BNP had accepted liability as a party to the letter of indemnity. If the second letter of indemnity had been qualified as being for verification only or without acceptance of liability I would have immediately issued an instruction not to deliver the cargo to Royal Trading Company the subject of the second letter of indemnity without original bills of lading.

6. I also believed that as BNP had endorsed the first letter of indemnity which was then provided to PCL, the agreement by BNP to indemnify would be legally valid and enforceable against BNP. If BNP had not so endorsed the first letter of indemnity I would not have permitted the delivery of the cargo to Royal Trading Company without original bills of lading. I was of the same belief in relation to the second letter of indemnity and I would not have permitted the delivery of the cargo without original bills of lading if the second letter of indemnity had not been endorsed by BNP."

94 In Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd [1975] HCA 49; (1975) 133 CLR 72 at 78 Gibbs, Mason and Jacobs JJ said that the appropriate principles of law in determining the question of ostensible authority had been compendiously stated in the judgments in Freeman. Crabtree-Vickers concerned a claimed sale of machinery by the appellant to the respondent. The appellant relied upon an acceptance of the appellant's offer by an order form of the respondent which was headed by the respondent's name and requested the supply of goods. At the bottom of the order form appeared the printed signature "B McWilliam" followed by the word "per" and a line for a written signature. The order form was signed by Peter McWilliam. The judge's finding that Peter McWilliam had no actual authority to accept the offer could not be challenged.

95 At all material times the managing director of the respondent was Bruce McWilliam Junior. His father of the same name was chairman of directors and governing director. Peter McWilliam had been a director but resigned before the order form was signed by him. The other directors were the wives of the two Bruce McWilliams. Peter McWilliam was engaged in the business of the respondent. The trial judge found that at no time when an oral acceptance was conveyed by Peter McWilliam to the appellant nor when the written order was handed over was anything said which detracted from the contractual force of the order. However, the trial judge found that Peter McWilliam had no actual or ostensible authority to enter into the agreement. The decision to purchase the machine rested with the board of directors or the father and two sons other than Peter McWilliam. At 78, after referring to Freeman, the High Court said that the conclusion that in the circumstances the representation or holding out that Peter McWilliam had actual authority could not be made merely by Peter McWilliam himself. Their Honours said:

"There are circumstances where the actual representation of authority may be made by the agent but in such cases it will be found that the relevant representation is made by the principal (or by the person to whom the principal has given actual authority) either by a previous course of dealing or by putting the agent in a position or by allowing him to act in the position from which it can be inferred that his actual representation of authority in himself is in fact correct. It is therefore always necessary to look at the conduct of the principal (or the person to whom he has actually delegated authority)."

96 The representation as to Peter McWilliam's authority had to be found outside the evidence of Peter McWilliam's own statements to officers of the plaintiff. In one respect the High Court differed from what the trial judge said. At 79-80 their Honours said:

"The finding of fact that only the board of directors or at least the three McWilliam men could make the decision to purchase the machine meant that Bruce McWilliam junior in this respect did not have actual authority to manage the business of the respondent either generally (because of this exception to his power as manager) or in respect of the matter to which the contract relates. He did not have actual authority to make the representation that Peter McWilliam had authority to do that act. To find that he did would involve the finding that neither Bruce McWilliam junior nor Peter McWilliam had authority to make the contract but that Bruce McWilliam junior had actual authority to represent that Peter McWilliam had authority to make the contract. In the absence of a finding of some ulterior purpose in the company such a finding could not be made.

Bruce McWilliam junior being the managing director upon whom under the articles or powers of management could be conferred had, undoubtedly in our opinion, ostensible authority to make the contract. If with this ostensible authority he actually authorised Peter McWilliam to make the contract, there would have been an exercise by him of ostensible authority, provided the appellant believed that the authority was being exercised by Bruce through Peter. Therefore, if with the managing director's actual authority, Peter McWilliam placed the order No 0795, there was weighty evidence upon which the appellant could conclude that Bruce McWilliam junior was exercising his ostensible authority as managing director. The signature of the order is itself very strong evidence. It was signed in the name of Bruce McWilliam junior. However, the finding that Bruce McWilliam Junior did not give actual authority to Peter to sign the order in his name prevents a finding that the contract was made on the ostensible authority of the managing director."

97 At 80 their Honours said:

"In other words, a person with no actual, but only ostensible, authority to do an act or to make a representation cannot make a representation which may be relied on as giving a further agent an ostensible authority. Hence the stress by Diplock LJ on the need that the person or persons making the representation must have actual authority to make the representation."

98 Northside Developments Pty Ltd v Registrar-General [1990] HCA 32; (1990) 170 CLR 146 concerned a mortgage of real property land given under the common seal of a company which had been affixed without the Directors' authority in contravention of the company's Articles of Association. The mortgage secured a loan to entities owned and controlled by the director who had affixed the seal. Following default the mortgagee sold the land. The company sued the Registrar-General under s127 of the Real Property Act 1900 for damages by way of compensation for the loss of its estate in the land on the ground that it did not execute the mortgage. The trial judge awarded damages. The Court of Appeal allowed an appeal by the Registrar-General. The company appealed to the High Court. A good deal of the reasoning of the High Court was directed to the application of the rule in Turquand's case. At 159 Mason CJ said:

"The judgments in Freeman & Lockyer, especially that of Diplock LJ, indicate that the rule in Turquand's case in its application to the acts of a company undertaken through its agents is an exemplification of the law of principal and agent and that the ambit of the operation of the rule is to be ascertained by reference to the actual or ostensible authority of the agent who purports to act on behalf of a company."

99 At 172 Brennan J said:

"As between a company and a party who deals with it, a company is bound by an act purporting to bind it not only when the person who does the act has the company's authority to bind it by that act but also when that person is held out by the company as having that authority and the party dealing with the company relies on that person's ostensible authority. Conversely, the company is not bound when the person who does the act has neither actual nor ostensible authority to bind the company by doing the act which the other party asserts to be binding on the company."

His Honour then referred to what had been said by Diplock LJ in Freeman about apparent or ostensible authority.

100 At 178 Brennan J said:

"To found an estoppel as to the authority of an officer or agent who is engaged in a transaction for the purposes of the company's business or otherwise for the company's benefit and who is purporting to exercise an authority which an officer or agent in that position would ordinarily be expected to have, the mere carrying on of the company's business with officers and agents performing particular functions on its behalf and in its interest is a sufficient representation by the company. Although such representations by the company seem a slender foundation on which to build an estoppel, the indoor management rule treats them as sufficient unless the party relying on the rule is put on notice to inquire into the authority of the officers or agents to do what they did in the transaction. The slenderness of the foundation enhances the importance of the qualification. In transactions other than those engaged in for the purposes of a company's business or otherwise for the benefit of the company, and in transactions where the officer or agent has purported to exercise an authority over and beyond the authority which an officer or agent in that position would ordinarily be expected to possess, a party seeking to bind the company by estoppel must rely on particular representations of authority made by the company - that is, by officers or agents of the company having actual or ostensible authority to make those representations."

101 PCL, when it acted on the basis that BNP had agreed to indemnify it for releasing the cargo, did not know what person had signed the NEAT LOIs in the place reserved for the Banker's signature or what position, if any, that person held with BNP. If it had, it would not ordinarily have expected a person in that position to have the authority to bind BNP to give an indemnity in an amount up to US$8 million.

102 Brennan J continued:

"When the indoor management rule applies, it covers each of the links between the constitution of the company and the particular act (or omission) done (or omitted) by a purported officer or agent of the company in the transaction. It covers the due making of appointments of the original directors, of subsequent directors, of other officers and of agents; it covers the conferring of authority on officers and agents; and it covers the satisfaction of conditions governing their exercise of authority in the instant case."

103 At 179 Brennan J referred to British Thomson-Houston Co v Federated European Bank Ltd [1932] 2 KB 176:

"... where a company, whose business extended to the giving of guarantees, was sued on a guarantee signed by only one director. The articles conferred power on the board to delegate its powers to one director and the indoor management rule was held to cover the assumed authority of the one director to sign the guarantee."

In that case Scrutton LJ had said at 180:

"...[Turquand's case] and Mahoney v East Holyford Mining Co (1875) LR 7 HL 869 decide that if the articles of association give a power, persons dealing with the company, though they are deemed to have notice of the extent of the power, are not bound to inquire into what is called the `indoor management' of the company to see whether the power has been properly and regularly exercised with all the prescribed formalities, and if they find an officer of the company openly exercising an authority which the directors have power to confer upon him, they are relieved from the duty of further inquiry and are entitled to assume that the power has been regularly and duly conferred."

104 At 180 Brennan J remarked:

"A party dealing with a company cannot assume that its officers or agents have a particular authority if the circumstances are such as to put that party on inquiry as to whether the authority exists and no inquiry is made or the company fails to satisfy the inquiry."

105 In summary, as was said by Bankes LJ in Houghton & Co v Nothard, Lowe and Wills Limited [1927] 1 KB 246 at 260:

"...the person who claims the benefit of [the indoor management rule] must (a) prove that he relied upon the ostensible authority which he sets up, and (b) must not have been put upon inquiry as to whether the transaction was in order."

106 These matters were not investigated factually in the present case. As I have said there was nothing to support any representation by BNP to PCL of Ms Dhiri's authority to bind BNP to the indemnity beyond the fact that she signed the document "for and on behalf of" BNP. The NEAT LOIs potentially involved liability for very substantial sums of money. The name of the signatory was indecipherable and unknown to PCL. Her position at BNP was not revealed in the NEAT LOIs. In Northside Developments at 189 Brennan J, rejecting the opinion of this Court, said:

"To state the indoor management rule more widely than I have stated it would be to furnish a charter for dealings between fraudulent officers of companies and supine financiers; ..."

107 At 198 Dawson J, with whose reasons Toohey J agreed, said:

"In other words, the indoor management rule only has scope for operation if it can be established independently that the person purporting to represent the company had actual or ostensible authority to enter into the transaction. The rule is thus dependent upon the operation of normal agency principles; it operates only when on ordinary principles the person purporting to act on behalf of the company is acting within the scope of his actual or ostensible authority."

108 In my opinion, even if it could be said, unsupported by any evidence, that PCL assumed Ms Dhiri had authority, which she had exercised, to bind BNP to an agreement to indemnify PCL, BNP had not contributed to the adoption of that assumption and should not be held to it. Accordingly, BNP was not contractually bound to indemnify PCL in the terms described in the NEAT LOIs. As Gaudron J remarked at 215 in Northside Developments:

"The critical question is whether the company has played such a part in the adoption of that assumption that it should be held to it."

109 As a variant of this argument PCL relied upon Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507 at 547 where Dixon J said, in relation to estoppel in pais - the object of which was to prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other's detriment - that that whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party. Relevantly, his Honour said:

"He may be required to abide by the assumption ...because his imprudence, where care was required of him, was proximate cause of the other party's adopting and acting upon the faith of the assumption."

110 However, to my mind it could not be said that if PCL's officers assumed that the unknown person whose signature was apparent on the NEAT LOIs had authority to bind BNP to a contract for indemnity in over US$8 million it would be an unjust departure from that assumption to allow BNP to rely upon the lack of authority of the signatory, Ms Dhiri.

PCL's cases alternative to contract

111 I reiterate that as pleaded PCL claimed that BNP engaged in misleading or deceptive conduct or conduct likely to mislead or deceive in contravention of s52 or s51A of the Trade Practices Act by representing to PCL that it was a party to the NEAT LOIs and agreed to be bound by and liable under them. Alternatively, BNP represented to PCL that Ms Dhiri had authority to execute or sign the NEAT LOIs on its behalf. In negligence PCL alleged that BNP in breach of a duty of care in executing or signing the NEAT LOIs did so negligently, in particular by not expressing a qualification as to the purpose for which BNP was executing or signing them.

112 Hunter J said as follows in his first judgment of 16 October 2001:

"289 It has been submitted on behalf of BNP that the execution of the document merely conveys some form of authentication of the execution by NEAT. I have significant difficulty with that proposition as a matter of construction of the document. If it was a matter merely of authentication one would expect to find words so designating the effect of Dhiri's signing the document on behalf of BNP. In my view, in so executing the document, BNP must be taken as being involved in some fashion in the operation of the document.

290 The conclusion I have reached is that it is neither an indemnification of Pacific in terms of the document, nor is it merely signifying some form of authentication of execution of the document by NEAT. I am satisfied that it carries an assurance that NEAT's undertaking and indemnification comes from an entity that can make good that undertaking and indemnity.

...

344 BNP's execution was, in my view, NEAT's banker's assurance that its customer was good for the subject indemnity. That is the only way I have been able to read the unqualified form of BNP's execution of the NEAT LOIs.

345 When those LOIs, so executed, are examined in the circumstances in which they were required by Pacific and in the form in which they were required, I think the conclusion is inescapable that the `bank' was required to execute the LOI as giving such a banker's assurance.

346 The conclusion is compelling that Dhiri exercised her authority to execute the documents on behalf of BNP negligently in the form in which the LOIs were executed by her.

347 It was not in issue that NEAT was not in a financial position to make good such an indemnity to Pacific. It was not suggested by BNP that Dhiri had any justifiable ground for concluding otherwise. What is plain on the evidence is that both NEAT and Dhiri erroneously proceeded on the basis that there was no measurable risk of the indemnity being called upon, once payment was assured upon acceptance of discrepant documents under the subject letters of credit.

348 I think little utility lies in examining Pacific's case in negligence concerning the system in place within BNP for the execution of documents. In this case Dhiri had express authority to execute the documents on behalf of BNP for the purpose of verifying the signatories to the NEAT LOIs. It was her negligent performance of those responsibilities for which BNP may be held liable.

349 One does not have to have recourse to any deficiencies in the system of banking as conducted by BNP to reach that conclusion.

350 The central question, then, is whether BNP owed a duty of care to Pacific to avoid any economic loss to it that may be caused by BNP's negligence. In my view, in the particular circumstances of this case, there is only one acceptable conclusion. BNP did owe such a duty of care to Pacific."

113 With due respect, it is not possible to construe the NEAT LOIs as "bankers assurances". The NEAT LOIs were in form, as I have said, agreements to indemnify which would have bound BNP had they been executed on its behalf by a person with its authority to do so. Hunter J said that Ms Dhiri exercised her authority to execute the documents negligently because NEAT was not in a financial position to make good the indemnities to PCL and there was no suggestion that Ms Dhiri had any justifiable ground for concluding otherwise. A finding of negligence on this basis, which was not pleaded, cannot be supported, because the NEAT LOIs were not "banker's assurances".

114 Hunter J reviewed the cases and accepted at para 376 that the circumstances would be comparatively rare and unusual where the conduct of the documentary credits department of a bank would render it liable in negligence to third parties in the manner in which it sees fit to conduct its own affairs and in its dealings with customers. He found at para 395 that Mr Tan was of the understanding that NEAT was not a substantial company and in that sense presumably could not have relied upon the NEAT LOIs as bank references. This is another reason for saying that such a case cannot be made out.

115 Hunter J continued:

"402 It follows that I accept that Pacific relied upon BNP's execution of the NEAT LOIs as embodying a bank indemnity and that, without that comfort, it would not have permitted discharge of the MV Nelson cargo to Royal without presentation of the bills of lading.

403 Subject to BNP defences examined in following reasons and the question of causation, I am satisfied that BNP is liable to Pacific in negligence for the economic loss to Pacific represented by its detriment in acting on the NEAT LOIs by permitting discharge of the MV Nelson's cargo to Royal without presentation of bills of lading."

116 As I understand it, Hunter J found negligence by BNP because, through Ms Dhiri, it had issued a banker's assurance without any justifiable ground for concluding that NEAT was in a financial position to make good the indemnity to PCL. Having thus found negligence, his Honour held BNP liable not because PCL had relied on such an assurance but because it had reasonably proceeded on the basis that the NEAT LOIs were bank indemnities. On that basis PCL permitted discharge of the cargo.

117 Hunter J continued:

"Pacific's Misrepresentation Case

404 It is not necessary in those circumstances to examine Pacific's misrepresentation case. However, I am of the view that there was no actionable misrepresentation. BNP's execution of the NEAT LOIs was in the nature of a banker's assurance as to its customer's capacity to make good the subject indemnity and, in substance, Pacific relied upon that bank assurance. Dhiri did have authority to execute the document on behalf of BNP, which she acted upon, albeit negligently. In my view there was no misrepresentation."

This confirms what I understand to be Hunter J's conclusion on negligence, as well as misrepresentation. His Honour went on to dismiss BNP's contributory negligence defence and dealt with damages.

118 In his second judgment of 24 October 2001 Hunter J dealt with contentions made on behalf of BNP that the principal reasons for judgment, in particular at paras 290 and 344, were findings which depended on a case which was not pleaded and, in effect, constituted a finding of a representation case that was never made. His Honour said that he thought those submissions misunderstood the principal reasons for judgment. He said:

"11 The central ingredient in Pacific's case was made out by the findings in the principal reasons that upon the proper construction of the NEAT LOIs, the execution of those LOIs on behalf of BNP was not that of a verifier of the NEAT LOIs. However, in order to examine the reasonableness of Pacific's reliance upon the execution of the NEAT LOIs, on behalf of BNP, it was necessary, in my view, to properly construe the LOIs as executed by BNP. Pacific's evidence of reliance was upon the basis that it understood the BNP execution of the LOIs to be that of an indemnifier.

12 In considering Pacific's case in contract I reached the conclusion that on the proper construction of the LOIs, BNP was not a co-indemnifier. It was then necessary to consider that was the proper construction of the LOIs in determining the reasonableness of Pacific's conduct in acting upon the bank's execution of the LOIs in proceeding to give its own indemnity to Bolton.

13 BNP has not been found liable to Pacific in contract. Its liability lies in negligence as pleaded, the damages consisting of those suffered by Pacific in relying upon the execution of the LOIs on behalf of BNP, namely, by Pacific, itself, indemnifying Bolton. The principal reasons for judgment, I think, in some detail, evidence the reasonableness of the reliance by Pacific on BNP's execution of the NEAT LOIs, notwithstanding the erroneous understanding by Pacific of the legal nature of the execution by BNP of those LOIs. It is in that context that the findings as to the nature of that execution were made in order to examine the reasonableness of Pacific's conduct."

119 With due respect, I have difficulty with this process of reasoning. However, I need not examine it in detail. For reasons already given, I am of opinion that the NEAT LOIs properly construed on their face and assuming they had been executed on behalf of BNP with its authority evidenced agreements by BNP to indemnify PCL. They failed to have that consequence contractually because Ms Dhiri had no authority to enter into a contract to give an indemnity on behalf of BNP. This conclusion removes from consideration the apparent inconsistency of construing the document so far as BNP was concerned as an assurance that NEAT was good for the subject indemnity, an assurance which his Honour ultimately held that the officers of PCL did not rely upon, and the finding that the officers of PCL reasonably relied upon BNP's execution of the NEAT LOIs as embodying a bank indemnity and that, without that comfort, PCL would not have permitted discharge of the MV Nelson cargo to Royal without presentation of the bills of lading. The question is the simpler one of whether BNP was liable in negligence to PCL for issuing documents which on their face might appear to be LOIs executed by BNP but in fact were signed by an officer of BNP who had no authority to bind BNP to such indemnities.

Section 52 of Trade Practices Act

120 The question whether, within the meaning of s52 of the Trade Practices Act 1974, BNP in trade or commerce engaged in conduct that was misleading or deceptive or likely to mislead or deceive was not a question which turned upon BNP's intention but depended upon the actual consequences of its conduct or the likely consequences of its conduct; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191 particularly at 197 and 216. The officers of PCL were found to have acted reasonably in relying upon the NEAT LOIs as evidencing that BNP was a co-indemnifier. If the NEAT LOIs had been executed on behalf of BNP by a person with authority to agree to such an indemnity, there could be no misrepresentation as to the nature of the document. For reasons I have already given, properly construed the NEAT LOIs in form so operated. But Ms Dhiri had no authority to agree to such an indemnity on behalf of BNP nor was she held out as having any such authority.

121 The conduct, pleaded as engaging in conduct which was misleading or deceptive or likely to mislead or deceive, was representing to PCL that BNP was a party to the NEAT LOIs, that it agreed to be bound by and liable under the NEAT LOIs, that it was jointly and severally liable under the NEAT LOIs and that, if in connection with the delivery of the cargo the vessel was arrested, bail or security would be provided for its release. These different ways of saying much the same thing in the circumstances required that BNP represented to PCL that it had executed the NEAT LOIs in such a manner as to be bound as a co-indemnifier. Neither the pleaded case nor the case as presented was that PCL had been misled or deceived by uncertainty about BNP's obligation to indemnify.

122 Hunter J said:

"383 However, it is contended that BNP `did not represent anything [in executing the LOIs] and the only effect of complaints made are that they omitted to make explicit that it was not a contracting party to the LOI when signing the LOI.' The difficulty with this approach by BNP is that Dhiri knew that the execution of the LOI by BNP was required by Pacific and that Pacific was reliant upon receipt of an LOI so executed.

384 It could not be suggested that the execution of the LOI and its provision to Pacific through NEAT was in a casual or trivial context. It involved a very important commercial transaction and envisaged departure from the more conventional terms of delivery of shipping cargo. Otherwise, I have dealt with those contentions earlier in these reasons."

123 As his Honour said in para 11 of the second judgment: "Pacific's evidence of reliance was upon the basis that it understood the BNP execution of the LOIs to be that of an indemnifier." Had the document been executed by BNP in a manner binding upon it in the subscription which bore its name, BNP would have been a co-indemnifier. But BNP did not execute it in that manner. Unless it could be found that, as pleaded, BNP represented to PCL that it had executed the NEAT LOIs in such a manner as to be bound as a co-indemnifier, there was no breach of s52 of the Trade Practices Act. BNP did not represent any more than was apparent on the face of the LOIs and that included nothing as to the authority of Ms Dhiri. It did not represent to PCL that it had executed the NEAT LOIs in such a manner as to be bound as a co-indemnifier. Specifically, it did not represent to PCL that Ms Dhiri had authority to bind it to the indemnity. There was no evidence that Ms Dhiri had made such a representation to PCL. Whether or not Ms Dhiri had explained to the officers of NEAT that she was doing no more than verifying the signatures of its directors, she had had no communication with PCL.

Negligence

124 There was no evidence that BNP had at any time agreed to indemnify PCL for the consequences of PCL's delivering the cargo without production of the bills of lading. Nor was there any evidence that BNP ever intended to give such an indemnity or represented to PCL that it would do so. PCL's case was starkly pleaded as based on a duty of care BNP owed PCL "in executing or signing the agreements dated on or about 28 January 1999 and 19 February 1999". This claim must be looked at in the context that BNP did not represent to PCL that the person signing in the space reserved for Banker's signature had authority to bind the bank to the indemnity. The submission must be that BNP was under a duty of care to PCL which required it to go further and indicate on the document the limited purpose for which Ms Dhiri signed it. In my opinion, the duty of care does not extend so far.

125 In Sullivan v Moody [2001] HCA 59; (2001) 75 ALJR 1570 the High Court said at 1577:

"[42] The argument was conducted upon the basis that it was foreseeable that harm of the kind allegedly suffered by the appellants might result from want of care on the part of those who investigated the possibility that the children had been sexually abused. But the fact that it is foreseeable, in the sense of being a real and not far-fetched possibility, that a careless act or omission on the part of one person may cause harm to another does not mean that the first person is subject to a legal liability to compensate the second by way of damages for negligence if there is such carelessness, and harm results. If it were otherwise, at least two consequences would follow. First, the law would subject citizens to an intolerable burden of potential liability, and constrain their freedom of action in a gross manner. Secondly, the tort of negligence would subvert many other principles of law, and statutory provisions, which strike a balance of rights and obligations, duties and freedoms. A defendant will only be liable, in negligence, for failure to take reasonable care to prevent a certain kind of foreseeable harm to a plaintiff, in circumstances where the law imposes a duty to take such care."

126 If BNP made no representation that Ms Dhiri had the necessary authority, PCL cannot circumvent BNP's non-agreement to indemnify it by alleging that BNP, although not a party to the contract, whose employee signed the NEAT LOI for a different reason and without authority to bind BNP to the indemnity, owed a duty of care to inform PCL, by qualification of the document, that it was not a party to the contract. This would subvert the consensual nature of the law of contract and, in the case where the plaintiff relies upon an unauthorised act to bind the defendant to the contract asserted, what is meant by and required for showing ostensible authority.

127 In his reasons for judgment Hunter J referred to Perre v Apand [1999] HCA 36; (1999) 198 CLR 180 and quoted from the judgment of Gleeson CJ at 192-194 (paras 4 - 11). Hunter J said that none of the three "influential" constraints referred to by Gleeson CJ had any application to the circumstances of the case but Hunter J was speaking of the circumstance of a banker which provided a financial assurance to be relied upon by a third party. His Honour then said:

"357 As will be seen later in these reasons, the evidence of reliance by Pacific upon the bank's execution of the NEAT LOIs is considerable. There can be no doubting, in my view, Pacific's `vulnerability' in the sense considered by Gleeson CJ."

128 With due respect the contrast was exemplified by what Gummow J said in Perre & Apand at 259 - 260:

"The Perres had no way of appreciating the existence of the risk to which they were exposed by the conduct of the Apand experiment and no avenue to protect themselves against that risk. They thus stood in quite a different position from that of the financier in Esanda Finance Corporation v Peat Marwick Hungerfords [1997] HCA 8; (1997) 188 CLR 241 at 266, 284-5, and 304 which had the power to deal from a position of strength in ordering its commercial relationship with the party to whom it provided financial accommodation. Here, the relevant risk to the commercial interests of the appellants was in the exclusive control of Apand. Its measure of control was at least as great as that of the Shire in Pyrenees Shire Council v Day [1998] HCA 3; (1988) 192 CLR 330 at 389. The effect of the Western Australian legislation upon the export market from South Australia was such that, within the buffer zone, the economic loss would flow directly and inevitably and the possibility of its occurrence would not be speculative."

129 The starting point is that the NEAT LOIs bore beside BNP's name an indecipherable signature with no statement of the name or authority of the signatory. The signatory had no authority to bind BNP to an agreement to indemnify and BNP had not represented that she did. As it happens, the documents delivered to PCL were not original LOIs but facsimile copies. The first NEAT LOI was received by PCL on 29 January 1999. No cargo was discharged from the vessel until mid-February 1999. There was ample time and opportunity for PCL to make inquiries. To find PCL was vulnerable in this sense and to give weight to that vulnerability because PCL was persuaded to deliver the cargo to Royal in reliance upon a belief that the NEAT LOIs had been executed by and bound BNP misunderstands what is meant, in this context, by vulnerability. To go further and say that on such a basis BNP owed a duty to make plain that what appeared to be the signature of an unknown signatory was put there not as an act of execution of the NEAT LOIs but for some other purpose or to point out to PCL that the signatory had no authority to bind BNP to the indemnity extends the common law duty of care far beyond anything justified by the authorities.

130 By contrast I note that PCL did not claim, nor could it, to rely on the doctrine of promissory estoppel as exemplified in Walton Stores (Interstate) Limited v Maher & Anor [1988] HCA 7; (1988) 164 CLR 387. There was no common assumption upon which BNP permitted PCL to act to its detriment. The case was simply one in which PCL proceeded on the mistaken belief that BNP had agreed to indemnify when it had not. That belief was not encouraged by any representation made by BNP. It was based on a belief that the NEAT LOIs had been executed by BNP when they had not. BNP did not hold out or represent that Ms Dhiri had its authority to bind it to the indemnity.

131 In my opinion, the claim based on negligence must fail. Accordingly no questions of causation or contributory negligence arise.

Damages

132 BNP also appealed on various grounds against the amount of damages awarded. Because in my opinion BNP was not liable to PCL it is not necessary to consider these grounds of appeal.

Conclusion

133 Hunter J found for PCL in negligence. He did so on a basis which was not pleaded but in any event was not substantiated. In my opinion, PCL's claim in contract, under the Trade Practices Act and in negligence failed. Accordingly, the appeal must be upheld and the cross-appeal dismissed.

Orders

134 The Court was informed that BNP had satisfied the judgment pending its appeal by two payments to PCL, one on 15 November 2001 and the other on 26 November 2001 and sought restitution with interest from the dates of payment to PCL. BNP claimed interest at the rates prescribed pursuant to s95 of the Supreme Court Act 1970. However, in his judgment of 24 October 2001 Hunter J held, as PCL contended, that a judgment in United States currency would express most appropriately PCL's loss as recovered in the proceedings. Further, his Honour accepted PCL's contention that the appropriate rate of interest was 3.83% per annum. It seems appropriate therefore that the amount to be repaid by way of restitution be expressed in United States dollars and the rate of interest allowed be 3.83% for the reasons Hunter J gave. In my opinion orders should be made in this form but if either party wishes to submit otherwise they should have the opportunity to do so within seven days of the handing down of this judgment.

135 I propose the following orders:

1. Appeal allowed;

2. Set aside the judgment and orders 1, 2 and 4 in the Court below;

3. In lieu thereof order that

(a) PCL's summons be dismissed with costs;

(b) PCL pay BNP's costs of the first cross-claim;

4. Cross-appeal dismissed with costs;

5. Judgment for BNP against PCL for US$4,378,788.49 by way of restitution for the sum paid by BNP to PCL on 15 November 2001 together with interest thereon at the rate of 3.83% per annum from 15 November 2001;

6. Judgment for BNP against PCL for US$10,108.40 by way of restitution for the sum paid by BNP to PCL on 26 November 2001 together with interest thereon at the rate of 3.83% per annum from 26 November 2001;

7. PCL to pay BNP's costs of the appeal and cross-appeal but to have a certificate under the Suitors' Fund Act 1951, if so qualified;

8. Liberty to either party to apply within seven days to vary orders 5 and 6.

136 GILES JA: I agree with Sheller JA.

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LAST UPDATED: 29/11/2002