The High Court
1986 No. 7503P

T.E. Potterton Limited
Plaintiff
v.
Northern Bank Limited
Defendant 
JUDGMENT of O’Hanlon J. delivered on the 19th day of June, 1992

Plenary summons.

The plaintiff carries on business in auctioneering and livestock sales, with marts at Trim and Delvin, Co. Meath, and mart sales are held at Delvin on Thursday of each week. Liam McMahon, carrying on business through the medium of a limited liability company, Tansey Farms Limited, with farms at Roslea, Co. Fermanagh, and near Clones, Co. Monaghan, was a purchaser of cattle at the plaintiff’s marts for several years leading up to the year 1985 and throughout that year. At the relevant times, such purchases of cattle were paid for by means of cheques drawn upon the account of Tansey Farms Ltd. with Northern Bank Ltd., The Diamond, Clones, Co. Monaghan.

At a sale held by the plaintiff on the 28th November, 1985, the said Liam McMahon acting on behalf of his company, Tansey Farms Ltd., purchased cattle to the value of £39,983 and gave in payment therefore a post-dated cheque drawn on the defendant for that sum, and bearing the date of the 6th December, 1985.
The said cheque was presented for payment by the plaintiff to its own bank, Ulster Bank Ltd., on the 4th December, 1985, and was sent on for clearance to the defendant but was returned by the defendant on the 9th December, 1985, marked “Refer to Drawer Present Again Alteration req’s drawer’s conf.” (being shorthand for “Alteration requires drawer’s confirmation”).

The cheque was again presented for clearance on the plaintiff’s behalf by the plaintiff’s bank, Ulster Bank Ltd., without alteration and without seeking the drawer’s confirmation of any part of the writing on the cheque, on the 12th December, 1985, and on this occasion it was returned by the defendant bearing the original words, “Refer to drawer” and “Alteration req’s drawer’s conf.” but with a line drawn through the words “Present Again” which formed part of the original message when the cheque was first returned.

Mr. Edward Potterton, a director of the plaintiff company, said they were not too concerned when the cheque came back a second time. He contacted Mr. McLoughlin, manager of the Clones Branch of the defendant, and was told by him that he should go and see Mr. Liam McMahon. He did so, and was told by him that “there was a problem”. In the meantime a further consignment of cattle had been sold to Tansey Farms Limited on the 5th December and was paid for by cheque dated the 13th December, 1985, which was handed to the plaintiff on the 6th December, 1985. The amount involved in this case was £13,298 and on being presented for payment, the cheque was returned marked “Refer to Drawer”.

The plaintiff never received any payment on foot of either cheque. Proceedings were instituted against Tansey Farms Ltd. on the 23rd December, 1985, and judgment was obtained against them in May, 1986, but the company went into liquidation in July, 1986, and nothing was ever recovered on foot of the judgment. In this situation the present proceedings were commenced against the defendant, claiming that the loss which had been sustained by the plaintiff was attributable to negligence and breach of duty on the part of the defendant in the manner in which it had dealt with the cheque dated the 6th December, 1985, which was presented to it for payment on or about the 9th December, 1985, and arising out of its refusal or failure to clear same within a reasonable period of time.

The defendant denies that it was guilty of any negligence or breach of duty and denies that it owed any duty of care to the plaintiff in the circumstances of the present case. There is a plea that no loss or damage was caused to the plaintiff by the matters alleged against the defendant and a plea that even if there was negligence on the part of the defendant (which is denied), the plaintiff was guilty of contributory negligence.

Edward Potterton, in the course of his evidence, claimed that the defendant, during the critical period spanning the early weeks of December, 1985, actually paid out sums in the region of £80,000 on foot of cheques presented for payment against the Tansey Farms Ltd. account during that period.

Mr. McLoughlin, manager of the Clones branch of the defendant at the time, said that in 1985 Tansey Farms Ltd. had permission to overdraw their account up to a limit of £40,000. More latitude than this was allowed from time to time when the company was able to show that there were payments to come in which could be relied upon to arrive, such as V.A.T. and M.C.A. credits. Mr. McMahon had a practice of telephoning the bank on a weekly basis to ask what cheques had come in for payment and to inform the bank what was due to the company from the meat factories. “Depending on their assurances we would pay or send them back”, Mr. McLoughlin said.

He said that the cheque for £39,983 in favour of the plaintiff came in on Friday, the 6th December, 1985. Two other cheques came in on the same day (or on the previous day) - one for about £17,000 and one for about £3,000. As the account could not meet them all, they were held over until the following Monday. Two cheques which had come in on Thursday were held over and paid on the Friday.

The witness then said (contrary to his earlier evidence) that the cheques held over to Monday were four in number - for the following amounts - £39,983; £37,642; £3,956; £340. A decision was taken to pay the three smaller amounts and to return the largest cheque with two separate indorsements. He said that the indorsement “Refer to Drawer- Present Again” should have conveyed to the plaintiff that there were insufficient funds in the account to meet the cheque. By the time the cheque was again presented for payment around the 12th or 13th December, a flood of cheques had come in; funds were still insufficient; the words “Present Again” were struck out and the cheque was returned marked “Refer to Drawer Alteration req’s drawer’s conf.” He explained that the last part of the message referred to the fact that one of the words on the cheque, being the word “nine”, was written in block or printed letters whereas the other words were in ordinary script.

Mr. Anderson, who was assistant manager at the time, said that the cheque for £39,983 came in on the morning of Friday the 6th December, and if paid at that time would have put the account £9,000 beyond the permitted overdraft limit of £40,000. A decision was taken to pay the two smaller cheques, in accordance with normal banking practice.

A number of matters arise for consideration in relation to the issue of liability in the case. In the first place I have to consider whether there was any justification for returning the cheque uncashed on the basis that it contained an alteration which could reasonably be said to have required the drawer’s confirmation before it would be safe for the drawer’s bank to cash it.

In my opinion there was no justification for returning the cheque uncashed on this basis. The word “nine” is, in fact, written in block letters and the other words in ordinary script, but it has all the appearance of having been written at the same time, and with the same writing instrument, and by the same hand as all the rest of the writing on the cheque.

Furthermore, evidence was given by John Pearson, a farmer who dealt with Tansey Farms Ltd., and likewise by Liam McMahon, of Roscommon Co-Op. Marts Ltd., who also had dealings with that company, each of whom had received cheques from the company in which the same word, “nine” had been written in block letters with the remaining words in ordinary script, on earlier dates in 1985, and which had been cleared by the defendant without question, on being presented for payment.

I have come to the conclusion, on the evidence in the case, that the query raised by the defendant about an alteration requiring drawer’s confirmation was merely a device invented to extricate the defendant from an awkward situation where more cheques were coming in for payment than the account could meet yet they were unwilling to formally dishonour their customer’s cheques because of their belief, (based on previous experience) that they were likely to be put in funds if more time 

I believe that Tansey Farms Ltd. had been allowed to operate their account in a rather flexible manner for a considerable period prior to the final collapse of the company but there was always a danger that the latitude given by the bank might ultimately result in prejudice to the creditors of the company.

I do not accept the proposition put forward by the bank witnesses that the words indorsed on the cheque when it was first returned should have conveyed to the plaintiff two different messages - that there were insufficient funds in the account to meet the cheque, and also that the writing on the cheque required confirmation by the drawer.

I am of opinion that the words written in when returning the cheque unpaid were calculated to, and did, lull the payee into a false sense of security and led the plaintiff to believe that payment was only being withheld for some technical reason having to do with the manner in which the cheque had been written. If this were, in fact, a cause of concern to the bank they could have cleared it up immediately by means of a simple one-minute telephone call to their own customer.

While a bank is generally considered not to owe any duty to someone who is not its customer when a cheque is presented for payment, I think this general rule must be subject to qualification if the bank deliberately embarks on a course of conduct for its own purposes which is calculated to deceive the payee of the cheque in a manner which may result in financial loss to such payee, and when there is no lawful justification for such action on the part of the bank.

The general rule that a paying bank owes no duty to the payee of a cheque was re-stated by the Supreme Court in the case of Dublin Port and Docks Board v. Bank of Ireland [1976] I.R. 118. Kenny J. said (at page 141 of the report):-

“With the exception of claims arising under s. 74 of the Bills of Exchange Act, 1882, or on specially crossed cheques (s. 79, sub-s. 2 of that Act) or on cheques marked good by the paying bank, the general principle is that a payee named in a cheque has no right of action against the bank on which the cheque is drawn if the cheque is dishonoured: Hart’s Law of Banking, 4th ed., page 340.”

The Court was there concerned with the obligation of the bank on which the cheque was drawn to make payment on foot of the cheque and as to the order in which cheques were to be paid when the total number presented for payment exceeded the funds available to meet them.

A different problem arises for resolution in the present case where the claim is based, not on the failure of the defendant to pay on foot of the cheque when presented, but rather on the message communicated by the defendant to the plaintiff’s bank as the presenting bank, and thereby to the plaintiff also, when declining to make payment on foot of the cheque. The plaintiff claims that this message giving the alleged reason why the cheque was then being dishonoured, amounted to a negligent misrepresentation of the true situation and induced the plaintiff to act to its detriment or to forbear from taking steps for its own protection which it would have taken had the true position been made known.

A banker is bound to pay cheques drawn on him by a customer in legal form provided he has in his hands at the time sufficient and available funds for the purpose, or provided the cheques arc within the limits of an agreed overdraft. He must either pay cheques or refuse payment at once; a request to re-present amounts to dishonour. (Halsbury, Laws of England, 4th ed., Vol. 2, para. 163; Bank of England v. Vagliano Bros, [1891] A.C. 107).

The situations in which liability in damages can arise in respect of negligent misrepresentation or otherwise in respect of negligent misstatement have been considered in a number of cases in recent decades, both here and in the United Kingdom.

In Bank of Ireland v. Smith [1966] I.R. 646, Mr. Justice Kenny, then sitting as a High Court Judge, was dealing with a situation where the vendors in a court sale acting through auctioneers as agents, published an advertisement for the lands to be sold which was erroneous in a material respect in the description given of the property. The learned judge held that the advertisement was a representation which was incorrect, although made innocently and honestly.

In these circumstances he held that it would be against conscience that the vendor in a court sale should not be bound by a representation made by his agent in connection with that sale, and further held that the purchaser was entitled to recover damages for breach of warranty against the vendors.

Mr. Justice Kenny also considered the alternative claim put forward that an auctioneer acting for a vendor should anticipate that any statements made by him about the property will be relied on by the purchaser and that he, therefore, owes a duty of care to the purchaser and is liable in damages to him if the statement was incorrect and was made carelessly. As he had already concluded that the auctioneers’ statement was made honestly and innocently and without negligence on their part, this part of his judgment must, in my opinion, be regarded as obiter dicta.

He said, at page 660:-

“In my opinion, the decision in Hedley Byrne & Co. Ltd. v Heller & Partners Ltd. [1964] A.C. 465 does not give any support to this startling proposition. It decides that, if a person seeks information from another in circumstances in which a reasonable man would know that his judgment is being relied on, the person giving the information must use reasonable care to ensure that his answer is correct, and if he does not do so, he is liable in damages: but the relationship between the person seeking the information and the person giving it, if not fiduciary or arising out of a contract for consideration, must be, to use the words of Lord Devlin, ‘equivalent to contract’ before any liability can arise … that is, where there is an assumption of responsibility in circumstances in which, but for the absence of consideration, there would be a contract.”

In Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. 465, referred to by Mr. Justice Kenny, the scope of liability for negligent misstatement is however, stated in a more ample manner in the speech of Lord Reid than in the passage taken from the speech of Lord Devlin. Lord Reid stated the position as follows, at page 483:-

“It seems to me that there is good sense behind our present law that in general an innocent but negligent misrepresentation gives no cause of action. There must be something more than the mere misstatement. I therefore turn to the authorities to see what more is required. The most natural requirement would be that expressly or by implication from the circumstances the speaker or writer has undertaken some responsibility, and that appears to me not to conflict with any authority which is binding on this House. Where there is a contract there is no difficulty as regards the contracting parties: the question is whether there is a warranty … Then there are cases where a person does not merely make a statement but performs a gratuitous service. I do not intend to examine the cases about that, but at least they show that in some cases that person owes a duty of care apart from any contract, and to that extent they pave the way to holding that there can be a duty of care in making a statement of fact or opinion which is independent of contract.”

Lord Reid then refers to a number of decided cases concluding with Lord Haldane’s judgment in Robinson v. National Bank of Scotland [1916] S.C. (H.L.) 154, and continues:

“This passage makes it clear that Lord Haldane did not think that a duty to take care must be limited to cases of fiduciary relationship in the narrow sense of relationships which had been recognised by the court of Chancery as being of a fiduciary character. He speaks of other special relationships, and I can see no logical stopping place short of all those relationships where it is plain that the party seeking information or advice was trusting the other to exercise such a degree of care as the circumstances required, where it was reasonable for him to do that, and where the other gave the information or advice when he knew or ought to have known that the inquirer was relying on him. I say ‘ought to have known’ because in questions of negligence we now apply the objective standard of what the reasonable man would have done.

A reasonable man, knowing that he was being trusted or that his skill and judgment were being relied on, would, I think, have three courses open to him. He could keep silent or decline to give the information or advice sought; or he could give an answer with a clear qualification that he accepted no responsibility for it or that it was given without that reflection or inquiry which a careful answer would require; or he could simply answer without any such qualification. If he chooses to adopt the last course he must, I think, be held to have accepted some responsibility for his answer being given carefully, or to have accepted a relationship with the inquirer which requires him to exercise such care as the circumstances require.”

See also what was said by Lord Morris of Borth-y-Gest, with whose statement of the law Lord Hodson expressed agreement.

The question then arises in every case where negligent misrepresentation or negligent misstatement is put forward as the cause of action, whether there existed between the parties some relationship based on contract, express or implied, or some other special relationship of the type referred to by Lord Reid which can give rise to liability in damages for economic loss attributable to the fact that the plaintiff acted on the faith of the representation made by the defendant.

Significant developments in the law of negligence have taken place since Hedley Byrne & Co. Lid. v Heller & Partners Ltd. [1964] A.C. 465 was decided, and since its effect was interpreted by Mr. Justice Kenny in Bank of Ireland v Smith [1966] T.R. 646, not least in the present area of negligent misrepresentation and negligent misstatement, as noted in McMahon & Binchy, “Irish Law of Torts” and the casebook forming a companion volume to that excellent textbook.

If the vendors in Bank of Ireland v Smith [1966] I.R. 646 had left the jurisdiction for an unknown destination taking with them the entire proceeds of sale, and it was found that the auctioneers had indeed been guilty of negligence in the particulars they gave of the property to be sold, I do not think the court would any longer regard it as a “startling proposition” if the hapless purchaser sought to recover some of his loss as against the negligent auctioneers.

Turning to the present case, when the plaintiff through its own bank presented the cheque drawn on the Tansey Farms Ltd. account for payment to the defendant, the defendant had the ordinary banker’s obligation to pay the cheque forthwith if having at the, time sufficient and available funds for the purpose or provided the cheque was within the limits of the agreed overdraft. Otherwise there was an obligation on the defendant to refuse payment at once. If this had been done in an unqualified manner it would have had the effect of immediately alerting the plaintiff to the inability of the company which had drawn the cheque to meet its liabilities and the plaintiff would have been put in the position of having to take whatever steps were open to it to secure payment and to take any other measures that could be taken for its own protection. No liability would have attached to the defendant in such circumstances.

The defendant elected to go further, however, and took it upon itself to communicate to the plaintiff its reason for refusing to honour the cheque at that point in time. In doing this I consider that it assumed an obligation to act honestly and carefully and not to deceive the plaintiff by putting forward a reason which was not the true reason, but was a spurious reason (as alleged in the statement of claim in the case, and as supported by the evidence adduced on behalf of the plaintiff).

This, in my opinion, brings the case within the four walls of the type of situation envisaged in the last paragraphs quoted from the speech of Lord Reid in Hedley Byrne & Co. Ltd. v. Keller & Partners Ltd. [1964] AC. 465 (assuming it is still necessary to do so), where his lordship deals with the three options open to a reasonable man volunteering information or advice to another person in the knowledge that his skill and judgment were being relied on and that the other person was trusting him to exercise such a degree of care as the circumstances required.

If answering without qualification and without disclaimer of responsibility in such circumstances “he must ... be held to have accepted some responsibility for his answer being given carefully, or to have accepted a relationship with the inquirer which requires him to exercise such care as the circumstances require.”

I hold that the defendant was in breach of the obligation which arose in the particular circumstances of this case to reply in a careful and honest manner once it took the course of indicating its reason for refusing payment on foot of the cheque, and that the plaintiff was thereby caused economic loss, and I decide the issue of liability in favour of the plaintiff and against the defendant.

This leaves for consideration the issue of damages, which is one fraught with difficulty. What would have been the outcome had the defendant “come clean” and sent back the cheque immediately with an indorsement conveying clearly that there were no funds to meet it?

Mr. McMahon of Tansey Farms Ltd. said that at times the bank had allowed him to overdraw up as far as £73,000 depending on how many stock he had on hand from time to time and that he had a lot on hand in November and December. He continued: “If Mr. Potterton’s cheque had been ‘bounced’ on the 10th or 11th December, I am sure he would make me fix up before he accepted another cheque... I would say some of his cattle were still there.”

Mr. Potterton said in evidence that “if there were no funds I would have asked McMahon for the cattle back - they were still ours until the cheque was cleared ... We would have followed up the second cheque a lot quicker had we known this would not be met.”

The bank accounts for Tansey Farms Ltd. which were produced in evidence show that substantial credits came in up to the 17th December, 1985, and equally substantial payments were made out of the account up to and including that date, with the account ultimately being overdrawn up to a figure of £45,314.59 as of the 17th January, 1986. It was overdrawn up to a figure of £65,114.54 as of the 3rd December, 1985. Mr. McMahon said that when he was in a position to make lodgments, people came in and got paid.

This conveys to me that when individual creditors took an aggressive line with the debtor there were occasions when they would accompany Mr. McMahon to the bank when he was making a lodgment and make sure they got payment there and then, thus getting in ahead of the remaining body of creditors who were left without any remedy when the company finally went to the wall.

I am of opinion that had the critical state of Mr. McMahon’s affairs been brought home to the plaintiff as soon as might have been expected, had the defendant been frank and open in the way it dealt with the cheque when presented for payment, the plaintiff would have taken action immediately and applied the maximum pressure to Mr. McMahon to pay up, either by apportioning some of whatever moneys were still available to him to their claim, and/or by returning any of their stock which still remained in his possession.

By these means, while it is highly unlikely that the plaintiff would ever have recovered the full amount of their claim, I think it is likely that something substantial would in all probability have been salvaged from the wreck of Tansey Farms Ltd., and I assess that figure at £20,000. I am also having regard to what I regard as a probability that had the bank not availed of the device they made use of in order to postpone the day of reckoning in relation to the cheque drawn in favour of the plaintiff, they would have had second thoughts about paying out in full four other cheques presented contemporaneously and totalling in excess of £40,000 while leaving the plaintiff high and dry with no payment whatever.

On this basis I find the defendant is liable in negligence and breach of duty to the plaintiff on foot of the plaintiff’s claim in these proceedings with no finding of contributory negligence against the plaintiff and I assess damages in favour of the plaintiff in the aforementioned sum of £20,000. I also award the plaintiff interest on that sum pursuant to the provisions of the Courts Act, 1981, but as the plaintiff has not been very diligent in prosecuting its claim, I will direct that interest should run from the 21st October, 1989, being the date of expiry of the notice of intention to proceed dated the 21st September, 1989.