Q. Well, is there any difference that you can identify?
A. Yes, there is. A banker's guarantee is a banker's guarantee and letter of indemnity signed by the bank is totally different documents.
Q. Can you explain what you say is the significance of the difference between the two?
A. You see, the banker's guarantee is written by the bank himself, that they guarantee that this much they will pay if any problem will come, and letter of indemnity is usually given by the receiver and which the banker endorse that we are also the party to this banker's guarantee - not banker's guarantee, the letter of indemnity.
Q. So the only significant difference in your mind is that there are two parties to a letter of indemnity where it has been countersigned by a bank whereas a banker's guarantee is only given by one party?
A. Right. Second, the banker's guarantee is given by the bank to pay and letter of indemnity is indemnifying your risk in case if any losses happen, you are to prove those losses, then you will be able to cash it. Bank guarantee you will be able to cash it immediately.
Q. So far as you were concerned in 1999, from a practical point of view, leaving aside any legal distinction, you were prepared to treat a letter of indemnity countersigned by a bank as, in essence, the same as a banker's guarantee for the purpose of delivery of cargo without production of bills of lading, correct?
A. Yes".
(T1056:40-T1057:23)
342 In any event, recourse to dictionary definitions of 'countersigning' as acts of confirmation or authentication are of little assistance, in my view, in understanding, on the face of the documents, the nature of BNP's execution of the NEAT LOIs in the circumstances of this case.
343 As earlier stated, BNP is not an indemnifier under the NEAT LOIs, nor would I equate BNP's execution of the LOIs with a bank guarantee.
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.
351 I have had the benefit of extensive research by counsel of the principles of negligence and the existence of a duty of care in relation to economic loss.
352 Much of what has been submitted on behalf of BNP turns on policy considerations dictating restraint on the imposition of a duty of care by a banking institution to third parties, other than their customers. In my view, policy considerations do not arise in this case, or if they do, they do not govern the situation. It is not simply a case of a bank's negligent act in a customer-client relationship which may be seen to have caused damage to a third party that calls for consideration.
353 In this case, Dhiri was aware that the requirement for the bank to execute the documents emanated from "the owners". Further, that the document, once executed, was to be provided to Pacific for the purpose of indemnifying Pacific against delivery of valuable cargo without presentation of bills of lading: on the face of it a very significant commercial risk, particularly to a manager of the documentary section of BNP.
354 In support of its case in negligence Pacific relies upon Perre v Apand [1999] 164 ALR 606 at 611, and Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" (1976) 136 CLR 529 at 555.
355 Both parties have relied upon Perre. Perre was the case of the potato farmers whose business was adversely affected by the supply of infected seed to the neighbour's property which had the effect of precluding the neighbouring farmers from exporting their product. Gleeson CJ had the following observations to make about the current state of the law concerning liability for economic loss:
"In Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) 136 CLR 529 all the members of the court, except Murphy J, accepted that there is no general rule that one person owes to another a duty to take care not to cause reasonably foreseeable financial harm. The consequences of such a rule would be intolerable. However, as the decision in that case showed, and as had previously been shown in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, there are circumstances in which the law recognises a duty of care such as will permit recovery of pure economic loss.
There are at least three considerations which have been, and will remain, influential in restraining acceptance of such a duty of care in particular cases, or categories of case. First, bearing in mind the expansive application which has been given to the concept of reasonable foreseeability in relation to physical injury to person or property, a duty to avoid any reasonably foreseeable financial harm needs to be constrained by "some intelligible limits to keep the law of
negligence within the bounds of common sense and practicality". Secondly, to permit recovery of foreseeable economic loss, which may or may not occur in a commercial setting, for any negligent conduct, may interfere with freedoms, controls and limitations established both by common law and statute in many legal contexts. Thirdly, in those cases where the loss occurs in a commercial setting, a third party, C, may suffer financial harm as a result of conduct which is regulated by a contract between A and B. It may be that the consequences of such conduct, as between A and B, are governed and limited by the contract. This is a problem which commonly occurs in relation to maritime claims, and may help to explain the strictness with which an exclusionary rule has been applied in shipping cases.
Another matter of concern is the lack of precision in the concept of financial or economic loss. Physical injury to person or property is usually readily identifiable, even if it may take time to manifest itself. However, the concept of financial or economic loss or harm is wide enough to comprehend a variety of circumstances or contingencies, some of which may be indirect and difficult to identify or measure. Suppose, for example, that a child's parents are killed as a result of the negligent conduct of another. In many jurisdictions there are statutory provisions which govern entitlement to compensation. However, if the matter were at large, how would a court set about identifying, and estimating, the kinds of financial loss which might sound in damages? What kinds of detriment, harm, or disadvantage, would be treated as "financial loss"? The law of tort is a blunt instrument for providing a remedy for many kinds of harm which may be suffered as a consequence of someone else's carelessness, and which are capable of being described as financial.
If there once was a bright line rule which absolutely prevented recognition of a duty of care in any case where the negligent conduct of one person caused financial loss to another, not associated with injury to the other's person or property, and which assigned claims to recover such loss to the field of contract rather than tort, the line gave way in an area where there is a clear potential for carelessness to cause financial harm: negligent misstatements made to a person who, to the knowledge of the maker of the statement, relies upon the advice or information provided. However, there is no convincing reason why conveying advice or information should be treated as the solitary exception to an otherwise absolute exclusionary rule.
Once the exclusionary rule ceased to be a bright line rule, it lost one of its principal justifications. Nevertheless, the considerations underlying the rule remain cogent, even if they are no longer seen as absolutely compelling. Courts have found difficulty in proposing an alternative general rule which makes better sense and which, at the same time, pays due regard to the problems earlier mentioned.
The solution does not lie in what is sometimes described as the three-stage "test" said to have been formulated by Lord Bridge of Harwich in Caparo Industries Plc v Dickman [1990] 2 AC 605. Lord Bridge never said it did. He said it did not. In the much quoted passage in his Lordship's speech where he referred to the necessary ingredients of foreseeability, proximity, and a situation in which the court considers it fair, just and reasonable that the law should impose a duty, he immediately went on to say that "the concepts of proximity and fairness … are not susceptible of any such precise definition as would be necessary to give them utility as practical tests, but amount in effect to little more than convenient labels to attach to the features of different specific situations which, on a detailed examination of all the circumstances, the law recognises pragmatically as giving rise to a duty of care of a given scope". He also quoted with approval an observation of Brennan J concerning incremental development of the law. In the same case, Lord Oliver of Aylmerton, whose speech has been equally influential in later cases, said that "to search for any single formula which will serve as a general test of liability is to pursue a will-o'-the wisp".
In Caparo, Lord Oliver emphasised that, in this field of discourse, the mere foreseeability of possible damage, without some further control (which he summarised as "proximity", after explaining what he meant by that term), would not be useful as the test of liability. At the same time, however, his Lordship made it clear that "in some cases the degree of foreseeability is such that it is from that alone that the requisite proximity can be deduced". In relation to the giving of advice or information, questions of reliance and actual foresight of the possibility of harm (or, what is the same thing, the foresight that a reasonable person would have) are closely related. Moreover, knowledge (actual, or that which a reasonable person would have) of an individual, or an ascertainable class of persons, who is or are reliant, and therefore vulnerable, is a significant factor in establishing a duty of care.
Vulnerability can arise from circumstances other than reliance. In Caltex, the obvious vulnerability of a specific plaintiff was influential in a number of the judgments. This was not merely an arbitrary method of solving the problem of potentially indeterminate liability. It was an application of what Lord Oliver later discussed as the idea that in a given case, the degree (and nature) of foreseeability may have an important bearing on whether there is a duty of care."
(at 609-611)
356 None of the three "influential" constraints referred to by Gleeson CJ has any application to the circumstances of this case, nor does the concept of financial or economic loss in this case suffer from lack of precision. Further, the disappearance of the clear "bright line" occurred to encompass cases such as this, where a banker is called upon to provide a financial assurance to be relied upon by a third party.
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.
358 If one accepts the evidence of Tan Chin Hee (Tan), a director of Pacific, and Chua, as I think I should, the evidence of reliance is strong, particularly if one takes into account Tan's experience and his evidence of his understanding that NEAT was not a financially strong institution. Tan had extensive experience in the shipping industry and was a committee member of SKULD. It is common ground that Dhiri was aware of Pacific's requirement of NEAT's LOI, signed by NEAT's banker, before releasing the MV Nelson's cargo without presentation of a bill of lading.
359 Gleeson CJ agreed with the reasons given by Gummow J in Perre "for concluding that, in the present case, the respondent owed the appellants a duty of care." Gummow J's approach, I think, may be reduced to a 'particular' fact analysis, rather than one which treated the case as being resolved by the application of some general principle. I think that is illustrated by the following passages:
"The question in the present case is whether the salient features of the matter gave rise to a duty of care owed by Apand. In determining whether the relationship is so close that the duty of care arises, attention is to be paid to the particular connections between the parties. Hence what McHugh J has called the "inherent indeterminacy" of the law of negligence in relation to the recovery of damages for purely economic loss. There is no simple formula which can mask the necessity for examination of the particular facts. That this is so is not a problem to be solved; rather, as Priestley JA put it in Avenhouse v Hornsby Shire Council (1998) 44 NSWLR 1 at 8, "it is a situation to be recognised.
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