High Court of Ireland Decisions

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Cite as: [1997] IEHC 66, [1998] 2 ILRM 451, [1999] 1 IR 220

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Bank of Ireland v. E.B.S. Building Society [1997] IEHC 66; [1999] 1 IR 220; [1998] 2 ILRM 451 (19th April, 1997)

THE HIGH COURT

1996 No. 167S

BETWEEN

THE GOVERNOR AND COMPANY OF

THE BANK OF IRELAND

PLAINTIFF

AND

E.B.S.. BUILDING SOCIETY

DEFENDANT

Judgment of Mr. Justice Morris delivered the 19th day of April, 1997 .

1. This matter comes before the Court on a Motion brought by the Plaintiff seeking liberty to enter final judgment against the Defendant on the amount claimed in the Summary Summons, being £183,559 plus interest.

2. The facts, insofar as they are relevant to the determination of the issues now before the Court, are as follows.

3. The Plaintiff, being the Bank of Ireland, have a branch office at Castle Street, Tralee, County Kerry. In January of 1996, a company, Ballinorig Enterprises Limited, operated a current account in the Plaintiff's branch in Tralee. On the 18th January, 1996, this company made a lodgment to its account of £82,640.35 and included in this lodgment were four cheques drawn by the E.B.S. Building Society, the Defendant, on its account with Ulster Bank Limited, College Green, Dublin, totalling £81,155. These four cheques were made payable to the Plaintiff. These cheques had been purchased by Ballinorig Enterprises Limited for the purpose of making payment to the Bank of Ireland. The Plaintiff was in the habit of permitting Ballinorig Enterprises Limited to draw against uncleared effects and on receipt of these cheques the Plaintiff gave immediate value for these cheques and permitted a payment of a series of cheques drawn by Ballinorig Enterprises Limited on its account with the Plaintiff.

4. On the 19th January, 1996, a further five cheques drawn by the Defendant on its account at Ulster Bank Limited in favour of the Plaintiff were lodged by Ballinorig Enterprises for collection to the credit of its current account at the Plaintiff's branch office at Tralee, County Kerry. These cheques totalled in value the sum of £102,404. Again, the Plaintiff permitted Ballinorig Enterprises Limited to draw cheques on its own account against these cheques.

5. The said cheques were bought by and on behalf of Ballinorig Enterprises Limited from the Defendant for the purpose of making payments to the Plaintiff.

6. The first four cheques were duly presented by the Plaintiff for payment and were returned by the Defendant's bank on Tuesday the 23rd January, 1996 marked "payment countermanded".

7. On the 24th January, 1996 the second group of five cheques were presented for payment by the Plaintiff through the clearing and were returned by Ulster Bank Limited marked "payment countermanded".

8. Following the return of these cheques, representatives of the Plaintiff met with the representatives of Ballinorig Enterprises Limited and it transpired that for upwards of fourteen months, Ballinorig Enterprises Limited had been drawing cheques on its account at the Plaintiff's bank in Tralee in favour of the Defendant. These cheques were taken and in exchange, cheques drawn on the Ulster Bank Limited in favour of the Plaintiff were issued and, in short, it appeared from discussion with the Defendant that persons associated with Ballinorig Enterprises Limited had been involved in the kiting of cheques. This practice of kiting of cheques is a fraudulent procedure whereby the customer abuses a facility of being allowed to draw against uncleared effects to get money by operating a series of accounts in different banks and financial institutions. While these accounts appear to contain sufficient funds to allow payments, the funds are in fact represented by uncleared effects drawn on other accounts which also contain uncleared effects. The system takes advantage of the four day clearing cycle to set up a cycle of transactions unsupported by funds. The Plaintiff was not aware of these facts until the 23rd January, 1996.

9. They now claim as holders for value against the Defendant as drawers of the nine cheques totalling £183,559 plus interest.

10. In an application for a summary judgment brought pursuant to Order 37, it is open to the Defendant under Order 37 Rule 3 to "show cause against such Motion" by Affidavit and I take the following to be a statement of the law applicable where, as in this case, the Defendant appears and disputes the Plaintiff's right to enter final judgment. In my view, the power given to allow the Plaintiff to enter final judgment is intended to be exercised only in those cases in which there is clearly no defence (see Tompson -v- Marshall , 28 W.R. 220). While a mere Affidavit that the Defendant has a good defence is not sufficient to entitle him to defend, nevertheless the Defendant should be allowed unconditionally to defend where he states what his defence is and gives reasons for thinking that it is substantial and will be sustained in evidence.

11. Counsel for the Defendant has raised a number of potential defences, however, I find it necessary to refer to only three of his submissions:-

(a) Mr. Allen submits that the manner in which the transaction is presented to the Court shows only what he describes as an outer layer of a series of inter-connected transactions and, as he puts it, the Court should "peel back" these series of layers in order to ascertain the true nature of the transactions which existed between the Plaintiff and Ballinorig Enterprises Limited. He submits that this examination would disclose that there was no consideration given for the nine cheques referred to in these proceedings and that accordingly the Plaintiff was not, as it alleges, a holder for value.

(b) Counsel for the Defendant submits that the persons associated with and transacting business through the medium of Ballinorig Enterprises Limited obtained numbers of cheques and in particular the nine cheques referred to in these proceedings on foot of fraudulent transactions and for the purpose of carrying out this kiting exercise. It is submitted by Counsel that it would be improper for a Court to close its eyes to this fact when considering the Plaintiff's case and he submits that the fraud perpetrated by the third parties on the Defendant, taints the transaction insofar as these same third parties engaged in transactions with the Plaintiff and defeats the Plaintiff's claim based upon the Bills of Exchange Act, 1882.

(c) Counsel for the Defendant refers to a fact deposed to in the Replying Affidavit of Mr. Green and referred to at paragraph 5 of the Supplemental Affidavit of Mr. Timlin in which it transpired that £2,000 per month is being paid by Ballinorig Enterprises Limited to the Plaintiff of which at least £900 per month is being paid against a current suspense account created as a consequence of this transaction. Counsel for the Defendant submits that the agreement reached between the Plaintiff and Ballinorig Enterprises Limited whereby a monthly payment is paid into the Plaintiff defeats the Plaintiff's claim against the Defendant under the Bills of Exchange Act, 1882.

12. Having considered the comprehensive submissions made by Counsel for each party, I am satisfied that the Defendant has shown cause against the Plaintiff's Motion and I direct that the matter be sent for plenary hearing.

13. I will hear Counsel with regard to the necessity for pleadings, discovery or any consequential Orders.