Lenders’ Duties
Cases
Delaney -v- Allied Irish Banks PLC & ors
[2016] IECA 5
JUDGMENT OF MR JUSTICE MICHAEL PEART DELIVERED ON THE 28th DAY OF JANUARY 2016:
1. This is an appeal by Mr Delaney against the order made in the High Court on the 13th January 2015 when, on an application by the defendants to strike out his claims, Mr Justice Cregan ordered that all claims be struck out on the basis that they were either unstateable or were bound to fail. He did so for the reasons he gave in his careful and considered written judgment delivered that same day.
2. Mr Delaney has no legal representation, but has had considerable assistance from a McKenzie friend whom this Court allowed to make submissions on his behalf given particular difficulties he himself has in properly articulating the arguments he wished to make. He was similarly assisted in the High Court.
3. Mr Taite and Ms. Barrett are statutory receivers appointed by NAMA over property 82, JKL Street, Edenderry, Co. Offaly in August 2013. For reasons which I shall explain briefly in due course, Mr Delaney claims to be entitled to possession of these premises on foot of a lease from a Ger Killaly, and over which the latter and his wife had previously executed a mortgage in favour of the bank as security for certain loans, which were in due course transferred into NAMA pursuant to the provisions of the National Asset Management Act, 2009 (“the NAMA Act”).
4. The claims against the bank are fully set forth in the judgment of Cregan J. and include a claim that the bank was negligent in failing to advise him not to lend money to Mr Killaly who was a customer of the same branch of AIB in Edenderry as Mr Delaney. There is a claim also for unjust enrichment on the part of the bank, and a claim that the bank is in breach of certain provisions of the National Asset Management Act, 2009. In addition there is a miscellany of other claims such as deceit on the part of an official at the bank, a claim for a constructive trust in his favour in relation to the premises, and an allegation that the bank used the Conveyancing Act, 1881 as an engine of fraud.
5. There is a most unfortunate factual background to Mr Delaney’s claims. The reality is that Mr Delaney, a hard working man who had returned from the United Kingdom where he had worked in construction for some 23 years, was duped by Mr Killaly, whom he knew, into lending him a total of almost €350,000 by a number of substantial withdrawals from his savings of about €430,000 over a period of under one month between 20th August 2008 and 15th September 2008.
6. The account in which Mr Delaney’s money lay was in the name of his wife (they are now separated). The funds had been in a joint account, but because of literacy difficulties which Mr Delaney has, the money was transferred into an account in his wife’s sole name, and she operated that account on his instructions. Mr Delaney got to know Mr Killaly on his return from the U.K because upon his return Mr Killaly, who was an accountant, had assisted him with his tax affairs. In addition to being an accountant, Mr Killaly was an auctioneer and had also some business interests.
7. It appears that in August 2008 Mr Killaly told Mr Delaney he was having some temporary financial problems, and asked Mr Delaney for assistance in that regard. He agreed to, and asked his wife to make the necessary withdrawals over the coming few weeks in order to assist him. As noted by the trial judge, these withdrawals were all made by his wife with his full knowledge and consent, and, indeed, on his specific instructions to her. He does not deny that in any way, but he has stated that he agreed to lend these sums on condition that Mr Killaly secured them in some way in the event that there was delay in repayment. Nothing was ever repaid.
8. On the 15th September 2008 the final withdrawal was made in the form of two bank drafts totalling €50,000 payable to Mr Killaly. Mrs Delaney’s affidavit evidence was that on that date when she attended at the bank to obtain those drafts, a member of staff at the bank asked her why she was making these withdrawals, and asked if she was being threatened or forced to make them. She replied that she was not, but went on to state in her affidavit that she felt uneasy about this inquiry and that the staff member appeared to be unhappy about the situation “because she would have known the payee on the bank drafts as he was a prominent customer of the branch”. She told her husband about this conversation and he stated that he would have a word with Mr Killaly.
9. Mr Delaney spoke to Mr Killaly who assured him that there was nothing wrong, but went on to say that if Mr Delaney had concerns, he would give him a 24 year and 9 month lease of premises at 82 JKL Street, Edenderry at a rent of €12,000 plus VAT per annum which would not be collected. Mr Killaly stated that in this way, over the period of the lease, the money lent would become repaid. He agreed to take this lease, and went into occupation in December 2008. It appears that at this time Mr Delaney was in the process of setting up a small business and could use the premises for that purpose. However, it is also clear that at no time did Mr Delaney seek any legal advice either in relation to the lending of money to Mr Killaly or in relation to securing his position by way of the lease or otherwise. He accepted that in his evidence in the High Court.
10. What Mr Delaney did not know was that the premises in question, while owned by Mr Killaly and his wife, had been mortgaged to AIB, and that one of the clauses in that mortgage required that before any lease of the premises was made, AIB’s written consent was required, and that this pre-condition had not been complied with by Mr Killaly.
11. As noted by the trial judge in his judgment, the then manager of the Edenderry branch of AIB, a Mr Gillen, called to the premises while Mr Delaney was there doing some cleaning work with a Mr Dunne. It appears that Mr Dunne introduced him to Mr Gillen as the bank manager. Mr Delaney was puzzled that the manager would call to see him when he was not indebted to AIB. It soon became clear that the reason Mr Gillen had called to the premises was to express the bank’s displeasure with the fact that Mr Delaney was in occupation of the premises as the bank knew nothing of the lease arrangement. Mr Delaney, who was understandably annoyed about the situation, explained the circumstances in which the lease had been taken, namely as some form of security for the monies lent to Mr Killaly.
12. Mr Delaney in his affidavit went on to state that he had told Mr Gillen that he was aware that the bank drafts which he had given to Mr Killaly had been immediately lodged by Mr Killaly to his account in the same branch, and that Mr Gillen then asked Mr Delaney “to contact him on his personal mobile phone number in relation to queries regarding the premises and undertook to resolve matters to my satisfaction”. This assurance by Mr Gillen that he would resolve matters is something upon which Mr Delaney places considerable reliance both in the High Court and again on this appeal. However, it appears also that when, a number of weeks later, Mr Delaney contacted Mr Gillen on his mobile phone number he was told by Mr Gillen that he no longer dealt with any matters relating to the branch at Edenderry and could do nothing to resolve matters relating to Mr Killaly and the leasing of the premises. There had by that time already been a meeting at the Marriot Hotel at which Mr Gillen, Mr Delaney, Mr Killaly and a Laurence Murphy had all attended, but nothing emerged from that meeting which ameliorated Mr Delaney’s unfortunate position.
13. Mr Delaney felt let down and humiliated by these events and the financial position that he now found himself in. He felt let down by Mr Killaly. He also felt let down by the bank since, in his view, they knew the financial position that Mr Killaly was in and yet allowed Mr Delaney to pay over large sums of money to the same Mr Killaly who was then lodging same to his own account in the same branch. Mr Delaney felt humiliated within his own family also. All of that is completely understandable, but the question remains as to whether or not it all gives rise to a cause of action against AIB.
14. It appears that by the 15th May 2009 AIB had commenced proceedings against Mr Killaly seeking judgment in the sum of about €15 million, and that judgment was secured successfully on 24th July 2009. This had the further consequence that on the 27th July 2009 both Mr Killaly and his wife were declared bankrupt. It is no surprise therefore that AIB are the only available defendant against whom Mr Delaney considered there was any prospect of recovering damages for the terrible catastrophe that has befallen him.
15. Mr Delaney eventually gave up possession of the premises to the NAMA receivers, but not before he had unsuccessfully sought an injunction to restrain the receivers from seeking to do so. There is no necessity to set out the entire course of those proceedings for the purpose of this judgment, save to note that in his judgment in the injunction proceedings, Cross J. considered the legal effect of the absence of AIB’s consent to the lease by Mr Killaly and his wife to Mr Delaney, and following the decision of Dunne J. in Fennell & anor v. N17 Electrics Ltd [2012] IEHC 228, concluded that while the lease was binding as between the parties, it was not binding upon AIB. Nevertheless it is part of the overall history and has been clearly and succinctly summarised by Cregan J. in his judgment.
16. Mr Delaney’s affidavit evidence on the bank’s strike out motion pointed out by reference to copies of some of Mr Killaly’s bank statements that Mr Killaly’s financial position in the bank was precarious to say the least and that he was “walking a tight rope in banking terms” and that he had lost control over his business affairs. He refers to the lodgments to the account which he identifies as the various drafts which he had given to him.
17. At the very heart of Mr Delaney’s claims against AIB is his belief that they ought to have told him of Mr Killaly’s position in the bank, which they knew, in circumstances where they also knew that it was Mr Delaney who was the source of the significant lodgments to Mr Killaly’s account. He believes that the bank had a duty to place Mr Killaly’s accounts under inquiry long before they did so, by wrongfully allowing Mr Killaly to continue to operate his account for far longer than they ought to, and should have warned Mr Delaney of the risk he was being placed in by Mr Killaly when they knew or ought to have known that Mr Killaly had no ability to repay these sums borrowed from Mr Delaney, and that by failing to so warn him the bank concealed the bad relationship between the bank and Mr Killaly in their own interests and to the prejudice of Mr Delaney. In relation to the bank’s knowledge in this regard, Mr Delaney points to the brief conversation which took place on the 15th September 2008 between an official in the bank and Mrs Delaney when the former inquired as to whether she was under any pressure from Mr Killaly. This is his case in a nutshell.
18. I have set forth just a sufficient summary of events in order to provide a context for the claims that Mr Delaney makes in these proceedings and his submissions on this appeal.
19. The judgment of the trial judge sets out what he discerns are the claims which Mr Delaney seeks to bring against the bank. He notes and takes full account of the fact that he is unrepresented, and goes to considerable lengths to set forth in a clear way what claims Mr Delaney is making against the bank, so that he can them examine them and conclude whether one or all are bound to fail.
The claims in negligence
20. He deals firstly in his judgment with the claim made in negligence. In my view he has correctly identified the basis on which Mr Delaney makes his claim in negligence and has set forth that basis in paragraphs 48-49 of his judgment as follows:
“48. The plaintiff’s case is that
(a) AIB actually knew that the bank drafts were payable to Gerard Killaly and Richard O’Connor because AIB made out the drafts in AIB Edenderry to these persons.
(b) AIB knew or ought to have known of Gerard Killaly’s financial position because he also had an account with AIB at the same branch in AIB Edenderry.
(c) Because AIB knew or ought to have known of Gerard Killaly’s weak financial position they ought to have advised Mr Delaney. It ought to have enquired of Mr Delaney why he was advancing monies to Mr Killaly and when it was aware that Mr Delaney was advancing a loan it should have advised him against making a loan to Mr Killaly.
49. Essentially, based on the facts set out above, the plaintiff’s claim is:
(a) That AIB owed him a duty of care because he was a customer of AIB.
(b) That AIB breached this duty of care because it failed to notify him of the difficulties in the account of another customer at the same AIB branch (namely Gerard Killaly), that it should have notified him about the state of the other customer’s account and that if it had so notified him he would not have advanced the loans to Mr Killaly.
(c) That as a result of this duty of care and breach of duty that Mr Delaney suffered loss and damage.
21. Having set out Mr Delaney’s claim in negligence thus, the trial judge went on to say that “the proposition only has to be stated in these terms to realise that it is completely unstateable”. He went on to explain in some detail why this is so, and referred to the very strict duty of confidentiality owed by any bank to its customer, and duty which he described as “an absolute bedrock of banking law”. He also stated that while AIB may have known of the position of Mr Killaly vis a vis his accounts in AIB, it may not have been aware of Mr Killaly’s overall financial position, and that to warn Mr Delaney in the way he contends for may have been completely wrong, and could cause damage to Mr Killaly. He pointed also to the fact that Mr Delaney at no time had sought the advice of the bank in the matter, not even by seeking a credit reference, and that it was unstateable that in such circumstances AIB should seek to intermeddle in a loan transaction between its two customers. The trial judge also referred to the evidence given by one of the AIB deponents that the bank was unaware of the purpose of the money withdrawals from Mr Delaney’s account, and that the question asked of Mrs Delaney on the 15th September 2008 was simply to ensure that she was not being coerced.
22. The trial judge in his consideration of the law correctly stated that there is no general duty of care imposed by the law upon a bank to advise its customers on the wisdom of its commercial transactions, and he has referred to relevant authorities in that regard. Having noted again that Mr Delaney accepted that he had never sought the bank’s advice in the matter, had not sought credit references, and was not seeking to borrow money from the bank in order to lend it on to Mr Killaly but was simply withdrawing his own money for that purpose, the trial judge concluded as follows:
“68. To impose a duty of care on banks to enquire of customers who make withdrawals as to the purpose of such withdrawals and to whom are such monies being paid, to impose a duty on banks to investigate the credit worthiness of the recipients of such funds and/or to impose a duty on banks to advise their customers generally on the wisdom of such transactions (without being asked to give a credit reference for the payee or to provide any investment advice to the customer) would be to impose a duty of care on banks which would not only go well beyond the current state of the law on the duty of care which a bank owes to its customers but it would fundamentally undermine the nature of banking confidentiality with its customers. There is no reported case for the proposition for which the plaintiff is now urging upon the court. That is not surprising in my view. The plaintiff’s case in negligence against AIB is unstateable as a matter of law.”
23. Before proceeding further, I should say that on this appeal Mr Delaney has urged that simply because there has been no reported case thus far in support of the proposition urged by him ought not mean that it is his proposition is unstateable, and he has referred in support to the following statement by Lord Denning in Packer v. Packer [1953] 2 All ER 127 at p. 129:
“What is the argument of the other side? Only this, that no case has been found in which it has been done before. That argument does not appeal to me in the least. If we never do anything which has not been done before, we shall never get anywhere. The law will stand while the rest of the world goes on, and that will be bad for both”.
24. I am sure that not even Lord Denning would have considered this remark to be authority for the suggestion that such a fundamental principle of the common law as the doctrine of precedent or of ‘stare decisis’ as it is often referred to, should be done away with. No doubt the doctrine may have its critics, but it is the system within which our courts operate, and it can be seen to provide stability and predictability, and reasonable certainty to the citizen as to what the law of the country is. Without getting side-tracked into any sort of academic dissertation on the duty of care within the general law of negligence, one can say that within the common law there is scope for the law to develop and recognise new factual situations and relationships in which it would be fair and reasonable that a duty of care be imposed, in spite of the fact that thus far no such duty has been found to exist in any decided case. But, as has often been pointed out, while the law of negligence may develop and extend its scope, it does so incrementally, so as to avoid what Cardozo J. described in Ultramares Corporation v. Touche 174. N.E.441 as “[an exposure] to a liability in an indeterminate amount for an indeterminate time to an indeterminate class”. In fairness to Lord Denning in Packer v. Packer referred to by Mr Delaney, his remark quoted above hails not from a case considering an extension to the common law duty of care, but rather a question of statutory interpretation of s. 26 of the Matrimonial Causes Act, 1950 and whether in the particular circumstances of that case the Divorce Court had jurisdiction to make a maintenance order in respect of a child which had been born out of wedlock, and had not been later legitimised by the subsequent marriage of his parents.
25. If the law was to impose a duty upon the bank in this case it would be a far-reaching duty of uncertain dimensions. The difficulty encountered when one tries to define and circumscribe it speaks volumes for its non-existence as a matter of law. But besides that, it cannot be overlooked that what Mr Delaney contends for is a duty upon the bank to have told him what in effect he already knew – namely that Mr Killaly was in a poor financial state. He already knew that because it is clear from the facts found by the trial judge that Mr Killaly approached Mr Delaney and told him that he was in some financial difficulties, albeit that he described them as being of a temporary nature. But it was certainly sufficient to put him on notice of the risk that he would be undertaking if he was to lend him his money, and a substantial amount of money let it be said. While Mr Delaney’s knowledge of Mr Killaly’s embarrassed financial circumstances might speak more readily to the question of contributory negligence, it nevertheless casts some light on the breath of the duty of care which Mr Delaney seeks to impose upon the bank, namely to take it upon itself in all cases, and not just in Mr Delaney’s case, the task of inquiring as to the purpose behind a customer’s withdrawal of his own money from his account, in order to ensure that he is not lending it to somebody who may not be in a position to give it back, or is not otherwise acting improvidently and to his detriment.
26. That is not the state of the law in this or any other common law country. Neither in my view can it be even conceivable that a duty of such scope could be fairly and reasonably imposed upon a bank. In my view the trial judge was correct to conclude that as a matter of law the claim being advanced in negligence by Mr Delaney is unstateable and bound to fail.
27. Mr Delaney has stated also that the trial judge erred in not appreciating that in addition to the matters referred to above as constituting negligence on the bank’s part, he was also claiming that the bank ought to have suspended Mr Killlaly’s accounts. I presume that in this respect it is contended that the bank’s duty of care to Mr Delaney includes a duty to him, and therefore by extension to any other customer, not to permit a customer’s account to continue to operate whenever the bank might have cause to consider that persons doing business with that customer, and in particular as far as Mr Delaney is concerned, any person who might lend money to that customer, might suffer a loss. I have to reject that submission also for much the same reason as I consider that the trial judge was correct in his conclusions. It would represent an impossibly broad, expansive and unconstrained duty to impose upon a bank.
28. I am not overlooking the fact that on this appeal, and in answer to the bank’s reliance upon, inter alia, a bank’s duty of confidentiality to its customers, Mr Delaney placed considerable emphasis both during oral submissions and in written submissions on case law which has recognised some exceptional circumstances where the breach of a bank’s duty of confidentiality may be justified, and which he referred to as ‘the fraud exception’. He referenced in particular two cases, namely Tournier v. National Provincial and Union Bank of England [1924] 1 K.B. 461, and a Canadian case, namely Canadian Imperial Bank of Commerce v. Sayani [1993] 83 BCLR (2d) 167 (BCCA). In fact, as Mr Delaney makes clear in his submissions to this Court he never made his case on the basis that the bank was expected to breach its duty of confidentiality to Gerard Killaly. Rather, his arguments were based on alleged misconduct and negligence on the part of the bank. But given what he sees as the great reliance placed by the trial judge in his judgment at paras. 69- 71, Mr Delaney put forward arguments as to why the duty of confidentiality was not in all situations sacrosanct, and that there are exceptions permitted as enunciated in Tournier, and in particular for this case, the exception identified by Atkin L.J. in his judgment at p. 486 as follows:-
“It is difficult to hit upon a formula which will define the maximum of the obligation [of secrecy] which must necessarily be implied. But I think it safe to say that the obligation not to disclose information such as I have mentioned is subject to the qualification that the bank have the right to disclose such information when, and to the extent to which it is reasonably necessary for the protection of the bank’s interests, either as against their customer, or as against third parties in respect of transactions of the bank for or with their customer, or for protecting the bank, or persons interested, or the public, against fraud or crime.”
29. Mr Delaney considers that what happened to him amounts to a “fraud” on the part of Mr Killaly, and that in such circumstances in so far as the bank seeks to hide behind its obligations of confidentiality to Mr Killaly, it was not bound to do so, since disclosure by the bank to Mr Delaney of Mr Killaly’s inability to repay the monies being loaned to him would be for the purpose identified by Atkin L.J. above, namely to protect Mr Delaney from that fraud.
30. In truth, I do not believe that the duty of confidentiality is relevant to the question whether the bank owed a duty of care to Mr Delaney. The bank does not need to avail itself of arguments based on the undoubted existence of a duty of confidentiality. It is unnecessary for me to comment on the extent of that duty and any exceptions that may be considered to exist under Irish law. I have concluded that the duty of care contended for by Mr Delaney in the circumstances of this case by the bank is not one which is recognised in the law of negligence, and the losses suffered by him are not recoverable under the law of negligence. As stated already, Mr Delaney has made it clear in his written submissions that he has never made the case on the basis that a breach of the duty of confidentiality entitles him to damages. For example in the first paragraph of his written submissions filed on the 7th July 2015 he states:-
“This issue was relied on by the respondents in the High Court submission and was influential on the learned judge’s decision. References are made by the bank to Tournier (1924). The judge described confidentiality as the “bedrock” of banking law. The reliance placed on confidentiality by the respondents may well have been a red herring placed before the court as at no time was a pleading made which gave any inference to suggest the bank was expected or obliged to breach confidentiality regarding Mr Killaly’s affairs to the appellant.”
31. Mr Delaney also appeals on the ground that the trial judge failed to conclude that the assurance he says was given to him by Mr Gillen both when he met him at the premises at JKL Street and at the later meeting at the Marriot Hotel that he would sort out the lease situation for him, amounted to a constructive trust. Mr Delaney submits that this assurance amounts to a promise that what he calls his equitable interest in the premises would be sorted out in the sense. I take that to mean that the bank would disregard the fact that no prior consent was obtained, and that he would be allowed to remain in place under the lease as if everything had been done properly. Mr Delaney says that he relied upon that assurance, and the detriment element is that he gave up possession in the belief that things would be sorted out. The trial judge was completely satisfied that there was no constructive trust arising in the case. In my view he was absolutely correct in that conclusion. The lease was not within Mr and Mrs Killaly’s gift without the prior consent of the bank. That consent was never sought. The bank knew nothing about the lease. It had never been consulted about it in advance. A simple comment by the bank manager that he would sort things out could not possibly act as a commitment by the bank that it would retrospectively consent to a lease granted in such circumstances. There is no evidence to support the existence of the type of trust contended for
32. As I have said already, Mr Delaney throughout his various statements of claim filed in these proceedings, included a number of other heads of claim, all of which were found by Cregan J. to be unstateable and bound to fail. He made a claim based on unjust enrichment by the bank on the basis that they knew Mr Killaly’s financial position within the branch and knew also that Mr Delaney was providing his own money to alleviate that position, and therefore easing the bank’s overall position. In view of the findings already made, I am satisfied that Cregan J. was correct in his conclusions in this regard, based as it was on the judgment of Lord MacFadyen in Companie Commerciale Andresa v. Artibelle Shipping Co. Ltd [2001] SC 653.
33. Cregan J. was also correct in his conclusions reached in relation to Mr Delaney’s claims in respect of alleged breaches by AIB of the NAMA Act 2009, as expressed by him at para. 78 of his judgment.
34. I am also satisfied that Cregan J. was correct in his conclusions on the other miscellaneous claims dealt with at paras. 82 – 85 of his judgment for the reasons given therein, and also in relation to the claim based on the alleged deceit by an official of AIB who swore an affidavit in these proceedings. She is the bank employee who met with Mrs Delaney on the 15th September 2008. I am quite satisfied that for the reasons stated clearly by the trial judge there has been no factual basis advanced by Mr Delaney (including by reference to what has been averred to by Mrs Delaney in her affidavit) which is sufficient to found the tort of deceit as explained by Shanley J. in Forshal and Fine Arts Collection Ltd v. Walsh, unreported, High Court, 18th June 1997 to which the trial judge referred.
35. For the sake of completeness, I am satisfied also that the conclusion reached by the trial judge on the receivers’ motion to strike out the claims being made against them, namely that these claims also must be struck out on the basis that they are bound to fail, is correct.
36. It is important to conclude by saying that it is clear from the judgment of the trial judge that in paragraph 39, and its 10 internal sub-paragraphs) he correctly identified the test which must be applied on applications to strike out such as those in this case. He has set forth very clearly what that test is, and has applied it correctly. In fairness to the appellant, he did not seek to argue that the trial judge had applied an incorrect test when reaching his conclusions.
37. For all these reasons I would dismiss this appeal with all the regret that I can muster for Mr Delaney because of the parlous position in which finds himself because he was duped by Mr Killaly into a misplacement of his trust which has had such dire and irretrievable consequences for him.
[1995]
3 I.R. 225
Shield Life Insurance Company Limited and Cornelius O’Callaghan Plaintiffs v. Ulster Bank Limited Defendant
[1990 No. 1735P and 1990 No. 17356P]
High Court 5th December 1995
Banking – Cheques – Negligence – Banker’s duty of care – Third party credited withcheques payable to or intended for plaintiff – Banker’s liability for conversion ofcheques – Whether banker liable for failure to detect irregularities in indorsementsto cheques – Cheques Act, 1959 (No. 19), s. 2, and s. 4, sub-ss. 1, 2 and 3 -Bills of Exchange Act, 1882 (44 & 45 Vic., c. 61), s. 2, s. 27, sub-s. 2, s. 29, sub-s.1, s. 38, and s. 81.
The plaintiff sued the defendant (“the bank”) for the conversion of two cheques which it had wrongly credited to the account of a fraudulent insurance broker (“the broker”), a customer of the bank. It was the function of the broker to procure business for the plaintiff in return for a commission. However, premiums were to be forwarded to the plaintiff directly without retention or deduction.
The first cheque (“cheque No. 1”) had been drawn by C.M. in favour of the plaintiff in the sum of £30,000. It was intended as payment for an investment bond (a forgery which was later re-issued by the plaintiff). The broker caused the cheque to be endorsed fraudulently with his own name. The bank credited the broker’s “clients’ account” with £25,000 and his “office account” with £5,000. The following day, the broker transferred £23,000 from the clients’ account to the office account. The cheque subsequently cleared and the bank retained the proceeds.
The second cheque (“cheque No. 2”) was for a sum in excess of £19,000 and was payable to C.O’C. It had been crossed “not negotiable” and “& Co.” by the drawer. C.O’C. endorsed his name on the cheque for presentation to the plaintiff in order to purchase one of the plaintiff’s investment bonds through the broker (also a forgery but later re-issued). The indorsement was confusing as to its intended purpose on account of being written over a pre-printed receipt on the back of the cheque. The broker presented the cheque to the bank. £17,500 was credited to the broker’s clients’ account and £2,000 to his office account. The funds were drawn out of the clients’ account by the broker the following day.
Prior to the presentation of the cheques by the broker, the bank had been aware that both of his accounts, and his financial affairs generally, were being managed precariously.
The plaintiff terminated the employment of the broker when his fraud was detected.
By s. 2 of the Cheques Act, 1959:
“A banker who gives value for, or has a lien on, a cheque payable to order which the holder delivers to him for collection without endorsing it has such (if any) rights as he would have had if, upon delivery, the holder had indorsed it in blank.”
[1995]
3 I.R. Shield Life Insurance Co. Ltd. v. Ulster Bank Ltd.
226
H.C.
By s. 4:
“(1) 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.
(2) This section applies to the following instruments, namely,-
(a) cheques;. . .
(3) A banker is not to be treated for the purposes of this section as having been negligent by reason only of his failure to concern himself with absence of, or irregularity in, indorsement of an instrument.”
By s. 2 of the Exchange Act, 1882:
“‘Holder’ means the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof.”
By s. 27, sub-s. 2:
“Where value has at any time been given for a bill the holder is deemed to be a holder for value as regards the acceptor and all parties to the bill who became parties prior to such time.”
By s. 29, sub-s. 1:
“A holder in due course is a holder who has taken a bill, complete and regular on the face of it, under the following conditions; namely,
(a) That he became the holder of it before it was overdue, and without notice that it had been previously dishonoured, if such was the fact:
(b) That he took the bill in good faith and for value, and that at the time the bill was negotiated to him he had no notice of any defect in the title of the person who negotiated it.”
By s. 38 the rights and powers of the holder of a bill include:
“(2) Where he is a holder in due course, he holds the bill free from any defect of title of prior parties, as well as from mere personal defences available to prior parties among themselves, and may enforce payment against all parties liable on the bill: . . .”
By s. 81:
“Where a person takes a crossed cheque which bears on it the words ‘not negotiable’, he shall not have and shall not be capable of giving a better title to the cheque than that which the person from whom he took it had.”
Held by Costello P., in granting relief to the plaintiff, 1, that the bank was not a”holder” of cheque No. 1 since it was neither “payee”, “indorsee”, nor “bearer” of that cheque within the meaning of s. 2 of the Act of 1882.
2. That the bank could not claim the rights conferred by s. 2 of the Act of 1959 because its customer was not a proper indorsee and therefore not a recognised “holder”of cheque No. 1.
Per curiam even if the bank was a “holder” in respect of cheque No. 1, it could not be a “holder in due course” because the indorsement on it was not “complete and
[1995]
3 I.R. Shield Life Insurance Co. Ltd. v. Ulster Bank Ltd.
227
H.C.
regular on its face” by reason of it not having been completed by the payee (the plaintiff); accordingly, s. 38 of the Act of 1882 could not be invoked by the bank.
Per curiam on the assumption that cheque No. 1 was “negotiated” by the broker within the meaning of s. 29, sub-s. 1 (b) of the Act of 1882, the bank could not have become a “holder in due course” where it had notice of a defect in title to the cheque, namely, the absence of a proper indorsement to the broker by the payee (the plaintiff).
3. That the bank had not established that it had acted other than as an agent for collection in relation to cheque No. 1 and had failed to show that the plaintiff was not its “true owner”.
Semble: Where a cheque is presented to a bank for collection, the bank may, in crediting the customer’s account in advance of collecting the proceeds of the cheque, be deemed to have given “value” within the meaning of the Act of 1882; whether the bank could also be considered to be a “holder”, a “holder for value” or a “holder in due course” would depend on the extent to which the facts came within the respective definitions of those statutory terms.
4. That the rule of public policy which denied relief to persons seeking to profit from their own turpitude did not apply to the plaintiff since it was merely seeking to be compensated for converted property.
Thackwell v. Barclays Bank plc [1986] 1 All E.R. 676 distinguished.
5. That at common law there was an absolute duty to one’s neighbour who was the owner, or entitled to possession, of any goods, to refrain from doing any voluntary act in relation to his goods which was a usurpation of his proprietary or possessory rights in them; that statute had modified the absolute duty owed at common law by a banker to the true owner of a cheque by substituting therefor a qualified duty to take reasonable care to refrain from taking any step in usurpation of the true owner’s title which the banker foresaw, or ought reasonably to have foreseen, was thereby to cause loss or damage to the true owner; and that the only aspect of which this statutory duty differed from a common law cause of action in negligence was that the onus of showing that he did take such reasonable care was on the banker.
Marfini & Co. Ltd v. Midland Bank Ltd. [1968] 1 W.L.R. 956 approved.
6. That assuming a banker had acted in good faith, the usual matter with respect to which the banker must take reasonable care was to satisfy himself that his own customer’s title to the cheque was not defective, i.e. that no other person was the true owner of it; and that what facts were sufficient to cause a bank reasonably to suspect that its customer was not the true owner of the cheque depended on current banking practice, and all the circumstances surrounding the transaction.
Marfini & Co. Ltd. v. Midland Bank Ltd. [1968] 1 W.L.R. 956 approved.
7. That the bank was negligent in the performance of its duty to the true owner of cheque No. 1 having regard to (i) the irregular manner in which the cheque was indorsed, lodged, and subsequently appropriated, (ii) the supposed duty of the broker as a trustee of his clients’ assets, and (iii) the known financial difficulties of the broker in the handling of his financial affairs: a prudent banker would have made reasonable enquiries before collecting the cheque.
8. That the broker had no title at all to cheque No. 2 and, since the bank could not have a better title to a non-negotiable cheque than that of the broker, having regard to s. 81 of the Act of 1882, it too had no title to that cheque.
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9. That the acceptance from a person other than the payee of a crossed, non-negotiable cheque without making inquiries was not in itself conclusive evidence of negligence on the part of a banker, but was a matter to be taken into account together with all the relevant circumstances in deciding whether the banker was guilty of a breach of duty to the true owner, in this case the plaintiff.
10. That the bank had been guilty of negligence in regard to cheque No. 2 on the same grounds as related to cheque No. 1.
Crumplin v. London Joint Stock Bank Ltd. [1911 – 13] All E.R. 647 considered.
11. That the negligence of the bank in relation to cheque No. 1 and cheque No. 2 rendered it liable to the plaintiff for conversion; there was no evidence on the facts of contributory negligence.
12. That the benefit that would accrue to the plaintiff by reason of not having to pay a broker’s commission was a matter of contract between third parties that was unrelated to the claim being made against the bank; accordingly, the sum would not be set-off against an award of damages.
Cases mentioned in this report:
Crumplin v. London Joint Stock Bank Ltd. [1911 – 13] All E.R. 647; (1913) 109 L.T. 856; 30 T.L.R. 99.
Marfini & Co. Ltd. v. Midland Bank Ltd. [1968] 1 W.L.R. 956; [1968] 2 All E.R. 573; [1968] 1 Lloyd’s Rep. 411.
Thackwell v. Barclays Bank plc [1986] 1 All E.R. 676.
Plenary summons.
The facts have been summarised in the headnote and are fully set out in the judgment of Costello J., infra.
Both actions were commenced by plenary summons on the 11th December, 1990. The plaintiff claimed relief for the alleged conversion of two cheques or, alternatively, for money had and received by the defendant to the use of the plaintiff.
The actions were consolidated and heard by the High Court (Costello P.) on the 7th, 8th, 9th and 10th of November, 1995.
Patrick Hanratty S.C. (with him John McBratney ) for the plaintiffs.
Andrew S. Bradley S.C. (with him Robert Hastings ) for the defendant.
Cur. adv. vult.
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3 I.R. Shield Life Insurance Co. Ltd. v. Ulster Bank Ltd.
Costello P. 229
H.C.
Costello P.
5th December 1995
Introduction
This judgment relates to two actions in which the liability of the Ulster Bank Ltd. (“the bank”) to the Shield Insurance Company Ltd. (now Eagle Star Insurance Company (Ireland) Limited and hereinafter referred to as “the plaintiff”) is to be determined. Substantial issues in both cases are the same, but they differ on some important points, as outlined later.
The plaintiff carries on an insurance business and has its head office in Cork. A Mr. James O’Callaghan carried on an insurance broker’s business in that city through a company he owned called T.J. O’Callaghan Life and Pensions Ltd. He was a customer of the bank in its South Mall branch in Cork City. He was also an accomplished forger and, up to a point, a successful fraudster and it is his wrongdoing which has led to these proceedings. He defrauded the plaintiff (and others) on six occasions, two of which are the subject of the litigation before me. The first action relates to a transaction in which he was involved with a Mrs. Catherine Murphy. On the 14th January, 1988, Mrs. Murphy drew a cheque for £30,000 on Allied Irish Banks plc naming the plaintiff as the payee, and she gave it to Mr. O’Callaghan for transmission to the plaintiff for what she thought was an investment bond which it had issued in her favour. The bond given to her by Mr. O’Callaghan was, in fact, a forgery and the plaintiff was at that time completely unaware of this transaction and never issued a bond to Mrs. Murphy. Mr. O’Callaghan, either himself or on his direction, had Mrs. Murphy’s cheque endorsed with the words”John Dorgan O’Callaghan L.P.” and either himself or Mr. Dorgan (an employee of his company) lodged the cheque in the bank’s South Mall branch for collection. The broker had two accounts in the branch in the name of his company, one designated an “office account” and the other designated a “clients’ account”. On the instructions of the broker or Mr. Dorgan the lodgement of £30,000 was split and £25,000 was lodged to the credit of the clients account and £5,000 to the office account. On the following day £23,000 was drawn out of the clients’ account by the broker. The fraud was not detected until the following year as a result of which on the 19th April, 1989, the plaintiff’s contract with the broker was terminated. Later, the plaintiff issued a bond to Mrs. Murphy in the same terms as that forged by the broker and has sued the bank in these proceedings as payee of the cheque claiming to be its true owner and that the bank had, as a matter of law, wrongly converted it.
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Before the broker’s wrongdoing had been discovered he had engaged in another fraud a year later. This time one of his victims was a Mr. Cornelius O’Callaghan. An insurance policy, which Mr. C. O’Callaghan owned, matured and the proceeds were paid to him by cheque for the sum of £19,828.80 by the Standard Life Assurance Company. The cheque was drawn on the Ulster Bank and Mr. C. O’Callaghan was the payee named on it. The cheque was crossed and the words “not negotiable” were added. Mr. C. O’Callaghan arranged with the broker that he would invest £20,000 in an investment bond to be issued by the plaintiff and on the 15th January, 1989, the broker delivered to him a forged bond purporting to be a bond issued by the plaintiff. In return Mr. C. O’Callaghan signed the cheque on the reverse side (in circumstances to be considered in greater detail later) and gave it to the broker together with the sum of £172 to make up the sum of £20,000. The broker lodged this cheque with the bank and on his instructions the sum of £20,000 was paid into his office account, a sum of £17,500 was paid into his clients’ account and a sum of £500 was given to the broker in cash. Later the plaintiff issued a bond to Mr. C. O’Callaghan in the same terms as those contained in the forged bond and in the second action it has sued the bank on the same basis as that pleaded in the first action.
Mrs. Murphy’s cheque
The plaintiff’s submissions
The plaintiff’s basic submission is that the bank committed the tort of conversion and can only avoid liability by relying on s. 4 of the Cheques Act, 1959. This section was designed to give a greater measure of protection to collecting bankers than that afforded by earlier legislation. This is to be found firstly in sub-s. 1 which provides:
“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.”
The banker’s protection is further enhanced by sub-s. 3 which provides:
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“A banker is not to be treated for the purposes of this section as having been negligent by reason only of his failure to concern himself with absence of, or irregularity in, indorsement of an instrument.”
The plaintiff’s submissions on this section can be summarised as follows:
(1) The section applies to cheques (sub-section 2). As payee of Mrs. Murphy’s cheque it was its “true owner” within the meaning of sub-section 1.
(2) The plaintiff accepts that the bank firstly credited its customer’s (i.e. the broker’s) account and then received payment on the cheque as a result of it being cleared through the clearance system in the ordinary way and so s. 4, sub-s. 1 (b) applies. It submits that the bank’s customer had no title to the cheque as its payee had not indorsed it and the indorsement was irregular. It accepts that the bank acted in good faith but it points out that it can only obtain the protection of the section if it acted without negligence.
(3) It is accepted that s. 4, sub-s. 3 means that in considering the issue of the bank’s negligence the court cannot treat negligence as having been established by reason only of the bank’s failure to concern itself with the irregularity in the endorsement but it is submitted that the evidence in the case establishes quite clearly that the bank was negligent.
(4) As the bank cannot claim the protection of the section it is liable at common law for the conversion of the cheque and so the plaintiff is entitled to payment of £30,000.
(5) The Cheques Act, 1959, enacted in this country the provisions of the English Cheques Act, 1957. Section 4 of the English Act is in identical terms with s. 4 of our Act and the plaintiff submits that our Act should be construed in the way s. 4 of the English Act was construed by Diplock L.J., in Marfini & Co. Ltd. v. Midland Bank Ltd. [1968] 1 W.L.R. 956. In the course of his judgment Diplock L.J. (at p. 970) stated:
“At common law one’s duty to one’s neighbour who is the owner, or entitled to possession, of any goods is to refrain from doing any voluntary act in relation to his goods which is a usurpation of his proprietary or possessory rights in them. Subject to some exceptions which are irrelevant for the purposes of the present case, it matters not that the doer of the
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act of usurpation did not know, and could not by the exercise of any reasonable care have known, of his neighbour’s interest in the goods. This duty is absolute; he acts at his peril.
A banker’s business, of its very nature, exposes him daily to this peril. His contract with his customer requires him to accept possession of cheques delivered to him by his customer, to present them for payment to the banks on which the cheques are drawn, to receive payment of them and to credit the amount thereof to his customer’s account, either on receipt of the cheques themselves from the customer, or in receipt of actual payment of the cheques from the banks on which they are drawn. If the customer is not entitled to the cheque which he delivers to his banker for collection, the banker, however innocent and careful he might have been, would at common law be liable to the true owner of the cheque for the amount of which he receives payment, either as damages for conversion or under the cognate cause of action, based historically on assumpsit, for money had and received.
So strict a liability, so absolute a duty, on bankers would have discouraged the development of banking business. It was accordingly progressively mitigated by statute, first by s. 82 of the Bills of Exchange Act, 1882, then by the Bills of Exchange (Crossed Cheques) Act, 1906, and finally by s. 4 of the Cheques Act, 1957 . . .”
Having quoted s. 4 and made certain comments on it Diplock L.J. went on at p. 972 of the report:
“It is, however, in my view, clear that the intention of the subsection and its statutory predecessors is to substitute for the absolute duty owed at common law by a banker to the true owner of a cheque not to take any steps in the ordinary course of business, leading up to and including the receipt of payment of the cheque and the crediting of the amount of the cheque to the account of his customer, in usurpation of the true owner’s title thereto, a qualified duty to take reasonable care to refrain from taking any such step which he foresees, or ought reasonably to have foreseen, was likely to cause loss or damage to the true owner.
The only respect in which this substituted statutory duty differs from a common law cause of action in negligence is that, since it takes the form of a qualified immunity from a strict liability at common
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law, the onus of showing that he did take such reasonable care lies on the defendant banker. Granted good faith in the banker (the other condition of the immunity) the usual matter with respect to which the banker must take reasonable care is to satisfy himself that his own customer’s title to the cheque delivered to him for collection is not defective, i.e., that no other person is the true owner of it. Where the customer is in possession of the cheque at the time of delivery for collection, and appears on the face of it to be the ‘holder’,i.e., the payee or endorsee or the bearer, the banker is, in my view, entitled to assume that the customer 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 enquiries he should make, and what facts are sufficient to cause him reasonably to suspect that the customer is not the true owner, must depend on 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 enquiries 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 a duty to make enquiries can arise. Any antecedent enquiries 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 customer before accepting for collection the cheque which is the subject-matter of the action, and so have relieved him of any need to ascertain them again when the cheque which is the subject-matter of the action is delivered to him. What the court has to do is to look at all the circumstances at the time of the acts complained of, and to ask itself were those circumstances such as would cause a reasonable banker possessed of such information about his customer as a reasonable banker would possess, to suspect that this customer was not the true owner of the cheque.”
The plaintiff made further submissions on the evidence relating to the negligence issue consideration of which I propose to defer until I have examined the defendant’s submissions.
[1995]
3 I.R. Shield Life Insurance Co. Ltd. v. Ulster Bank Ltd.
Costello P. 234
H.C.
The defendant’s submissions
The defendant made five principal submissions as follows:
(1) Firstly, it was submitted that whilst the bank was primarily a collecting agent of Mrs. Murphy’s cheque for its customer it was more than a collecting agent in the circumstances of this case. It refers to s. 27, sub-s. 2 of the Act of 1882, which provides that “where value at any time has been given for a bill [which would include a cheque] the holder is deemed to be a holder for value” as regards all parties who became parties prior to that time. It is submitted that the bank gave value for this cheque by crediting the amount of the cheque to its customer’s account before receiving payment through the clearing system and then submitted that the bank is not only a “holder for value” but it is also a “holder in due course” within the meaning of s. 29 of the Act of 1882. This section provides as follows:
“29. – (1) A holder in due course is a holder who has taken a bill, complete and regular on the face of it, under the following conditions; namely,
(a) That he became the holder of it before it was overdue, and without notice that it had been previously dishonoured, if such was the fact:
(b) That he took the bill in good faith and for value, and that at the time the bill was negotiated to him he had no notice of any defect in the title of the person who negotiated it.”
The bank became a “holder in due course” it is said because it took the bill in good faith and for value and as such a holder it obtains the rights conferred by s. 38 of the Act of 1882. This means that the bank can sue on the bill in its own name and, as holder in due course,
“. . . holds the bill free from any defect of title of prior parties, as well as from mere personal defences available to prior parties amongst themselves, and may enforce payment against all parties liable on the bill.”
It follows, therefore, that even if its customer’s title was defective it held the bill free from those defects and is entitled to enforce payment of it. For this reason the bank and not the plaintiff (the named payee) was the”true owner” of the cheque and no claim for damages for conversion by the payee at common law exists.
I have the following observations on these submissions:
(a) It is true that if value is given by a collecting bank on the transfer of a cheque from a customer that the bank may not
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H.C.
merely be an agent for collection but becomes a “holder for value”. I will assume that the bank in this case gave value for the cheque which the broker lodged in that it credited the broker’s account with the amount of the cheque before receiving payment through the clearing system from the bank on which it was drawn. But s. 29 of the Bills of Exchange Act, 1882, defines “holder in due course” as a “holder” who takes the cheque in certain conditions and therefore the bank has first to established that it is “holder” of the cheque before it can be regarded as a “holder in due course”. A “holder” of a bill is defined in s. 2 of the Act of 1882 as meaning “the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof” and the bank was not the “payee” of the cheque (the plaintiff was), nor the “indorsee” of the cheque (the broker never endorsed it to the bank), nor its “bearer”which is defined in s. 2 as the person in possession of a bill which is “payable to bearer” (Mrs. Murphy’s cheque was not such a cheque). The status of a collecting banker who receives an unindorsed cheque for collection on behalf of a customer was the subject of a provision in s. 2 of the Cheques Act, 1959. This provided that:
“A banker, who gives value for, or has a lien on, a cheque payable to order which the holder delivers to him for collection without indorsing it has such (if any) rights as he would have had if, upon delivery, the holder had indorsed it in blank.”
I have emphasised the word “holder” in the section to draw attention to the fact that the section only applies when the customer is a “holder” of the cheque, and as Mrs. Murphy’s cheque had never been endorsed to the broker he was not its”holder” when he lodged it for collection. It follows that the bank never became a “holder” of Mrs. Murphy’s cheque. ”
(b) Secondly, in order to constitute the holder of a bill or cheque”a holder in due course”, it must be shown that the bill was”complete and regular on its face” (s. 29, sub-section 1). This cheque was not “complete and regular on its face” as the endorsement was highly irregular, not having been completed by the payee. Accordingly, even if the bank was “a holder” it did not become a “holder in due course” and so cannot claim rights under section 38.
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Costello P. 236
H.C.
(c) Thirdly, in order to constitute a “holder” of a cheque a”holder in due course” it must be shown (as s. 29, sub-s. 1 (b) provides) that at the time the bill was negotiated the bank had no notice of any defect in the title of the person who negotiated it. Assuming for the moment that the broker”negotiated” the cheque at the time of its lodgement the bank had notice of the defect in the broker’s title to it because there was no proper endorsement to the broker by the payee. Accordingly the bank does not comply with the provisions of s. 29, sub-section 1 (b).
For the above reasons the bank cannot claim that it was other than an agent for collection of the cheque and it has failed to show that the plaintiff was not its true owner.
(2) The public policy issue: The defendant’s second submission, which I must confess I found to be a most startling one, was that even though the plaintiff may have been the payee of the cheque and was deprived of its proceeds by the broker’s fraud, and even though it was completely innocent of any wrongdoings, and even though the bank may have been in breach of the duty it owed to it, the court should refuse the plaintiff’s claim on the grounds of public policy, the grounds of public policy being the application of the doctrine of “ex turpi causa non oritur actio”.
This submission was based on certain obiter dicta of the trial judge in Thackwell v. Barclays Bank plc. [1986] 1 All E.R. 676, a case whose relevant facts can be summarised as follows.
A Mr. Thackwell sold machinery to a firm I shall call Alan Jones for £44,227. This firm sold it on, together with other machinery, to a second firm which I shall call Riva, for £80,989.90. This transaction was financed by a hire purchase company who paid Alan Jones a sum of £80,989.90. Out of that sum Alan Jones issued a cheque for £44,227 to Mr. Thackwell. One of the directors of Alan Jones then forged Mr. Thackwell’s name on the back of the cheque and lodged it for collection in a branch of Barclays Bank. Mr. Thackwell never received payment and he sued Barclays Bank. The evidence established that the whole transaction was an elaborate fraud on the hire purchase company effected by invoicing Riva one machine at an exorbitant figure as well as invoicing a machine that did not exist. The court held that the bank had been negligent in collecting the forged cheque in the way it did but nonetheless refused to grant Mr. Thackwell any relief. The bank pleaded as a defence the doctrine of ex turpi causa non oritur actio and claimed that Mr. Thackwell had been a
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party to or had knowledge of the fraud on the hire purchase company. The court (per Hutchison J.) held that Mr. Thackwell had been in fact a party to the fraudulent re-financing transaction and it concluded that it would not permit him to make a claim against the bank on the grounds of public policy, “just as it would prevent a burglar from whom the stolen goods were snatched by a third party just as the burglar left the victim’s house from maintaining an action in conversion against the third party” (page 689).
Having so decided the judge went on to make further comments on which the bank in this case relies. Having concluded that Mr. Thackwell had been fraudulent he went on to express the opinion that even if he had found Mr. Thackwell innocent and that the director of Alan Jones alone had been the perpetrator of the fraud he would have denied Mr. Thackwell recovery. And so counsel in this case argued that if Mr. Thackwell could not recover against the bank, even if he was ignorant of the fraud, so too the Shield Insurance Company, though wholly innocent of the fraud committed on it and on Mrs. Murphy, could not recover.
It seems to me that this submission is based on a misconstruction of the judgment. In Thackwell v. Barclays Bank plc [1986] 1 All E.R. 676 the court agreed that when the doctrine was invoked its task was firstly (a) to look at the proximity of the illegal conduct relied on by the defendant with the claim maintained by the plaintiff and then (b) “consider whether there are other considerations which as a matter of public policy ought to effect the plaintiff’s right to recover” (at page 687). The court concluded that the plaintiff was not entitled to recover in conversion against the bank because the cheque alleged to have been converted constituted in reality the very proceeds of the fraudulent conduct established in the case and the judge expressed the view that “by permitting Mr. Thackwell recover the proceeds of this cheque from the bank I should, as it seems to me, be indirectly assisting in the commission of a crime” (p. 689) and as a matter of public policy he declared he would not have been entitled to relief. I can find no considerations of public policy in this case which would justify a refusal of the plaintiff’s claim should negligence be established. Certainly the court would not be assisting in the commission of a crime by so doing, because it would not, by awarding damages, be ordering the return of stolen money. The court’s order would in effect compensate the payee of a cheque which had, as a matter of the application of common law principles, been converted by the collecting bank. This defence must therefore fail.
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(3) The third ground of defence is a denial that there was any negligence on the bank’s part and a submission that it is thereby protected by s. 4 of the Cheques Act, 1959.
(4) The fourth is a claim that if the bank was negligent the plaintiff was guilty of contributory negligence and the damages recoverable should be reduced because of this.
I propose to examine these submissions in the next part of my judgment in which I shall express my conclusions on the evidence which the parties adduced at the hearing on the negligence issue.
(5) The fifth and final submission related to the level of damages and I shall leave that to the end.
Negligence issues
(a) The bank’s duty of care
The legal principles applicable have been clearly stated in the authorities to which I was referred by the plaintiff. The plaintiff is entitled to damages for conversion unless the defendant can establish that it took reasonable care that its customer’s title to the cheque was not defective. What facts are sufficient to cause a bank reasonably to suspect that its customer is not the true owner of the cheque depends on current banking practise. All the circumstances surrounding the transaction including past circumstances may be relevant.
A banker is not to be treated as having been negligent by reason only of his failure to concern himself with an irregularity in the indorsement on a cheque (s. 4, sub-s. 3 of the Act of 1959). But if there are other circumstances either antecedent to the transaction in suit or part of the transaction in suit which, taken in conjunction with the irregularity of the indorsement, would put a prudent banker on inquiry, then the irregularity in the indorsement, and the failure of the banker to concern himself with that irregularity, may be considered by the court in considering whether the banker has been guilty of breach of duty to the cheque’s true owner.
Each case must ultimately depend on its own facts. But there may be special circumstances in a case which affect the banker’s duty of care to which the banker should pay particular regard. Those special circumstances may include, as in this case, a situation in which a customer maintains two accounts, an office account and a clients’ account, and in which it is clear that the customer is holding money in an account as a trustee. Previous movements in and out of that account by the customer which may suggest that it is not being operated in a manner consistent with the customer’s duty as a trustee may be relevant in considering the
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bank’s duty in relation to the payment into a clients’ account of a cheque which has been irregularly indorsed.
I turn now to the facts relevant to the negligence issue which the evidence has established.
In the period October, 1986, to January, 1988, the broker’s office account was continuously overdrawn. In March, 1987, the bank refused to honour a debit transfer because it was overdrawn and in May of that year a cheque for £1,821.19 was not honoured, and a cheque for £1,398.25 dated the 4th August and cheques for £453.13 dated the 23rd December, and for £400 dated the 12th January, 1988 (that is, just two days before the broker’s fraud on Mrs. Murphy), were not honoured because the broker had exceeded permitted overdraft levels. During this period there were substantial sums transferred from the clients account to the office account, £3,000 on the 2nd January, 1987, £5,000 on the 13th February, £1,000 on the 7th April, £1,000 on the 3rd July and £2,240 on the 11th September, 1987.
The bank called Mr. O’Callaghan as a witness. I did not find his testimony to be reliable and where it conflicts with that of Mr. Coyle, the secretary of the plaintiff company, I prefer Mr. Coyle’s evidence. I am not satisfied that it was a regular practice of the broker (a) to obtain payment by cheque of his client’s premiums which he lodged to his clients’ account and (b) then to transfer to his office account his commission on those premiums and (c) then to remit to the plaintiff a cheque for the net premium. Mr. Coyle’s testimony satisfies me that, after the initial premium, all annual premiums were paid by direct debit by the policy holder to the plaintiff, that in respect of the first premium, only rarely was it paid to Mr. O’Callaghan who then forwarded a net cheque to the plaintiff; and this did not happen in the case of large single premium policies. I conclude on the evidence that the transfers from the clients’ account to the office account were not used, except to a very limited extent, to pay sums to which the broker was entitled by way of commission. The size of the transfers and the fact that they were in rounded figures raise an inference that they were not transfers of a percentage of premiums received by the broker. This inference taken with the evidence of the broker’s financial difficulties raise a further inference, namely, that it was probable that the broker was using his clients’ money to pay his office expenses and to reduce his overdraft on his office account. It is to be borne in mind that this practise was not an isolated one and on occasions the clients’ account was actually overdrawn.
[1995]
3 I.R. Shield Life Insurance Co. Ltd. v. Ulster Bank Ltd.
Costello P. 240
H.C.
I come now to the irregularity in the endorsement on Mrs. Murphy’s cheque and the circumstances surrounding its lodgement. I am sure that it is common for bankers to accept for collection on their customer’s behalf third party cheques some of which are properly endorsed in their customer’s favour, some of which are not endorsed at all, and some of which may have irregular endorsements. It is, however, important firstly to drawn attention to the nature of the particular irregularity in this case. Here, the payee had not attempted to endorse it – it was endorsed by the bank’s customer. The endorsement was ambiguous as it could be an endorsement executed by the broker on behalf of the payee or it could be an endorsement by the broker claiming to be its holder in favour of the bank. Secondly, the broker asked the bank to pay the proceeds of the cheque into his clients’ account. From this it could reasonably be inferred that the proceeds did not belong to the broker. The bank at the same time was instructed to transfer £5,000 to the broker’s office account, that is to pay to himself a substantial sum out of the proceeds of a cheque which the payee had not endorsed. Bearing in mind the inference as to the possible impropriety of the transfers from the customer to the clients’ account, the nature of the irregularity of the endorsement, and the circumstances surrounding its lodgement I have come to the conclusion that a prudent banker would have made enquiries about Mrs. Murphy’s cheque before accepting it for collection. That a prudent banker would have done so was the view of Mr. Crean, an experienced banker, whose opinion I have no difficulty in accepting and I conclude, therefore, that the bank was negligent in the manner it discharged its duty to the plaintiff and that the plaintiff’s claim for damages for conversion must be allowed.
(b) The plaintiff’s contributory negligence
It is claimed on behalf of the bank that the plaintiff should have been more watchful of the broker and that it was guilty of contributory negligence in that it failed to carry out any audit of his accounts, never monitored the broker’s business in any way and permitted him to make payments of gross premiums to himself. I do not think that this plea is a valid one. The plaintiff had no reason to query the honesty of the broker and was not in possession of the facts concerning the operation by the broker of his two accounts which were available to the bank and the other circumstances to which I have referred including his financial difficulties. There was no cause for the plaintiff to insist that an audit of the broker’s business be carried out, or to have requested consultation about the broker’s affairs with the bank. The practice by which the broker was
[1995]
3 I.R. Shield Life Insurance Co. Ltd. v. Ulster Bank Ltd.
Costello P. 241
H.C.
permitted to make net payments of premiums to the plaintiff did not exist in the way suggested by Mr. O’Callaghan. There was in my opinion no contributory negligence on the plaintiff’s behalf.
Mr. C. O’Callaghan’s cheque
The plaintiff’s claim in the second action relates to a cheque dated the 15th January, 1989, in favour of Mr. Cornelius O’Callaghan. As pointed out already Mr. C. O’Callaghan owned a life policy which had matured and its proceeds were paid to him by a cheque drawn by the Standard Life Assurance Company on its account in the Ulster Bank for the sum of £19,828.80 in which he was named as payee. This cheque is significantly different to Mrs. Murphy’s cheque. Mr. O’Callaghan’s cheque was crossed with the words “and Co.” and was also marked “not negotiable”.The cheque had the following words printed on the back:
“This Receipt is not required to be signed if the letter ‘R’ on the reverse side has been cancelled by computer overprinting.
Received from the Standard Life Assurance Company the sum shown on the face hereof, being the amount payable to me/us in respect of the certificate number stated on the face hereof in accordance with the conditions of the said policies.
Signed by or on behalf of the payee.
Date
Signature”
This “Receipt” was signed by Mr. Cornelius O’Callaghan and was dated the 19th January, 1989. But the letter “R” on the face of the cheque had been cancelled by computer overprinting. This meant that the signature on the cheque was ambiguous as it might have been signed by Mr. C. O’Callaghan as a receipt (who may have ignored the “R” cancellation) or he may have intended his signature as an endorsement for the purpose of negotiating it.
Mr. C. O’Callaghan is an elderly person and found it difficult to attend the hearing at the time the court could have taken his evidence. In the circumstances counsel agreed with my suggestion to accept the statement on his behalf which had been made by his solicitor in the course of correspondence to the effect that Mr. C. O’Callaghan signed the cheque as an endorsement and gave it to the broker together with a sum of £172 in payment to the Shield Insurance Company of a premium for an investment bond purportedly issued by that company in his favour and which had been handed to him by the broker.
[1995]
3 I.R. Shield Life Insurance Co. Ltd. v. Ulster Bank Ltd.
Costello P. 242
H.C.
I approach, therefore, the issues in this case on the basis that although this was a non-negotiable cheque it had in fact been endorsed by its payee, Mr. Cornelius O’Callaghan, and given by him to the broker for delivery to the plaintiff.
This transaction was a fraudulent one. The broker issued a forged investment bond, then lodged the cheque to his “clients account” in the defendant bank and then drew out in his own favour a sum of £23,000 on the following day and never paid any money to the plaintiff. The broker had, it is clear, no title to this cheque.
Quite clearly s. 81 of the Bills of Exchange Act, 1882, applies. This provides:
“Where a person takes a crossed cheque which bears on it the words ‘not negotiable’, he shall not have and shall not be capable of giving a better title to the cheque than that which the person from whom he took it had.”
As the broker had no title to this cheque, the bank got no title to it and in the light of the evidence I am satisfied that the “true owner” of this cheque was the plaintiff and that the bank owed a duty of care to the plaintiff in relation to it.
The acceptance from a person other than the payee of a crossed non-negotiable cheque without making enquiries is not in itself conclusive evidence of negligence on the part of a banker should the payee have been defrauded. It is, however, a matter to be taken into consideration together with all the other relevant circumstances when deciding whether the banker was guilty of breach of duty to the true owner. (See Crumplin v. London Joint Stock Bank Ltd. [1911-13] All E.R. 647.)
It has been agreed that I can accept for the purposes of this case the evidence adduced in the case of Mrs. Murphy’s cheque. The bank has failed to displace the inference of possible impropriety involved in the transfers between the broker’s accounts which that evidence raised. A prudent banker in January, 1989, should have been mindful of this inference when presented with a non-negotiable cheque for collection by a customer which had an ambiguous signature which might or might not be an attempt to endorse it in his customer’s favour. In addition he would notice that this transaction related to client’s money but £2,000 was to be transferred to the broker’s office account and £500 to be given to him in cash. In these circumstances a prudent banker would, in my opinion, have concerned himself with the propriety of this transaction and have made enquiries of his customer before accepting it. This, too, was the opinion of
[1995]
3 I.R. Shield Life Insurance Co. Ltd. v. Ulster Bank Ltd.
Costello P. 243
H.C.
Mr. Crean, and I must conclude that the bank has failed to establish that it was not negligent.
The plaintiff, the true owner, was not in any way negligent in relation to this particular transaction nor generally, for the reasons already given, in relation to the broker. A plea of contributory negligence therefore fails.
Level of damages
The defendant’s final submission related to the level of the damages recoverable if the defendant’s liability is established. The plaintiff had entered into a written contract with the broker on the 1st April, 1988, (referred to as a “tied agency” agreement), which, inter alia, regulated the terms on which commission was payable and also the circumstances in which it could be terminated. The right to termination arose when the fraud was discovered (and this is not contested) but it is said that after it was terminated the plaintiff became entitled to the commission which otherwise it would have had to pay to the broker on the renewal of annual premiums (a sum which the defendant calculates amounted to approximately £7,000) and this benefit should be set off against the loss recoverable from the defendants.
I cannot agree with this submission. In respect of Mrs. Murphy’s cheque the bank has established that the tort of conversion occurred in January, 1988. The damages recoverable are the value of the cheque. The sums recoverable from a third party under a contract entered into between the plaintiff and the third party cannot be set-off against those damages. The same considerations apply in relation to the damages payable for the tort of conversion which occurred in January, 1989, and which is the subject of the second action.
There will be judgment in favour of the plaintiff in both actions for the amounts claimed i.e.£19,828.80 in 1990 No. 17396P, and £30,000 in 1990 No. 17395P.
[1998]
2 I.R. 48
Patrick Kennedy, Hugh McGill, Methuen Park Investments Limited, Cargagh Construction Limited and Towerlough Properties Limited Plaintiffs v. Allied Irish Banks plc. and A.I.B. Finance Limited Defendants
[S.C.No. 257 of 1995]
Supreme Court 29th October 1996
Tort -Contract – Concurrent liability in tort and contract – Extent of dutyof care – Whether special relationship between parties – Whethertortious liability can be greater in scope thancontract.Banking – Bankerand customer – Duty of care – Whether duty on bankto consider financial position ofcustomer.
The first and second plaintiffs were property developers carrying on business through the medium of the third, fourth, and fifth plaintiff companies, of which they were co-directors. They were held to have had a close and special relationship with the first and second defendants who provided banking and loan facilities to them.
Extensive and complex financial facilities, including loans and overdrafts, were extended to the plaintiffs by the defendants throughout the spring and summer of 1990 but in September, 1991, the defendants decided that it was no longer in their interests to continue to extend credit to the plaintiffs and therefore withdrew overdraft and other facilities which existed at that time. Subsequently, an additional application for a £250,000 loan was refused by the defendants.
It was submitted by the plaintiffs, inter alia, that the defendants were guilty of a breach of contract for withdrawing financial facilities from them and for failing to grant the additional loan of £250,000 which, they alleged, had been promised. It was also submitted by the plaintiffs that the defendants had breached their duty of care in that they considered their own interests to the detriment of the plaintiffs when deciding whether or not to maintain or extend facilities to the plaintiffs.
The trial judge having concluded on the facts that there was no breach of contract went on to consider whether the defendants owed a duty of care in tort arising out of their contractual relations and he concluded that the defendants owed no legal duty to act otherwise than exclusively in their own commercial interests.
Held by the Supreme Court (Hamilton C.J., O’Flaherty and Denham JJ.), in dismissing the appeal, 1, that where the relationship between the parties was a contractual one, the duty of care expected was that which was appropriate to the performance of those contractual obligations. In general, however, contracts for services contain an implied provision to exercise care and skill in the performance of the relevant services. Where such a duty of care existed, whether in tort or contract, the plaintiff was entitled to take advantage of the most advantageous remedy subject to the ordinary principle that where the duty in tort was so inconsistent with the applicable contract that the
[1998]
2 I.R. Kennedy v. Allied Irish Banks plc.
49
S.C.
parties must be taken to have agreed that the tortious remedy was to be limited or excluded.
Hendersen v. Merrett Syndicates Ltd. [1995] 2 A.C. 145 , followed.
2. That in a contractual relationship, such tortious obligations as may arise, cannot be greater than those found, expressly or by necessary implication, in the contract.
National Bank of Greece S.A. v. Pinios Shipping Co. (No. 3) [1988] 2 Lloyds Rep. 126 , followed.
3. That irrespective of the existence of a contract, a duty of care may still arise where a party undertakes to exercise a special skill to perform a particular task knowing that the party on whose behalf the task was being performed relied on that skill. Such a separate duty of care did not arise where the defendant undertook no responsibility other than to comply with the terms of the agreement entered into by it, once the plaintiff undertook the nature and effect of the transaction.
Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465 ; Towey v. Ulster Bank Ltd. [1987] I.L.R.M. 142; T.E. Potterton Ltd. v. Northern Bank Ltd. [1993] 1 I.R. 413 ; Tulsk Co-operative Livestock Mart Ltd. v. Ulster Bank Ltd. (Unreported, High Court, Gannon J., 13th May, 1983) followed.
4. That a bank owed no duty, contractual or otherwise, to consider the financial interests of a customer when deciding whether or not to engage in any financial transaction, such as whether or not to make a loan; it was entitled to make the decision exclusively on the basis of its own commercial interests.
Lloyds Bank Plc. v. Comp (Unreported, English Court of Appeal, 18th December, 1991) followed.
Cases mentioned in this report:-
Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465.
Hendersen v. Merrett Syndicates Ltd. [1995] 2 A.C. 145; [1994] 3 W.L.R. 761; [1994] 3 All E.R. 506.
Lister v. Romford Ice & Cold Storage Co. Ltd. [1957] A.C. 555.
Lloyds Bank Plc. v. Comp (Unreported, English Court of Appeal, 18th December, 1991).
National Bank of Greece S.A. v. Pinios Shipping Co. (No. 3) [1988] 2 Lloyd’s Rep. 126.
T.E. Potterton Ltd. v. Northern Bank Ltd. [1993] 1 I.R. 413; [1993] I.L.R.M. 225.
Tai Hing Ltd. v. Liu Chong Hing Bank [1986] 1 A.C. 80; [1985] 2 Lloyd’s Rep. 313.
Towey v. Ulster Bank Ltd. [1987] I.L.R.M. 142.
Tulsk Co-operative Livestock Mart Ltd. v. Ulster Bank Ltd. (Unreported, High Court, Gannon J., 13th May, 1983).
[1998]
2 I.R. Kennedy v. Allied Irish Banks plc.
Hamilton C.J. 50
S.C.
Appeal from the High Court.
The facts are set out in the headnote and fully set out in the judgment of Hamilton C.J.,infra.
The case came before the Supreme Court by notice of appeal dated the 26th July, 1995, from a judgment of the High Court (Murphy J.) given on the 18th May, 1995, and an order dated the 26th May, 1995, dismissing the plaintiffs’ claim.
The case was heard by the Supreme Court (Hamilton C.J., O’Flaherty and Denham JJ.) on the 23rd and 24th April, 1996.
Eoin McGonigal S.C. (with himDominic Husey ) for the plaintiffs.
John Gallagher S.C. and PaulGallagher S.C. (with them FidelmaMacken ) for the defendants.
Cur. adv. vult.
Hamilton C.J.
29th October, 1996
This is an appeal brought by the above named plaintiffs, and each of them, against the judgment of the High Court (Murphy J.) delivered on the 18th May, 1995, and the order made in pursuance thereof which was perfected on the 26th May, 1995, whereby the plaintiffs claim against each of the defendants for damages alleged to have been suffered by them and each of them by reason of the defendants’ alleged breach of contract and duty owed to them, and each of them, as bankers was dismissed and judgment was granted in favour of the first defendant on its counterclaim in the following terms viz. that the first defendant to recover
(1) as against the third plaintiff the sum of £220,510.50 (being a principal sum of £160,658.63 together with interest thereon up to the 15th March, 1995, in the sum of £59,851.87) on account no. 13562001;
(2) as against the fourth plaintiff the sum of £245,639.00 (being a principal sum of £184,548.48 together with interest thereon up to the 15th March, 1995, in the sum of £61,090.52) on account no. 02652011;
(3) as against the fifth plaintiff the sum of £66,680.08 (being a principal sum of £50,096.77 together with interest thereon up to the
[1998]
2 I.R. Kennedy v. Allied Irish Banks plc.
Hamilton C.J. 51
S.C.
15th March, 1995, in the sum of £16,583.31) on account no. 20903016;
(4) as against the first and second plaintiffs in respect of the indebtedness of the third plaintiff the sum of £143,563.49 (being a principal sum of £110,000 together with interest thereon up to the 15th March, 1995, in the sum of £33,563.49) pursuant to the terms of a guarantee in writing dated the 8th January, 1991;
(5) as against the first and second plaintiffs in respect of the indebtedness of the fourth plaintiff the sum of £54,754.82 (being a principal sum of £43,000 together with interest thereon in the sum of £11,754.82) pursuant to the terms of a guarantee in writing dated the 8th January, 1991;
(6) as against the first and second plaintiffs in respect of the indebtedness of the fifth plaintiff the sum of £66,680.08 (being a principal sum of £50,096.77 together with interest thereon up to the 15th March, 1995, in the sum of £16,583.31) pursuant to the terms of a guarantee in writing dated the 8th January, 1991.
By consent it was ordered that the second defendant’s counterclaim be dismissed.
The plaintiffs’ claim against the defendants arose out of the following circumstances.
[Summary of pp. 4 to 41 of the judgment: The first and second plaintiffs are and were property developers who carried on their business through the medium of the third, fourth and fifth plaintiff companies, of which they were co-directors. The activities of the said plaintiffs were so closely interlinked that the trial judge regarded them as being in partnership.
The plaintiffs were customers of the defendant companies and, as found by the trial judge, were in the spring and summer of 1990, “treated as highly favoured customers; given facilities and permitted to effect their financial transactions with a minimum of formality or inquiry and perhaps even a suggestion of irregularity”. The trial judge continued, however, “this privilege position was not continued the following year”.
In or about the beginning of 1990, the defendants extended financial facilities to the third, fourth and fifth plaintiffs in the sums of £500,000, £175,000 and £595,000 respectively. Appropriate guarantees and securities were given in each case. Not all of the available facilities were drawn down immediately but some of these funds, and in the case of the fifth plaintiff, funds acquired from other sources including the Irish Nationwide Building Society, were used by the plaintiffs to carry out various projects so that by May, 1990, the third plaintiff was indebted to the defendants in the sum of £318,000 and the fourth plaintiff was indebted in the sum of £175,000.
Around this time the defendants decided, for reasons that to them made financial sense, but included concerns about the state of the securities provided by the plaintiffs,
[1998]
2 I.R. Kennedy v. Allied Irish Banks plc.
Hamilton C.J. 52
S.C.
to rationalise the arrangements they had made with the plaintiffs. By letters dated the 12th October, 1990, the defendants changed the terms of the accommodation provided to the plaintiffs and on that date, in pursuance of the offer made in the letter, a series of transactions were entered into between the plaintiffs and the defendants; funds were extended to the plaintiffs which were then used to repay the original loan.
The purpose of these transactions were a matter of great controversy between the parties and were central to the dispute between them.
The defendants maintained that the purpose of these transactions was to discharge existing loans and generally regularise their financial relationship with the plaintiffs, which they had come to believe was unsatisfactory. The effect of the transactions was that the financial accommodation granted to the plaintiffs was exhausted and that no further facilities were available to them from the defendants.
The plaintiffs, however, had a completely different interpretation of the letters and events of the 12th October. They maintained that in a series of discussions through September and October, 1990, the defendants had agreed to extend an additional £250,000 in funds and that the purpose and effect of the transactions entered into on the date in question was to re-shuffle the companies’ finances so as to facilitate the new loan.
Consequently, in their statement of claim, the plaintiffs pleaded that the defendants were in breach of contract for failing to provide the said sums.
The learned trial judge found as a matter of fact that:
(a) there had been no agreement to provide an additional £250,000 to the plaintiffs in September or October.
(b) that the purpose of the transactions of the 12th October, 1990, was to replace the existing loans so that finance would be exhausted and that no further facilities were to be provided.
The learned trial judge concluded that the plaintiffs knew and understood the nature and effect of the various transactions entered into and therefore, dismissed this element of the claim in contract.
Despite the claim made by the plaintiffs relating to the 12th October, 1990, on the 30th January, 1991, the plaintiffs applied for a further loan of £250,00 from the second defendant, who was willing to grant it, but only and strictly, subject to sanction by the finance committee of the first defendant.
The plaintiffs, however, claimed that the accommodation had been unconditionally agreed and that the defendants were in breach of contract for failing to provide it.
The trial judge also dismissed this element of the plaintiffs’ claim and accepted the evidence of the bank officials involved that it had been made clear to the plaintiffs that any offer was subject to being sanctioned by the first defendant and that in the absence of such sanction there was no concluded agreement.
In relation to the fifth plaintiff, by March, 1991, its account was overdrawn by an amount in excess of £100,000. Under pressure from the bank this indebtedness was reduced by transfer of £100,000 from the fourth plaintiff to the fifth plaintiff after which the defendants informed the plaintiffs that overdraft facilities were being withdrawn.
The plaintiffs alleged that the defendants had in fact agreed to extend further facilities to the fifth plaintiff and to leave the overdraft intact.]
[1998]
2 I.R. Kennedy v. Allied Irish Banks plc.
Hamilton C.J. 53
S.C.
The learned trial judge dismissed the plaintiffs’ claim in contract and having regard to the findings of fact made by him and outlined in the course of this judgment, I am satisfied that he is entitled so to do and would dismiss the plaintiffs’ appeal in respect of that portion of claim which was based on contract.
Plaintiffs claim in tort
In addition to the plaintiffs’ claim against the defendants for damages for breach of contract, the plaintiffs alleged that the defendants were in breach of a duty of care which, it was alleged, was owed by the defendants to the plaintiffs having regard to the existence of a special relationship between the plaintiffs and defendants as found by the learned trial judge and given the existence of substantial contractual relationships between the plaintiffs and the defendants.
The relationship between the plaintiffs and the defendants was based on contract.
In the written submissions submitted by the plaintiffs, reference is made to the judgment of the Texas Supreme Court in Montgomery Ward & Company v. Scharrenbeck and the passage from the judgment in that case where it is stated:-
“accompanying every contract there is a common law duty to perform with care, skill, reasonable expedience and faithfulness the things agreed to be done and the negligent failure to observe any of these conditions is a tort as well as a breach of contract.”
It is submitted on behalf of the plaintiffs in this case that the position in this jurisdiction is as outlined in the passage from the judgment of Gannon J. in Tulsk Co-operative Livestock Mart Ltd. v. Ulster Bank Ltd. (Unreported, High Court, Gannon J., 13th May, 1983) where he stated that:-
“Although the relation of a customer and banker between the parties warrants the founding of the claim in part on contract and the alleged breach of contract, the essential issues in dispute are subject to the law relating to negligence. The plaintiff’s claim is founded more upon alleged failures on the defendants part to measure up to the duties and standards of care appropriate to the purported performance of the contractual obligations rather than on an alleged failure to perform in accordance with the express or implied contractual terms. The nature of the duties which the law imposes depends upon the circumstances of the relationship between the parties and the harm, loss or
[1998]
2 I.R. Kennedy v. Allied Irish Banks plc.
Hamilton C.J. 54
S.C.
detriment to either party which would reasonably be foreseeable from such circumstances and relationships.”
It is clear from these passages, upon which the plaintiffs rely, that the duty of care referred to therein arises out of and in the performance of obligations arising from a contract or relationship entered into between the parties and is not authority for the proposition that such a duty exists independently of a contractual relationship. Gannon J. specifically refers to the duties and standards of care appropriate to the purported performance of contractual obligations.
The nature and extent of the contractual obligations assumed by the defendants herein is of considerable importance for the purpose of determining whether or not the defendants, or either of them, were in breach of a duty of care owed by them to the plaintiffs.
It is stated in Halsbury (4 ed., Vol. 3 (1) para. 149) that:-
“where the parties are in a contractual relationship, it is not to the advantage of the laws development to search for liability in tort, particularly in a commercial relationship.”
In the course of delivering the judgment of the Privy Council in Tai Hing Ltd. v. Liu Chong Hing Bank [1986] 1 A.C. 80 Scarman L.J. stated at p. 107:-
“Their Lordships do not believe that there is anything to the advantage of the law’s development in searching for a liability in tort where the parties are in a contractual relationship. This is particularly so in a commercial relationship. Though it is possible as a matter of legal semantics to conduct an analysis of the rights and duties inherent in some contractual relationships including that of banker and customer either as a matter of contract law when the question will be what, if any, terms are to be implied or as a matter of tort law when the task will be to identify a duty arising from the proximity and character of the relationship between the parties, their Lordships believe it to be correct in principle and necessary for the avoidance of confusion in the law to adhere to the contractual analysis; on principle because it is a relationship in which the parties have, subject to a few exceptions, the right to determine their obligations to each other, and for the avoidance of confusion because different consequences do follow according to whether liability arises from contract or tort, e.g. in the limitation of action. Their Lordships respectively agree with some wise words of Radcliffe L.J. in his dissenting speech in Lister v. Romford Ice & Cold Storage Company Ltd. [1957] A.C. 555. After indicating that there are cases in which a duty arising out of the relationship
[1998]
2 I.R. Kennedy v. Allied Irish Banks plc.
Hamilton C.J. 55
S.C.
between employer and employee could be analysed as contractual or tortious Radcliffe L.J. said, at p. 587:-
‘Since, in any event, the duty in question is one which exists by imputation or implication of law and not by virtue of any express negotiation between the parties, I should be inclined to say that there is no real distinction between the two possible sources of obligation. But it is certainly, I think, as much contractual as tortious. Since in modern times the relationship between master and servant, between employer and employed, is inherently one of contract, it seems to me entirely correct to attribute the duties which arise from that relationship to implied contract.’
Their Lordships do not, therefore embark, on an investigation as to whether in the relationship of banker and customer it is possible to identify tort as well as contract as a source of the obligations owed by the one to the other. Their Lordships do not, however, accept that the parties’ mutual obligations in tort can be any greater than those to be found expressly or by necessary implication in their contract.”
As pointed out by Goff L.J. in the course of his speech in Henderson v. Merrett Syndicates Ltd. [1995] 2 A.C. 145 at p. 186 “the issue in the Tai Hing case was whether a tortious duty of care could be established which was more extensive than that which was provided for under the relevant contract”.
At p. 193 Goff L.J. stated that:-
“It is however my understanding that by the law in this country contracts for services do contain an implied promise to exercise reasonable care (and skill) in the performance of the relevant services; indeed, as Mr. Tony Weir has pointed out (XI Int. Encycl. Comp. L. ch. 12, para. 67), in the nineteenth century the field of concurrent liabilities was expanded ‘since it was impossible for the judges to deny that contracts contained an implied promise to take reasonable care, at the least, not to injure the other party’. My own belief is that, in the present context, the common law is not antipathetic to concurrent liability, and that there is no sound basis for a rule which automatically restricts the claimant to either a tortious or a contractual remedy. The result may be untidy; but, given that the tortious duty is imposed by the general law, and the contractual duty is attributable to the will of the parties, I do not find it objectionable that the claimant may be entitled to take advantage of the remedy which is most advantageous to him, subject only to ascertaining whether the tortious duty is so inconsistent with the applicable contract that in accordance with ordinary
[1998]
2 I.R. Kennedy v. Allied Irish Banks plc.
Hamilton C.J. 56
S.C.
principle, the parties must be taken to have agreed that the tortious remedy is to be limited or excluded.”
I accept this to be the correct statement of the law viz. that where a duty of care exists, whether such duty is tortious or created by contract, the claimant is entitled to take advantage of the remedy which is most advantageous to him subject only to ascertaining whether the tortious duty is so inconsistent with the applicable contract that, in accordance with ordinary principle the parties must be taken to have agreed that the tortious remedy is to be limited or excluded.
In the instant case, the relationships between the plaintiffs and the defendants were created by the contracts or agreements hereinbefore referred to and the obligations arising therefrom were, on the part of the defendants, to perform “with care, skill, reasonable expedience and faithfulness the things agreed to be done”.
The learned trial judge held that there was no breach of contract by the defendants and the plaintiffs’ appeal against that finding has been dismissed.
In the course of his judgment in the Court of Appeal in the case of National Bank of Greece S.A. v. Pinios Shipping Co. (No. 3) [1988] 2 Lloyds Rep. 126 Lloyd L.J. stated at p. 139:-
“But so far as I know it has never been the law that a plaintiff who has the choice of suing in contract or tort can fail in contract yet nevertheless succeed in tort.”
The case clearly establishes that when parties are in a contractual relationship their mutual obligations arise from their contract and are to be found expressly or by necessary implication in the terms thereof and that obligations in tort which may arise from such contractual relationship can not be greater than those to be found expressly or by necessary implication in their contract.
A duty of care can arise irrespective of contract where a party possessed of a special skill undertakes to apply that skill for the assistance of another person who relies upon such skill ( vide Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465).
The existence of such a duty was recognised by the High Court in the cases of Tulsk Co-operative Livestock Mart Ltd. v. Ulster Bank Ltd. (Unreported, High Court, Gannon J., 13th May, 1983), Towey v. Ulster Bank [1987] I.L.R.M. 142 and T.E. Potterton Ltd. v. Northern Bank Ltd. [1993] 1 I.R. 413.
In these cases it is found as a fact that the customer, to the knowledge of the bank, relied on the bank to perform a particular task, that the bank
[1998]
2 I.R. Kennedy v. Allied Irish Banks plc.
Hamilton C.J. 57
S.C.
assumed the responsibility of performing that task and failed to exercise the requisite degree of care in the performance of such task.
There is no such finding or evidence to support such finding in this case. There is no evidence that the defendants or either of them had undertaken any responsibility to the plaintiffs or either of them other than to comply with the terms of the agreements entered into by them.
In this case the plaintiffs, and each of them, had sued the defendants both in contract and in tort.
The gravamen of the plaintiffs’ claim and complaint in this case is that the defendants were in breach of duty owed to them by the defendants in failing to provide to them the finance necessary to complete the development of certain lands situate at Cabinteely in the County of Dublin and in particular in failing to grant to them the facility for the sum of £250,000 which in the opinion of the relevant plaintiffs was necessary in order to ensure the continued development of these lands and in the consideration of the plaintiffs’ application for such facility to consider the interests of the plaintiffs as well as considering the defendants’ own interest.
The learned trial judge held that in the spring and summer of 1990, the plaintiffs were as they claimed treated as highly favoured customers; given very substantial facilities and permitted to effect their financial transactions with a minimum of formality or enquiry and perhaps even a suggestion of irregularity and that this privileged position was not continued in the following year.
He further found that “it was patently clear from September, 1990, that the first defendant was consulting and protecting its own interests both as to the security which it would obtain and as to the monies which it would provide”.
It was submitted by the plaintiffs that in considering their own interests to the detriment of the plaintiffs that the defendants were in breach of a duty owed by them to the plaintiffs.
In the course of his judgment in Lloyds Bank Plc. v. Comp (Unreported, English Court of Appeal, 18th December, 1991) Scott L.J. said:-
“If a customer applies to the bank for a loan for the purposes of some commercial project, and the bank examines the details of the project for the purpose of deciding whether or not to make the loan, the bank does not thereby owe any duty to the customer. It conducts the examination of the project for its own prudent purposes as lender and not for the benefit of the proposed borrower.”
[1998]
2 I.R. Kennedy v. Allied Irish Banks plc.
Hamilton C.J. 58
S.C.
With regard to the application by the plaintiffs for the facility of £250,000 made by them in 1991, the learned trial judge held that:-
“The matter was considered solely from the point of view of the first defendant and in the circumstances as they actually existed in June, 1991, and irrespective of how that situation had arisen. If the first defendant owed a duty to the plaintiffs to consider their interests, then unquestionably the first defendant totally failed to do so. It may not be an image which any banker, professional person or businessman would wish to project but, put to the test, the fact is that the first defendant consulted exclusively its own commercial interests and in the circumstances it seems to me that it had no legal obligation to act otherwise.”
Was there anything in the circumstances of this case which created a duty on the defendants, as bankers to the plaintiffs, to consider the interest of the plaintiffs and in particular the interests of the first and second plaintiffs, and the third and fourth plaintiffs?
The relationship between the plaintiffs and the defendants was based on contract and the learned trial judge held that there was no breach of contract by the defendants in relation to the plaintiffs.
The relationship between the defendants and the fourth plaintiff was originally based upon the terms of the letter of offer dated the 20th February, 1990, which said agreement was altered by the terms of the letter of offer dated the 12th October, 1990.
The relationship between the defendants and the third plaintiff was based on the terms of the letter of offer dated the 18th April, 1990, which was altered by the terms of the letter of offer dated the 12th October, 1990.
It is clear that the defendants were not in breach of the agreement in requiring the third and fourth plaintiffs to accept the offers contained in the said letters dated the 12th October, 1990, as both companies were in breach of the terms of the original letters of offer.
The effect of the latter letters was to discharge the liabilities under the earlier letters of offer and the effect thereof was that no further facilities were at that time available to either the third or fourth plaintiffs.
The plaintiffs submitted that the defendants were in breach of the duty owed by them to the plaintiffs in not explaining to them that as a result of the transaction affected on the 12th October, 1990, no further facilities were then available to the said companies.
The learned trial judge held that:-
[1998]
2 I.R. Kennedy v. Allied Irish Banks plc.
Hamilton C.J. 59
S.C.
“In the present case there would have been no need for the defendants to advise the plaintiffs, having regard to their experience and qualifications, as to the nature and effect of the documents which they executed or the effect of the transaction as a whole. Taken in conjunction with the letter of the 21st September, 1990, and the facility letter of the 12th October, 1990, which I accept was available to the plaintiffs on that date, I cannot see that there was any difficulty in understanding the nature of the transaction.”
He further held that:-
“The question whether the plaintiffs would obtain further or additional facilities did not, as I have found, arise at that stage.”
The learned trial judge had held that there was no agreement between the plaintiffs and Mr. Pardy, on behalf of the second defendant, to grant a further facility of £250,000.
The application therefore was made by letter dated the 30th January, 1991.
By letter dated the 25th January, 1991, the second defendant had written to the directors of the third plaintiff informing them that the defendants’ facilities were subject to quarterly review and that their written proposals were required for dealing with the repayment of capital and servicing interest on the facility then enjoyed by them and which was subject to review in accordance with the terms of the said agreement on the 31st January, 1991.
In considering the said application for the additional facility of £250,000, the defendants did not owe any duty, contractual or otherwise, to agree to the granting of the said facility. In considering whether or not to grant the said facility, the defendants were under no duty to consider the said application other than in accordance with their own interests; they were under no duty, contractual or otherwise, to agree to grant the said facility.
Having carried out what they considered to be the necessary inquiries and investigations as to the viability of granting the said loan, they decided not to grant the said facility.
I am satisfied that the learned trial judge was correct in holding as a matter of law that the defendants were under no obligation to do otherwise and that the investigations and reports obtained by them were for their benefit and that they were under no obligation to disclose the nature of such reports as they relied upon to the plaintiffs.
I am satisfied that the evidence adduced at the trial and as found by the learned trial judge, does not disclose the breach of any duty owed by
[1998]
2 I.R. Kennedy v. Allied Irish Banks plc.
Hamilton C.J. O’Flaherty J. Denham J. 60
S.C.
the defendants to the plaintiffs and consequently their appeal must be dismissed.
The plaintiffs also submitted that the defendants were in breach of the duty of confidentiality which they separately owed to the separate defendants by disclosing information with regard to the financial affairs of the plaintiffs, and each of them, to the other defendants.
This matter was not dealt with by the learned trial judge as he accepted the defendants’ submission that it was not open to them on the pleadings to make this case.
That being so, it is not open to this Court to make any findings with regard to this alleged breach of duty.
Consequently, I am satisfied that the plaintiffs’ appeal against the judgment and, order made by he High Court including the order made on the counterclaim should be dismissed and the order of the High Court affirmed.
O’Flaherty J.
I agree.
Denham J.
I also agree.