BANK OF CEYLON v. CARGILLS (CEYLON) LIMITED

007-SLLR-SLLR-1991-V-1-BANK-OF-CEYLON-v.-CARGILLS-CEYLON-LIMITED.pdf


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BANK OF CEYLONV.
CARGILLS (CEYLON) LIMITED
COURT OF APPEALWIJETUNGE, J. ANDVIKNARAJAH, J.
A. NO. 57/82 (F)
C. COLOMBO 84093/MFEBRUARY 06 AND 07 1989.
Banking – Bank draft – Negligence – Fraudulent use of the Bank draft – Actus novusinterveniens.
HELD:
There is no negligence where the precaution set out in the Manual of Instructions wasobserved in drawing up a bank draft. Failure to use a carbon or rubber stamp does notamount to negligence.
In cases of negligence, damages can only be recovered if the injury complained of notonly was caused by the alleged negligence but was also injury of a class or characterforeseeable as a possible result of it.
Indian ink had been used to write the bank draft and until this case there had been noinstance of an alteration or forgery of a bank draft written in Indian ink.
What is new and independent which could not reasonably be foreseen in generally asupervening human act. Here there was a novus actus interveniens and the Bank is not
liable.
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Cases referred to
Paris v. Stepney Borough Council (1951) 1 All E.R. 42, 49
Morton v, William Dixon (1909) SC 807
Wtight v. Cheshire County Council (1952) 2 All E.R. 789
Overseas Tankship (U.K.) v. Morats Docks & Engineering Co. The Wagon MoundNo. 1 (1961) 1 All E.R. 404, 415
Hughes v. Lord Advocate (1965) 1 All E.R. 705
Collettes Ltd. v. Bank of Ceylon (1984) 2 Sri L.R. 253 , 300
Wodds v. Duncan (1946) A.C. 401, 442
Weld – Blundell v. Stephens (1921) A.C. 956, 986
APPEAL from judgment of the District Court of Colombo.
J.W. Subasinghe PC. with D.J.C. Nilanduwa tor defendant – appellantH.Soza for Plaintiff – respondent.
Cur. adv. vult.
March 31st, 1989VIKNARAJAH, J
This is an appeal by the defendant bank from the judgment of the learnedDistrict Judge entering judgment for Rs. 2,000/- being damages sufferedby the plaintiff as a result of the Kurunegala branch of the defendantbank issuing the Bank draft P1 negligently in that the Bank failed towrite the body of the bank draft on carbon and did not use, a rubberstamp with the words "not to exceed Rs. 12/-''.
The facts briefly are that the bank draft P1 had been obtained on24.1.1979 on an application made to the Kurunegala branch of thedefendant Bank. The bank draft was for Rs. 12/-. On the same date,that is on the 24th inquiries were made from Mrs. Meegama an executivein the plaintiff Company in Colombo whether they would accept a chequeas payment for goods to which inquiry she told them that goods wouldbe sold only on cash being paid. On the following day, 25?h, in theafternoon an unknown person in sarong who came the previous daymet witness Lanerolle who is the Manager of the Wholesale DistributionDepartment and presented the Bank Draft, P1 drawn on the Bank ofCeylon, Kurunegala in favour of the plaintiff Company. The Bank Draftwas for Rs. 12,000/- and dated 24.01.79. The unknown person purchasedgoods to the value of Rs. 12,038/40. Rs. 38/40 was paid in cash bytheunknown person who presented the draft. Whenthe plaintiff presentedthe Bank draft P1 to the bank of Ceylon, City Office it was dishonoured
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on the ground that the Bank draft was only for Rs. 12/-. When theKurunegala Branch had issued the Bank Draft P1,for Rs 12/- followingthe usual practice, it also sent an advice note to the City Office Colombogiving the particulars of the Bank Draft. The advise note has beenproduced marked D2. It is admitted that the plaintiff as a result sufferedloss of Rs. 12,000/-
In para 6 of the plaint plaintiff pleads that the defendant has wrongfullyand unlawfully caused the said loss and damages to the plaintiff in thesum of Rs. 12,000/-, by reason of the negligence of the Bank in facilitatingthe unauthorised and fraudulant raising of the amount of the said Bankdraft by diverse acts of omissions to wit, inter alia:
failure to use a carbon in order that the original writings and figureswould appear on the reverse.
failure to state the amount in words on the top of the said Draft thus"not to exceed Rupees twelve".
failure to use a bold stroke to separate the Rupees and the centsshown in figures.
failure to use a cheque writing instrument.
It is common ground that the draft was issued for Rs. 12/- that it hadbeen fradulently raised to Rs. 12,000/- and that therefore the defendantwas entitled to refuse payment of Rs. 12,000/- on the draft P1.
The defendant in its answer inter alia took up the defence that the Bankexercised reasonable care in the issue of the draft.
Witness Bernard Fernando who is an Assistant General Manager gaveevidence. He stated that he was also earlier Chief Inspector of branches.He counts 37 years service in the Bank and is well aware of the practicethat prevails in the Bank of Ceylon. This witness admitted in evidencethat the Bank has a duty to take reasonable precautions in issuing abank draft to safeguard the interest of the person in whose favour thebank draft was issued because the Bank forsees that fraudulent alterationscould be done on a Bank draft issued by the Bank.
Learned Counsel for appellant conceded that the Bank owed a duty ofcare to the plaintiff.
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The matter in issue is what is the standard of care which the bank owedthe plaintiff and had the defendant Bank failed to exercise that degreeof care which is required from the bank.
Counsel for appellant submitted:
that the plaintiff has followed the practice that was existing in theBank for many years and that the Bank had acted in the ordinarycourse of business and followed banking practice.
that the damage which the plaintiff suffered was not foreseeabledamage – remoteness of damage.
the alteration of the Bank draft is a novus actus interveniens
Counsel for respondent submitted that the Bank had not taken reasonablesteps in preventing a forgery in that the Bank had not used acarbonpaper and that a rubber stamp with the words "not exceeding Rs.12/-” hadnot been stamped on the draft.
Plaintiff's witness Lanerolle stated in evidence that he had accepteddrafts issued by People’s Bank and Bank of Ceylon from customers.He stated that drafts are usually handwritten, the figures and wordshandwritten, His complaint is that a carbon paper was not used andthat the endorsement not exceeding Rs. 12/- was not there on the draftP1. Lanerolle stated that he had accepted Bank drafts which were notwritten on a carbon paper and without the rubber stamp endorsement.Lanerolle stated that he had accepted Bank of Ceylon drafts which werenot written on carbon paper and without rubber stamp impression.Lanerolle's position was that as Bank advises customers to use carbonpaper when writing cheques, the bank also should have used a carbonpaper when writing out drafts to prevent alterations. Although he noficedthese omissions in the Bank draft P1, he accepted the Bank draft froman unknown person.
Bernard Fernando for the plaintiff gave evidence and stated that thebank followed strictly the Bank's Manual of Instructions 01 in regardto the drawing of the draft P1. This manual was last amended on22.02. 1966 and there was no occasion to amend it thereafter.
In D1 it is stated that the Bank draft is a convenient method wherebya person without a bank current account may remit money with the same
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facility as security as with a cheque. A bank draft has the added attractionthat it is Bank paper and is readily accepted everywhere.
In the Manual D1 against the marginal note 'Preventions againstunauthorised deletions and alterations' the following instructions are setout.
All drafts to be issued should be made out on a pinpoint typewriterif available or should be written in Indian ink. This precautionarymeasure has been found necessary because there have beeninstances of endorsement and amounts written in ordinary ink havingbeen deleted by the use of chemicals.
the amount in figures should be inserted as close as possible tothe rupee sign. The amount in words should commence at theextreme left of the instrument.
Bernard Fernando in evidence stated that Bank drafts are issued onlyat main branches and there are about 200 such branches. He furtherstated that pinpoint typewriters are available only in the Colombo branches.The Bank stopped importing pinpoint typewriters as there were restrictionsin the import of such typewriters and that is why Indian ink was usedinstead.
The Bank Draft P1 was drawn up in strict compliance with the Manualof Instructions D1 using Indian Ink and that is the finding of the learnedDistrict Judge. There were no pinpoint typewriters available at theKurunegala Branch which issued the Bank Draft P1.
Bernard Fernando stated that in his 37 years experience in the Bankcarbon paper was not used and the rubber stamp was also not used.He further stated that until the forgery in this case therewere no casesof alterations in Bank draft when Indian ink was used. He further statedthat using carbon paper does not mean that alterations cannot be madebecause there have been numerous cases of forgery in regard to chequesalthough carbon paper was used.
The learned trial Judge in his judgment has stated that "this alterationwould not have been possible if the bank draft was written on carbonand a rubber stamp was used with the words "not to exceed". The trialJudge has proceeded on the footing that if carbon paper was used andrubber stamp was used the alterations are not possible. This is in the
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teeth of the evidence in the case. Bernard Fernando in his evidencehas stated that there have been numerous cases of forgery where carbonpaper has been used when cheques are written out. This is a clearmisdirection on the facts. The trial Judge has failed to evaluate theevidence in the case correctly. The evidence of Bernard Fernando hasnot been rejected by the trial Judge.
Me Kerron: Law of Delict (Sixth Edition) at page 3 states as follows:-
"The law does not require a person who owed a duty of care toanother to take every possible precaution to avoid causing harmto that other. The standard of care which the law demands is thecare of the diligens paterfamilias – the care which a reasonablyprudent person would have exercised in the circumstances".
At page 34 Me Kerron states:
"In contracts the standard of care which the law demand varies withthe particular contract in question. But in delict there is only onestandard – the standard of the reasonably prudent person situatedin the same circumstances as the defendant".
In the case of Paris v. Stepney Borough Council(,) Lord Normand statedas follows:-
"The kind of evidence necessary to establish neglect of a properprecaution was considered in Morton v. William Dixon(2) by LordDunedin, Lord President. That was an action by a miner againsthis employers alleging negligence in failing to take precautionsagainst the fall of coal from the top of the shaft, into the space betweenthe side of the shaft and the edge of the cage. It was of coursea Scottish case but in my opinion, there is no difference betweenthe law of Scotland and the law of England on this point. The LordPresident said (1909 S.C. 809):-
"Where the negligence of the employer consists of what I maycall a fault of omission I think it is absolutely necessary that theproof of that fault of omission should be one of two kinds either- to show that the thing which he did not do was a thing whichwas commonly done by the persons in like circumstances or toshow that it was a thing which was so obviously wanted thatit would be folly in anyone to neglect to provide it",
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"The rule is stated with all the President's trenchant lucidity. Itcontains an emphatic warning against a facile finding that a precautionis necessary when there is no proof that it is one taken by otherpersons in like circumstances but it does not detract from the testof the conduct and judgment of the reasonable and prudent man.If there is proof that a precaution is usually observed by other personsa reasonable and prudent man will follow the usual practice in likecircumstances. Failing such proof the test is whether the precautionis one which the reasonable and prudent man would think so obviousthat it was folly to omit it".
in the case of Wright v. Cheshire County Council (3) the facts are asfollows
The plaintiff a boy aged twelve years was taking part in gymnasticexercises at a school managed and controlled by the defendants.He was in a party of ten boys who were engaged in the exerciseof vaulting the 'buck'. The ten boys who had all had experience ofthe exercise, were vaulting one after the other and it was the dutyof the boy who was last over to wait at the receiving end of thebuck to assist as necessary the next boy to come over. As the plaintiffwas vaulting, the school bell denoting that play time had arrived rangand the boy at the receiving end of the buck ran off without waitingto receive the plaintiff who fell and sustained injuries. At the timeof the accident the instructor was a little distance away supervisingthe activities of other classes. Evidence was given that it was theproved practice in schools to leave boys who had a little practiceto carry out the exercise by themselves, so as to give them selfconfidence, but evidence was also given by a physical traininginstructor that he considered the practice dangerous. The plaintiffsued for damages alleging that the defendants were negligent infailing to exercise reasonable care in not having an adult presentat the receiving end of the buck.
The Court of Appeal held that the test of what was reasonable care inordinary everyday affairs might well be answered by experience arisingfrom practices adopted generally and followed successfully for manyyears. The evidence in the case was that the defendants had adopteda generally approved practice.
At page 795 Birkett L. J. stated as follows:-
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"On the second point, if it be said the general system does not accordwith the standard of a reasonable and prudent man all I desire tosay is this, that when you have, as a fact in this case, a systemin general use which had been adopted in this school and followedwith perfect safety, so far as one knew, until this day, it is a verystrong thing indeed to say that the authorities were negligent”,
The Judge goes on to state:
"It appears that this was the first time such a thing had happened.In these circumstances, I feel it is impossible to say on the factsthat any negligence was shown on the part of the defendants andforthese reasons and forthe reasons which have already been givenby My Lord I agree with the conclusion that this appeal ought tobe allowed”.
The evidence in the instant case, in appeal, of Bernard Fernando whohad been an executive in the bank and who had 37 years experienceis that the bank had followed the general system that is prevailing inthe Bank for more than 30 years in issuing this Bank Draft P1 and Indianink was used for so many years and there has been no alteration untilthis case. The Manual of Instructions had been followed strictly. He furtherstated that it is not the practice to write drafts on carbon paper or touse the rubber stamp "not exceeding". This system had worked withperfect safety for so many years. Using carbon paper is not an insuranceagainst forgery. The evidence of Bernard Fernando is that he had seennumerous cases of forgery where carbon paper has been used forcheques. The learned trial Judge has fallen into the error of thinkingthat if carbon paper and the rubber stamp impression were used by theBank this alteration was not possible. I do not think that the omissionof the use of the carbon paper and/or the rubber stamp impression is"a precaution which a reasonable and prudent man would think soobvious that it was folly to omit it”.
I hold that the defendant was not negligent in not using carbon paperor the rubber stamp impression.
Remoteness of damages:- Novus Actus Interveniens "The plaintifmust prove that the damage is traceable to the defendants' set withreasonable certainty and is not merely a conjectural result of It. Hemust further prove that the act was either the cause or a cause,
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legally responsible for he damage; in other words that the damageis not too remote",
Me Kerron – Law of Delict 6th Ed at page 128.
Again at page 117 the same author states as follows:-
"It is to be observed th it the question of remoteness does not ariseuntil it has first been established that the act complained of wasa causa sine qua non of the damage in other words, that but forthe act the plaintiff would not have suffered the damage”.
The evidence in the present case is that even when carbon paper hadbeen used there had been numerous cases of forgery in respect ofcheques. Therefore it cannot be said that but for this omission, alterationis not possible.
In case of negligence, damages can only be recovered if the injurycomplained of not only was caused by the alleged negligence but wasalso injury of a class or character forseeable as a possible result of it(Vide Overseas Tankship (U.K) v. Morats Docks & Engineering Co. TheWagon Mound No.(4) Hughes v. Lord Advocate® )’The essential factorin determining liability is whether the damage is of such kind as thereasonable man should have foreseen".
(Per Viscount Symonds in the Wagon Mound No.1 (4).)
In the case of Collettes Ltd v. Bank of Ceylon (SC)(6) Sharvananda Jstates as follows:-
”lt is not for every consequence of a negligent conduct that a manis responsible in law. The guiding principle is that though the negligenceof the defendant may have been one of the inducing causes leadingup to the damage (a cause without which damage would not havebeen suffered – causa sine qua non) he will not be liable unlessit was the "actual", "effective", "proximate" cause (causa causans)in the sense that he was blameworthy in being the cause of theplaintiff's damage. The defendant would not be liable, even thoughhis negligence had been proved, if such negligence did not proximatelycause that damage. The defendant's negligence should have actuallycaused the damage – Vide Mackintosh and Scoble in Delict- 5thEdn at page 77".
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"At one time the law was that unforseeability was no defence (RePolemis 19 21 3 K.B. 560) but the law now is that there is no liabilityunless the damage is of a kind which is forseeable (The WagonMound No. 1 Supra). The liability for damage today is thus basedon the concept of forseeability. The damage should have beenforseen by a reasonable man as being something of which therewas a real risk unless the risk was so small that the reasonableman would feel justified in neglecting it".
Per Sharvananda J.
In the instant case in appeal the damage was not forseeable becausethe evidence is that Indian ink was used and there has been no alterationor forgery of a Bank draft until this case.
"Between the act of the wrongdoer and the final harmful consequencesthere may intervene eitherthe act of some person or… some naturalforce which makes such a contribution to the ultimate result as toimmunize the wrong doer's act and in fact insulate it from the resultcomplained of. When such an intervening force becomes asuperceding force so as to exonerate the wrong doer from liabilitythe latter is entitled to have his defence on the maxim novus causainterveniens".
Mackintosh and Scoble – Negligence in Delict- 4th Edn 67.
A consequence is too remote if it follows a break in the chain of causationor is due to novus actus interveniens.
"It is the quality of the act” said Lord Simonds "which determinesthe issue, for it is not every intervening act which breaks what iscalled the chain of causation. If I throw a squib into a crowd, I amliable to the man who is hurt though intervening hands have passedit on. When I speak of the quality of the act, I refer in particular tothat aspect of it which I believe to be all important in . . . the lawof tort; namely whether it is an act which the actor could reasonablyhave contemplated or foreseen". Wodds v. Duncan <7>
What is new and independant which could not reasonably be foreseenis generally a supervening human act.
In Weld – Blundell v Stephens (8) Lord Sumner said:
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"In general (apart from special contracts and relations and the maximrespondeat superior) even though 'A' is in fault, he is not responsiblefor injury to 'C' which 'B' a stranger to him deliberately chooses todo. Though A may have given the occasion for 'B's mischievousactivity, 'B' then becomes a new and independent cause”.
In this case the novus actus interveniens is the alteration done by theunknown third party which could not have been foreseen by the appellant.The appellant had taken all reasonable precautions in the preparationand issue of the bank draft and evidence of Bernard Fernando is thatin his experience he had not come across a case where letters or figureswritten in Indian ink had been altered as a forgery. Even if the omissionto use a carbon paper and rubber stamp impression is a negligent act,I hold that the defendant is not liable because the damage was notforeseeable and because of the novus actus interveniens.
Learned Counsel for the appellant submitted that there is sufficientevidence in the case to hold that the plaintiff was guilty of contributorynegligence and he made an application that an issue be raised at thisstage regarding contributory negligence of the plaintiff. Counsel for therespondent objected to this application as this is a new matter whichcannot be raised in appeal. I do not think it necessary to consider thematter of contributory negligence as the appellant has succeeded onthe other points raised in appeal. I
I set aside the judgment of the learned District Judge and dismiss theplaintiff's action.
The appeal is allowed with costs in both courts.
WIJETUNGA, J. – I agreeAppeal allowed.