The Gazette 1976

J UN E/J U LY

1976

GAZETTE

have been paid. In my judgment the contractual relationship contended for did not exist. Under our law and our system of banking, when cheques drawn by a customer on a par- ticular branch arrive in that branch from the central clearing house, the bank, in deciding whether to pay those cheques, acts entirely as a pay- ing bank and, apart from statute, is bound only by the contract be- tween it and the drawer of the cheque. I find no authority - judicial, textbook 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 is sufficient to hold that the absence of a contractual duty owed to the plaintiffs as payees of the cheque by the Bank of Ireland in the exercise of its functions as a paying bank in dealing with the cheque, defeats the plaintiffs' claim for damages for negligence on the part of the Bank in carrying out its contractual obligations." The principles of law to be applied were stated by Kenny J. as follows: — The plaintiff Board said that as the cheque for £18,129 had been given to the College Green branch for collection from the O'Connell Street branch and that as both were branches of the defend- ants, 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 busi- ness of banking requires that they should be treated as distinct trading bodies, the law will regard them in this way {The King v. Lovitt, 1912 A.C. 212). Under the new clearing arrangement cheques of the same bank lodged at one branch for pay- ment at another are not dealt with within the bank but are sent to the general clearing house used by all the Associated Banks for presen- tation at the other branch. This

seems to me to show that the neces- sities of banking require that the two branches should be treated as separate trading bodies. 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 con- tract or of duty to the plaintiffs. The tHal Judge decided that the defendants were liable as paying bankers because they should have forseen that their refusal to pay the cheque would cause the plaintiffs loss. Foreseeability does not create any liability for foreseen economic loss unless there is a special rela- tionship between the parties as there was in Hedley Byrne & Co. Ltd. v. Heller (1964) A.C. 465. Commercial life would become impossible if foreseeability that one's action or inaction would cause economic loss to another were to create liability. (Wetter & Co. v. Foot and Mouth Disease Research Institute (1965) 3 All E.R. 560). 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 and lodged in the College Green Branch. Griffin J. stated the principles of the law of banking to be adopted in this case as follows: — In the extraordinary circum- stances that existed in 1970, when it was necessary to deal with over two million cheques which had built up in the banks, the Assoc- iated Banks agreed to adopt what appeared to them to be the fairest and most equitable method of deal- ing with these cheques, i.e. by treat- ing all cheques as if they were paid on the 1st of May 1970. This en- sured that all cheques, in what counsel called "the banking system" were treated as if they were pre- sented 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. Dublin Port and Docks Board v. Bank of Ireland — Full Supreme Court - unreported - 22nd July, 1976.

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 be- ginning of April 1970, when the account of Palgrave Murphy Ltd. was adequate to meet it. In Novem- ber 1970 the account of Pal- grave Murphy Ltd. was in- adequate to meet all the outstand- ing cheques that had been drawn on it. By then, Palgrave Murphy Ltd. had fallen into a state of in- solvency which has since then re- sulted in the liquidation of the com- pany. The arrears in the O'Connell Street branch of the Bank of Ireland 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 account of Palgrave Murphy Ltd., showed that it was over- drawn 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'Con- ell Street branch decided to dis- honour cheques sufficient in aggre- gate value to wipe out that over- draft. The cheques to be dishonour- ed were chosen by lot Individual cheques were then picked out at random for payment, and their amounts totted up. Amongst those cheques was the cheque for £18,129.93. the contractual relationship be- tween the Bank as paying banker and Palgrave Murphy Ltd., in re- gard to the decision as to payment of this cheque, a further contractual relationship between the Bank and the plaintiffs, arising from the fact that, as payees of the cheque, the plaintiffs happened to be customers of the Bank, albeit in another branch. Such contractual relation- ship, it is submitted, required the Bank, acting as a collecting bank, to exercise reasonable skill, care and diligence towards the plaintiffs, and that this cheque would consequently Henchy J. considered the law to be as follows: — "The submission made on behalf of the plaintiffs means that there was superimposed on

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