The Customer's Duty of Care to His Banker
![handle is hein.journals/sjls28 and id is 93 raw text is: Notes of Cases
THE CUSTOMER'S DuTY OF CARE TO His BANKER
Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd. and Ors.'
IN situations where a court must decide which of two innocent persons
is to suffer for the fraud of another, it might be natural to expect
that the burden be placed on the one who has, by his conduct,
enabled a fraudulent third party to cause the loss.2 Such is apparently
not the case, however, where the two innocents are a banker and
his customer, and the third party is an employee of the customer
who has been able, due to the employer's lax internal accounting
procedures, to steal from him over an extended period by drawing
forged cheques on the employer's account.
At first blush, the concept of innocence has no application to
a bank's liability for paying on a forged cheque. The risk of forgery
prima facie rests with the bank, since in such cases the bank may
not debit the customer's account as it has no mandate to do so.3
This applies even where the forgery is so skilful that the bank is
not negligent in paying on any given cheque and so might rightly
be called innocent.
However, the concepts of innocence and fault have become
relevant. in two situations, the courts have acknowledged that a
customer owes a duty to his banker, the breach of which will allow
the bank to shift the risk of loss by forgery to the customer:
1) In London Joint Stock Bank Ltd. v. Macmillan and Arthur,4
the House of Lords recognized a duty on the customer to exercise
reasonable care in drawing his cheques, the breach of which would
result in his own responsibility for loss sustained as a natural and
direct consequence of the breach. This duty was firmly restricted
to the manner in which the cheque was drawn and hence appears
only to cover situations, such as Macmillan itself, where the cheque
was drawn in such a manner so as easily to permit an increase in
its apparent value.5
2) In Greenwood v. Martins Bank Ltd.6 the customer was held
to owe a duty to inform the bank of any forged cheques which he
discovers have been drawn on his account. If he fails to inform
the bank of known forgeries, the bank can raise estoppel as a defence
in the event the customer attempts to claim lack of mandate for the
debit of the forged cheques.
1 [1985] 2 All E.R. 947 (P.C.).
2 At least in some instances, this is true in law. See the comments of
Lord de Villiers in the appeal to the Privy Council from a decision of the
Supreme Court of the Straits Settlements in Singapore in Meyer & Co., Limited
v. The Sze Hai Tong Banking and Insurance Company, Limited [1913] A.C.
847, at 852.
3 This might well be regarded as trite law, based on the formulation of
contractual relationship between banker and customer in such cases as Foley
v. Hill (1848), 2 H.L. Cas. 28, and Joachimsom v. Swiss Bank Corporation
[1921] 3 K.B. 110 (H.L.). For a very clear presentation of the proposition,
see National Westminister Bank Ltd. v. Barclays Bank International Ltd. [1975]
Q.B. 654 at 666.
4 [1918] A.C. 777.
5 Slingsby v. District Bank Ltd. [1932] 1 K.B. 544 (C.A.).
6 [1933] A.C. 51.
28 Mal. L.R.](ViewImageLocal?handle=hein.journals/sjls28&div=13&collection=&method=preview&ext=.png&size=3)
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The Customer's Duty of Care to His Banker
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