Commissioner of Inland Revenue v Cheun [1992] FJLawRp 17; [1992] 38 FLR 138 (9 July 1992)

[1992] 38 FLR 138

HIGH COURT OF FIJI

Appellate Jurisdiction

COMMISSIONER OF INLAND REVENUE

v

KO CHAU CHEUN

Ashton-Lewis J

9 July 1992

Bill of Exchange - non negotiable cheque - whether stolen cheque passes good title - whether regularly indorsed - whether third party liable to drawer - Bills of Exchange Act (Cap 227) Sections 3, 29, 32, 76 & 81.

The Respondent cashed a generally crossed cheque which had been stolen be-fore reaching the intended payee. On appeal against dismissal of the drawer's action to recover the proceeds from the Respondent the High Court HELD: good title could not be passed by a stolen crossed cheque and accordingly the third party was liable to refund proceeds paid to him by the Bank following the cheque's presentation.

Cases cited:

Arab Bank v Ross [1952] 2 QB 216
Attorney-General v Champanieri &Sons (Civ. 893/74)
Smith v Union Bank of London (1875) 10 LRQB 291

Appeal to the High Court from the Suva Magistrates Court

G. Keay for the Appellant
No appearance by the Respondent

Ashton-Lewis J:

This appeal arises from a decision of the Learned Magistrate Mr. H.C. Patel of the First Class Magistrates Court Suva, given in Civil Action No.4764/86 on 23rd October 1990.

The hearing of the appeal came on before me on 22nd June, 1992. At the hearing Counsel for the Appellant appeared but there was no appearance for the respondent. Counsel for the appellant advised the court that at the hearing before the Chief Registrar when the appeal was set down for argument the respondent advised the appellant that while it did not concede the appeal it would not be appearing at the hearing of the appeal and contesting it. I was satisfied that the respondent had notice of the hearing of the appeal. Accordingly, pursuant to Order 37 Rule 14 of the Magistrates Courts Rules Cap. 14, S1.I proceeded with the appeal hearing only the argument and submissions of the appellant.

The facts of the case from which this appeal arises are as follows:

On 10th June 1985 the Department of Inland Revenue issued a tax refund cheque No.008253-3 in the sum of $118.42 drawn on the Bank of New Zealand at Suva and made payable to the order of one Ulaiasi Lovo. The cheque was crossed and marked not negotiable. It was posted to Ulaiasi Lovo and addressed care of the Government Shipyard, Marine Department, Suva. This address had been given by Mr. Lovo as his mailing address on his 1984 tax return.

On the 8th April, 1986 Mr. Lovo reported to the Suva Police that his tax return cheque which had been posted to him had not been received. This matter was reported to the police by Mr. Lovo after making enquiries with the Inland Revenue Department.

The Police conducted an investigation as a result of Mr. Lovo's report which revealed that his tax return cheque was presented to a Mr. Ko Chau Cheun the owner of The Daumaka Store (the respondent in this appeal) at 3 Raojibhai Patels Street, Suva. Mr. Cheun when interviewed by the Police admitted cashing the cheque which had been negotiated with him by a woman who had printed on the back of the cheque the name Akanisi Lovo and gave the address of 98 Princes Road, Tamavua. Mr. Cheun advised the Police that he did not recognise or know the woman who had presented the cheque and that he had not seen her again. Mr. Cheun subsequently deposited the cheque with his bank and ultimately received payment for the same from the appellant's bank.

Police investigations were unable to locate the woman who negotiated the cheque with the respondent. It was discovered that no such person was known at 98 Princes Road, Tamavua. It became clear at that stage that Mr.Lovo's refund cheque had been stolen and negotiated with the respondent by a thief. Needless to say Mr. Lovo never received the cheque nor the proceeds of it. It is important to note that the cheque was crossed with the words "not negotiable" and "Account Payee only" appearing on the face of it. On the reverse side of the cheque there appeared a place for the signature of the payee with the words underneath "Payees endorsement". Below these words appeared a warning to any person negotiating the cheque to identify the payee as in the case of forgery an innocent third party would become liable to reimburse the drawer of the cheque.

Also, the stamp and signature of the respondent appeared on the back of the cheque clearly indicating that the respondent received it.

The appellant instituted proceedings in the First Class Magistrates Court at Suva to recover the amount of the cheque from the respondent. After a number of adjournments, the matter came on for trial before Mr. H. C. Patel on the 7th April 1989. At the trial the appellant argued that the relevant provisions of the Bills of Exchange Act Cap. 227 ("the Act") applied to the facts and that accordingly judgment should be in favour of the appellant. On the 23rd of October, 1990 the Learned Magistrate gave a short written decision which I set out in full. The decision reads:-

"This case is the same type as 2688/86. The practice in Fiji is for shop-keepers to accept non-negotiable cheques from individuals in good faith and it seems normal business practice to accept them.

The court has to take into account normal business practices - otherwise strict legal interpretation would lead to highly inequitable result. It is for this major reason that I find that it would be against equity to uphold the plaintiff's claims.

I therefore dismiss the plaintiff's claim with costs.

sgd. H.C. Patel

Resident Magistrate"

The appellant now appeals from that decision. The following are the grounds of appeal.

(1) THAT the learned trial magistrate erred in law when he concluded that the normal business practice of the respondent superseded the interpretation of the laws of Fiji.

(2) THAT the learned trial magistrate erred in law in ignoring the provisions of the Bills of Exchange Act Cap. 227.

(3) THAT the Appellant reserves the right to adduce further grounds of appeal once the copy record of the trial is made available.

That the cheque, the subject of the appeal, is a bill of exchange is clear from the provisions of Section 3(1) of the Act.

Section 3(1) states:-

"A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to bearer."

Thus the provisions of the Act applied to the cheque in this instance.

Section 76(1) (b) of the Act identifies and defines the cheque as being a generally crossed cheque.

Section 76(1)(b) states:

(1) Where a cheque bears across its face an addition of –

(a) ...........

(b) two parallel transverse lines simply, either with or without the words "not negotiable"

that addition constitutes a crossing, and the cheque is crossed generally.

Section 81 of the Act makes it clear that a thief cannot pass any title in a generally crossed cheque, thus depriving an innocent third party who negotiates the cheque in good faith from obtaining a good title as a holder in due course.

Section 81 of the Act states:

"Where a person takes a crossed cheque which bears on it the words "not negotiable" he shall not have and shall not be capable of giving of better title to the cheque than that which the person from whom he took it had."

This is not to say that a generally crossed cheque with the words "not negotiable" appearing on it is incapable of being negotiated. Such a cheque can be negotiated by the genuine payee provided he endorses the cheque with his signature and is in fact the bona fide holder of the same. Under these circumstances a cheque is complete and regular on its face and the bona fide payee can pass good title to a third party. In such instances the third party becomes a genuine holder in due course under the provisions of Section 29(1) of the act. The appellant's cheque in fact caters for such an occurrence in that on the reverse side it provides for such an endorsement by the genuine payee. It is again important to note in this regard that at the place of the signature of the payee there appears a warning in the following form:-

"WARNING

Persons negotiating must identify Payee. In case of forgery person negotiating will be liable to reimburse drawer the sum."

I will refer to the effect of Section 29(1) of the Act shortly.

Under Section 81 of the Act the words "not negotiable" have the effect of restricting the negotiability of the title in the cheque. Section 81 of the Act is in identical terms as Section 81 of the English Bills of Exchange Act. 1882. Halsbury's Laws of England 4th Edn Vol. IV at para 402 in this; regard states:

"402. "Not negotiable" cheque. In the case of a cheque crossed "not negotiable" the person who takes it does not acquire and cannot give a better title to it than that of the person from whom he took it. The legal effect of adding the words "not negotiable" to a cheque is, therefore, not to impede transfer, but to perpetuate in the hands of any transferee whatever defect or infirmity of title may affect the person who first transferred the cheque with those words on it."

Thus, the thief in this instance was unable to pass to the respondent any better title than she had herself. It does not matter how honestly the respondent acted in taking the cheque or that he gave value for it. The respondent could not, and did not acquire any title or rights to the proceeds of the cheque other than those of the thief The crossing and marking "not negotiable" on the cheque as well as the warning on the reverse should have put the respondent on guard to identify its true owner. The respondent made no effort to identify the presenter of the cheque as the bona fide payee. The respondent should have been more thorough in this regard. Evidence from the court below showed that the respondent admitted never having seen the woman who presented the cheque previously in his store or again after its presentation.

The fact that the thief printed a name and address on the back of the cheque does not assist the respondent in gaining a legitimate title to the proceeds of it as a holder in due course. Section 29(1)(b) of the Act states:

"29.-(1) A holder in due course is a holder who has taken a bill, complete and regular on the face of it, under the following conditions, namely –

(a) ............

(b) that he took the bill in good faith and for value, and that at the time the bill was negotiated to him he had no notice of any defect in the title of the person who negotiated it. "

The cheque was not complete and regular on its face in that it was not endorsed correctly.
Section 32(a) of the Act states:

"32. An endorsement in order to operate as a negotiation must comply with the following conditions, namely:-

(a) it must be written on the bill itself and be signed by the endorser. The simple signature of the endorser on the bill, without additional words, is sufficient......"

The writing on the back of the cheque by the thief was printed and unsigned and was not in the name of the payee. The place for the endorsement of the payee's signature was left blank.

In Arab Bank Ltd. v. Ross [1952] 2 QB 216 at p.227 Denning LJ. said:-

"........ , the question is when is an indorsement irregular? The answer is, I think, that it is irregular whenever it is such as to give rise to doubt whether it is the indorsement of the named payee. ....."

When the thief printed what purported to be a name on the back of the cheque that was not an endorsement and was not in the name of the payee. That alone should have put the respondent on guard. In these circumstances the cheque was incomplete and irregular on its face and this irregularity prevented the respondent from becoming a holder in due course regardless of the good faith in which he negotiated it.

The respondent has received payment of the proceeds of the amount of the stolen cheque from the appellant through its banker. Not being a genuine holder in due course, nor being able to obtain good title to the proceeds of the cheque the respondent is liable to the appellant for the amount of the cheque. In Smith v. Union Bank of London (1875) 10 LRQB 291 at p.296, Blackburn J. when discussing the legality of a holder of a stolen crossed cheque said:

".... if a thief got it and were to make a forged indorsement, the person who, in ignorance, took it, even for value, would not be holder at all, and anyone who took the cheque from him, and converted it to his own use, would be liable to the true holder in trover....."

Counsel for the appellant cited the case of Attorney General v. Champaneri and Sons decided by H.G. Scriven Esq. in the First Class Magistrates Court at Suva on 30th April 1975 Civil Action No.893/74. The facts and questions of law in that case were identical to the present case. In that case the Learned Magistrate held that Section 81 of the Act deprived the defendant of any title in the stolen cheque, and that the defendant could. not be considered the holder in due course under Section 29 (1) of the act as the cheque in that instance was not complete and regular on its face. Accordingly, judgment was given for the plaintiff in the value of the cheque.

It appears that the Learned Magistrate in the present case did not refer to that case and that had he done so he may have preferred the reasoning of a Brother Magistrate.

For the reasons set out herein I am of the opinion that the Learned Magistrate erred in law by failing to take into account or consider the relevant provisions of the Bills of Exchange Act Cap. 227 and holding that the common business practice of Suva merchants prevailed over that of the enacted legislation applicable in such a situation.

Accordingly, the appellant succeeds on grounds (1) and (2) of its appeal.

The appeal is allowed and there will be judgment for the Appellant with costs to be taxed if not agreed.

(Appeal allowed.)