Bank of Hawaii (PNG) Ltd v Papua New Guinea Banking Corporation [2001] PGNC 98; N2095 (8 June 2001)

N2095

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

O.S. 230 of 2000

BETWEEN:

BANK OF HAWAII (PNG) LIMITED

Plaintiff

AND:

PAPUA NEW GUINEA BANKING CORPORATION

First Defendant

AND:

CSC INVESTMENT PTY LIMITED

Second Defendant

AND:

CHIU HO CHAN

Third Defendant

AND:

WAN SIEW CHAN

Fourth Defendant

BANKING – Cheque – Forgery – Duty of paying bank to payee – Paying bank honouring cheque without knowledge of forgery – Estoppel - Implied representation that cheque is genuine – Forgery undetectable – Paying bank having no reason to suspect cheque not being genuine – Payee acting to his detriment by its own conduct – Paying bank not precluded from recovering amounts paid under mistake of fact without negligence – Bills of Exchange Act (Chp. 250) s. 29.

NATIONAL COURT – PRACTICE & PROCEDURE – Application for adjournment – No prior notice to opposing side of intention to apply for adjournment – Witness attending to medical need – No evidence produced in support of application – Application refused.

EVIDENCE – PRACTICE & PROCEDURE – Parties agreeing to conduct trial by affidavit – Affidavits filed – Need to file and serve notice requiring deponent for cross-examination in accordance with the Evidence Act and the National Court Rules – Failure to file and serve such notice – No right to require cross-examination on the day of hearing – Application for cross-examination refused.

COSTS – Certification of overseas counsel’s costs – Principles guiding exercise of court’s discretion – Important and complex issues, lack of local expertise, imparting of skills and knowledge by overseas counsel and amount involved is substantial – Case not coming within this principles – Application for certification refused

Cases Cited:
David Securities Pty Ltd &Ors v. Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353.
Barclays Bank v. W.J. Simms Ltd [1980] Q.B. at 677
National Westminster Bank Ltd vs. Barclays Bank Ltd [1974] 3 All ER 834
Price v. Neal [1762] EngR 70; (1762) 3 Burr 1354
Imperil Bank of India v. Aberyesinghe [1927] LKCA 8; (1927) 29 Ceylon NLR 257
KJ Davies (1976) Ltd v. Bank of New South Wales [1981] 1 NZLR 262
McVie v. Woodward [1990] PNGLR 305
In Peter Yewie Umai Timereke v. Duncan Martin Ferrie & Ors (unreported but numbered judgement) N379
Ronald Emanuel Jordan v. Glen Hamilton Edwards [1979] PNGLR 420

Counsel:
Mr. Egan and Mr. A. Mana for the Plaintiff
Mr. M. Titus for the Defendants

08th June 2001

KANDAKASI, J: The Plaintiff is seeking to recover from the Defendants a sum of K38, 600.50 ("the funds") it claims it paid in error under a cheque fraudulently drawn against its customer’s account. The cheque was uncrossed and made payable to an "Avoa Maria" and was endorsed to the Second Defendant (CSC) by an "Avoa Maria John" (the rogue). CSC arranged for a "special clearance" of the cheque through its bank, the First Defendant ("PNGBC"). Through the cheques clearance system in which the Plaintiff and PNGBC both participate, PNGBC presented the cheque to the Plaintiff and the Plaintiff raised a warrant for payment in favour of PNGBC to the credit of "Avoa Maria". That was after satisfying itself that, the signatures on the cheque were genuine and that the cheque was otherwise in order for payment. PNGBC then paid the funds to CSC and CSC paid K30, 880.50 to the rogue after requiring and receiving 20% of the funds for shopping.

The fraud was discovered about two weeks later, when the customer received its bank statement, showing its account being debited for cheque number 958850, in the sum of, K38, 600.50 and immediately notified the Plaintiff. The Plaintiff credited its customers account and quickly informed PNGBC of the fraud. PNGBC then, debited CSC’s account and retained the funds in a "term deposit" with a stop payment order attached to it.

The Plaintiff contents that, it is prima facie entitled to recover the funds on the basis that, it paid them by error or by a mistake of fact and as acted with due diligence. The Defendants on the other hand, argue that, the Plaintiff is not entitled to recover because it was negligent in failing to find that, the signatures in the cheque were different and that, it failed to promptly notify the Defendants of the fraud to the detriment of the Defendants. Therefore, they argue that, the Plaintiff is barred from recovering the funds from them.

Issues

There is no issue that, the Plaintiff is prima facie entitled to recover payments made by error or a mistake of fact. The only issue is, whether the Plaintiff acted negligently to the detriment of the Defendants, in authorising payments out of its customer’s account, when there were variations in the customers’ signature on the cheque by reason of which it is now barred from recovering the funds?

Generally

The general principle is that, money paid under a mistake of fact or law can be recovered. The principle as been clearly developed and adopted in Australia by the High Court of Australia in David Securities Pty Ltd &Ors v. Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353. The Court reviewed all previous authorities such as Barclays Bankv. W.J. Simms Ltd [1980] Q.B., 677 at 690-695, on the issue and held at page 376 that, moneys paid under a mistake of fact or law are prima facie recoverable. In so holding, it rejected previous authorities, which allowed for recovery only in cases of payment under a mistake of fact and not a mistake of law. The court also rejected previous authorities adding qualifications such as unjust enrichment, or a fundamental mistake, to that principle, which would, restrict the right of recovery. The general principle was recognised in National Westminster Bank Ltd vs. Barclays Bank Ltd [1974] 3 All ER 834, (the National Westminster Bank case).

There are however, exceptions to that rule. The National Westminster Bank case reviewed of the relevant authorities up to the time of that judgement and pointed out that, for a variety of reasons, the exceptions have been arrived at. Justice Kerr at page 844, line a-d specifies those reasons as:

1. The need to preserve the commercial value of the security of instruments, which have once been negotiated to a holder for value and the undesirability of unravelling transactions based on them.
2. In part on the doctrine of estoppel by representation.
3. The competing equities with the balance favouring entirely blameless defendants; and
4. On proof of negligence against the party which mistakenly made the payment and is seeking to recover.
   

Justice Kerr then looked at the relevant cases starting with Price v. Neal [1762] EngR 70; (1762) 3 Burr 1354 and concluded in the context of a forged cheque in these terms at page 849, line a-b:

"Taking the judgements all together, it seems to me, with respect, that they illustrate not only the variety of grounds on which it is possible to justify an obviously correct result as between a paying bank and a collecting bank which has paid the money over to its customer after collecting the proceed, but also the difficulty of extracting any principle from the prior authorities. None of the various rationes decidendi can however in my view be taken even as persuasive authority for the broad proposition that merely by honouring a forged cheque without negligence the paying bank impliedly represents to the payee that the signature is genuine so as to bar any right of recovery from him".

Then after considering the decision in Imperil Bank of India v. Aberyesinghe [1927] LKCA 8; (1927) 29 Ceylon NLR 257, Kerr J. went on to say at p. 850 between line f & g that:

"At most, it seems to me, the paying banker is thereby representing no more than that he believes the signature to be genuine ... This is different from a representation that the signature is in fact genuine. Furthermore, I think the law should be slow to impose on an innocent party who has not acted negligently an estoppel merely by reason of having dealt with a forged document on the assumption that it was genuine."

In our jurisdiction s. 29 of the Bills of Exchange Act (Chp. No. 250), provides in the context of forged bills, especially a forgery of the signatures on a bill such as a cheque, that:

"(1) Subject to this Act, where a signature on a bill is forged or placed on the bill without the authority of the person whose signature it purports to be, the forged or unauthorised signature is wholly inoperative, and no right—

(a) to retain; or

(b) to give a discharge for; or

(c) to enforce payment of,

the bill against any party to the bill can be acquired through or under the signature, unless the party against whom it is sought to retain or enforce payment of the bill is precluded from setting up the forgery or want of authority.

(2) This section does not affect the ratification of an unauthorised signature not amounting to a forgery."

(Underlining mine)

Putting what this section says with the general position at common law together, it is very clear that, a cheque which signature has been forged would generally fail to pass any title, right or interest whatsoever. This is not however, free of any exception. If the "party against whom it is sought to retain or enforce payment of the bill is precluded from setting up the forgery or want of authority" the protection under s.29 would not apply.

The Act does not provide for the circumstances in which the exception may operate. In these circumstances, I consider the general position at common law as discussed and set out in the National Westminster Bank (supra) would apply, going by the dictates of Schedule 2.2 of the Constitution. Given this, I believe that, the parties have taken the respective positions they have in this case. Accordingly, this case will be determined by a finding on the issue of whether, the Plaintiff was negligent in it’s dealing with the cheque and notification of the fraud and whether by such conduct the Plaintiff is barred from recovering the funds.

The Evidence

The issue presented will have to be determined on the relevant facts based on the evidence set out in the bundle of documents admitted into evidence by consent as exhibit "A". The evidence for the Plaintiff is set out in the Affidavits of Peter John Goodwin filed on 22 May 1998, Stanley Pono and Bernard Pawith both filed on the 12th of July 2000. Of these witnesses, only Peter John Goodwin was cross-examined. No formal notice requiring the other two witnesses were filed and served as required by the Evidence Act and the National Court Rules 1983 ("the Rules"). I therefore, rejected an application on the day of hearing for a cross-examination of these two witnessed.

The Defendant filed and served only one affidavit, sworn by Chiu Ho Chan, the Third Defendant. Notice requiring cross-examination of Mr. Chiu Ho Chan was filed and served pursuant to the Evidence Act and the Rules. Despite that notice, he did not turn up in court for the required cross-examination. Mr. Titus, counsel for the Defendants, applied for an adjournment on the basis that, Mr Chiu Ho Chan had fallen sick and had gone to Australia for medical treatment. He produced no medical evidence to confirm the kind of sickness the witness had contracted, when he got it and why he had to go to Australia. No evidence confirming which hospital in Australia the witness was admitted to and was receiving treatment and when he would be back in the country was placed before me. Counsel for the Defendants failed to present any evidence warranting an adjournment. Besides, the Plaintiff was ready to proceed with the trial, with overseas counsel appearing. Further, insufficient prior notice of the Defendants’ intention to apply for an adjournment was given. In the circumstances, I refused to adjourn the matter and the trial proceeded, with the Plaintiff consenting to a use of the Defendants affidavit, subject to the weight to be placed on it, because of the lack of cross-examination of the deponent.

Findings of fact

Based on the above affidavit evidence, I find that the relevant facts are these. The plaintiff had a customer, Petroleum Exploration and Development Technical Assistance Project (the Customer), which operated a cheque account number 14594-201-00-93 at the Port Moresby branch of the Plaintiff. From time to time, the Plaintiff issues to the customer with chequebooks containing numbered blank cheques. One such chequebook contained a blank cheque numbered 958751 to 958850 inclusive.

As part of its business, the Plaintiff keeps a record of persons authorised by the customer to draw cheques on the account, including specimen signatures of the authorised persons on a specimen signature’s card. The specimen signatures would be compared when a cheque is presented to the Plaintiff for payment, out of the account. Staff of the Plaintiff dealing with the cheque at the relevant time would do that. If the officer believes that the signatures on the relevant cheque are genuine after comparing them with the specimen signatures, and that the cheque is otherwise in order, then payment on the cheque would be authorised.

On 15 April 1998, a cheque number 958850 in the sum of K38, 600.50 was fraudulently drawn on the account by the payee, an "Avoa Maria". Then the rogue, "Avoa Maria John" endorsed the cheque to Gordon Food Store, the trading name of CSC, which deposited the cheque into its cheque account at the Waigani branch of PNGBC.

On 17 April 1998, PNGBC tried to collect the proceeds of the cheque by "special clearance" from the Plaintiff through the inter-bank clearing house system in which both the Plaintiff and PNGBC participated. On presentation of the cheque by PNGBC, the Plaintiff’s officer, given the job of clearing the cheque followed the Plaintiff’s usual cheque clearance procedure including comparing the signatures on the cheque with those of the authorised signatories on the customers specimen signature’s card. The officer believed the signatures on the cheque to be genuine, and the cheque was otherwise in order for payment. Accordingly, the officer drew a warrant in favour of PNGBC for K38, 600.50, the purported face value of the cheque, to be paid to the credit of "Avoa Maria" and debited its customer’s account.

PNGBC paid the proceeds of the cheque to CSC instead of the payee, "Avoa Maria" who in turn paid "Avoa Maria John’, the rogue, K30, 880.50 in cash and kept about 20% of it, K7, 720.00, in purchase of goods and shopping vouchers.

CSC’s business is selling merchandised goods, both in bulk and retail. Mr. Chiu Ho Chan says that, apart from that business, CSC accepts and cashes government and other third party cheques. It accepted the cheque in this case on the 16th of April 1998, from a lady who identified herself has "Maria Avoa John", the rogue. A photocopy of her passport showing her as "Avoa Maria John" was taken for her identification (Copies of the passport and the endorsement on the cheque are at tabs B and L of the bundle of documents). He also says, since the amounts involved were substantial, he made further inquiries in addition to his usual practice of requiring proper identification. He does not however, specify what were the other inquiries and what was the out come.

It is clear that, CSC had reason to doubt the genuineness of the person claiming to be the payee. The name in the cheque was "Avoa Maria" the person producing the cheque and passport for identification was a "Avoa Maria John" who signed her name with a variation when compared to the signature appearing on the passport. There is no evidence of "Avoa Maria" being one and the same person as "Avoa Maria John". Further, CSC did not have the specimen signatures to the account out of which the cheque was drawn. So, that gave CSC additional reason to be more careful. Further, CSC could have asked for and called up the drawer of the cheque, which name appeared on the cheque to confirm, if it had written out the cheque but, there is no evidence of that being done. There was nothing preventing CSC from asking the rogue to go to the bank and have the cheque cashed. It seems that was not done because CSC wanted the 20% business it received.

On the 17th of April 1998, CSC took the cheque to its bank at the Waigani branch of PNGBC and arranged for a special clearance and that was done the same day. There is no evidence of PNGBC having raised with CSC or vis versa, the possibility of the forgery, given the difference in the name and the variation in the signature of the rogue. Instead, it seems PNGBC simply accepted its customer’s (CSC) instructions and facilitated a payment on the cheque under a "special clearance". By its conduct in my view, PNGBC condoned and or accepted the presentation and payment of the cheque in the manner described.

As already noted, the Plaintiff claims it made the payment under a mistaken belief that the cheque had been signed by the authorised signatories to the customers account. It therefore claims that, it also had the authority of the customer to pay the proceeds of the cheque.

Unfortunately, as it turned out later, the cheque was in fact a forgery, which was found after the payments were made. This was discovered about two weeks later, on or about 30 April 1998, when the customer received its bank statement and notified the Plaintiff and the Plaintiff notified PNGBC. The customer found out that, its account was debited for cheque no. 958850 incorrectly, has it had not drawn such a cheque. On the customers complaint, the Plaintiff credited its customer’s account by the amount paid out on the forged cheque whilst PNGBC debited CSC’s account for the same amount and retained it in a term deposit account with a "stop payment’ order attached.

Negligence
(a) The parties contention

As noted, the Defendants contend that, the Plaintiff acted negligently in that, it failed to find that, there were variations on the signatures on the cheque when compared with the specimen signatures kept by the Plaintiff. They also argue that, once the fraud was discovered, the plaintiff was under a duty to inform them immediately but it failed to do so and they suffered detriment in that, they have paid the funds to a rogue who can not now be found.

The Plaintiff denies it was negligent and contends that, it is not unusual for customers’ signatures to vary from time to time when compared with their specimen signatures. Indeed, when there are variations, it does not necessarily mean the signatures are forged. Instead, Mr. Goodwin, a man of 25 years banking experience says, it is a normal human behaviour or pattern that a person’s signature will always vary from what he has earlier signed. It would take a handwriting expert to determine, whether a signature is genuine or forged. When he was asked in cross-examination as to whether, he would have paid on the cheque, the subject of these proceedings, he said he would because, the variations were not serious enough to arouse any suspicion that they were not genuine. Annexure "PJG 2" and "PJG 3" to Mr. Goodwin’s affidavit as well as tab I, in the bundle of documents, are copies respectively of the specimen signatures and the forged cheque. In my untrained eyes, there appears to be some minor variation, which Mr. Goodwin says, normally occurs.

(b) Onus of proof

It was the Defendants who have alleged negligence against the Plaintiff. Under our system of justice, it is a well-settled principle of law that, he who alleges must prove it. The position is expressed by the learned authors in McGregor on Damages, (Sweet & Maxwell, 13th Edn, 1972, London), in this way at page 935:

"The plaintiff has the burden of proving both the fact and the amount of damages before he can recover substantial damages. This follows from the general rule that the burden of proving a fact is upon him who alleges it and not upon him who denies it, so that where a given allegation forms an essential part of a person’s case, the proof of such allegation falls on him. Even if the defendant fails to deny the allegations of damage or suffers default, the plaintiff must still prove him loss. "

(Emphasis added)

So in this case, the onus was on the Defendants to prove what they were claiming. They would have called evidence to rebut Mr. Goodwin’s evidence either by calling an expert or another experience banker to say that no payment could have been permitted on the signatures that appeared in the cheque in question in these proceedings. They failed to call any such evidence.

(c) The Law

The law is as Justice Kerr said in the National Westminster Bank (supra), at pages 849, line a-b and 850 between line f & g that:

"None of the various rationes decidendi can however ... be taken even as persuasive authority for the broad proposition that merely by honouring a forged cheque without negligence the paying bank impliedly represents to the payee that the signature is genuine so as to bar any right of recovery from him.

...

At most, it seems to me, the paying banker is thereby representing no more than that he believes the signature to be genuine ... This is different from a representation that the signature is in fact genuine. Furthermore, I think the law should be slow to impose on an innocent party who has not acted negligently an estoppel merely by reason of having dealt with a forged document on the assumption that it was genuine."

This means in my view that, a party seeking to prevent a paying bank as in this case, from recovering a payment under a forged cheque, must prove that, the paying bank was in fact negligent in making the payment. It is not simply good enough to claim that, because the paying bank honoured a forged cheque, it was negligent. There must be some evidence of a demonstrable failure on the part of the paying bank to form the foundation for an argument that it was negligent in allowing the payment as opposed to believing the signatures on the cheque were genuine. A good example of a paying bank’s negligence would be say, a customer informs the bank before a forged cheque is presented for payment, that it has been stolen or that the bank’s officer had not gone through the normal or usual process of clearing the cheque for payment and allows payment to be made.

In relation to notice of fraud once discovered, Justice Kerr in the National Westminster Bank (supra) case, did not find the paying bank negligent in notifying the presenting bank of the forgery after a lapse of two weeks, as in the present case. This was because, that was the earliest, the notice of the forgery got to the paying bank and it could in turn notify the presenting bank.

The facts in the National Westminster Bank (supra) case are similar to the present. A blank cheque was stolen from a Bill in Nigeria and was completed for £8,000 and Bill’s signature as the drawer was forged. The cheque was offered to an Ismael, who wanted to move funds out of Nigeria. Ismael agreed to pay for the cheque in Nigerian currency if it proved to be good. He sent the cheque to the first defendant, his bank in London, and asked for a "special collection" or "a special clearance," as in our case.

The defendant bank presented the cheque to Bill’s banker (the plaintiff) in London. The plaintiff paid the amount of the cheque. This had the effect of increasing Bill’s overdraft to £9,300, which was in excess of the approved limit on the account. The defendant notified Ismael that, it had collected the cheque and Ismael paid £10,400 (Nigerian) to the person who had given him the cheque.

Two weeks later, the forgery was discovered and the plaintiff was granted an injunction preventing payment of the £8,000 to Ismael by the defendant. The plaintiff sued for the return of that sum. The defendant submitted to judgement but Ismael contested the action.

Justice Kerr found for the plaintiff and said in effect that, the plaintiff as the bank authorising payment on the cheque, owed no duty of care to Ismael. Even if it did, it had not in any way been careless. It was its own business what overdrafts it allowed to customers. He also held that, the Plaintiff bank in paying the cheque made no representation that Bill’s signature was genuine. At best, it was a representation that, the bank believed that, the signature was genuine. The fact that the banker was asked for special clearance was not enough to warn it of the possibility of forgery. If Ismael had the fear of the cheque being forged he should have told the Plaintiff bank.

Justice Kerr observed that only two weeks had passed between payment of the money and discovery of the forgery and indicated that different considerations might have applied if the delay had been more substantial.

That case established a number of important principles, which are relevant to the present case. Firstly, as a general rule, where a banker has, in error, paid a cheque on which a customer has not in fact authorised payment and because of that can not debit the customer’s account, the banker may recover the amount from the person to whom he paid it. Secondly, as long as the bank’s cheque clearance procedure was complied with and the bank was satisfied that the cheque was in order on its face, with nothing to arouse any suspicion about it, the bank cannot be held to have been negligent in honouring the cheque (at p.839c). Thirdly, the fact that a serial number of a cheque presented not following those cheques earlier presented could not be a possible reason for the bank being held negligent. That was on the basis that, many customers carry spare chequebooks and the bank will by no means necessarily receive cheques from their customers in any particular order (at p.839f). Fourthly, even if the amount involved is substantial and may be out of character compared to past operations of the account, the standing and integrity of the customer could operate against an inference of negligence. Having regard to those principles, Justice Kerr rejected the contention that the bank was negligent. In so doing, it found that the bank owed no duty of care to go beyond, when the cheque was in proper form and the customer’s signature appeared to be genuine.

In answer to an argument that simply by looking at the cheque, the bank had reason to know or doubt that the cheque was not genuine, Justice Kerr said these at page 851:

"In my view it should not be assumed, either as a matter of law or of fact, that any such doubt is likely to be whether or not the cheque is a forgery. If the payee has any doubt about this, then he should either disclose such doubt, or, if he chooses not to do so, he should not be entitled to treat the paying bank as an handwriting expert able to detect the forgery about which he himself is doubtful when the bank may have no reason to be doubtful at all."

(Underlying mine)

The case was considered in Barclays Bank v. W.J. Simms Ltd (supra) at pages 540 and 541. That case concerned payment on a cheque by the bank contrary to a stop payment instruction by its client, and upon finding the instructions, the bank sought to recover the payment but was refused. So the bank sued for a recovery of the amounts paid on the cheque. The court restated the general principle that a bank paying under a mistake of fact is prima facie entitled to recover. It then held in the particular circumstance of the case that, that such a recovery would not be possible if the payee in placing reliance on the payment, suffered detriment. The payee in that case did not prove the suffering of any detriment so the court made orders in favour of the bank. Justice Goff in that case, accepted Justice Kerr’s statement of the law in National Westminster Bank (supra) as correct.

The Barclays Bank case (supra), has been accepted, applied and followed in a number of other subsequent cases both in Australia and New Zealand. David Securities Pty Ltd &Ors v. Commonwealth Bank of Australia (supra) represent the Australian position. The facts of that case are distinguishable from the present case. In that case, it involved payment in foreign currencies by the bank under a loan arrangement under a mistaken belief that the monies were payable, which was not permitted by statute.

KJ Davies (1976) Ltd v. Bank of New South Wales [1981] 1 NZLR 262 represent the New Zealand position. That case involved a payment on a cheque in ignorance of a countermand on the cheque by the bank’s customer. The cheque was for a part payment of a debt owed to the bank’s customer. When the bank sued for a recovery of the amount paid the court of first instance ordered in favour of the bank. On appeal to the High Court of New Zealand, the Court held that, the bank was entitled to recover the amounts paid out on the cheque. That was because, the payment was made under a mistake of fact and the payees having not suffered any detrainment.

(d) Present Case

The above cases are distinguishable from the present case on the facts. The cheque in the present case was a total forgery as opposed to either a countermanding as in KJ Davies (1976) Ltd v. Bank of New South Wales (supra), or paying under a loan arrangement as in David Securities Pty Ltd &Ors v. Commonwealth Bank of Australia (supra), or a payment of a debt as in Barclays Bank case (supra).

In the present case, the Plaintiff did nothing more than pay on a cheque after going through its normal cheque clearance process and there was nothing to arouse any suspicion that the signatures were not genuine. In so doing, it merely held out that, it believed the signatures to be genuine as opposed to saying they were in fact genuine in the absence of any evidence to the contrary. There was no relationship between the Plaintiff’s customer and the payee on the cheque or the rogue, or the Plaintiff and the payee or the rogue. When the plaintiff became aware of the fraud, it immediately notified the Defendants. There is no evidence of the plaintiff having had notice of the fraud much earlier and failed to immediately notify the Defendants. The Defendants have failed to produce any evidence of any negligence. In the circumstance I find that the Plaintiff was not negligent in any respect.

(e) Recovery

The question then is, whether the Plaintiff is entitled to recover from the Defendant? The Defendants argue that, when the Plaintiff authorised the payment to be made on the cheque, it impliedly represented to them that, the cheque was valid and that the customer’s signature was genuine, and upon a reliance of that representation, they made the payment which was to their detriment. Therefore, its conduct or implied representation bars the Plaintiff from seeking a reimbursement of the amounts paid.

The Defendants have not shown by appropriate evidence that, the Plaintiff had reason to know that, the signatures of its customer was not genuine or it had reason to know that, the cheque was otherwise not genuine. Counsel for the Defendants only refers to the variations in the signatures on the cheque and the specimen signatures kept by the Plaintiff. That, as already been explained by Mr. Goodwin, it was normal for such variances not only in relation to this particular cheque but also, for other customers too. There is no evidence rebutting that.

I find on the basis of the available evidence that, CSC had reason to suspect that, the rogue was not one and the same person as the payee named on the cheque "Avoa Maria" because the rogue identified herself as "Avoa Maria John". The amount was substantial and in the absence of any evidence of the CSC having any prior dealing with the rogue involving such a large sum of money, it should have been placed on notice of the possibility of a false or fraudulent cheque being presented. In fact, Mr. Chiu Ho Chan of CSC was concerned over this and he says he carried out other inquiries but fails to disclose the inquiries he carried out and their outcome. There is no evidence of those concerns being communicated to the Plaintiff, as the Justice Ker in the National Westminster Bank (supra), suggests a payee in a case like the present should. Further, it was not CSC’s authorised or main business to deal with third party cheques. Traditionally that is the business of banks. Despite that, CSC chose to take it on itself to allow for the cashing of the cheque with substantial sums of money, in situations where it is not possible to determine the genuineness of the payee, the signature (s) on the cheque and the cheque itself. By that conduct, it assumed the risk of the cheque not being genuine. In expressing that view, I do not exclude the cashing of cheques for smaller amounts of money, given the difficulties we have in the country on the proper identification of people. Those who are prepared to accept such cheques must also be prepared to accept the risks involved. To avoid such risks, it is common knowledge that most business houses put out notices that unless prior approval has been given, no cheques will be accepted.

Hence, the detriment the Defendant’s claim they have suffered, is a consequence they voluntarily assumed by their own conduct. They are not coming to this court with clean hands. How could they expect this Court to uphold their claim and order the Plaintiff to suffer the consequences, when they themselves have not taken any step to protect themselves from the risks that were, in my view, inherent in the particular circumstances in which they facilitated a cashing of the forged cheque by the rogue? They were prepared to deal with the rogue with whom they had no prior dealing and more so in situations in which CSC had cause to inquire more than usual. There is no evidence from the Defendants, particularly CSC as to what steps it took to eliminate the inherent risks and or otherwise what made it to assume the risks of the cheque not being genuine. There is also no evidence showing why it chose to deal with the cheque when most business houses in the country do not readily accept cheques, even for smaller amounts as a form of payment.

For these reasons, I am of the view that the Plaintiff is not barred from recovering the funds from the Defendants. The Plaintiff did nothing more than just believed that the signatures were genuine and that the cheque was otherwise good for payment and honoured it. The Plaintiff did not put the Defendant to any greater risk than what the Defendants were themselves by their own conduct voluntarily prepared to put themselves to. The Defendants, especially, CSC had reason to suspect that the cheque was a fraud and carried our unspecified inquiries but did not inform the Plaintiff of that. Consequently, the Plaintiff was in no position to know of the concerns CSC had and treat the cheque as if it was genuine. Section 29 of the Bills of Exchange Act (Chp. No. 25), and the common law as stated in National Westminster Bank (supra), at page 836 g by Justice Keer, make it clear that a forged cheque " is in law not a cheque or negotiable instrument but a mere sham piece of paper."

On the basis of my above findings there shall be judgement for the Plaintiff with costs. The costs shall be without certification of overseas counsel. In arriving at that decision I reject the Plaintiff’s application for certification of its overseas counsel’s costs.

Overseas Counsel’s Costs

My reason for not certifying overseas counsel’s costs is simple. Whether or not to order and to certify overseas counsel’s costs is a discretionary matter. That discretion must be exercised on proper principles. Amet J (as he then was) refused to certify overseas counsel’s cost in McVie v. Woodward [1990] PNGLR 305at 314 because his Honour considered the case was not complex enough to warrant the assistance of overseas counsel.

In Peter Yewie Umai Timereke v. Duncan Martin Ferrie & Ors (unreported but numbered judgement) N379, Justice Pratt in deciding to certify overseas counsel’s costs took into account the fact that he was greatly assists by overseas counsel, the case raised important questions and were complex, the amount involved was considerable, the number of local experienced lawyers was very limited at the time and that the overseas counsel was imparting knowledge and skills to a local lawyer working with him on the case.

Subsequently, the Supreme Court in Ronald Emanuel Jordan v. Glen Hamilton Edwards [1979] PNGLR 420 per Prentice CJ laid down the relevant principles in these terms at page 421:

"I consider that the situation has now arrived where more and more nationals in this Independent State become involved in litigation, that the cost of importation of foreign counsel should usually be borne by the party briefing him. And it should be kept in mind that the institution of Queen’s Counsel is not recognized in our legal framework, and that fees on such a scale should not be allowed.

When considering whether an exception should be made in terms of the court’s Rule — the court, I believe, should take into account as the principal factors — the difficulty of the case (in particular whether it involves complex matters of law); the nature and extent of the rights involved; the expertise reasonably required for the nature of the particular lis; whether the smallness of the profession and of the community might cause embarrassment to the employment of resident counsel; and above all the necessity of keeping costs as low as possible and access to advice as wide and as even as possible."

We often speak of improving the level of advocacy and competence of Papua New Guinean lawyers and I believe that, quickly resolving to the engagement of overseas counsel will not assist in that aspiration. Besides, I note that Papua New Guinean lawyers do not get a reciprocal treatment in Australia, where most of the overseas counsels come from. I believe the time has come for a critical look at the practice of certifying overseas counsel’s costs as a matter of cause. The principles laid down by the Supreme Court in Ronald Emanuel Jordan v. Glen Hamilton Edwards (supra) should be considered in every case and applied. Before there can be a certification of overseas counsel’s costs, the party applying for such certification must in my view show to the satisfaction of the court the following:

1. The issues presented in the case are important and complex;
2. Those issues have not been raised and consider in an earlier case in the country;
3. There is no local experienced and capable lawyer to take on the case;
4. The amounts involved are substantial;
5. Reciprocal and or meaningful arrangements are in place to impart skills and knowledge to a Papua New Guinean with a specified period;
6. If the overseas counsel concerned has appeared as counsel in a case before, he or she has in fact imparted skills and knowledge to a local lawyer or lawyers
   

The above list is in no way exhaustive. A court may take other factors into account to determine whether or not to certify overseas counsel’s costs.

In the case before me, I appreciate and accept that, this may be the first case of its kind on the issues raised, in our jurisdiction. However, I do not accepted that the issues raised were so complex requiring the assistance of overseas counsel. There is neither any evidence nor can I accept that, after more than 20 years of independence Papua New Guinea still lacks experience and competent lawyers of her own. Indeed, the Defendants were ably represented by Mr. Titus who is a relatively young national lawyer perhaps with not much experience but he understood the issues alright and did greatly assisted the court as much has the Plaintiff’s overseas counsel did. I have nothing before me as to what skill and knowledge overseas counsel in this case imparted onto a Papua New Guinean lawyer in the context of this case or in any other respect. The amounts involved are not substantial, though K38, 600.50 is not a negligible amount. For these reasons, I have in the exercise of my discretion declined to certify overseas counsel’s costs.

Orders

Based on my above findings and reasons I make the following orders:

1. An order in the form of a declaration that Plaintiff is entitled to be paid the amount of K38,600.50 it paid to the First Defendant by warrant drawn on 17th April 1998;
   
2. An order that the said amount of K38,600.50 now in a term deposit with the First Defendant be repaid by the First Defendant to the Plaintiff;
   
3. An order that the Defendants pay the Plaintiff’s costs of and incidental to these proceedings.

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Lawyers for the Plaintiff: Allan Arthur Robinson Lawyers

Lawyers for the Defendants: Blake Dawson Waldron Lawyers