TMI Blog1968 (3) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... eshy's scheme was very carefully prepared. Well in advance of the actual drawing of the cheque which he fraudulently converted, he had already taken steps to establish a false identity as Eliaszade with Ali, whom he planned to use as his introducer to the defendant bank, who were Ali's bankers. After the cheque had been drawn, but before visiting the bank, he took the precaution upon the day of his employer's departure of making a false entry in the postage book of the plaintiff company to make it appear that the cheque had been posted to the payee, the real Eliaszade, in London. He would have been the only person in the office of the plaintiff company in a position to answer any inquiries about the, cheque, had any been made. This was a cunning calculating rogue. It may seem odd that in the nineteen-sixties the liability of the defendant bank for the part they were deceived into playing in this transaction should be affected by the series of legal fictions by use of which the lawyers of the sixteenth century evolved from the ancient real action of detinue sur trovera personal action on the case of trover which, with the abolition of forms of action, became the moder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r money had and received. So strict a liability, so absolute a duty, upon bankers would have discouraged the development of banking business. It was accordingly progressively mitigated by statute, first by section 82 of the Bills of Exchange Act 1882, then by the Bills of Exchange (Crossed Cheques) Act 1906, and finally by section 4 of the Cheques Act 1957, which is the current statute with which we are concerned, subsection (1) of which reads as follows: Where a banker in good faith and without negligence (a) receives payment for a customer of an instrument to which this section applies; or (b) having credited a customer's account with the amount of such an instrument, receives payment thereof for himself, and the customer has no title, or a defective title, to the instrument, the banker does not incur any liability to the true owner of the instrument by reason only of having received payment thereof . Subsection (2) provides that the section applies inter alia to cheques. A pettifogger might be tempted to thwart the obvious intention of Parliament by treating the immunity of the banker as limited to actions based upon the receipt of payment as constituting the only act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is the owner of the cheque unless there are facts which are known, or ought to be known, to the banker which would cause a reasonable banker to suspect that the customer is not the true owner. What facts ought to be known to the banker, i.e. what inquiries he should make, and what facts are sufficient to cause him reasonably to suspect that the customer la not the true owner, must depend upon current banking practice, and change as that practice changes. Cases decided thirty years ago, when the use by the general public of banking facilities was much less widespread, may not be a reliable guide to what the duty of a careful banker, in relation to inquiries and as to facts which should give rise to suspicion, is today. The duty of care owed by the banker to the true owner of the cheque does not arise until the cheque is delivered to him by his customer. It is then, and then only, that any duty to make inquiries can arise. Any antecedent inquiries that he has made are relevant only in so far as they have already brought to his knowledge facts which a careful banker ought to ascertain about his customers before accepting for collection the cheque which is the subject-matter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from, Kureshy in determining whether the defendant bank had fulfilled their duty of taking reasonable care to satisfy themselves that their customer's title to the cheque was not defective; but ha contends that any precautions that they took after they themselves had received payment of the cheque from the drawee bank are irrelevant even though taken before they permitted their customer to draw on his account. For my part I think that this is much too technical an effect to give to a statute which was intended to apply to business transactions as they are carried on in real life. In all actions of the kind with which we are here concerned, the banker's customer has in fact turned out to be a fraudulent rogue] and attention is naturally concentrated upon the duty of care which was owed by the banker to the person who has in fact turned out to be the true owner of the cheque. We are always able to be wise after the event, but the banker's duty fell to be performed before it, and the duty which he owned to the true owner ought not to be considered in isolation. At the relevant time the banker was entitled to take into consideration the interests of his customer who, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact the true owner, that payment should be obtained. From the practical point of view of foreseeable loss to the true owner, it seems to me to make no difference whether the banker has received payment of the cheque or not, so long as he retains the payment in his own hands and it is capable of being followed and recovered from him by the true owner. The relevant time for determining whether the banker has complied with his duty of care towards the true owner of the cheque is, in my opinion, the time at which the banker pays out the proceeds of the cheque to his own customer, and so deprives the true owner of his right to follow the money into the banker's hands. The question in this case, therefore, is whether the defendant bank has proved that by the 2nd February, when they started to pay out the proceeds of the cheque to Kureshy, they had taken all reasonable care to ascertain that he was the true owner of the cheque. This is to be judged by the practice of careful bankers. The only evidence of the practice of bankers was given by the manager and securities clerk of the branch of the defendant bank. No evidence that the general practice of other bankers differed f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nformation calculated to disclose his dishonest purpose. He will be prepared with appropriate answers to lull suspicion. It may be that a searching interrogation would reveal inconsistencies or improbabilities in his story, but a bank cannot reasonably be expected to subject all prospective customers to a cross-examination, which cannot fail to give the impression that the bank doubts their honesty, and which would be understandably resented by the nine hundred and ninety-nine honest potential customers, on the off chance of detecting the thousandth dishonest one. If there is some other independent and apparently trustworthy source from which the honesty of the potential customer may be verified, to rely upon this source of information is not only less likely to damage the bank's own business by driving away honest customers than interrogation of the customer himself, but is also more likely to result in the successful detection of the occasional dishonest one. Mr. Lloyd placed great reliance upon the speech of Lord Wright in Lloyds Bank v. Savory ( 1933 Appeal Cases, 201 ) as authority for the proposition that it is the duty of a banker, when opening a new account, to ascer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ureshy was brief and scanty. He was in no position conscientiously to vouch for Kureshy's trustworthiness, or even his identity. Were the bank acting prudently in relying upon what Ali told them about their new customer who called himself Eliaszade? Their new customer was a Pakistani, a close community who in England keep themselves to themselves. The most reliable source of Information about him would be likely to be a fellow Pakistani whom the bank could reasonably regard as trustworthy. All was a Pakistani of substance, a restaurateur and thus likely to know about other Pakistanis in the same line of business. He had been a valued customer of the bank for some six years. He had introduced a number of other Pakistanis as customers, and all of these had proved satisfactory. The bank bad no reason to doubt All's honesty, conscientiousness or candour, or to suppose that he would vouch for the trustworthiness of a customer unless he had reasonable grounds for doing so. I do not think that there was any lack of reasonable care on the part of the bank in accepting and acting upon All's reference. It is to be noted that what he said about Eliaszade confirmed what Kureshy, ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss as a restaurateur. He gave an address in Manley Road, Whalley Range, Manchester 16, and gave the names of two referees, Mr. Ali, a restaurateur in Manchester, and Mr. Syeed, a restaurateur at Bolton. He was allowed to open an account and paid in 80. The next day he paid in a further 635.9.6 in cash, and the plaintiffs' cheque for 3,000 made out in favour of Eliaszade. On that day the bank wrote to the two referees tolling each of them that Sheik Eliaszade of 61, Manley Road, Whalley Range, Manchester, had given his name as a referee, and asking whither that gentleman might be considered trustworthy and likely to prove a satisfactory customer of the bank. Also on the 25th January the bank had the 3,000 cheque specially cleared, and apparently received the proceeds on the 26th. On that day all came to the bank on business of his own, and after transacting it told the manager that he had received the inquiry about Eliaszade. He said that he had known Eliaszade for some time ; he believed that he intended starting a restaurant business, and in his (All's) view he was considered all right for the conduct of a bank account. Syeed never replied to the bank's letter. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purposes of section 83 merely because, though generally effective, it may in special circumstances be ineffectual . It is evident that in Baker v. Barclays Bank Limited , ( 1955 1 Weekly Law Reports ), Mr. Justice Devlin (as he then was) considered that these expressions might go too far, because at page 838 of the report he said: I do not think that in this case I need go so far as to hold that every failure to make proper inquiries, whether or not they appear to be material, is fatal to a defence under section 82. I do not think it is necessary that I should hold that such carelessness is fatal even if the bank can affirmatively show that the failure was immaterial. But in my judgment if a bank manager fails to make inquiries which he should have made, there is at the very least a heavy burden upon him to show that such inquiries could not have led to any action which could have protected the interest of the true owner . In those circumstances, and having heard the views expressed by Lord Justice Diplock, I am emboldened to say that in my view both Lord Justice Greer and Lord Wright stated the view more unfavourably to the banker than can be justified in principle. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t think that any further inquiry as to his identity would be necessary. If then the bank manager in this case had asked the customer to come to the bank with Mr. Ali in order to be identified by him as Eliaszade, this would in my view have amply fulfilled any duties that they had in this respect. But if they had done so, there can be no doubt that Ali would have said that the customer was indeed Eliaszade, and therefore the omission of this precaution had no effect. As to the customer's previous occupation, the evidence was that he was asked if he was in employment, and that he said he was not employed. It is clear from Lloyds Bank v. Savory that if it had appeared that he was employed, the bank official should have gone on to inquire by whom and in what capacity he was employed. But once the man stated that he was not employed (there being nothing to suggest that this statement was untrue), I cannot think that it was incumbent on the bank officer to cross-examine him in order to determine whether he was lying, nor to inquire whether he had formerly been in employment or in business, or whence he had acquired the money to enable him to set up as a restaurateur; that would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antial sum of 63,000, but drawn in favour of Eliaszade . Kureshy had established himself with Ali as Eliaszade, and none of the participants in the transaction knew him as anyone else. He was, therefore, accepted as the payee, and there was no suspicion that he was other than the payee. He was asked, when he sought to open the account, for references as to his character. Ali had been prepared by Kureshy as such a reference and, indeed, appears to have acted in good faith in the reference which he gave. Nobody had any reason to suspect that Kureshy was anyone but Eliaszade. Ali willingly gave him a reference, and being well known to the defendant bank as a reputable customer who had introduced other Pakistani customers, the bank accepted his statement that he had known the person in question for some time , that he regarded him as all right for the conduct of a bank account, and that he believed that he intended starting a restaurant. All this fitted in with the possession by the person who was supposed to be Eliaszade of the cheque, and his dosire to open an account at the defendant bank. I am unable to see anything to suggest that the man was not Eliaszade and in that case why s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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