The Gazette 1976

GAZETTE

E/J

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

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.

Henchy J. considered the law to

be as follows: —

"The submission made on behalf

of the plaintiffs means that

there

was

superimposed

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

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

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.

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.

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.