9.1.

5 Statutory Protection of Paying Banker

- Bills of Exchange Act 1949 (BEA)
- When a customer of a bank issues an order instrument it can only be legally
transferred to a third party once the payee indorses the instrument. If the instrument is lost
and a thief forges the payee’s indorsement a banker who pays on the forged instrument
would be liable for breach of customer’s mandate.
- Section 60 BEA gives some limited protection.

(i) Section 60 BEA protects a paying banker on demand cheques against forged or
unauthorized indorsements so long as he pays
in good faith; and
in the ordinary course of business.

In Good Faith
- Section 95; a thing is deemed to be in good faith where it is done honestly whether it
is done negligently or not.
- Woods v Martins Bank [1959]; Salmon J: even if a person was grossly negligent but
he was honestly blundering and careless he had acted in good faith.
- Ng Kim Leck v Wee Hock Chye [1971]; but if he was doubtful and suspicious but put
aside his suspicions without further inquiry he had not acted in good faith.
- Hong Wai v UMBC [1984] 2 CLJ 42(64)
Facts: H opened a business account for the partnership. However only the account holder, H
had authority to sign cheques. W his partner forged his signature on business registration
documents, stating H’s withdrawal from the partnership, and authority to operate the
account. W then signed a blank cheque taken from another customer withdrawing the
entire amount in H’s account.
Held: bank liable for acting without further inquiry.
- Lawrie v Commonwealth Trading Bank of Australia [1970] Qd R 373; the Court held
that the bank had acted in good faith.
- A fraudulent senior interviewing and investigating a bank officer obtained a cheque
from the plaintiff made payable to ‘B. T. Clifford or bearer’ and crossed ‘Bank payee only’.
The fraudulent officer had the cheque credited to the named account which was operated
by him. The officer disposed of the proceeds of the cheque and the amount was debited
from the plaintiff’s account. The plaintiff sued in conversion and the defendant bank relied
upon the statutory defences.
- The jury found that the officer had not acted within the scope of his apparent duty
when he represented to the plaintiff that ‘B. T. Clifford’ was a customer of the bank who
required a loan for a bridging finance. As a result, the fraudulent conduct of the officer could
not be attributed to the bank.