The UK's House of Lords has overturned an appeal court decision and ordered the Royal Bank of Scotland (RBS) to pay damages because it sent letters of credit (L/Cs) to the wrong place.

The House of Lords, which is the UK's final court of appeal, ordered RBS to pay James Jackson and the widow of his former business partner, Chui-Man Davies, around £100,000 damages, with interest, for the error. Business partner Barrie Davies died during the legal struggle.

Wrong place

The 12-year case centred on the collapse of the partners' UK-based importing company known as Samson Lancastrian.

Davies and Jackson maintained that it had been brought down by a single error of RBS when it sent confidential trading documents to the wrong place.

The case

In 1990, another UK company, Economy Bag, decided to import pre-packed dog chews and was introduced to Samson, which identified a supplier of such goods in Thailand.

Samson then began importing the dog chews for Economy Bag, which knew that the Thai supplier was called Pet Products, but did not know what mark-up Samson was putting on trades between the two UK-based companies.

Margin revealed

That was until the international division of RBS in Manchester inadvertently sent transferable L/Cs meant for Samson to Economy Bag, revealing to the buyer the margin the seller was making.

This revelation caused Economy Bag to decide it would be financially worthwhile to buy direct from Pet Products and cease trading with Samson. That decision forced Samson, whose biggest customer was Economy Bag, out of business.

Damages

RBS accepted responsibility for its error but legal wrangling over the award of damages led to a 1988 court case in which the partners were awarded damages of around £100,000.

These damages were wiped out, however, because that court decided to award costs in favour of the bank. In a subsequent appeal in 2000, the partners fared even worse when the court decided to reduce the amount of damages awarded to the businessmen.

Final judgment

The House of Lords, however, overturned that appeal and decided that the lower court had misconstrued a 150-year-old contract case to argue that damages in such cases should be limited to business lost one year after the mistake or breach was made.

The final court of appeal rejected this ruling and insisted that no such limit should be set.

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