Banks may draw some level of comfort from the decision of the Court of Appeal in a case involving the bank’s defence of absence of negligence in the collection of cheques where the payee’s name did not precisely match the name of the bank’s customer.
The bank’s customer (AoW (UK) Limited) was an English company with a sister company in the Cayman Islands, AoW Limited. AoW (UK) carried on business in England. AoW Limited was involved in a fraud and after its bankers in the Cayman Islands ceased collecting its cheques, its sole director arranged for its cheques to be paid into the account of AoW (UK) at Barclays in England. AoW Limited was not the true owner of the cheques. Barclays, having collected cheques for somebody other than the true owner, would be liable to the true owner of the cheques (AoW) unless they could rely on the defence under section 4 of the Cheques Act 1957; this depended on their being able to show that they acted in good faith and without negligence.
Although the bank has the burden of proving absence of negligence, there is no presumption which the bank would have to disprove, that it has been negligent. Cases are fact sensitive.
In view of the volume of cheques handled daily by banks, unless there was anything sufficiently unusual to put a bank on notice and call for further enquiry, the test was whether a bank cashier of ordinary intelligence and care would consider, from the face of the cheque, that there was any doubt whether the customer had a good title to it.
What is relevant is current banking practice. What may have been good banking practice in the past is not necessarily a good guide to what is current banking practice. The bank’s evidence as to its own practices was unchallenged, and therefore relevant evidence as to the current practice of bankers. A court was not bound by it, but would be hesitant to reject it.
The bank’s evidence was that its practice was that the name of the payee did not have to match precisely the name of the customer, that a sufficient match was adequate and that these cheques met that test.
This was an appeal against summary judgment. The point has not been decided in favour of banks. What has been decided is that, on the basis of the bank’s evidence, it cannot be said that there is no realistic prospect of the bank’s defence succeeding at trial. There was a hint in the Court of Appeal judgment that the case against the bank is strong. If the matter does proceed to trial, there will be fuller argument on both sides, and independent expert evidence on current banking practice, and the judgment will be eagerly awaited.
Law: Further reading:
Architects of Wine Ltd v Barclays Bank plc - [2007] All ER (D) 320 (Mar)
