BANKING LAW

CASE COMMENTARY

1. CASE SYNOPSIS

The case of Commissioners of Taxation vs. English, Scottish and Australian Bank 1 is a
landmark judgement which discussed the negligence of the bank. It also shed light on who a
‘customer’ of a bank is as there is no statutory definition. This case was an appeal to the
Privy Council after the Supreme Court of New South Wales held that the bank was not
negligent in its actions towards A. Friend. The case was heard by Lord Atkinson, Lord
Dunedin, Lord Buckmaster and Judge Viscount Haldane.

I.1. FACTS

In this case, a certain A.Friend for payment of an assessment of income tax, drew cheques
from himself and put it in an envelope along with some other cheques from his family. He
addressed it to the Commissioner of Taxation and directed his clerk to deliver. His clerk
delivered it by keeping it in a box kept for the purpose of receiving letters. Mr. Friend
followed instructions given in the assessment notice and made this payment by remitting
cheque crossed to the Commissioners of Sydney. However, this envelope was stolen by
someone and the cheque was not cashed in by the Commissioners.

A man approached the respondent bank and stated that he wished to open an account. He
gave his name as Thallon, gave an address and paid in 20 pounds into the account. He also
asked for a cheque book. The next day Thallon comes to the bank with the stolen cheques and
asked to be credited. This was done and subsequently, persons with three cheques drawn by
this man came in with an order signed by the man to pay. The man was not seen again.

I.2. RATIO

The present case is an appeal from the Supreme Court of New South Wales where this case
was filed by the Commissioners of Taxation against the English, Scottish and Australian
Bank. The case decided on two landmark issues i.e. whether the bank was negligent in
conversion and clarified the term customer of a bank. It was appealed that bank had been
negligent in receiving payment. The respondent bank took the defence of Section 88 of the

1
Commissioners of Taxation vs. English, Scottish and Australian Bank, [1920] A. C. 683.
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Bills of Exchange Act, 1909 (Commonwealth of Australia) Federal. The Privy Council
dismissed the appeal and held that the bank was not negligent.

2. JUDGEMENT ANALYSIS AND SUMMARY

In the instant case, the respondents, stated the defence of Section 88. Section 88 of the Bills
of Exchange Act states that where a banker in good faith and without negligence receives
payment for a customer of cheque crossed generally or specially to himself and the customer
has no title or defective title thereto, the banker shall not incur any liability to the true owner
of the cheques by reason only of having received such payment. The appellants stated that the
man in question (Thallom) was not a customer and the bank was negligent in receiving
payment. The Council took reference of Kendall vs. London Bank of Australia which
discussed both questions of customer and negligence. The Council stated that time was not of
essence in the relationship of a customer. It will not depend on whether a person has been
visiting the bank for a long time. It was held that if the bank was performing casual services
and whether the person has an account at the bank. In the instance case, it is clear that
Thallon was a customer.

On the question of negligence, the Council stated that it was based upon fact and the there
could be no rule which can be applied here. The Council stated that even though the question
is not of negligence in opening the account, but that fact could shed light on whether there
was something amiss and lead to negligent behaviour. The Council also opposed the Supreme
Court’s interpretation of the care to be taken by a banker. It was stated that the care should
not be less than a man purchasing or cashing a chequw for himself. the Council has held that
the standard must be of bankers and not individuals.

On the negligence of this bank, the Council held that since there was nothing unusual of
suspicious about the man or the actions and hence they had no reason to inquire and verify
the identity of the man. The cheque was not too large a sum and there was no indication that
it was to the commissioners of taxation. The Council concluded that the bank was not
negligent and dismissed the appeal.
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3. CASE COMMENT

The case of Commissioners of Taxation vs. English, Scottish and Australian Bank was
decided 100 years ago, when the structure of banks and banking was not fully formed. The
Privy Council primarily dealt with two questions:

i. Who is the customer of a bank?

ii. Whether there was negligence on the part of the bank while collecting the cheque?

This first issue deals with the question of who the customer of a bank is. The court answers
this question by saying that any person who uses the services of the bank and has an account
in the bank is a customer. With time, te term customer has widened along with the services
offered by banks. Now, a non-account holder can be a customer if they are rendering
different services from the bank. 2 The Council held that duration is not a critical element to
be a customer in a bank. Taking into consideration the time, the definition given by the Privy
Council in this case sufficiently holds up even today.

However, in the negligence issue taken up by the Council, they do not sufficiently answer
any question correctly or adequately. The Council states that it is a question of whether there
was negligence while collecting the cheque. However, the initial question of whether there
was negligence while opening the bank account was not addressed adequately. This issue
ought to have been discussed in much more detail by the Council. The Council states that if
there was no suspicious circumstance under which the man Thallon had opened the account.
The council also states that if the banks would collect cheques only after an inquiry, it would
render banking business impossible. However, it should have been the bank’s duty to
authorise and approve the bank account after demanding proof of the identity of the man. By
leaving the decision of what constitutes suspicious or not, the Council has let the man who
committed the crime to go scot free as his identity is not even revealed in the entire process.
The Banker must not be given the discretion or option to inquire after a few people. This will
result in a surge of fraud and misrepresentation. In the instant case, if the bank had taken due
care while opening the account, which is to ask for proof of identity and address, the loss
could have been indemnified and the offender could have been penalised. This may take a
day or two but would substantially decrease crime rates and ensure security to the bank. The
Council states that there was no note of warning on the cheque or any sign of foul play.
2
Banks now provide services like credit cards, bank loans etc.
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Again, it is claimed that the banker does not have the duty of a police officer who uses prima
facie evidence and decides whether there is a case. The interpretation of Section 88 by the
Council is correct as there is no negligence while collecting the cheque. But the Council did
not correctly decide on the negligence of the banker while opening the account. Therefore,
the judgement was erroneous. The Court should have ruled that the banks must be careful at
the very initiation of the customer’s relationship with the bank.

Indeed, it is blatantly obvious now, 100 years after, to compare the present reality to the case
in question. But keeping in mind the lack of documentation at that time in Australia, it is
completely natural for people to use the convenient method of inquiring only when the need
arises. It may have been a logical judgement in that time but it does not hold good in that
day. However, it is still important for the court to change the laws and the procedures to
protect the citizens of the State.

4. CONCLUSION

The present case is a landmark case in the subject of banker-customer relationship. It laid
down the principle that duration was not important for a person to become a customer; rather,
it depends on the relationship of the banker and customer. The Council correctly interpreted
and used Section 88 as a defence but did not adequately answer the question of whether the
bank was negligent while opening the bank account.

SUBMITTED BY,
ANASUYA NAIR
BA0170008