Bank of Hawaii (PNG) Limited v Papua New Guinea Banking Corporation, CSC Investment Pty Limited, Chiu Ho Chan and Wan Siew Chan (2001) N2095

• Jurisdiction: Papua New Guinea
• Court: National Court
• Citation: (2001) N2095
• Date: 08 June 2001
• Year: 2001

Full Title: Bank of Hawaii (PNG) Limited v Papua New Guinea Banking Corporation, CSC Investment Pty Limited, Chiu Ho Chan and Wan Siew Chan (2001) N2095

National Court: Kandakasi J

Judgment Delivered: 8 June 2001

1 BANKING—Cheque—Forgery—Duty of paying bank to payee—Paying bank honouring cheque without knowledge of forgery—Estoppel—Implied representation that cheque is genuine—Forgery undetectable—Paying bank having no reason to suspect cheque not being genuine—Payee acting to his detriment by its own conduct—Paying bank not precluded from recovering amounts paid under mistake of fact without negligence—Bills of Exchange Act (Ch250) s29.

2 NATIONAL COURT—PRACTICE AND PROCEDURE—Application for adjournment—No prior notice to opposing side of intention to apply for adjournment—Witness attending to medical need—No evidence produced in support of application—Application refused.

3 EVIDENCE—PRACTICE AND PROCEDURE—Parties agreeing to conduct trial by affidavit—Affidavits filed—Need to file and serve notice requiring deponent for cross–examination in accordance with the Evidence Act and the National Court Rules—Failure to file and serve such notice—No right to require cross–examination on the day of hearing—Application for cross–examination refused.

4 COSTS—Certification of overseas counsel's costs—Principles guiding exercise of court's discretion—Important and complex issues, lack of local expertise, imparting of skills and knowledge by overseas counsel and amount involved is substantial—Case not coming within this principles—Application for certification refused

5 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, Barclays Bank v WJ Simms Ltd (1980] QB 677, National Westminster Bank Ltd v Barclays Bank Ltd (1974] 3 All ER 834, Price v Neal (1762) 3 Burr 1354, Imperial Bank of India v Aberyesinghe (1927) 29 Ceylon NLR 257, KJ Davies (1976) Ltd v Bank of New South Wales (1981] 1 NZLR 262, McVie v Woodward (1990] PNGLR 305, Peter Yewie Umai Timereke v Duncan Martin Ferrie and William Henry Johns: Re Sannga (Deceased) (No 1) (1982) N379 and Jordan v Edwards (1979] PNGLR 420 referred to

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Kandakasi J: The Plaintiff is seeking to recover from the Defendants a sum of K38,600.50 ("the funds") it claims it paid in error under a cheque fraudulently drawn against its customer's account. The cheque was uncrossed and made payable to an "Avoa Maria" and was endorsed to the Second Defendant (CSC) by an "Avoa Maria John" (the rogue). CSC arranged for a "special clearance" of the cheque through its bank, the First Defendant ("PNGBC"). Through the cheques clearance system in which the Plaintiff and PNGBC both participate, PNGBC presented the cheque to the Plaintiff and the Plaintiff raised a warrant for payment in favour of PNGBC to the credit of "Avoa Maria". That was after satisfying itself that, the signatures on the cheque were genuine and that the cheque was otherwise in order for payment. PNGBC then paid the funds to CSC and CSC paid K30, 880.50 to the rogue after requiring and receiving 20% of the funds for shopping.

The fraud was discovered about two weeks later, when the customer received its bank statement, showing its account being debited for cheque number 958850, in the sum of, K38,600.50 and immediately notified the Plaintiff. The Plaintiff credited its customers account and quickly informed PNGBC of the fraud. PNGBC then, debited CSC's account and retained the funds in a "term deposit" with a stop payment order attached to it.

The Plaintiff contents that, it is prima facie entitled to recover the funds on the basis that, it paid them by error or by a mistake of fact and as acted with due diligence. The Defendants on the other hand, argue that, the Plaintiff is not entitled to recover because it was negligent in failing to find that, the signatures in the cheque were different and that, it failed to promptly notify the Defendants of the fraud to the detriment of the Defendants. Therefore, they argue that, the Plaintiff is barred from recovering the funds from them.

Issues

There is no issue that, the Plaintiff is prima facie entitled to recover payments made by error or a mistake of fact. The only issue is, whether the Plaintiff acted negligently to the detriment of the Defendants, in authorising payments out of its customer's account, when there were variations in the customers' signature on the cheque by reason of which it is now barred from recovering the funds?

Generally

The general principle is that, money paid under a mistake of fact or law can be recovered. The principle as been clearly developed and adopted in Australia by the High Court of Australia in David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353. The Court reviewed all previous authorities such as Barclays Bank v WJ Simms Ltd (1980] QB 677 at 690–695, on the issue and held at page 376 that, moneys paid under a mistake of fact or law are prima facie recoverable. In so holding, it rejected previous authorities, which allowed for recovery only in cases of payment under a mistake of fact and not a mistake of law. The court also rejected previous authorities adding qualifications such as unjust enrichment, or a fundamental mistake, to that principle, which would, restrict the right of recovery. The general principle was recognised in National Westminster Bank Ltd v Barclays Bank Ltd (1974] 3 All ER 834.

There are however, exceptions to that rule. National Westminster Bank Ltd v Barclays Bank Ltd (1974] 3 All ER 834 reviewed the relevant authorities up to the time of that judgment and pointed out that, for a variety of reasons, the exceptions have been arrived at. Justice Kerr at page 844, line a–d specifies those reasons as:

1. The need to preserve the commercial value of the security of instruments, which have once been negotiated to a holder for value and the undesirability of unravelling transactions based on them.

2. In part on the doctrine of estoppel by representation.

3. The competing equities with the balance favouring entirely blameless defendants; and

4. On proof of negligence against the party which mistakenly made the payment and is seeking to recover.

Justice Kerr then looked at the relevant cases starting with Price v Neal (1762) 3 Burr 1354 and concluded in the context of a forged cheque in these terms at page 849, line a–b:

"Taking the judgments all together, it seems to me, with respect, that they illustrate not only the variety of grounds on which it is possible to justify an obviously correct result as between a paying bank and a collecting bank which has paid the money over to its customer after collecting the proceed, but also the difficulty of extracting any principle from the prior authorities. None of the various rationes decidendi can however in my view be taken even as persuasive authority for the broad proposition that merely by honouring a forged cheque without negligence the paying bank impliedly represents to the payee that the signature is genuine so as to bar any right of recovery from him".

Then after considering the decision in Imperial Bank of India v Aberyesinghe (1927) 29 Ceylon NLR 257, Kerr J went on to say at p 850 between line f and g that:

"At most, it seems to me, the paying banker is thereby representing no more than that he believes the signature to be genuine . . . This is different from a representation that the signature is in fact genuine. Furthermore, I think the law should be slow to impose on an innocent party who has not acted negligently an estoppel merely by reason of having dealt with a forged document on the assumption that it was genuine."

In our jurisdiction s29 of the Bills of Exchange Act (Ch250), provides in the context of forged bills, especially a forgery of the signatures on a bill...