Papua New Guinea Institute of Medical Research v Papua New Guinea Banking Corporation (1999) N1934

• Jurisdiction: Papua New Guinea
• Judge: Kirriwom J
• Judgment Date: 24 September 1999
• Court: National Court
• Citation: (1999) N1934
• Year: 1999
• Judgement Number: N1934

National Court: Kirriwom J

Judgment Delivered: 24 September 1999

N1934

PAPUA NEW GUINEA

(In the National Court of Justice)

WS No. 982 of 1996

Between:

PAPUA NEW GUINEA INSTITUTE OF MEDICAL RESEARCH

- Plaintiff -

And:

PAPUA NEW GUINEA BANKING CORPORATION

- Defendant -

GOROKA: KIRRIWOM J

1999: June 28 & 29, September 24

NEGLIGENCE - Bankers liability - fraud on plaintiff by third party - banker acting on forged bill - no authority or order from the account owner - banker's duty to act with due diligence - protection of bankers - act in good faith and without negligence - Bill of Exchange Act Chapter 250, ss.29, 89 & 91.

Plaintiff sued the defendant for wrongfully withdrawing monies from its account with the defendant bank and paying the proceeds to another customer who also operated an account with the defendant bank under an alias who forged signatures of persons authorised to transact on the plaintiff's account to steal the money in excess of K30,000 and the said forger had since been convicted and jailed for his forgeries and there being evidence of gross complacency in the strict compliance of the banks internal circular instructions for use of opening new accounts with new customers and large withdrawals; and the defendant bank called no evidence to show that it acted in good faith and without negligence, let alone prove negligence on the part of the plaintiff

Held,

1. Although the action was commenced as a breach of statute, it was clear at the outset that the plaintiff's claim was based on the law of negligence;

2. The failure to specifically plead negligence as cause of action does not estop the plaintiff from raising negligence on trial when the defendant did not raise the issue during pleading;

3. A party who relies on negligence or contributory negligence must adduce appropriate evidence to substantiate its claim for negligence or contributory negligence of the other party as the case may be;

4. The bankers defence under section 91 of Bill Of Exchange Act Ch. 250 where it is said to act in good faith and without negligence must be substantiated by appropriate evidence.

Cases cited:

Commonwealth Trading Bank of Australia v Sydney Wide Stores Pty Ltd (1981) CLR 304

London Joint Stock v MacMullen & Arthur [1918] AC 777

The Keptigalla Rubber Estates Ltd v The National Bank of India (1902) 2 KB 1010

Greenwood v Martin's bank Ltd [1933] AC 51

The London Bank of Australia Ltd v Kendall ( ) 28 CLR 401

Text and Legislations:

Australian Mercantile Law by Yorston & Fortescue, 16th Edn, The Law Book Co Ltd publication, 1981.

Banking corporation Act Chapter 136

Bills of Exchange Act Chapter 250

Counsel:

Mr J. Bray for the Plaintiff

Mr E. Manu for the Defendant

DECISION

24 September 1999

KIRRIWOM J: The Plaintiff sues the Defendant for loss and damage it suffered when, through an act of fraud of a customer, the Defendant withdrew money and debited the Plaintiff’s bank account maintained with or kept by the Defendant. The Defendant is a major commercial bank established under the Banking Corporation Act Ch. 136 and the wrong against the Plaintiff was perpetrated in the Goroka Branch of the Defendant bank. The Plaintiff had its account with this particular branch.

On three occasions between 23rd November 1995 and 25 January 1996, all within the space of two months, a total of K34,280.02 was withdrawn from the Plaintiff’s cheque account number 6440065. These withdrawals were made without the Plaintiff’s knowledge and authority. It was not known to the Plaintiff who made those withdrawals until the criminal investigation uncovered that signatures of two authorised signatories to the account were forged by an employee of the Plaintiff, one Nathan Suve, and the cheques were negotiated with the defendant and paid. Three cheques were drawn on the said account on the dates and for the specific amounts stated below:

1) K495.02 on 23 November 1995.

2) K9,985.00 on 10 January 1996.

3) K23,800.00 on 25 January 1996.

Two of the cheques drawn on 10th and 25th January, 1996 were deposited into a cheque account of one Daniel Lulume, alias Nathan Suve. This account was opened with the Defendant bank on the 9th January, 1996, only a day before, with a cash sum of K100.00, and the following day a deposit of K9,985 was made and over one half of that amount was withdrawn the same day.

These forgeries were duly discovered and following police investigation one Nathan Suve, who was going by an alias of Daniel Lulume, was charged convicted and imprisoned. He is now serving his jail sentence.

The Plaintiff commenced these proceedings against the Defendant pursuant to section 29 of the Bills of Exchange Act Ch. 250, claiming that the Defendant had wrongfully withdrawn money from it’s account to pay the forger when there was no order from the Plaintiff to the Defendant authorising it to debit its account whatever the circumstances. The fact that forgery has been proven against the forger, claiming as a bona fide customer of the defendant bank, clearly demonstrates that the Defendant bank was grossly negligent in allowing the fraud to take place and this is the wrong that the bank had committed against the Plaintiff. It is the Plaintiff’s contention that the Defendant, by its servants and agents, was negligent in not applying prudent and responsible measures that enabled the fraud to be committed resulting in loss to the plaintiff.

The Defendant generally denied liability to the loss and damage suffered by the Plaintiff in its defence and further, and in the alternative, pleaded negligence on the part of the Plaintiff in allowing this fraud to be perpetrated on the Defendant. The Defendant also sought to rely on the statutory defences stipulated in sections 89 and 91 of the Bills of Exchange Act or the Act. I will refer to these sections as well as section 29 of the Act in due course.

In its written submissions the defendant attacked the Plaintiff’s method of pleading saying that the Plaintiff failed to specifically plead negligence as the basis for it’s action against the Defendant. This failure had therefore disadvantaged the defendant in coming to grips with the nature of the Plaintiff’s case, hence taken by surprise when the Plaintiff prosecuted its case on the basis of negligence. I will come to this later in my judgment when I deal with the Defendant’s case.

The Plaintiff’s statement of claim drafted in the terms of section 29 of the Act pleaded that “…at Goroka the defendant wrongfully and without the Plaintiff’s authority, withdrew..” from the plaintiff’s account

referred to earlier. Section 29 headed FORGED OR UNAUTHORISED SIGNATURES is expressed in these terms -

“ (1) Subject to this Act, where a signature on a bill is forged or placed on the bill without the authority of the person whose signature it purports to be, the forged or unauthorised signature is wholly supportive, and no right -

a) to retain; or

b) to give a discharge for; or

c) to enforce payment of,

the bill against any party to the hire can be acquired through or under the signature, unless the party against whom it is sought to retain or enforce payment of the bill is precluded from setting up the forgery or want of authority.

2) This section does not affect the ratification of an unauthorised signature not amounting to a forgery.”

To prove the Defendant’s failure or breach of duty towards the plaintiff, it’s customer, the Plaintiff called as its key witness a Mr Philip Timbie, a Manager with the Defendant bank, and designated as Manager ‘C’ at the relevant times of these forgeries. He as evidence showed, clearly was the principal star or actor in dealing with the crooked customer Daniel Lulume alias Nathan Suve and who authorised the said Daniel Lulume to do business with the bank contrary to the interest of the plaintiff. Apart from Mr Philip Timbie, the Plaintiff also called Mr Sam Akunai who was the accountant of the Plaintiff.

The thrust of the Plaintiff’s case was to prove failure on the part of the defendant to exercise due care and diligence, through the actions, omissions or neglect, of the defendant’s employees which resulted in the fraud being committed in the bank unchecked and undeterred, thereby causing loss and damage to the plaintiff. The plaintiff sought to prove this by showing that this particular con-man was passed or verified as a genuine and bona fide customer on the mere assertion of a bank officer, in this case in the person of Mr Philip Timbie, notwithstanding the existence of the stringent requirements and safeguards stipulated in the banks circular instructions to its officers for strict adherence in the opening of new cheque accounts, whether individual or corporate, and the handling of large amounts of money drawn on cheque accounts. Mr. Timbie, who was then the supervisor of telling in the bank, was also the Manager ‘C’. He had an enormous power and authority over the junior officers which placed him in a very responsible position in the decision making within the bank. The Plaintiff tried to prove that Mr Timbie’s performance on this occasion as a senior...