Middle Temple v Lloyds Bank Plc [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Rix J. |
| Judgment Date | 21 January 1999 |
| Date | 21 January 1999 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench Division (Commercial Court).
Rix J.
Antonio Bueno QC and Jake Davies (instructed by Hardwick Stallards) for the plaintiff.
Peter Goldsmith QC and William Blair QC (instructed by Richards Butler) for the first defendant.
Adrian Beltrami (instructed by Izod Evans) for the second defendant/third party.
The following cases were referred to in the judgment:
Akrokerri (Atlantic) Mines Ltd v Economic BankELR [1904] 2 KB 465.
Arab Monetary Fund v HashimUNK (unreported, 29 July 1994).
Crumplin v London Joint Stock Bank LtdUNK (1913) 19 Com Cas 69.
Dugdale v LoveringELR (1875) LR 10 CP 196.
Importers Co Ltd v Westminster Bank LtdELR [1927] 1 KB 869 (MacKinnon J); [1927] 2 KB 297 (CA).
Lloyds Bank Ltd v E B Savory & CoELR [1933] AC 201.
Marfani & Co Ltd v Midland Bank LtdWLR [1968] 1 WLR 956.
Morison v London County & Westminster Bank LtdELR [1914] 3 KB 356.
Phillips v EyreELR (1870) LR 6 QB 1.
Redmond v Allied Irish Banks plc [1987] 2 FTLR 264.
Sheffield Corp v BarclayELR [1905] AC 392.
Underwood (A L) Ltd v Bank of Liverpool and MartinsELR [1924] 1 KB 775.
Yeung Kai Yung (Stanley) v Hong Kong & Shanghai Banking CorpELR [1981] AC 787.
Banking — Conversion — Stolen English cheque presented to foreign bank for payment — Foreign bank sent cheque to English clearing bank for collection — Whether foreign bank and/or English clearer liable for conversion — Whether banks acted without negligence — Materiality of “a/c payee only” crossing — Whether banks entitled to indemnity or contribution between themselves — Cheques Act 1957, s. 4 — Cheques Act 1992, s. 3.
This was a claim in conversion by the true owner of a stolen cheque against the foreign bank which sent the cheque to England for collection and English clearing bank which collected it.
A cheque drawn by the Middle Temple on the Royal Bank of Scotland in favour of an insurance company, Sun Alliance, and marked “not negotiable a/c payee only” went missing in the post. The cheque was presented for payment to a branch of a bank in Turkey, “Sekerbank”, by a person who was not a Sekerbank customer. Sekerbank's foreign relations department sent the cheque to Lloyds Bank in England for collection on an “after final payment” basis. While the cheque was in the clearing system Lloyds received an inquiry purportedly from Sekerbank querying whether it had been paid. Lloyds discovered that the cheque had been debited to Middle Temple's account and the proceeds were remitted to Sekerbank's account that day. After the money reached Turkey it quickly disappeared. Sun Alliance indemnified Middle Temple for its loss and claimed against Lloyds and Sekerbank in conversion as a subrogated claim in Middle Temple's name. The banks relied on the defence that they had acted without negligence under s. 4 of the Cheques Act 1957, as amended by s. 3 of the Cheques Act 1992. Sekerbank argued that if it was held liable for conversion it was entitled to an indemnity from Lloyds as its agent for collecting the cheque or entitled to a contribution under the Civil Liability (Contribution) Act 1978. Alternatively Lloyds was under an implied duty of care to inform Sekerbank that the Cheques Act 1992 made an “account payee only” cheque non-transferable. Lloyds argued that if it was liable for conversion it was entitled to a full indemnity from Sekerbank pursuant to an implied contractual indemnity or warranty or under the 1978 Act.
Held, giving judgment for Middle Temple against Lloyds and Sekerbank in conversion and ruling that Lloyds was entitled to a complete indemnity from Sekerbank:
1. Both a foreign collecting bank and an English clearing bank acting as agent for collection owed a duty to the true owner of a cheque not to be negligent but there was a difference in the content of the duties and what the banks needed to prove to show that there was no negligence for the purposes of a defence under s. 4 of the Cheques Act 1957. The clearing bank did not owe an absolute duty to see that proceeds of an account payee only cheque were paid to the named payee, but its duty was more than simply to satisfy itself as to the correspondent bank's mandate. The test was whether there was anything in the circumstances which was noticed or ought to have been noticed. That test was to be applied against the background that the clearing bank was handling huge numbers of cheques each day and on the principle of practicality. Regard was to be had to the practice of bankers, but the issue of negligence was for the court to decide. The duty of the customer bank was not delegated to the agent for collection. (Importers Co Ltd v Westminster Bank LtdELR[1927] 2 KB 297 (CA)andLloyds Bank Ltd v E B Savory & CoELR[1933] AC 201considered.)
2. Lloyds owed a duty to the true owner of the cheque. As the domestic agent for collection it was entitled to say in its defence that its position was different from that of the foreign bank because it did not know the identity of the foreign bank's customer. It was entitled to rely on the foreign bank's exercise of care in relation to the latter's own customers but only to the extent that that was reasonable having regard to what the foreign bank knew of the effect of the account payee crossing after the Cheques Act 1992. Good banking practice meant that Lloyds should have told its correspondent banks of that aspect of UK law. Lloyds had not shown that it had done what it could have done, and in accordance with good banking practice should have done, to inform Sekerbank of the effect of the 1992 Act. It was likely that if Lloyds had so informed Sekerbank the cheque would not have been sent to London for collection. Accordingly Lloyds' defence under s. 4 failed. Furthermore within Lloyds the cheque had been referred to management because of the enquiry as to whether it had been paid. Lloyds was therefore put on enquiry, even though the reason for referral was collateral. If the cheque once referred had been properly considered, questions would have been asked of Sekerbank and the fraud discovered. Lloyds was responsible for the conversion of Middle Temple's cheque.
3. Sekerbank was grossly negligent in accepting in Turkey an English cheque payable to an English company in sterling for a large sum of money from a stranger who was not an existing customer without asking for a reasonable explanation of why he had the cheque and wanted that bank to collect it for him. The bank's foreign relations department should have questioned its branch's actions. Sekerbank apparently hoped to transfer the responsibility for collecting the cheque to Lloyds without informing Lloyds of what it knew of the circumstances of the collection. Sekerbank had no defence under s. 4 and was liable to Middle Temple in conversion.
4. Sekerbank's mandate did not pass responsibility for collection to Lloyds. “After final payment” meant simply that Lloyds would not pay Sekerbank until Lloyds had been paid by the paying bank. Those words did not mean that if the cheque had been collected for the account of other than the true owner, the true owner could not make a claim against Sekerbank in conversion or that Lloyds could not make a claim against Sekerbank to be indemnified for having incurred liability by reason of acting in accordance with Sekerbank's instructions to collect. The fact that Lloyds was in breach of duty to the true owner of the cheque did not mean that it was in breach of duty to Sekerbank. As between Sekerbank and Lloyds it was Sekerbank's duty to ensure that it was collecting for the true owner.
5. Lloyds was entitled to an implied indemnity from Sekerbank against any liability incurred as agent in carrying out Sekerbank's instructions to collect the cheque. Lloyds could rely on such an indemnity where it was in breach of duty to the ultimate customer but not to Sekerbank. Alternatively Lloyds was entitled to rely on an implied warranty by Sekerbank to the effect that its customer was entitled to the proceeds of the cheque. (Sheffield Corporation v BarclayELR[1905] AC 392andYeung Kai Yung v Hong Kong & Shanghai Banking CorpELR[1981] AC 787applied.)
6. Lloyds was therefore entitled to an order for complete indemnity under the Civil Liability (Contribution) Act 1978. If Lloyds was not entitled to a full indemnity the banks' respective responsibility and the appropriate apportionment under the Act would have been Sekerbank 75 per cent, Lloyds 25 per cent.
Rix J: What is the position in the light of the Cheques Act 1992 of an English clearing bank which collects a stolen English cheque marked “a/c payee only” as agent for a foreign collecting bank whose customer is not the payee of the cheque and takes off with the proceeds? Does the English clearing bank owe any liability to the true owner of the cheque? And what is the liability, if any, of the foreign collecting bank? And if either or both of them are liable, what are their responsibilities inter se? Those are the issues in this case, which has been argued not only on its precise facts but also as a matter of broad principle to give guidance in particular to English clearing banks.
The dispute arises out of what is assumed to be the theft in the post of a cheque drawn by the Honourable Society of the Middle Temple (the “Middle Temple”), payable to its insurers, Sun Alliance Insurance Ltd (“Sun Alliance”), in the sum of £183,189.89, and drawn on its bankers Child & Co, viz. the Royal Bank of Scotland plc incorporating Child & Co. The cheque was dated 4 January 1995. The cheque was crossed “Not Negotiable A/C Payee Only”. The Cheques Act 1992 had come into force on 16 June 1992 and therefore applied to make such a cheque non-transferable under English law. On 11 January the cheque turned up in Turkey where it was presented to an Istanbul branch of Sekerbank Türk Anonim Sirketi (“Sekerbank”) by a man called Kamil Sesen, who was not an existing...
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