Azri Nadiah bt Mohd Yani LEB120016Fatin Nur Athirah bt Zainudin LEB120030

JOACHIMSON V SWISS BANK CORPORATION

The customer has an implied duty to exercise reasonable care in executing his written orders so as not to mislead the bank or facilitate forgery

LONDON JOINT STOCK BANK V MACMILLAN & ARTHUR

Lord Haldane: The customer contracts

that in drawing his chequeshe will draw them in such a form as will enable the banker to fulfill his obligations and therefore in a form which is clear and free from ambiguity.

FACTS

A bank customer left 5 cheques signed in blank with his wife so she could use them to pay the wages of his workers while he was away. The wife instructed a clerk to fill in a cheque for £50 2s. 3d. While filling in the cheque, the clerk left spaces in between the words and the figures expressing the amount payable. She then raised the amount on the cheque to £350 2s. 3d.

COURT HELD

A customer was acting in breach of his duty of care towards the bank when he signed a blank cheque to be filled in by a 3rd party. It was manifest that the legal blame attached solely to the customer for leaving the blank cheque with his agent who caused it to be filled up in an unusual way by failing to ensure that at least a line was drawn to fill up the interval before the word fifty

-A guy named Mr William Gates was employed by Ps company as secretary. Gates was the son of one of the directors of the company. As the company’s secretary, Gates was entrusted with the custody of the company’s cheque books and its bank pass-books. Gates forged the signature of one of the authorized signatories and the cheques were duly paid by the bank. The company claimed that the bank had no authority to make payment on the cheques.

The bank relied on 2 main defences ie:

(i) It alleged that Gates’s father who was a director of the company was aware that his son had committed forgery before he became the secretary of the company and he should have told the bank.

(ii) The company was negligent in failing to supervise its secretary and failing to check its bank pass-books.

Court held that the negligence of the customer could not be relied upon by the bank unless it actually facilitated the fraud. In this case the forgeries did not result from the company’s failure to supervise its secretary and pass-books.

-D opened acc at A’s bank. His account’s clerk forged cheques and were honoured by A’s bank.

at common law a customer owes his banker only two duties ie refrain from drawing a cheque in such a manner as may facilitate fraud or forgery and duty to inform the bank about the forgery/fraud as soon as the customer becomes aware of it.

Bond had signed 3 blank cheques and gave it to his secretary to fill in the details for payment to Fruits Sdn Bhd.

The fact of the case id distinguished from Lewes Sanitary Steam Laundry Co v Barclays, Bevan & Co as his act obviously facilitated the act of forgery because his secretary can fill in the figure apart from what had been ordered; payment for Fruits Sdn Bhd.

There is a duty to take reasonable care when drawing a bank cheque in such a manner as may facilitate fraud or forgery.

Can conclusive evidence clause be used against customer?

General rule at common law: the customer does not have a duty to check his bank statements periodically

Conclusive Evidence Clause has been used by banks to impose duty on the customer to check his bank statements and to notify immediately within the stipulated time of any errors in entries

Different applications in Commonwealth countries Canada: Arrow Transfers Co Ltd v

Royal Bank of Canada Singapore(use Unfair Contract

Terms Act): Consmat Singapore Ltd v Bank of America National Trust & Savings Association, PertaminaEnergy Trading Ltd v Credit Suisse(differ betw commercial customer and non-commercial customer)

United Kingdom: Burnett, Bache & Co Ltd v Banque Vernes Et Commerciale De Paris SA

Malaysia: Chairman, Sarawak Housing Developers Association v Malayan Banking Bhd, Principal Salute Sdn Bhd v RHB Bank Bhd

In the absence of fraud, the construction of the banker-customer contract does not place the customer under a duty to peruse his account statement or the entries in a pass-book.

Lord Scarman: In the absence of express

agreement to the contrary, the risk of wrongful payments was borne. Banks offer a service, which is to honour their customr’s cheques when drawn upon an account in credit or within an overdraft limit.

If they pay out upon which the cheques are not [the customer’s], they are acting outside of their mandate and cannot plead his authority in justifications of their debit to his account.

The risk is a risk of service which it is their business to offer.

clear and unambiguous provision is needed if the banks are to introduce into the contract a binding obligation upon the customer who does not query his bank statement to accept the statement as accurately setting out the debits items in the accounts.

P maintained a bank account with D bank. The P later discovered that their signature on 15 cheques were forged.

clause 3(c) Verify statements etc &

inform discrepencies etc within 7 days

If not, it shall be conclusive evidence that bank is excluded of liabilities except for things notified.

Court applied a wider approach by stating that an amount drawn by forged or unauthorized cheque which has been debited to the account is a “debit wrongly made” and is also an incorrect entry in the account which squarely fall within the ambit of clause 3(c).

“it is indeed difficult for anyone reading clause 3(c) of the contract to realize that his right to raise the issue of forgery is being taken away seven days after the bank send him a bank statement. If a bank wished to shift its responsibility for verifying a customer’s signature to the customer himself, then it should say so in clear terms rather than hide it in clause which refers to something else.”

reiterates the principle that customers do not (in the absence of express agreement) owe a duty to prevent forgeries or check their bank statements

The customer had agreed, in a form executed when he opened his account, to verify all account statements sent to him and to notify the bank of any errors and inaccuracies within a given period.

Thereafter, the account as kept by the bank was to constitute conclusive evidence of entries’ correctness.

A clerk who occupied a responsible position in the customer’s service, forged a number of cheques.

SUPREME COURT Majority: customer was bound

by the clause in question. Failure to notify the bank of the discrepancies disables him to contest the genuineness of the cheques.

Laskin J:

Customer’s persistent failure to peruse the statements and to verify the state of his account precluded him from disputing the entries is based on the forged cheque.

Verification clause must be construed narrowly in line with the interpretation of exemption clause

The clause did not exempt the bank from its liability for the payment of the forged cheques, even where the customer had failed to peruse the statements s rendered to him. no reference to customer’s

duty to verify genuineness of cheques forming the basis of entries

CANADIAN PACIFIC HOTELS LTD V BANK OF MONTREAL

Le Dain J rejected the contention in Arrow Tranfer

Existence of a duty to peruse bank statement was not established even in the case of ‘sophisticated customers’ such as business corporation.

PERTAMINA ENERGY TRADING LTD V CREDIT SUISSE SUISSE

Existence of such duty would have to depend upon the proof of a commercial usage and the evidence of practice constituting such a custom or usage to support it.

Conclusive evidence clause is in conformity with the spirit of English Law concerning performing bonds and first demand guarantees.

There is no public policy against it … on the contrary public policy is in favour of enforcing it.

CANADIAN PACIFIC HOTELS LTD V BANK OF MONTREAL

Le Dain J = Lord Scarman To be effective, it has to be

made an integral term of the contract between banker and customer.

It cannot be done by adding such clause at the foot of the bank statement, as this document does not evidence the terms of the contract between the parties.

TAI HING CASE

It is not enough to include in the doc signed by the customer when the acc is opened an informal verification clause that falls short of imposing on the customer a duty to check his statements.

The clause must be sufficiently drafted to convey the customer that it is conclusively binding.

The P claims for an amount of money wrongly honoured by D through 186 cheques signed solely by Obeng, executive secretary of SHDA who was tasked with the administrative duties of SHDA.

HELD: At Common Law, a banker who

pays out on a forged instrument drawn on his customer’s account is absolutely liable to make good for such loss regardless of his unawareness of the forgery or the reasonable care that was taken.

There’s no further duty to take precautions to prevent forgeries on the part of his servants.

There’s no duty to inspect his periodical bank statements to ensure that his account is being properly maintained by the bank.

Clause 18 Customer must examine the

statement (rendered 0nce a month) and report any error found within 14 days. If not, the statement shall be treated as conclusively settled as between the customer and the bank.”

‘Error’ not necessarily included forgery/fraud. If u want put in the CEC to include forgery or fraud then u must put in expressly.

this clause is insufficient as it is far from being a clear and unambiguous provision.

Customer reading clause 18 might be inclined to think that the said clause merely refers to some incorrect mathematical calculations in the account or failure to take into account legitimate credits and debits to the account rather than more serious matters of forgery or fraud.

The burden of the objection and of the sanction imposed had not been brought home to the plaintiffs in this case.

Subject to the provisions of this Act, where a signature on

a bill is forged or placed thereon without the authority of the person whose signature it purports to be, the forged or unauthorized signature is wholly inoperative, and no right to retain the bill or to give a discharge therefore or to enforce payment thereof against any party thereto can be acquired through or under that signature, unless the party against whom it is sought to retain or enforce payment of the bill is precluded from setting up the forgery or want of authority:

Provided that nothing in this section shall affect the ratification of an unauthorized signature not amounting to a forgery.

Clause 3(c) is a conclusive evidence clause LP Thean J : the customer was under

obligation to notify the bank of forgery due to the existence of clause 3(c). The case was governed solely by S24 BEA while UCTA was not applicable

S24 BEA – forged cheques were wholly inoperative and bank is liable unless customer is precluded from setting up the forgery

Whether an employer has a duty to prevent fraud by his employee towards banks

Facts

The respondent had an account in the appellant’s bank. The Respondent’s accounts clerk who was not an authorised signatory to the cheques forged several cheques of the respondent drawn on the appellant bank. The cheques were honoured by the appellant. Upon discovering it, the respondent sought to recover the sum of the total forged cheques from the appellant.

Customer’s duty under the Common Law: MacMillan duty – duty for

the customer not to engage in acts that may cause the bank to facilitate fraud and/or forgery

Greenwood duty – duty to inform the bank as soon as the customer is aware of forgery or fraud that is taking place on his account(s)

The customer don’t have a duty to take precautions in the general course of his business to prevent forgeries on the part of his servants.

In the absence of a contract to the contrary, a customer does not have a duty to inspect his periodical bank statements to ensure that his account is being properly maintained by the bank.

Facts: Pf kept an account with 3 different banks. Over a

period of years, the company’s clerk misappropriated some HK$7 million from the company’s bank accounts through the use of forged cheques. The pf tried to recover HK$5.5 million from the banks

Privy Council: The banker and customer relationship did not impose a duty on the customer to prevent the forgery of his cheques. Plus, the customer did not owe a duty to check his bank statements.

Facts: A company secretary forged the signatures of two directors

on a number of cheques. The defendants, the company’s bankers, made payment on the cheques. The company contended that the cheques were paid by the bank without its authority. The bank alleged that the customer owed a duty to the bank to take reasonable precautions to prevent its servants from forging its signature.

Held:

A customer did not owe a duty to the bank to prevent the forgery of his signature.

Customers’ duties under the common law are:

1) Not to engage in any acts that may cause the bank to facilitate fraud and/or forgery

2) Notify the bank of forgery and/or fraud as soon as he’s aware of it

He’s not under the duty to prepare means to prevent fraud or forgery on his employees: Tai Hing, Tai Soon Heng Construction