Supreme Court of Ireland Decisions

The Supreme Court

Henchy J.

Kenny J.

Griffin J.

Parke J

O'Higgins CJ.

Between:

Dublin Port and Docks Board,

Plaintiffs

v

The Governor and Company of the Bank of Ireland,

Defendants

1973 No. 105P [22nd July, 1976]

Status: Reported at [1976] IR 118

[Judgments delivered by Henchy J. and Kenny J.; Parke J. and O'Higgins C.J. agreed with both; Griffin J. agreeing with Henchy J.]

Henchy J.

The circumstances that led to this litigation were unusual and abnormal. At the beginning of March, 1970, the services provided by the Irish banks began to be disrupted. The cause was a go-slow campaign by the bank officials in support of a claim against the banks which was being made by the officials' trade union. The immediate result of this disruption of services was that within the banking system the processing of bank transactions fell into arrear. Whereas in normal conditions the period during which a presented cheque would be cleared and debited against the drawer's account would be at most only a few days, by the end of April, 1970, some two million bank transactions (including some cheques drawn before the start of the go-slow campaign) had not been processed. It would have taken a month's work to clear those arrears, which had accumulated both in the various branches of the banks and in the central clearing house which the banks use for clearing each other's cheques.

A stop was put to this progressively-deteriorating situation on the 30th April, 1970, when all the banks shut down. There was now a total break in banking services. This continued until the dispute was settled, whereupon the banks restarted business on the 21st October, 1970--but only behind closed doors. It was decided not to admit the public until the arrears had been dealt with.

The normal method of clearing cheques through the central clearing house in Dublin was then adapted to cope with the mountainous arrears that had accumulated. It was decided by the banks, as a means of dealing with the backlog of unprocessed cheques. and in order to bring customers' accounts up to date in readiness for the reopening of the banks to the public, that the 1st May, 1970, would he treated as the date for the posting in customers' accounts of all pending items. The 1st May was chosen because it would have been the next working day if the banks had not closed on the 30th April. This method was chosen as being the fairest and most expeditious method of dealing with the arrears. It is in the context of that decision and the implementation of it that the present dispute arose.

Palgrave Murphy Ltd., a shipping company that regularly used the facilities of Dublin port, and the plaintiffs, who are the Dublin port authority, both happened to be customers of the defendant bank. The account of Palgrave Murphy Ltd. was in the O'Connell Street (Dublin) branch, and the plaintiffs' account was in the head office in College Green, Dublin. On the 26th March, 1970, Palgrave Murphy drew a cheque for £18,129 18s. 7d. on their O'Connell Street account in favour of the plaintiffs. This cheque was received by the plaintiffs on the 1st April. 1970, and lodged by them to their account in College Green on the same day. The Palgrave Murphy account was then adequate to meet the cheque. So, if banking conditions had been normal, the cheque would have passed through the central clearing house and the amount of it would have been passed to the credit of the plaintiffs' account within a couple of days. On the 2nd April, 1970, this cheque passed into the central clearing house where it became enmeshed in the arrears that were accumulating there because of the go-slow campaign in the banks; it did not emerge from the central clearing house until after the shut-down of the banks had ended on the 21st October, 1970.

Blame for this delay cannot be attributed to the defendant bank. It was simply a by-product of the dispute between the banks and their employees. But the inability to have the cheque promptly processed through the central clearing house not alone prevented the cheque from being honoured at the beginning of April, 1970, when the Palgrave Murphy account was adequate to meet it, but the question of its being honoured was necessarily postponed until November, 1970, at which stage the Palgrave Murphy account was inadequate to meet all the outstanding cheques that had been drawn on it. By then, Palgrave Murphy Ltd. had fallen into a state of insolvency which has since resulted in the liquidation of that company.

The arrears in the O'Connell Street branch of the defendant bank resulting from the go-slow and from the shut-down were not cleared until the 14th November, 1970. On that date it was discovered that the Palgrave Murphy account, as now fully written up for the 1st May, 1970 (in effect, as fully written up to date), showed that it was overdrawn to the extent of £93,983. The company had no overdraft facilities; yet cheques totalling £108,985 had been drawn on its O'Connell Street account. The officials in the O'Connell Street branch decided to dishonour cheques sufficient (approximately) in aggregate value to wipe out that overdraft. The cheques to be dishonoured were chosen by lot. All the cheques were placed face downwards and individual cheques were then picked out at random for payment, and their amounts totted up. In that way, 17 cheques with an aggregate value of £89,801 were chosen to be returned unpaid. Amongst those cheques was the cheque for £18,129 18s. 7d. which is the subject matter of the present proceedings.

Put shortly, the plaintiffs' claim is for damages for breach of an implied term in the contract that existed between them and the defendant bank; the implied term being to the effect that the defendant bank would show reasonable skill, care and diligence in the exercise of its functions as a collecting bank. Counsel for the plaintiffs argue that the defendant bank defaulted in that duty in coming by a process of lottery to a decision not to pay the cheque for £18,129 18s. 7d.; that it should have decided on the merits whether to pay that cheque; and that, if it had exercised its discretion on the question of payment, it could not but have honoured that cheque which was drawn as far back as the 26th March, 1970, on an account which was then sufficiently in credit to meet it.

I do not understand counsel for the defendant bank to seek to controvert the submission that there was a contractual duty owed by the defendant bank to the plaintiffs to show reasonable skill, care and diligence in carrying out its duties as a collecting bank towards them as a customer. What counsel do say, however, is that, in deciding not to honour this cheque, the defendant bank was not acting as a collecting bank for the plaintiffs but was acting as a paying bank for the drawer of the cheque (Palgrave Murphy Ltd.); counsel submit that the only duty the defendant bank owed when thus acting as a paying bank was a duty to Palgrave Murphy Ltd. Counsel repudiate the suggestion that any duty was owed by the defendant bank to the plaintiffs when deciding whether to pay that cheque; they submit that the plaintiffs were simply the payees of the cheque and that the coincidence of being customers in another branch of the bank did not prefer them into a contractual relationship in respect of the decision to dishonour the cheque.

It. is important not to allow the exaggerated scale of banking activity after the end of the shut-down (artificially based on the 1st May. 1970, as the notional banking day to which all outstanding transactions were to be referred) to deflect attention from the essential nature of the function of each branch in dealing with cheques drawn by the customers of the branch on their accounts in the branch, according as those cheques arrived in the branch from the central clearing house.

The duty of the defendants, acting through their O'Connell Street branch, was to honour cheques drawn on that branch provided that the presented cheques were in legal form and provided that the customer's account was in sufficient and available credit to meet the amount of the cheques; and, if more cheques had been drawn by the customer than his account was able to meet, to use a discretion, having regard to the interests of the customer, as to which cheques should be paid. This function was essentially a paying function which was part of the contractual relationship between the defendants and the customer who had drawn the cheques.

The submission made on behalf of the plaintiffs means that, in regard to the decision as to payment of this cheque, it should be held that there was superimposed on the contractual relationship between the defendants as paying bankers and Palgrave Murphy Ltd. a further contractual relationship between the defendants and the plaintiffs arising from the fact that, as payees of the cheque, the plaintiffs happened to be customers of the defendants—albeit in another branch. Such contractual relationship, it is submitted, required the defendants, acting as a collecting bank, to exercise reasonable skill, care and diligence towards the plaintiffs; and it is said that, if the defendants had so conducted themselves, this cheque would have been paid.

In my judgment the contractual relationship for which the plaintiffs contended did not exist. Under our law and our system of banking, when cheques drawn by a customer on a particular branch arrive in that branch from the central clearing house, the bank, in deciding whether to pay those cheques, acts entirely as a paying bank and, apart from statute, is bound only by the contract between it and the drawer of the cheque. I find no authority-judicial, text-book or otherwise-to support the proposition that in such circumstances the bank has a contractual duty to a payee of one of those cheques who happens to be a customer in another branch of the bank. The existence of such a contractual duty would run counter to both legal principle and sound banking practice. It would confuse and bring into possible conflict the paying and collecting functions of the bank, it would make it impossible on occasion for the bank to act with the required propriety to both drawer and payee of a cheque, and also on occasion it would result in the unfair preferment of a payee who happened to be a customer in another branch of the bank over a payee who happened not to be a customer. In terms of practical operation, the number of branches a bank may have (the defendant bank has 75 in Dublin alone) would make it impossible to process cheques received from the central clearing house by ascertaining the identity and considering the interests of customers in other branches who happen to be payees of those cheques. For instance, if the cheque in question here had been drawn in favour of (say) "P. Murphy" rather than the plaintiffs, it is difficult to see how the officials in the O'Connell Street branch of the defendant bank could have ascertained if that "P. Murphy" had an account in another branch of the bank. And even if they ascertained that he had, neither legal principle nor sound and fair banking practice would indicate that he should be accorded a special or preferential treatment, when deciding whether the cheque should be paid, on the ground that his position as a customer of the bank gave him a contractual standing not available to payees of cheques who happened not to be customers of the bank.

The trial judge found in favour of the plaintiffs on the ground that the defendant bank was in breach of its contractual duty to the plaintiffs as paying banker. However, counsel for the plaintiffs did not seek to uphold the conclusion thereby implied that, in deciding whether or not to pay this cheque, the bank was acting as paying banker vis-à-vis the plaintiffs. Instead, they rest their case entirely on the proposition that, in deciding not to pay the cheque, the defendant bank was acting as a collecting bank vis-à-vis the plaintiffs and that, in that capacity, it owed a contractual duty to the plaintiffs. For the reasons I have given, I must reject that submission.

In my opinion, the defendant bank was not then acting as a collecting bank for the plaintiffs so the contractual duty which was relied on did not arise. I consider the defendants to have been acting solely as paying bankers for the drawer of the cheques that were being considered for payment.

The reason given in evidence in the High Court on behalf of the defendants for the decision to determine by random choice which cheques would be paid was that:—"There were a great number of cheques to be dealt with and adjudicated on. Cheques of a certain value were to be returned. There was no basis on which a decision could be made in favour of one cheque as against another. They were all presented under one date and the selection for return was on a long-term basis, to the extent that it was intended that the banks should show no preference to anybody in the return of the cheques, no favour in the case of their own particular customers and no favour in respect of customers whose cheques had been collected by any other bank or for any other reason--a random selection which was intended to be as equitable as possible under the circumstances."

The present case does not provide scope for an adjudication as to whether that method of deciding which cheques would or would not be paid was a compliance with the contractual obligations owed by the defendants, as a paying bank, to Palgrave Murphy Ltd. I must reserve my decision on the point as Palgrave Murphy Ltd., who alone could raise it, are not a party to the present proceedings. However, I think it right to say that, as at present advised, I am not satisfied that the defendants were entitled to dishonour cheques drawn on them, when the drawer's account was adequate and available to meet the cheques, by using a random method of dishonour which did not have regard to the interests of the drawer.

For the purpose of this case it is sufficient to hold that the absence of a contractual duty owed to the plaintiffs, as payees of the cheque, by the defendants in the exercise of their functions as a paying bank in dealing with the cheques defeats the plaintiffs' claim for damages for negligence on the part of the defendants in carrying out their contractual obligations. I would allow this appeal and dismiss the plaintiffs' claim.

The Supreme Court

Henchy J.

Kenny J.

Griffin J.

Parke J

O'Higgins CJ.

Between:

Dublin Port and Docks Board,

Plaintiffs

v

The Governor and Company of the Bank of Ireland,

Defendants

1973 No. 105P [22nd July, 1976]

Status: Reported at [1976] IR 118

Kenny J.

As the facts in this action have been fully stated in the judgments of Mr. Justice Henchy and of the trial judge, I can pass to the questions of principle involved.

Counsel for the plaintiffs argued that the College Green and O'Connell Street branches of the defendant bank should not be treated as distinct trading bodies and that, therefore, the case should not be approached by considering the obligations of a collecting bank and a paying bank. They said that as the cheque for £18,129 18s. 7d. had been given to the College Green branch for collection from the O'Connell Street branch and that as both were branches of the defendants, they should be treated as one bank. When branch banking began in the first half of the last century, the Courts had to frame rules to deal with the problems which it presented.

The general rule is that branch banks are agents of one principal firm: but it is settled law that when the conduct of the business of banking requires that they should be treated as distinct trading bodies the law will regard them in this way: Rex v. Lovitt [1912] AC 212 Thus, when a customer of one branch presented a cheque and demanded cash at another branch where the officials knew nothing of the state of his account, the two branches were treated as distinct trading bodies and the branch to which the cheque was presented for payment was held entitled to refuse to honour it: Woodland v. Fear (1857) 7 E. &B. 519 Under the new clearing arrangement, cheques of the same bank lodged at one branch r payment at. another are not dealt with within the bank but are sent to the general clearing house (used by all the Associated Banks) for presentation at the other branch. This seems to me to show that the necessities of banking require that the two branches should be treated as separate trading bodies. In Capital and Counties Bank v. Gordon [1903] A.C. 240 the House of Lords affirmed the decision of the Court of Appeal that, when a cheque of one branch of a bank is presented for collection to another branch, the two branches are to be treated as separate trading entities. Therefore, the necessities of banking and a decision of high authority indicate that the two branches in this case should be treated as separate trading bodies. It was argued that the presence of the regional manager of the defendants at the O'Connell Street branch at the meeting when it was decided to hold the lottery showed that the two branches should not be treated as distinct. The presence of the regional manager did not affect the separate identities of the two branches.

The decision of the High Court in Bank of Ireland v. Hussey [1965] I.R. 46 was not cited by either side, and so I do not wish to express any final view as to whether it was correct. In that case McLoughlin J. decided that when one branch of a bank gave cash for a number of cheques drawn on another branch, the two branches were not to be treated as distinct. It may be that the decision can be justified on the ground that the branch which gave cash for the cheques was not collecting them but was cashing them and so a different rule applied: Great Western Railway Co. v. London and County Banking Co. [1901] AC 414. If it means that when a customer gives a cheque to one branch of a bank for collection at another the two branches are to be treated as agents of a common principal, it was wrongly decided and should not be followed.

In my view the correct approach to this case is not to treat the two branches as agents of a common principal but to consider separately whether the O'Connell Street branch (as a paying banker) or the College Green branch (as a collecting banker) were guilty of any breach of contract or of duty to the plaintiffs.

With the exceptions 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., p. 340. Counsel for the plaintiffs argued that the decision in Sednaoni Zarifia Nakes & Co. Ltd. v. The Anglo-Austrian Bank (1909. 2 Legal Decisions affecting Bankers, 208) was authority for the view that a payee of a cheque can successfully sue the bank on which it was drawn; but the cheques in that case were drawn by the plaintiffs on the defendants and so the case does not support the view for which it was cited as an authority. It is an illustration of the rule that a bank is bound to pay its customers' cheques when there are funds to the credit of his account sufficient to meet the cheque.

The trial judge decided that the defendants were liable as paying bankers because they should have foreseen that their refusal to pay the cheque would cause the plaintiffs loss. While foreseeability that one's action or inaction may cause personal injury or damage to property imposes liability, it does not create any liability for foreseen economic loss unless there is a special relationship between the parties as there was in Hedley Byrne & Co. Ltd. v. I-feller & Partners Ltd [1964] AC 465. Commercial life would become impossible if foreseeability that one's action or inaction would cause economic loss to another were to create liability: Weller & Co. v. Foot and Mouth Disease Research Institute [1966] 1 Q.B. 569. If this argument is pressed to its logical conclusion, the defendants must have foreseen that their decision to dishonour some of the cheques would cause loss to each payee of each cheque dishonoured, and so they would have been bound to pay each cheque presented although there were not funds to meet it. This, with respect, is not the law.

Then it was said that the usual banking practice is that when there is an amount to credit of an account and cheques exceeding this amount are presented, the manager exercises his discretion as to which he will pay. In this case, it was said, the manager had abrogated his discretion and had left the decision as to which cheques he would pay to the chances of a lottery. But if there was no duty to pay owed to the payees, they cannot complain about the way in which the decision to pay was made.

In my opinion the defendants, as paying bankers, are not liable to the plaintiffs for the non-payment of the cheque given by Palgrave Murphy Ltd. and lodged in the College Green branch.

The argument that the defendants were liable as collecting bankers was presented in two forms. One was that the regional manager of the defendants took part in the decision to hold the lottery and that, as such manager, it was his duty to ensure that cheques payable to customers of the defendants (as the plaintiffs were) and lodged and payable at branches under his area of control were paid in priority to other cheques, and that his failure to do this was a breach of contract. The duties of a collecting banker are to present cheques drawn upon another branch or on another bank for payment as promptly as possible and to credit the person who has lodged the cheque with the proceeds when they are received. In my opinion the regional manager was acting as adviser to the paying bank when the decision to hold the lottery was taken. Although he was also regional manager of the collecting bank, he owed no duty to the plaintiffs to ensure that their cheque was paid by the paying bank of which he was regional manager. This argument is another form of the contention that the two branches are not to be treated as separate entities and I have already rejected this.

The other form of the argument was that, when the agreement between all the Associated Banks as to how they would treat cheques drawn before 1st May was being made, the defendants as collecting bankers should have stipulated that cheques lodged by their customers with them for collection at the branch at which they were lodged or at their other branches would be paid in priority to other cheques. I do not think that the defendants were under any obligation to insist upon such a stipulation. Their obligation as collecting bankers was to present the cheques lodged with them for collection: it did not extend to taking steps to ensure that the cheques lodged with them would be paid. If the defendants were under such an obligation, each of the other Associated Banks would have been under a similar duty and the consequences of this would be so unforeseeable that no prudent banker would have agreed to such a stipulation.

The defendants, as collecting bankers, are not liable to the plaintiffs and, in my opinion, the order of the High Court should be reversed and the action dismissed.

The Supreme Court

Henchy J.

Kenny J.

Griffin J.

Parke J

O'Higgins CJ.

Between:

Dublin Port and Docks Board,

Plaintiffs

v

The Governor and Company of the Bank of Ireland,

Defendants

1973 No. 105P [22nd July, 1976]

Status: Reported at [1976] IR 118

Griffin J.

I agree with the judgment delivered by Mr. Justice Henchy. However, I should like to add some words of my own. In the extraordinary circumstances that existed in 1970, when it was necessary to deal with over two million cheques which had built up in the banks, the Associated Banks agreed to adopt what appeared to them to be the fairest and most equitable method of dealing with these cheques, i.e., by treating all cheques as if they were paid on the 1st May, 1970. This ensured that all cheques, in what counsel called "the banking system." were treated as if they were presented for payment on that day. One of the main reasons for this decision was that, while some branches were reasonably up-to-date, there were inordinate delays in some of the larger branches and it was considered that it would be somewhat unfair to customers of these branches if the date of presentment was taken to be the date of payment.

Counsel for the plaintiffs submit that it is established law that a banker should pay his customers' cheques in the order of their presentment and that this follows from the nature of the banker's obligation to honour cheques. They rely on statements to that effect to be found in Hart on Banking (4th ed., p. 424) and in Paget on Banking (8th ed., p. 179). and on Sednaoni Zariffa Nakes & Co. Ltd. v. The Anglo-Austrian Bank (The "Times" 26th April. 1909; and see the Journal of the Institute of Bankers, vol. XXX. p. 413) which is the case cited in Hart and in Paget in support of the statements. However, counsel for the defendants submit that there is no obligation on a bank to pay cheques presented in any specified order and that it is a matter for the manager of the paying bank to decide which cheque should be paid or not paid, subject to his taking into account the interest of his customer and any instructions from the customer as to the priority in which the unpaid cheques should be paid.

The case on which the plaintiffs rely is not an authority for the apparently wide proposition stated in Hart and in Paget. In the course of his judgment in that case, Pickford J. stated that "the ordinary rule was stated quite accurately by Sir John Paget in his book on Banking Law to be that a banker must honour his customers' cheques in the order in which they were presented." That case was an action by the customer of the bank against his own bank, and it is not authority for the proposition that the payee of a cheque is entitled to look to the paying bank to pay cheques in the order in which they were presented for payment. Although the point has not been fully argued, and while I reserve my decision on the point in case it should arise in an action the subject of an appeal to this Court, it seems to me that a banker should pay his customers' cheques in the order in which they were presented, subject to the interest of the customer being taken into account. The fact that the manager should take the interest of the customer into account was accepted by Mr. Fitzpatrick in evidence. He gave the example of a customer, being the owner of a public-house, whose cheque to a brewery would be paid in priority to other cheques where the customer had insufficient funds in his account to pay all outstanding cheques, as payment of this cheque would enable the customer to stay in business since it would be presumed that the brewer would cut off the customer's supplies if the brewer's cheque was dishonoured. The order in which cheques should be paid is, however, of no advantage to the plaintiffs in this case, as it is settled law that the payee of a cheque cannot enforce payment from the paying banker if he dishonours the cheque, and that a bank owes no duty of care to a payee.

In my view, the method adopted by the O'Connell Street branch for selecting the Palgrave Murphy cheques to be paid (i.e., by holding a lottery) was not the correct one either at law or by the usage and practice of bankers. From the evidence, it appears that 42 separate draws were made before a reasonably satisfactory result was obtained and that the plaintiffs were unfortunate in not having any luck in the draw, or at any rate in the last draw as no information was available on the result of the earlier draws. Indeed, if Palgrave Murphy Ltd. had not become wholly insolvent, and if their interests were to be taken into account by the manager of the paying bank, it seems likely that the plaintiffs would have been one of the first payees to be paid in order to keep Palgrave Murphy Ltd. in business.

However, as there was no privity of contract between the plaintiffs and the O'Connell Street branch, the fact that an incorrect method of selecting the cheques to be paid was used can be of no avail to the plaintiffs. I would allow the appeal and dismiss the plaintiffs' claim.

The Supreme Court

Henchy J.

Kenny J.

Griffin J.

Parke J

O'Higgins CJ.

Between:

Dublin Port and Docks Board,

Plaintiffs

v

The Governor and Company of the Bank of Ireland,

Defendants

1973 No. 105P [22nd July, 1976]

Status: Reported at [1976] IR 118

Parke J

I agree with the judgments already delivered. In particular, I wish to state my complete agreement with the views expressed by Mr. Justice Griffin as to the method adopted by the defendants in selecting which of the cheques drawn on the account of Palgrave Murphy Ltd. they were not prepared to honour.

I also agree with Mr. Justice Griffin as to the proper rule to be applied in selecting the order in which cheques should be paid where the account upon which they are drawn is not in sufficient funds to pay all cheques presented for payment.

The Supreme Court

Henchy J.

Kenny J.

Griffin J.

Parke J

O'Higgins CJ.

Between:

Dublin Port and Docks Board,

Plaintiffs

v

The Governor and Company of the Bank of Ireland,

Defendants

1973 No. 105P [22nd July, 1976]

Status: Reported at [1976] IR 118

O'Higgins CJ.

In my opinion the plaintiffs' claim in these proceedings depends for its success on there having been a contractual duty owed by the defendants to the plaintiffs as payees of the cheque in question. The judgments of Mr. Justice Henchy and Mr. Justice Kenny deal with this matter fully and I agree with these judgments. What issues would arise for determination and what rights and obligations would be involved if these proceedings were between the drawer of the cheque and the defendants are matters which do not arise for consideration and I express no opinion upon them.