Pentium (BVI) Ltd Appellant v The Bank of Bermuda Ltd Respondent
| Jurisdiction | British Virgin Islands |
| Judge | BARROW, J.A.,Justice of Appeal,Denys Barrow, SC,Michael Gordon, QC,Hugh A. Rawlins |
| Judgment Date | 23 March 2007 |
| Judgment citation (vLex) | [2007] ECSC J0323-4 |
| Court | Court of Appeal (British Virgin Islands) |
| Docket Number | CIVIL APPEAL NO.31 OF 2006 |
| Date | 23 March 2007 |
IN THE COURT OF APPEAL
The Hon. Mr. Michael Gordon, QC Justice of Appeal
The Hon. Mr. Denys Barrow, SC Justice of Appeal
The Hon. Mr. Hugh A. Rawlins Justice of Appeal
CIVIL APPEAL NO.31 OF 2006
Mr. Stephen Moverley Smith QC and Mr. Oliver Clifton for the Appellant
Mr. Jeffrey Elkinson and Mr. Richard Evans for the Respondent
The Bank of Bermuda Limited (the Bank) acted on nine forged wiring instructions that were sent by fax to the Bank and paid out US$3,137,940.00 for which it debited the account of Pentium (BVI) Limited (Pentium). The Bank's sole defence to Pentium's claim that it had wrongfully debited Pentium's account was that Pentium was estopped from so asserting because of the representations that Pentium had made to the Bank by the faxes that Pentium's managing director sent to the Bank. Hariprashad-Charles J upheld this defence and entered judgment 1 for the Bank dismissing the claim with costs of $132,189.70. It is against that decision that Pentium has appealed.
The arrangement between the Bank and Pentium for the operation of Pentium's account with the Bank was governed by a mandate. Presumably, Pentium's board of directors issued that mandate. The mandate required two signatures: the signature of Pentium's managing director, Matheson Trust Company Limited (Matheson) and the signature of one of three other persons, including Mr. Norman Gibson. Pentium was an international business company incorporated in the British Virgin Islands that traded in foreign exchange from offices in Monaco. An associated company owned those offices and employed there one Roberto D'Osvualdo.
Between March 1996 and August 1998 Matheson faxed the forged wiring instructions to the Bank. They bore the signature of an officer of Matheson and what purported to be the signature of Mr. Gibson. D'Osvualdo had forged the signature of Mr. Gibson. His method, one gathers, was to forge the signature of Mr. Gibson on the wiring instructions, send the forged instructions to Matheson representing that Mr. Gibson was sending them, and thereby induce Matheson to sign the instructions and fax them to the Bank. Mr. Gibson did not discover the frauds until March 1999. D'Osvualdo was subsequently convicted and sentenced in his absence to 10 years imprisonment. He remains at large and the money remains unrecovered.
It was a limited trial that was conducted before Hariprashad-Charles J because on an earlier application for summary judgment Rawlins J (as he then was) had given judgment on 30 April 2003 rejecting the entirety of the Bank's pleaded defences. Those defences included allegations that Pentium owed the Bank a duty to take reasonable steps to prevent the fraud. Rawlins J decided that the only issue that could go to trial was whether Pentium was estopped from asserting the Bank
unlawfully debited its account. The matter of negligence on the part of Pentium, therefore, was not a live issue in the trial before Hariprashad-Charles J.Pentium accepted that the judge properly appreciated the purpose and effect of the mandate when she stated:
"[78] … It requires two signatures. The purpose of having two signatures is to ensure that the payment instruction is the will of two separate people acting on behalf of the Customer, and not just the frolic or fraud of one. If a bank could rely on the second signature as verifying the first, this protection would be totally undermined: it would permit the bank to avoid liability, for example, where one signatory signs in his own name and forged his co-signatory's signature, the very situation a two-signature mandate is designed to avoid."
The Bank argued before the judge that while Matheson alone had no authority to issue wiring instructions it did have authority to communicate Pentium's approval. The judge therefore considered what representations Matheson in fact made in the fax cover sheet that Matheson sent along with the wiring instructions. The fax cover sheets were to the effect: "We would be grateful if you could take action as per the attached Instructions" or "Please take action as per the attached." The wiring instructions were unremarkable; they followed the same format as genuine wiring instructions that were sent. The only difference was that the signature of Mr. Gibson was forged.
The judge concluded thus:
"[99] I have already alluded that the Bank accepted that the Managing Director alone did not have authority under the mandate to order Pentium's money to be paid away. However, it clearly, by virtue of being the Managing Director, had authority to communicate the Customer's approval of the transaction and that the Customer wanted these transactions processed. Emanating from the Managing Director as it did, [ the fax cover sheet along with the wiring instructions] clearly represented a transaction in the course of Pentium's business.
"[100] … Ms. Carter explicitly stated that she relied on Matheson's directions regarding payment. In addition, she stated that she would not have paid out if she did not see Matheson's signature and the faxed cover page emanating from Matheson's office as she knew Matheson was ultimately responsible for managing Pentium's account …"
Mr. Moverley Smith QC, leading counsel for Pentium, noted that the judge did not state what was the consequence of her findings until she stated in paragraph [112] of the judgment, under the heading "Summary", as follows:
"At the end of his submissions, Learned Counsel for the Bank suggested that "blame for what occurred should not lie at the door of the Bank" and whilst the Mandate was indeed breached, this is a case where the Bank may nevertheless escape by the invocation of the Doctrine of Estoppel. All things considered, I concluded that Pentium is estopped from denying that the Bank lawfully debited its account on the wire instructions that were purportedly signed by Mr. Gibson and its Managing Director."
The core of Pentium's case on appeal was logic. I understood Mr. Moverley Smith's argument in this way. It was clear from the mandate that Matheson alone could not authorise or instruct the Bank to make payments. Therefore the Bank was not permitted to act on payment instructions issued by Matheson alone. However, Matheson alone, by its fax cover sheets, communicated to the Bank that Pentium approved the making of payments. The proposition that the Bank was thereby authorised to make payments meant that Matheson alone authorised the Bank to make payments. This directly contradicts the primary finding of the judge that Matheson alone could not authorise or instruct the Bank to make payments.
To put the argument another way, the Bank was authorised to pay Pentium's money out only on the strength of instructions signed by two persons. It made no difference if those instructions came in the form of wiring instructions or a fax cover sheet or a letter of approval. The instructions had to be given by two persons. The fax cover sheets were not instructions given by two persons. Therefore the Bank acted without proper authority.
The Bank's response drew a distinction between authority to transact and authority to represent. There was no dispute that for estoppel by representation to operate there must have been a representation made by or on behalf of the person to be estopped and made by a person having the authority to make the representation. 2 The judge upheld the distinction drawn by the Bank between authority to transact and authority to represent by her decision, at paragraph [99] of the judgment 3, that while Matheson had no authority to order Pentium's money to be paid away Matheson had authority to communicate the customer's approval of the transaction and that the customer wanted these transactions processed. She found that coming from the managing director, the faxed instructions clearly represented a transaction in the course of Pentium's business. The judge did not, as Mr. Smith observed, reason beyond that finding to state the effect that such a representation could have in the face of the terms of the mandate.
Mr. Elkinson, leading counsel for the Bank, argued that Pentium has steadfastly refused to accept the distinction between having authority to enter into a transaction and authority to make representations on behalf of a principal. Mr. Elkinson referred to a number of cases to support the drawing of the distinction, including Manchester and Oldham Bank Limited v W.A. Cook4 where a bank manager had no authority to approve a loan but did have authority to express the approval of the loan by others and Bank of England v Vagliano Brothers5 where, counsel said, Lord Halsbury concluded that a representation by a confidential clerk was binding on the account owner, even though the clerk was not a sole signatory. The judge thought none of the cases cited was particularly helpful although she found enlightening the distinction drawn by Steyn LJ (as he then was) in First Energy UK Ltd. v Hungarian International Bank6 where a
senior manager did not have authority to make an agreement but did have authority to represent that those who could do so had agreed. Steyn LJ stated:"[93] It seems to me that the law recognizes that in modern commerce an agent who has no apparent authority to conclude a particular transaction may sometimes be clothed with apparent authority to make representations of fact. In accordance with general understanding in commerce the managing director and the general manager of such a bank is clothed with a general actual or apparent authority to convey such information. It would be absurd to suggest that the third party should seek information from the board of directors as a whole."
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