1. A Closer Look at the Facts of Seddon’s Case
I knew jack was right. However, one point bothered me. In all trials, the judge’s decision is based on the facts proved to him. These, of course, might be at variance with what had really taken place. In some cases, the suppression of facts is intentional: the parties seek to cover up some sordid or illegal matter looming in the background.
All the same, I found it difficult to appreciate the point made by Dennis Gray about the Seddon case. To me it had appeared a run of the mill dispute between a customer and a bank. On their face, the facts were straightforward. An English importer – one Seddon – ordered a shipment of Grade A Jasmine Tea from an exporter trading in Hong Kong as Ng Pte Ltd. Seddon had had previous dealings with the same exporter and was satisfied with his record, standing and business integrity. All the same, Seddon arranged that the price of the tea be paid by means of a letter of credit. Why did he need an intermediary like a bank? Why didn’t he simply agree to pay the price in cash, probably remitting part of it in advance and the balance on delivery.
On the facts, Seddon procured a letter of credit from the Masterman Bank, a well established firm but, at the same time, not a lead bank. In the facility procured, the Masterman Bank undertook to pay Ng the agreed price of the goods against the tender of three documents: a bill of lading; an insurance policy; and Ng’s invoice. Ng tendered the stipulated documents to the Bank and obtained payment. The Bank, in turn, debited Seddon’s account.
The dispute started when the tea arrived in London. It turned out that instead of Grade A Yasmins Tea the shipped crates contained dust. Seddon contacted Ng forthwith only to discover that his ‘counterparty’ had been adjudicated a bankrupt. Seddon further discovered that the fraud had been committed by Ng’s suppliers in Beijing.
Any proceedings against Ng or the ultimate supplier in China would have been pointless. Seddon’s only hope was to recover his loss from the Masterman Bank. The latter rejected his claim and denied liability. In the Bank’s opinion, Seddon’s instructions had been meticulously carried out: it had paid out against the tender of the stipulated documents.
Seddon accepted that the documents received by the Bank were regular. But he alleged that the Bank should have advised him to insist that Ng tender an additional document, known as a certificate of quality and analysis, to be issued by an established firm of surveyors. If such a certificate had been required, the surveyor would have conducted spot checks of the goods. He would have detect the fraud.
The Masterman Bank disputed this argument. It claimed that, under prevailing practice, a bank did not owe a customer, like Seddon, any duty of care. Seddon was familiar with the trade and knew his counterparty. Why then was he seeking to blame the Bank?
The Judge accepted the Bank’s submissions and dismissed the case. In my eyes, the outcome was justified. Why should the Masterman Bank pay for Seddon’s simple mindedness?
2. Jack’s and Dennis Gray’s Reactions
Jack, the publican, was not impressed as I related the facts. He wondered whether the Judge had been familiarised with the background of the transaction. Would he have reached the same conclusion if he had smelt a rat? Had he been told the full details respecting Mr. X’s dealings with the officers of the Z Bank?
“But surely, Jack, all this should have been established by our Mr. X. Why wouldn’t he or Jack testify about them?”
“Suppose his lawyers advised against it?” He asked, his eyes narrowing.
“Why should they do this?”
“They might have had their reasons,” muttered Jack and, before I had the time to reply, offered me a shandy on the house.
Some two weeks after my conversation with Jack, I called again on Dennis Gray. As anticipated, he agreed with my conclusions. On the face of it, the decision was unexceptional. Still, in his measured manner of speech, Gray emphasised again the oddity respecting the price of the goods. Further, he told me that a search conducted in Hong Kong revealed that Seddon was a substantial shareholder of Ng’s firm. This, too, was puzzling.
“Surely, the Masterman Bank would not be familiar with the price of such goods. And how would they know that Seddon purchased goods from his alter ego?” I asked.
“Perhaps they didn’t know of the connection between Seddon and Ng. We can’t be certain. But they should have known the price was too high!”
“How?”
“Well, we finance timber imports from Canada and Indonesia. Suppose a customer asked me to issue a letter of credit for an unduly high price. Don’t you think I would spot the point?”
“What would you do?”
“That would depend on the circumstances. But, Mr Berger, I would not be fooled. And I would smell a rat.”