Anonymous Case Summary

Factual and Procedural Background

The Plaintiff is the central bank responsible for issuing the sole legal-tender banknotes of its country. The Defendant is a London security-printing company that had previously printed genuine notes for the Plaintiff under contracts dated 27 November 1922 and 20 February 1924.

During 1925, the Defendant, misled by a criminal group, printed and delivered 580,000 unauthorised 500-unit notes (the “Marang notes”) that were indistinguishable from genuine notes. The conspirators introduced large quantities of these notes into circulation through a sham bank. Once discovered, the Plaintiff announced on 7 December 1925 that every 500-unit note of the affected design would be withdrawn and exchanged for other currency. Between 7 and 26 December 1925 the Plaintiff honoured all such notes (genuine and forged) to avert a monetary crisis.

The Plaintiff sued on 5 April 1928 for breach of contract (other tort claims were eventually abandoned). Judge Wright entered judgment for the Plaintiff for £569,421. The Court of Appeal (majority: Judge Greer and Judge Slesser; dissent: Judge Scrutton) reduced the award to £300,000. Both parties appealed to the House of Lords, which consolidated the appeals.

Legal Issues Presented

1. What is the correct measure of damages for the Defendant’s admitted breach of an implied term prohibiting unauthorised printing of the Plaintiff’s notes?
2. Up to what date could the Plaintiff reasonably continue exchanging good notes for forged notes at the Defendant’s expense?
3. How should sums recovered by the Plaintiff from the conspirators’ liquidation be credited against any damages payable by the Defendant?

Arguments of the Parties

Plaintiff's Arguments

• The Plaintiff’s loss equals the face value of each good note issued in exchange for a forged note, converted to sterling at the December 1925 rate, plus printing costs.
• The withdrawal was essential to protect national currency; continuing exchanges until 26 December 1925 was reasonable and foreseeable.
• Sums recovered from the conspirators should only reduce the overall loss once total damages have been calculated.

Defendant's Arguments

• The Plaintiff suffered no loss beyond the trivial cost of paper and printing because its inconvertible notes impose only a self-renewing obligation to issue further notes.
• If any loss existed, it was caused or aggravated by the Plaintiff’s voluntariness or failure to mitigate after it could distinguish forged from genuine notes (variously asserted as 9, 10, or 16 December 1925).

Table of Precedents Cited

Court's Reasoning and Analysis

A majority (Judges Chancellor, Atkin, and Macmillan) held:

• The Plaintiff did not “lose only paper and ink.” When the Bank issues a note it parts with a unit of purchasing power backed by its assets; the face value therefore represents real value lost, even in an inconvertible regime.
• The obligation embodied in a note (to honour it in currency, now or in the future) is a quantifiable liability equal to its face amount; the Defendant’s breach compelled the Plaintiff to assume that liability without consideration.
• Continuing exchanges through 26 December 1925 was reasonable and foreseeable. Earlier cessation would have shattered confidence and risked economic chaos; Judge Scrutton’s date was adopted.
• The Plaintiff’s total loss was £1,098,822 (face value of 207,706 forged notes exchanged plus £6,541 printing cost). After subtracting £488,430 recovered in the conspirators’ liquidation, net loss equalled £610,392.
• That figure was well within the Defendant’s potential liability; accordingly judgment should reflect the net loss.

A minority (Judges Warrington and Russell) would have limited damages to printing costs (£8,922), accepting the Defendant’s view that issuing further inconvertible notes caused no monetary loss.

Holding and Implications

APPEAL BY PLAINTIFF ALLOWED; APPEAL BY DEFENDANT DISMISSED.

The House of Lords entered judgment for the Plaintiff for £610,392 plus costs.

Implications: The decision clarifies that, even with an inconvertible paper currency, a central bank suffers real, compensable loss equal to the face value of notes it is forced to issue because of a contractor’s breach. The ruling underscores the foreseeability of such loss and affirms that banks may take reasonable steps to protect currency integrity without jeopardising damage recovery.