Shield Life Insurance Company Ltd v Ulster Bank Ltd

• Jurisdiction: Ireland
• Judge: Mr. Justice Costello.
• Judgment Date: 05 December 1995
• Neutral Citation: [1995] IEHC 3
• Court: High Court
• Docket Number: [1990 No. 1735P and 1990 No. 17356P],No. 17395p/1990
• Date: 05 December 1995

[1995] IEHC 3

THE HIGH COURT

No. 17395p/1990

No. 17396P/1990

SHIELD LIFE INSURANCE CO LTD v. ULSTER BANK LTD

BETWEEN

SHIELD LIFE INSURANCE COMPANY LIMITED

PLAINTIFF

AND

ULSTER BANK LIMITED

DEFENDANT

BETWEEN

SHIELD LIFE INSURANCE COMPANY LIMITED

AND

CORNELIUS O'CALLAGHAN

PLAINTIFFS

AND

ULSTER BANK LIMITED

DEFENDANT

Citations:

CHEQUES ACT 1959 S4

CHEQUES ACT 1959 S4(3)

CHEQUES ACT 1957 S4 UK

MARFANI & CO LTD V MIDLAND BANK LTD 1968 2 AER 573

BILLS OF EXCHANGE ACT 1882 S82

BILLS OF EXCHANGE (CROSSED CHEQUES) ACT 1906

BILLS OF EXCHANGE ACT 1882 S27(2)

BILLS OF EXCHANGE ACT 1882 S29

BILLS OF EXCHANGE ACT 1882 S29(1)

BILLS OF EXCHANGE ACT 1882 S29(1)(b)

THACKWELL V BARCLAYS BANK PLC 1986 1 AER 976

BILLS OF EXCHANGE ACT 1882 S81

CRUMPLIN V LONDON JOINT STOCK BANK LTD 1914 109 LT 856

CHEQUES ACT 1959 S4(2)

CHEQUES ACT 1957 (UK)

BILLS OF EXCHANGE ACT 1882 S29(1)(a)

CHEQUES ACT 1959 S2

Synopsis:

NEGOTIABLE INSTRUMENTS

Cheque

Presentation - Collection - Banker - Duty - Payee - Cheque presented by banker's customer for collection - Cheque credited to customer's account - Customer not the payee named on cheque - No indorsement by payee - Banker not being the holder of the cheque - Banker negligent despite statutory amelioration of common-law standard of strict liability in regard to irregular indorsements - Bills of Exchange Act, 1882, ss. 2, 29, 38 - Cheques Act, 1959, ss. 2, 4 - (1990/17395 P - Costello J. - 5/12/95) - [1995] 3 IR 225

|Shield Life Insurance Co. Ltd. v. Ulster Bank Ltd.|

NEGOTIABLE INSTRUMENTS

Cheque

Presentation - Collection - Banker - Duty - True owner - Crossed non-negotiable cheque - Cheque presented by banker's customer for collection - Cheque credited to customer's account - Customer not the payee named on cheque - Indorsement in blank by payee - Banker without better title to cheque than customer - Banker negligent - Bills of Exchange Act, 1882, s. 81 - (1990/17396 P - Costello J. - 5/12/95) - [1995] 3 IR 225

|Shield Life Insurance Co. v. Ulster Bank Ltd.|

1 Judgment of Mr. Justice Costello. Delivered the 5th day of December, 1995.

INTRODUCTION

2 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 plaintiffs") is to be determined. Substantial issues in both cases are the same, but they differ on some important points, as outlined later.

3 The plaintiffs carry on an insurance business and have their 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 Limited. 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 plaintiffs (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 14 January 1988 Mrs. Murphy drew a cheque for £30,000 on Allied Irish Banks plc. naming the plaintiffs as the payee and she gave it to Mr. O'Callaghan for transmission to the plaintiffs for what she thought was an Investment Bond which they had issued in her favour. The bond given to her by Mr. O'Callaghan was, in fact, a forgery and the plaintiffs were 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 lodgment 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 client account by the broker. The fraud was not detected until the following year as a result of which on the 19 April 1989 the plaintiffs contract with the broker was terminated. Later, the plaintiffs issued a bond to Mrs. Murphy in the same terms as that forged by the broker and have 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.

4 Before the broker's wrongdoing had been discovered he had engaged in another fraud a year later. This time one of his victim's was a Mr. Cornelius O'Callaghan. An insurance policy which Mr. 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. O'Callaghan was the payee named on it. The cheque was crossed and the words "not negotiable" were added. Mr. O'Callaghan arranged with the broker that he would invest £20,000 in an investment bond to be issued by the plaintiffs and on the 15 January 1989 the broker delivered to him a forged bond purporting to be a bond issued by the plaintiffs. In return Mr. O'Callaghan signed the cheque on the reverse side (in circumstances to be considered in greater detail later) and gave it to the brokers 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 £2,000 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 plaintiffs issued a bond to Mr. O'Callaghan in the same terms as those contained in the forged bond and in the second action they have sued the bank on the same basis as that pleaded in the first action.

MRS. MURPHY'S CHEQUE

THE PLAINTIFFS SUBMISSIONS

5 The plaintiffs basic submission is that the bank committed the tort of conversion and can only avoid liability by relying on section 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-section (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;

6 or

7 (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".

8 The bankers protection is further enhanced by sub-section (3) which provides;

"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".

9 The plaintiff's submissions on this section can be summarised as follows;

10 (1) The section applies to cheques (sub-section 2). As payees of Mrs. Murphy's cheque they were it's "true owners" within the meaning of sub-section (1).

11 (2) The plaintiffs accept that the bank firstly credited their customers (i.e. the brokers) 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 section 4(1)(b) applies. It submits that the bank's customer had no title to the cheque as its payee had not endorsed it and the endorsement 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.

12 (3) It is accepted that sub-section 3 of section 4 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.

13 (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 plaintiffs are entitled to payment of £30,000.

14 (5) The Cheques Act, 1959enacted in this country the provisions of the English Cheques Act, 1957. Section 4 of the English Act is in identical terms with section 4 of our Act and the plaintiffs submit that our Act should be construed in the way section 4 of the English Act was construed by Diplock, L.J., in Marfani & Co. Ltd, -v- Midland Bank Ltd. 1968 2 A.E.R. 573. In the course of his judgment Lord Diplock (at p.578) 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 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."

15 A bankers 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...