NEGLIGENCE - DUTY OF CARE - PROXIMITY - ASSUMPTION OF RESPONSIBILITY AND RELIANCE - DUTY OWED BY CUSTOMER OF BANK TO TAKE REASONABLE PRECAUTIONS TO PREVENT FORGED CHEQUES BEING PRESENTED

This appeal concerns the question of who should bear the burden of forged cheques, the customer or the bank. An employee of the respondent companies forged a large number of cheques, which were then presented to the appellant bank and debited to the accounts of the companies. Relying on the principle that when a bank pays out moneys without a customer's authority, that is, on the basis of a forged cheque, the bank bears the loss, the companies sued the appellant to recover some of the amounts.

The Bank argued unsuccessfully at trial that the narrow exceptions to the principle should be extended, and asked the court to hold that customers should be subject to an obligation to take reasonable care to prevent the presentation to their bankers of forged cheques. The Bank also argued that the companies should be estopped from denying the regularity of cheques signed by the employee because they knew of, and acquiesced in, her signing cheques for other purposes. These arguments were repeated on appeal. The Consumers Federation of Australia also sought leave to intervene as amicus curiae.

(1) The intervention of the Consumers Federation of Australia as amicus curiae should be allowed but should be limited to matters of public interest not dealt with by the other parties and should not intrude upon the detail of the particular relationships between the parties: Corporate Affairs Commission v Bradley (1974) 1 NSWLR 391; Breen v Williams (1994) 35 NSWLR 522; Ashmore v Corporation of Lloyds (1992) 1 WLR 446.

(2) The only exceptions to the general rule that a bank must bear the loss resulting from forged cheques are the well-established qualifications that a customer has a duty to take reasonable care in drawing a cheque to prevent fraudulent alterations of that particular cheque, and owes a duty to inform the bank of any forgery as soon as the customer becomes aware of it: Young v Grote [1827] EngR 527; [1827] 130 ER 764; Kepitigalla Rubber Estates Limited v The National Bank of India Limited [1909] 2 KB 1010; London Joint Stock Bank v Macmillan & Arthur [1918] AC 777; Greenwood v Martins Bank Limited [1933] AC 51; Commonwealth Trading Bank of Australia v Sydney Wide Stores Pty Ltd [1981] HCA 43; (1981) 148 CLR 304; Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd (1984) 1 LLR 555; [1986] AC 80.

(3) The appellant Bank has failed to show there are any circumstances justifying the creation or extension of the duties which customers owe to their banks:

(a) per Mahoney P and Waddell AJA: If the Court is to consider the creation or extension of duties which customers owe to their banks, it is relevant to know what is the nature of the duty the Court is asked to create or extend; why the customer's duties are to be changed; what is the additional duty proposed; and what are the benefits and the burdens which will result from the imposition of it. Taking these factors into account, the Court should not impose upon customers the duties proposed by the Bank.

(b) per Clarke JA: In cases involving economic loss caused by negligence, where the elements of reliance and assumption of responsibility are absent, the court must consider the policy considerations bearing on the question whether, in respect of the negligent class of act and the particular kind of damage which is relevant, it should hold that a relationship of proximity exists between the parties: Caltex Oil (Australia) Pty Limited v The Dredge 'Willemstad' [1976] HCA 65; (1976) 136 CLR 529; Bryan v Maloney (1995) 182 CLR 609. There being no evidence in the present case of reliance or assumption of responsibility, and no policy reasons which would suggest a different result, no relevant duty of care arose.

(4) It is impossible to contend that the companies owed to the Bank a duty of care as an implied term of the banker-customer relationship. Such a term is not necessary to give business efficacy to the contract, nor can it be said that the term "goes without saying": Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337.

(5) The fact that the companies knew of, and acquiesced in, the employee signing cheques for certain purposes and did not tell the Bank of these arrangements, did not constitute a representation to the Bank that the forged cheques could be paid, and thus did not generate an estoppel. Furthermore, the failure of the Bank to call evidence on matters solely within its knowledge is fatal to the argument that, had the Bank known these facts, it would have taken steps to avoid the risk of loss flowing from the employee signing her name to unauthorised cheques: Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298.

MAHONEY P: This appeal concerns the burden of forged cheques and who should bear it. The defendant bank National Australia Bank Limited ("the Bank") contends that, in this case, the burden should be borne by its customers. It has put its case in two ways: it has submitted that, as a general principle, the burden should be borne by the customer unless the customer has taken against the forgery precautions of the kind to which the Bank has referred; and it has contended that, because of what occurred in the course of their relationship, the plaintiffs, its customers in these transactions, should bear that burden. Insofar as the Bank's case is based upon general principles, the thrust of authority is against it; the Bank asks the Court to change the law. Insofar as its case is based upon the facts of the instant transactions, it must reverse the findings made by the trial judge Giles CJ of CommD.

The Bank desires to have rulings on issues of principle which it can apply generally in its business. No doubt for this purpose, the issues as they were before the trial judge have been simplified. I shall therefore, at this stage, state the parties and the issues in a simplified form.

Hokit Pty Limited ("Hokit"), Ryntip Pty Limited ("Ryntip") and Maurice A Cordony & Sons Pty Limited ("MAC") were customers of the Bank. The individuals who relevantly acted for those companies were Mark Cordony ("Mark") and Peter Cordony ("Peter"). The person employed by the companies who is said to have forged the relevant cheques is Mrs Joanne Banno ("Banno").

Banno forged many cheques and the amounts of the cheques were debited to the respective accounts of the companies. The companies have sued the Bank to recover some of those amounts. For reasons which are not now in issue, the companies have not sued the Bank in respect of all of the cheques. The reasons for this are detailed in the judgment of the trial judge and I shall not repeat them. No issue arises in this appeal as to what cheques are to be sued upon: the arguments of the parties have invited the Court to deal with issues of principle and to allow questions of quantification to be dealt with as and when the orders of the Court come to be formulated. This is a convenient course and it is appropriate that the Court follow it.

Banno is a party to the proceeding. The Court is informed that she has been served but she has taken no part in the proceeding. The contest has been between the Bank and the companies.

The Court has permitted The Consumers Federation of Australia ("CFA") to address limited arguments to the Court as amicus curiae. When Mr Rares SC sought leave to address the Court for CFA, his application was opposed by Mr Oslington QC for the Bank and supported by Mr Bennett QC for the companies.

When application is made by a person to intervene as amicus curiae, there are, in principle, at least three questions to be addressed: whether the Court has power to grant the application; (if it has) whether it should grant the application in the particular case; and (if it should) what form of intervention should be permitted and under what conditions.

What is in question in such an application is, of course, not that the intervenor be made a party; it is the grant of leave to the intervenor to address arguments to the Court. As to this distinction, see: Corporate Affairs Commission v Bradley (1974) 1 NSWLR 391 at 396 et seq.

For many years this Court has been of the view that leave may be granted to a person to address argument to the Court as amicus curiae. In earlier times, doubts were expressed as to whether the Court had power to allow arguments to be addressed to it in this way: see Corporate Affairs Commission v Bradley (1974) a NSWLR 391. However, the Court's practice is now well settled. Recently in Breen v Williams (1994) 35 NSWLR 522, Kirby P dealt with the issue at length. Meagher JA and I confined our attention to whether, in the circumstances, leave should be granted and held that it should not. There is, in my opinion, nothing in the Supreme Court Act or in the other legislation governing the powers of this Court inconsistent with the Court inviting and/or receiving submissions from persons who are not parties in this instant proceeding. The Court has invited and/or received submissions from relevant regulatory authorities in relation to, eg, the effect of the Corporations law, the Real Property Act 1900 and other legislation. Properly exercised, such a power can be of significant assistance to a court which, as this Court is, is the final court of appeal in a State of the Commonwealth, subject only to the grant of leave to appeal to the High Court of Australia. In the present case, the Court has acted upon the basis that such leave may be granted.

Whether leave to intervene should be granted must be decided having regard to all the circumstances of the instant case. However, ordinarily four matters at least require consideration: whether the intervention is apt to assist the court in deciding the instant case; whether it is in the parties' interest to allow the intervention; whether the intervention will occupy time unnecessarily; and whether it will add inappropriately to the costs of the proceeding.

The senior court of a State has, inter alia, two functions: it must do justice according to law in the particular case; and it must have regard to the requirements of the administration of justice in the State. I do not mean by this that it will do otherwise than justice requires in the particular case; it must not do otherwise merely because to do so would conduce to the interest of the State or the administration of justice generally. But what is justice in a particular case is not decided in a vacuum: it may be influenced by the ambient circumstances. In my opinion, it is proper for this Court to take into account the effect which the time devoted to, eg, intervention in the individual case will have upon the functioning of this Court and the discharge of its obligations to other litigants: see the observations upon matters of this kind by the House of Lords: Ashmore v Corporation of Lloyds (1992) 1 WLR 446 at 453; and by this Court: R v Greer (1992) 62 A Crim R 442 at 444, 448, 460; The Friends of Glenreagh Dorrigo Line Incorporated v Jones (Court of Appeal, 30 March 1994, unreported). Accordingly, in my opinion, the Court, in deciding such an application, may take into account whether the arguments likely to be addressed on the intervention will assist it in both deciding the instant case and in formulating the principle of the law for this State. The Court will take into account how far intervention in the particular case will affect its power either to do justice effectively, efficiently and timeously in the individual case, or to determine the law.

In addition, the Court may know and take account of the fact that persons seek to intervene for various reasons. Some have the desire and the capacity to assist both the instant case and the public interest. Some may seek to intervene for reasons personal to themselves, eg, to establish a public position or a reputation or to achieve a purpose which to the instant case is collateral. In the present case, the Court has concluded that CFA is a body apt to assist the Court in the decision of this case because of its involvement with the issues which have been raised and accordingly is apt to assist the Court in its deliberations.

Parties have the right - at least they may claim - not to have raised in their proceeding issues with which they do not wish to be concerned. Their wishes are relevant, though not conclusive, in deciding whether intervention should be allowed. It is not necessary to pursue the extent to which parties in a proceeding may have the Court decide the dispute by reference only to the issues they choose and without reference to, eg, more general issues or matters of public interest. But their claim not to have intruded into their litigation questions which they do not wish to raise is or may be a matter to be taken into account on an application such as this.

Time is a public resource and there is a public interest in the proper use of it. The Court will consider whether the benefit to be had from the intervention unnecessarily consumes its time. It may consider whether the delay which the intervention causes will unnecessarily prejudice the parties or other litigants who come before the Court.

The legal costs of and arising from an intervention may be substantial. In the present case, they may be so: the interests before the Court have been represented in this appeal by three senior and three junior counsel and by their respective solicitors. The Court must consider whether the benefit of intervention will justify the cost of, for example, an extra day's proceedings. Such matters may lead the court to require that the intervenor pay some or all of the extra costs involved.

In this case the Court concluded that intervention should be allowed, to the extent to which I shall refer. It concluded that intervention should be limited to matters of public interest: it should not intrude upon the detail of the particular relationships between the parties. It limited the intervention accordingly.

It concluded that it should allow intervention in relation to matters of public interest broadly to the extent that the relevant matters had not been dealt with by the parties. It concluded that there was no benefit in allowing intervention to duplicate what had already adequately been done. Accordingly, it indicated to Mr Rares SC that he should, or might, attend upon the arguments put to the Court by the Bank and the companies and at the end of them could make such application for intervention as the state of the argument then appeared to warrant. The Court did not find it necessary to spell out with precision the parameters of what could and could not be said by CFA. It indicated that it would read the detailed written submissions which had been provided by CFA to the Court and to the parties and that it would allow a limited expansion by oral argument of those and other matters relevant to the public interest issues. The parties were afforded the opportunity to reply to what was put by the intervenor.

In outline the facts may be stated in the form set forth in the written submissions of Mr Oslington QC for the Bank. They are as follows:

"1. Hokit, Ryntip and MAC operated hairdressing salons in various locations in Sydney. In general terms nothing turns on the distinction between the three companies and we refer to them as 'the companies' except where relevant.

2. The companies employed Banno as a bookkeeper/business administrator until June 1994.

3. In the period 1990 to 1994 Banno signed cheques of the companies in the name of Mark and in the name of Peter prior to Peter ceasing to have any involvement with the companies in October 1991.

4. At all relevant times Mark controlled Hokit, and MAC and after Peter ceased to be involved with Ryntip in October 1991 Mark also controlled that company. Except for the period 1990 to 1991 when Peter Cordony was a signatory on the Ryntip account, the signatories were Mark, and in the case of Hokit Mark and his wife, Vicki Cordony and in the case of MAC, Mark and Mr Maurice Cordony, Mark's father.

5. Over the period of four years Banno signed a total of more than 530 cheques in amounts totalling $675,000 in Mark's name and on a small number of cheques in Peter's name. The companies did not ultimately seek to recover all of these amounts from the Bank because a number of them were used to pay creditors of the companies and others were accepted as having been used in part to pay head office wages. At the hearing the following amounts were claimed by the companies:

There were also two unsigned cheques totalling $628.78 which were paid. These in the handwriting of Banno and were for her benefit. There were also cheques signed in the name of Peter totalling $15,146, which were also claimed by the companies.

6. There are 5 different classes of cheques which were signed in this four year period by Banno mostly in the name of Mark:

(a) cheques which were made out and negotiated but which on the cheque butt were shown as "cancelled";

(b) cheques made out to one person for one amount but which on the butts were shown as a different amount and a different payee;

(c) cheques made out to cash in one amount but which on the butt showed a different amount;

(d) cheques which were made in the names of creditors of the companies and negotiated to those creditors of the companies. These cheques were not ultimately the subject of the companies' claims;

(e) cheques made out to cash that were used to pay head office wages of Hokit.

7. Mark knew that Banno was signing head office wages cheques in his name.

8. Mark knew that Banno was writing amounts on the cheques which were higher than the amounts recorded in the books of the companies.

9. Mark allowed Banno to sign his name on cheques and also gave her signed blank cheques as a means of obtaining cash for himself and for Banno in amounts larger than were recorded."

The details of the facts are stated at length by Giles CJ of CommD. I shall refer to them only as far as it is necessary to do so to deal with the issues posed for decision in this appeal.

The arguments, as presented for the Bank, involved propositions to the following effect:

(a) In general, a payment by a bank pursuant to a forged cheque does not reduce the amount which the bank, as banker, owes to its customer.

(b) However, there are cases in which such a payment may so operate.

(c) Under the existing law, a case in which the customer has, in the sense here relevant, not acted with care in his own interest is not such a case.

(d) The Court should depart from the existing law and establish new law for such a case.

(e) In any event, in this case the companies are, on the facts, estopped from claiming that the Bank was not authorised to meet the relevant cheques or at least a substantial number of them.

Having regard to the findings of the trial judge and the way in which the matter has been argued on appeal, it has not been necessary to pursue issues of onus. The outcome of the appeal may be determined by reference to these propositions.

5. THE EFFECT OF PAYMENT OF A FORGED CHEQUE: THE GENERAL RULE:

The relationship between banker and customer has been and remains one essentially of debtor and creditor: Foley v Hill [1848] EngR 837; (1848) 2 HLC 28; London Joint Stock Bank v Macmillan (1918) AC 777 at 814, 830. The rights and obligations of that relationship and the legal incidents of it are to be determined accordingly. Therefore, prima facie, unless the customer has authorised the bank to make payments in reduction of its indebtedness - or is estopped from denying that it has - the debt remains. Discharge of the debt is to be determined primarily by reference to authority and estoppel: see generally Orr and Barker v Union Bank of Scotland 1 Macq 513 at 522; Macmillan's case at 823 per Lord Shaw of Dumferline.

But the relationship of banker and customer is, of course, a more complicated form of the relationship of debtor and creditor. The Bank has submitted that the rights and obligations ordinarily to be derived from the relationship of debtor and creditor are to be modified. The Bank has submitted that the modification is required by the complications which the relationship of banker and customer introduces into the debtor creditor relationship; by the fact that there is between the parties a "proximity" which requires the imposition of an additional duty upon the customer; and by the relevant legislation. It is, in substance, about these three things that the argument has turned.

6. THE CIRCUMSTANCES IN WHICH IT HAS BEEN HELD THAT FORGED CHEQUES MAY BE DEBITED TO THE CUSTOMER:

Particular circumstances of estoppel apart, there are relevantly only two qualifications of the general principle to which I have referred. First, it is settled that a customer/creditor has a duty to take usual and reasonable precautions in drawing a cheque to prevent a fraudulent alteration of it which may occasion loss to the banker: for convenience I have paraphrased the headnote in Commonwealth Trading Bank of Australia v Sydney Wide Stores Pty Ltd [1981] HCA 43; (1981) 148 CLR 304. And, second, the customer has a duty to inform the Bank of any forgery as soon as the customer becomes aware of it. These exceptions have been established or affirmed in the Macmillan case; Greenwood v Martins Bank Limited (1933) AC 51; and Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd (1986) AC 80. Macmillan and Greenwood were discussed and followed in the Sydney Wide case.

The existence of these two qualifications has been referred to in the texts: see Halsbury's Laws of England (4th ed), Vol 3, par 40; Weaver & Craigie on Banker and Customer, Vol 2, par 13.690; Paget on Banking (10 ed, 1989) at 221.

7. IS THERE A FURTHER QUALIFICATION TO THE CUSTOMER'S DUTY? The four cases to which I have referred are the main cases in which the law in this regard has been determined. Counsel have referred to and the Court has considered a number of other cases, in Australia, England and elsewhere. It is no discourtesy to counsel and the industry of their preparation that I confine what I say to what has been established in the decisions of the High Court, the Privy Council and the House of Lords.

In my opinion, the effect of Macmillan, Greenwood and Tai Hing is that the two qualifications to which I have referred are (special cases apart) the only qualifications to the general principles: see, eg, Macmillan: (1918) AC at 795 per Lord Finlay LC. This, in my opinion, was held by the Privy Council in the Tai Hing case. In that case, the question whether there were further qualifications to the general principle was posed, considered and determined. The Privy Council there considered a fraud which had continued undetected for five years and involved some $HK5.5 million or more: at 98. The fraud had remained undetected essentially because the officer of the customer company whose duty it was to check the company's banking records had not done so; the company's system was "unsound": at 99.

The relevant bank accepted that there were to the general principle the two qualifications to which I have referred: at 101. The company contended that there were only those two qualifications: at 97D; the bank contended that there was a wider qualification: at 101E; and submitted that as one of the "necessary incidents of" the banker-customer relationship the company was under a duty to check its monthly accounts.

Their Lordships, after a review of Macmillan and Greenwood, concluded that those cases established that there were only the two qualifications to which I have referred. The bank, in its submissions, was inclined to accept that this was so. But, it submitted that, however that be, since Macmillan and Greenwood, the law had changed: at 101H. The bank contended that "... the obligations of care placed upon banks in the management of a customer's account which the courts have recognised have become with the development of banking business so burdensome that they should be met by a reciprocal increase of responsibility imposed upon the customer ...": at 105-6. Such a submission was made by the Bank in this case.

Their Lordships did not accept that an extension of the obligations of the customer was warranted. The two established qualifications arose, in their Lordships opinion, as "plainly necessary incidents of the relationship": at 106B. But they concluded that the further qualification did not arise, either in contract or in tort, and they accepted in terms the formulation of the duty of the customer by Bray J in the Kepitigalla case (1902) 2 KB 1010 at 1025-6. Their Lordships said:

"For these reasons their Lordships answer the general question by accepting the submission of the company that in the absence of express terms to the contrary a customer's duty is in English law as laid down in Macmillan and Greenwood. The customer's duty in relation to forged cheques is therefore twofold: he must exercise due care in drawing his cheque so as not to facilitate fraud or forgery and he must inform his bank at once of the unauthorised cheques of which he becomes aware."

The position of the customer was referred to by the High Court in Commonwealth Trading Bank of Australia v Sydney Wide Stores Pty Ltd [1981] HCA 43; (1981) 148 CLR 304. In that case, the customer had drawn cheques in the form "Pay CAS or order". An employee had altered the cheques so as to make them read "Pay CASH or order" by adding "H" after the letters "CAS". The customer sued the bank in respect of the amounts debited to its account because of the altered cheques. The bank, by way of defence, pleaded that the company "owed a duty of care to the (bank) in relation to the drawing of cheques upon it" and that the company had "acted negligently in relation to the subject cheque". It gave two particulars of the negligence: that the company had drawn the cheques in such a way as to "facilitate the conversion of the name of the payee for (sic) 'CAS' to 'CASH'"; and that "it failed to discover the continuing frauds being committed by its employee ... and thereby enabled him to fraudulently alter further cheques drawn by the plaintiff on" the bank: at 308.

The trial judge had properly held himself bound by the decisions of the High Court and the Privy Council in Marshall v Colonial Bank of Australasia [1904] HCA 31; (1904) 1 CLR 632; (1906) 4 CLR 196. In Marshall, it was held that the mere existence of blank spaces in the cheque did not disentitle the customer to relief. In the Sydney Wide case, the court over-ruled its own decision and did not follow the decision of the Privy Council in Marshall. It held that there was a qualification to the general principle of the kind established in Macmillan.

In that regard, the Sydney Wide case does not add to what I have said. But, it was submitted, the High Court in that case did not hold that the two qualifications in question were the only qualifications to the general principle. That matter was not, in terms, determined: the facts did not pose it for decision. However, at the end of the joint judgment of the majority: at 316-7; their Honours said:

"Macmillan dealt with the drawing of a cheque in such a manner as to facilitate by forgery an increase in the amount for which it was drawn. The judgments contain nothing which restricts the duty or its scope to the possibility of loss by such means, that is, the filling in of gaps created by the manner in which the amount has been written in words and figures. But there is no occasion to pursue the question whether the duty of care extends to the drawing of a cheque in such a manner as not to facilitate a fraudulent alteration in the name of the payee, a question of the kind that arose in Slingsby v District Bank Limited (1932) 1 KB 544. We have merely to decide whether the primary judge was correct in following Marshall in preference to Macmillan, a matter which he determined as a question of law at the threshold of the case. The primary judge was, of course, bound to follow Marshall. We are at liberty to depart from it. For the reasons already given the principle enunciated in Macmillan is to be preferred to that stated in Marshall.

The question of law submitted for determination by this Court may be answered by saying that, arising from the contract between banker and customer, there is a duty upon the customer to take usual and reasonable precautions in drawing a cheque to prevent a fraudulent alteration which might occasion loss to the banker.

Whether the respondent was in breach of his duty by neglecting some usual and reasonable precaution in the drawing of the cheques is a question of fact and is one of the issues to be determined by the tribunal of fact."

Accordingly, as far as it may be relevant, the position upon authority is that Macmillan and Greenwood, as authoritatively construed by Tai Hing, establish that the duty of a customer is not extended beyond the two qualifications to which I have referred. There is no decision of the High Court to the contrary. The decision in S_ydney Wide_, given before Tai Hing, does not in terms consider the possibility of further qualification but, it may be, it leaves the possibility open.

If the Court is to consider the creation or extension of the duties which customers owe to their bankers, it is relevant for it to know, inter alia, four things: what is the nature of the duty the Court is asked to create or extend; why the customer's existing duties are to be changed; what is the additional duty proposed; and what are the benefits and the burdens which will result from the imposition of it.

The Bank asks the Court to hold that customers should be subject to an obligation to take reasonable care to prevent the presentation to their bankers of forged cheques. (I shall refer subsequently to the submissions made as to the content of that obligation in the present case). In considering that submission it is relevant to have regard to the nature of the two obligations to which presently customers are subject. The precise nature of them has, I think, not been definitively determined. In some cases they have been seen as obligations in contract: as a promise by the customer on which the Bank may sue or a warranty by the customer which may be pleaded in defence to the customer's claim against the Bank for repayment of the debt which the Bank owes to it. In some cases the obligation has been said to lie in tort. It has been submitted that the customer may be liable to be sued as a tortfeasor if it, eg, so draws its cheque as to allow of its alteration, as referred to in Macmillan and in Sydney Wide. On that basis, the customer would be liable to the Bank in damages for the amount paid on the forged cheque.

In other cases the basis of the existing obligations has been seen to be based differently.

The contractual basis provides no analytical difficulty. In Tai Hing: at 104 et seq; the Privy Council accepted that implications may be drawn from the nature of the contractual relationship between banker and customer. The obligation now proposed would be implied as a term of the contract if otherwise the whole transaction would become "inefficacious, futile and absurd".

However, I confess to more difficulty in understanding the basis of these two obligations as being in the tort of negligence. In the cases in which these obligations have been discussed, "negligence" and similar terms have frequently been used to describe the obligation or the basis of the obligation which a customer owes to its banker. But such terms as "negligence" have been used to signify different things. Sometimes such terms signify the tort of negligence. But sometimes they are used in a more extended sense, "simply as an element in some more complex relationship or in some specialised breach of duty": Grant v Australian Knitting Mills Ltd (1936) AC 85 at 103 per Lord Wright. See, for example, "negligence" as a necessary ingredient in a claim based on unintentional trespass: Fowler v Anning (1959) 1 QB 426. See generally Salmond on Torts (9th ed, 1936) at 454 and the references there cited.

In some cases it has been suggested that the lack of care of a customer in, eg, preventing the alteration of the amount of a cheque constitutes a tort, that the banker's loss from the payment of the forged cheque is a loss recoverable in tort, and that the customer's duty properly to fill in a cheque as illustrated in Macmillan warrants the banker suing the customer in tort to recover its loss. This apparently was the basis in Swan v North British Australasian Co [1863] EngR 560; (1863) 2 H & C 175 at 189-90; see the Sydney Wide case at 311.

Mr Oslington QC has, in his argument, suggested such a basis. He has, inter alia, submitted that the modern concepts of proximity as illustrated in Sutherland Shire Council v Heyman (1985) 155 CLR 424; and the more modern concepts of causality derived from the Wagon Mound litigation: [1961] UKPC 1; (1961) AC 388; warrant the conclusion that in the present case customers owe to their bank a duty to take precautions against forgeries breach of which gives rise to a tortious liability in damages.

I confess to difficulty in accepting this as the basis of the duty derived from Young v Grote (1824) 2 Bing 253; and adopted in Macmillan or of the extended duty which the Bank has now proposed. Such a view assumes that, as early as Young v Grote, the courts had accepted that there was a tort of negligence and that, in an action upon that tort, the bank could recover (as the loss there involved was) pure economic loss. The acceptance of the tort of negligence took place only in the early 20th century and the recognition of pure economic loss as recoverable in damages occurred later. The duty to avoid negligence in the drawing of a cheque (the duty at issue in Young v Grote) was, in my opinion, of a different kind. It lies, I think, in the area o estoppel. This, in my respectful opinion, is the basis assigned to it by Best CJ in Young v Grote. The Chief Justice, after categorising the customer's action as negligent, found against the customer because the negligence had misled the bank into paying upon the forged cheques. In the concluding sentence of his judgment, Best CJ said: "We decide here on the ground that the banker has been misled by want of proper caution on the part of his customer".

If the basis of the existing obligations lies in tort then, of course, they operate not by way of defence but by way of counter-claim or cross-action: the bank would plead to the customer's claim a cross-action or counter-claim for damages in tort. But that does not appear to be the way in which these two obligations have been relied upon in the definitive cases. In the Macmillan litigation: (1917) 1 KB 363; (1917) 2 KB 439; (1918) AC 777; the pleadings are not detailed. But it is not there held that the customer's negligence supported a cross-claim for tortious damages: cf (1918) AC at 787. Lord Finlay LC, in his speech: at 793; adverted to estoppel as the basis of Young v Grote and added:

"Sometimes it has been said that the payment must be allowed in account with the bank in order to avoid circuity of action, the customer being liable to the bank for his negligence, and this latter was the ground on which Cockburn CJ rested the decision in Young v Grote [1827] EngR 527; (4 Bing 253) (Swan v North British Australasian Co [1863] EngR 560; (2 H & C 175, 189, 190)). In whichever of these ways it may be put, the ground is really one and the same - as the negligence of the customer caused the loss, he must bear it": at 793-4.

In the Sydney Wide case, the negligent conduct of the customer was pleaded by the bank as part of a claim of estoppel: see the form of plea at 305. Insofar as it may be relevant, I think that, special cases apart, the "negligence" of the customer in the drawing of a cheque contrary to the Macmillan duty is to be seen as an act by the customer which induces the bank to pay the forged and not the correct amount and estops the customer accordingly.

The argument in the present case has assumed, in my opinion correctly, that the obligation now proposed is, if it exists, of the same nature as the existing obligations of the customer. That is not without significance in considering whether it should be held that such is an obligation of the customer. If the obligation lies in contract, the existence of it will depend, as was said in Tai Hing, upon the implications necessary to the efficacy of the banker-customer relationship. The justification for the implication of the term can be assessed accordingly. If the obligation lies essentially in estoppel, there is, I think, more difficulty in justifying the imposition of the obligation. The Bank's submission is, of course, that the obligation exists in every case. The imposition of the obligation can be justified where "the banker has been misled by want of proper caution on the part of his customer". But in many cases in which forged cheques are presented, what the customer has done or omitted has in fact had no operative effect in misleading the banker or persuading it to pay the forged cheque. Thus, if banking procedures or the procedures of the customer be such that the bank in fact is not influenced by the signature on the cheque or the circumstances of it, the bank will escape liability notwithstanding that there has in reality been no estoppel. I shall not pursue these examples further. It is sufficient to conclude, as I do, that if the proper basis of the proposed obligation be in estoppel, it is inappropriate to impose it upon customers generally and irrespective of whether, on the facts, an estoppel exists.

I come now to consider whether, whatever be the form of it, there is justification for the imposition of the proposed obligation. If such an obligation is to exist, it is relevant to ask what is the mischief to which it is directed, how far it will remove that mischief, and at what cost.

The Bank's contention is that it is unjust that the banker should bear the burden of forged cheques when, in a practical sense, it has little or no possibility, by ordinary precautions, of detecting the forgery: see the Sydney Wide case at 315. In Tai Hing, the bank's contention was, as I have indicated, that "the obligations of care placed upon banks in the management of a customer's account which the courts have recognised have become with the development of banking business so burdensome that they should be met by a reciprocal increase of responsibility imposed upon the customer ...": (1986) AC at 105-6.

But it is, I believe, relevant to know what is the extent of the burden imposed upon a bank and what that represents in the context of the bank's operations. In argument before the Court, counsel have not referred the Court to evidence on these matters. There has, for example, been no reference to the number of forgeries with which a bank must cope, their relationship in number and amount to the transactions with which the bank deals, the quantum of the loss caused to the bank by them, and the extent of the loss and/or inconvenience caused to the banking system by the present state of the law. No attempt was made to examine what part signatures (genuine or forged) play in the process by which the Bank, or banks generally, deal with cheques. It does not appear, for example, whether the Bank, in its ordinary procedures, makes any attempt to check the genuineness of the signature upon cheques presented to it. As far as appears, its procedure may be that it pays any cheque - any cheque on the cheque form issued by it in relation to the relevant account - irrespective of the signatures which appear on it. It may be that it has concluded that no purpose will be served by checking signatures and that it should, for the purpose of testing the genuineness of a cheque, rely upon the fact that the cheque is, for example, marked, electronically or otherwise, so that it may be identified. It does not appear whether, in a practical sense, signatures any longer play a relevant part in this aspect of banking procedure.

In the absence of information upon matters such as these, it is, I think, difficult to determine precisely the relationship between the mischief suggested and the remedy proposed.

The obligation which the Bank proposed and what it requires has been stated in various ways. The proposal that customers should be under an obligation to take reasonable care to prevent forgery or to detect it has about it an attractive simplicity. But the implications of it go further. In the course of his statement of the position taken at the trial, the learned trial judge referred to the submissions which the Bank had in this regard made. In dealing with the Bank's argument generally, his Honour recorded the Bank's contention to be: "... that the plaintiffs owed to it a duty, as an implied term of the banker customer relationships or under the general law in tort, to take care to prevent forgery of cheques and detect unauthorised cheque transactions ...". Subsequently, in relation to that duty, his Honour said:

"The Bank submitted that the plaintiffs owed to it a duty:

(a) to exercise reasonable precautions to prevent forged cheques being presented to the Bank;

(b) to have in place, and implement, systems by which senior management of the plaintiffs could ascertain within a reasonable time whether their accounts were being debited with amounts not authorised by the plaintiffs;

(c) if the plaintiffs' accounts were not audited by external accountants, to carry out audits or checks by appropriately qualified officers of the plaintiffs; and

(d) if the directors of the plaintiffs were not sufficiently qualified or experienced to carry out an audit or check of the accounts, to engage external accountants to carry out audits."

It was by reference to matters such as these that presumably the consequence of the imposition of such a duty upon customers was to be assessed.

In the present appeal, the Court sought from Mr Oslington QC, for the Bank, a statement of what in fact the companies should have done in order to discharge the duty of care suggested to exist. Mr Oslington QC confined the Bank's contention in this regard to a check of the butts and the bank pass sheets. Counsel should not, I think, be taken by this to have confined his case irrevocably to that single precaution. It may be that that precaution alone would, in the present case, have led to the early detection of many, most, or perhaps all of the instant forgeries. But what I am here considering is whether it is appropriate that the suggested duty of care be imposed upon customers generally and what, generally, is apt to be the effect of the imposition of a duty framed in this way.

Like all obligations framed in such an indeterminate way, it would cast upon those who must bear it a number of practical burdens. Thus, the customer must determine what are the potential sources of forgery, ie, the various ways in which, in its organisation, forgery may take place. It is not necessary for me to attempt a full statement of them. But they would include forgeries by a person authorised to have the customer's cheques who misused them in any of a number of possible ways. It would include a person who was not authorised to have the customer's cheques and who came by them in any of a number of possible ways. It would be necessary for the customer to make, and maintain, provision against each of these possible sources of forgery - at least all of them which were not "far-fetched": cf the obligations of a defendant in negligence, as discussed by Mason J in Wyong Shire Council v Shirt [1980] HCA 12; (1980) 146 CLR 40.

It would be necessary for the customer - in a context such as that of the present case - to examine its banking records, eg, its cheque butts and pass sheets, with sufficient frequency to detect forgeries which had occurred. In a large organisation, that could impose a considerable burden. The precautions taken by the organisation against fraud may take a different form. But, of course, the mere examination of cheque butts and pass sheets, as suggested, would not disclose all forms of forgery. Forgeries may take place where there is no difference between the butt and the cheque.

No useful purpose will be served by pursuing examples. The problem of deciding what precautions constitute "reasonable care" is one cast upon all potential defendants in negligence. And I am conscious that answers, partial or total, may be available in respect of any example taken. But the point remains that, to prevent the various kinds of forgery which may be envisaged, the customer would be required to take precautions of various kinds and of various degrees of complexity. The Court has no evidence to shown what would be the cost to the customer of doing what such an obligation involves. That cost may be large or small depending on, eg, the size and circumstances of the customer and its business. But the obligation, if it is to be imposed, is to be imposed on each customer, large or small.

It is relevant to consider also what benefit would flow from the imposition of such an obligation on the customer. It is appropriate to consider the relationship between the burden imposed and the benefits likely to flow from the imposition. The evidence does not assist the making of such an assessment. But, in my opinion, it is proper to think that such reasonable precautions will not prevent all forgeries: some will occur despite what the customer does. The bank will continue to bear the burden of those forgeries. And the evidence does not assist in the quantification of what that burden will be.

I am of the opinion that the Court should not impose upon the bank customers the duties proposed by the Bank. As I have indicated, the existing law operates, to an extent, to impose upon a bank the burden of a default, namely, forgery, for which it was not responsible and which, in many instances, it cannot detect. However, the size of that burden is not apparent. The Bank may relieve itself, overall, of the burden by taking into account the economic effect of it in determining the fee to be charged to customers for the management of their current accounts. It may - as far as the evidence before the Court indicates - place the burden of it upon customers by a term of its contract with them.

The remedy suggested by the Bank may serve to reduce the quantum of forgeries although experience suggests the cynical conclusion that it will not prevent them altogether. However, to varying extents, the burden cast upon the customer will bring with it not insignificant expenditures. The proportion between the burden to be borne by the customer and the forgeries otherwise borne by a bank does not appear from the material before the Court. And it is not apparent how far the mischief may be remedied by an alteration of existing bank procedures.

Matters of this kind have been the subject of consideration by the legislature or by bodies associated with it. Matters such as these have been open for consideration by the legislature and, had the mischief been felt sufficient to warrant a formal remedy, particularly the present remedy, that could have been brought about by legislation. That has not happened. I do not think that the legislation referred to by Mr Rares SC involves the explicit or implicit acceptance by the legislature of the present situation in a way which would prevent the Court dealing with this matter in favour of the Bank. But I do not think that, having regard to what has been and has not been done by such bodies, a change in the law by the Court is warranted.

The parties have, in their submissions, detailed the position said to obtain in this regard in other countries. In general, the Macmillan position, as I have stated it, appears to be taken in many countries. Insofar as it is not the position in the United States of America, the law there accepted may result from the practice or requirement that individual cheques be returned to customers upon completion of banking transactions. However that be, the existing law and practice in other countries provides, to an extent, a reason supporting the conclusion to which I have come.

I come now to consider whether the companies are estopped from denying that the Bank was authorised to pay the cheques here in question. The learned judge held that they were not. I am in general agreement with his conclusion and his reasons for that conclusion. I agree with the views expressed by Clarke JA, which I have had the benefit of considering.

In my opinion there is nothing in what the companies did or permitted to be done which constituted a representation to the Bank that the cheques here in question could or should be paid. It is true that in respect of some of the forged cheques it is accepted that no claim can be made upon the Bank. But what happened in relation to those cheques was not such as to give the Bank to understand that it might meet the cheques here in question. In my opinion the Bank met the present cheques merely because, in the ordinary course of its business and the way it conducted it, nothing suggested to the Bank that it should not do so.

But, the Bank's submissions have suggested, "negligence" in the conduct of a customer's business may give rise to a representation or inducement to the Bank to act in a manner otherwise than it would have done. This, as I have said, is the view adopted by Best CJ in Young v Grote in relation to the form in which the cheque was drawn: the form in which the customer drew the cheque, permitting of alteration, caused the bank to be misled into thinking that it could pay the altered amount.

It has sometimes been said that, in a contest between persons damaged by the default of a third party, the burden should be borne by the person whose negligence contributed to the default: see Macmillan (1918) AC at 794. However, that principle does not, I think, apply in the present case. For it to apply, it would be necessary for this Court to hold that the companies owed a duty to the Bank to do what they did not do and that it was the breach of that duty, eg, to take care in respect of the custody and checking of its banking records, which caused or contributed to the acceptance of the forged cheques by the Bank. But, for the reasons to which I have referred, the companies owed no duty to the Bank to do or not to do what in the present case (as the Bank contends) led to the forgeries and led to the Bank accepting the cheques. Unless there be such a duty, there is no negligence. Accordingly, in my opinion, there is no estoppel by reason of what the companies did or did not do.

For these reasons I am of opinion that the appeal should be dismissed with costs.

CLARKE JA: The first, second and third respondents (the companies) sued the National Australia Bank Limited (the Bank) to recover moneys debited from their accounts without authority. The Bank accepted that the moneys in contention had been debited as a consequence of the presentation of forged cheques and that, prima facie, it was liable to the companies. It defended the claim on three grounds:

(1) As a partial defence, it contended that some of the cheques bearing forged signatures were drawn with the authority of the relevant plaintiff, albeit not signed by an authorised signatory, because Mrs Banno (an employee of the companies) had been authorised to sign them in the name of Mr Mark Cordony, who had effective control of the companies.

(2) It contended that the companies knew that Mrs Banno was signing cheques in the name of Mr Mark Cordony, acquiesced in that practice, did not tell the Bank what was occurring, and were precluded from denying the regularity of the cheques signed in his name.

(3) The companies owed to the Bank a duty, as an implied term of the banker-customer relationships or under the general law in tort, to take care to prevent forgery of cheques and to detect unauthorised cheque transactions, that they were in breach of that duty by at least September 1991, that damages for that breach equal to the amounts of the forged cheques in respect of which the companies claimed from that time could be set off against, and nullified, most of the companies' claims.

The trial was conducted before Giles CJ of the CommD who accepted the partial defence but rejected the two substantial defences and entered judgments in favour of the respective companies for the amounts deducted from their accounts without authority.

The Bank challenges this judgment and contends that the time has now arrived when the law in Australia should recognise that customers of a bank owe a duty of care to the Bank, putting it broadly, to exercise reasonable precautions to prevent forged cheques being presented to the Bank.

The factual context out of which the fundamental question arises may be shortly stated in a way which omits reference to matters of detail concerning the companies which are of no relevance to the resolution of the appeal. The companies operated hairdressing salons in Sydney and surrounding centres. They were administered from an office at Parramatta consisting of one large room occupied initially by Mr Peter Cordony, Mr Mark Cordony and an administration manager Ms Debbie Ward. Approximately 90 employees worked at the various salons each of which had a manager and staff. At the time with which this judgment is concerned Mr Peter Cordony had ceased to have any operative part to play in the administration of the companies and I will not make further reference to him.

In early 1990 Mrs Ward indicated that she intended leaving her employment. As a result of advertisements Mrs Banno applied for the job of Administration Manager. She was successful in her application and commenced employment in February 1990. She was not then, or ever, made an authorised signatory on the bank accounts of any of the companies. Notwithstanding she forged the signatures of Mr Mark Cordony on a great many cheques leading to the debiting of the accounts of the companies in an amount in excess of $500,000.

In late May 1994 Mr Mark Cordony had difficulty in obtaining from Mrs Banno records of bankings earlier in that month from one of the salons. He became suspicious and, upon discovery of what he believed to be a cheque bearing a forged signature, he confronted Mrs Banno. She then confessed to taking money from the companies.

The forged cheques were of various kinds. In some cases the cheque butts recorded a cancelled cheque with nil value but the cheques were in fact made out and negotiated. In other cases the cheques were made out to different payees (including to cash), for different amounts, or both, from the payees and amounts recorded on the cheque butts. In these instances the payees recorded on the cheque butts were appropriate for normal business expenditure. In other cases, again in relation to cash wages cheques, the cheques were made out for different amounts from the amounts recorded on the cheque butts. In addition Mrs Banno forged the signatures of both Mr Peter Cordony and Mr Mark Cordony on cheques which were used to pay legitimate expenses of the companies. No claim was made in respect of those cheques. The companies claimed in respect of a total of 479 cheques bearing forged signatures, of which 244 were drawn on the account of Hokit Pty Ltd (Hokit), 153 were drawn on the account of Ryntip Pty Ltd (Ryntip) and 82 were drawn on the account of Maurice A Cordony & Sons Pty Ltd (Cordony).

In considering the first, and partial, defence his Honour made some important findings of fact upon which the Bank relied. The cheques relevant to this defence were forged cheques for head office wages and cash cheques drawn on the account of Hokit in the period October 1991-December 1992. The first relevant finding made by his Honour was expressed in these terms:

"It emerged that Mr Mark Cordony had been paying Mrs Banno cash in addition to the wages recorded in the wages book, and his explanation that he did so from his own drawings for wages and why he did so strains credulity. When Mr Mark Cordony was questioned concerning the sources of payment of his own living expenses it became clear, in my view, that he was taking for himself significant cash from the companies' funds or entitlements. In my opinion, on the whole of the evidence, it should be concluded that the head office wages cheques were a means by which he did so, including to pay Mrs Banno the additional cash, and that at least the cheques signed by Mr Mark Cordony for amounts greater than recorded on the cheque butts were known by him to be for greater amounts."

The second relevant finding was that Mr Cordony knew that Mrs Banno was signing head office wages cheques in his name.

The Bank submitted that the authority given to Mrs Banno to sign the head office wages cheques, or at least knowledge that she was doing so, together with her forged signature of a large number of cheques for legitimate expenses of the companies, should lead to the conclusion that Mr Mark Cordony authorised her to sign cheques generally and knew that she was doing so. His Honour rejected this contention saying that he was not persuaded that Mr Mark Cordony knew of, and acquiesced, in Mrs Banno signing in his name cheques other than for head office wages.

It is convenient now to turn to the points raised on the appeal. Insofar as the argument primarily focused on the third contention it is convenient first to deal with it.

At the trial the Bank made four fundamental submissions which were repeated upon the hearing of the appeal. It is important that I set them out:

"The Bank submitted that the plaintiffs owed to it a duty -

(a) to exercise reasonable precautions to prevent forged cheques being presented to the Bank;

(b) to have in place, and implement, systems by which senior management of the plaintiffs could ascertain within a reasonable time whether their accounts were being debited with amounts not authorised by the plaintiffs;

(c) if the plaintiffs' accounts were not audited by external accountants, to carry out audits or checks by appropriately qualified officers of the plaintiffs; and

(d) if the directors of the plaintiffs were not sufficiently qualified or experienced to carry out an audit or check of the accounts, to engage external accountants to carry out audits."

These duties were said to arise out of the contracts, in tort, or in both ways. As I have indicated his Honour found against the Bank upon the basis that it had not made good its claim that the companies owed these duties to it but his Honour then went on to make findings of fact which established that, if the duties did exist in law, the companies breached those duties. His Honour said:

"It should be said that the plaintiffs did not seriously submit that Mr Mark Cordony had not been relatively negligent, contenting themselves with the bald assertion at the end of their submissions that there was, for the reasons given by Mr Sherman, an adequate system of control in place. Even on Mr Sherman's evidence, there was not. It is sufficient to note the following. Mr Mark Cordony had no qualifications enabling him effectively to supervise or check what Mrs Banno did, he was in the Head Office only about 20 per cent of the time, and he neither endeavoured to check what she did nor engaged a suitably qualified person to do so. He did not even check bank statements against cheque butts or a cash book, something which would have immediately disclosed the fraud. Nothing was done to have financial statements of Ryntip and Cordony prepared for the financial years 1991, 1992, 1993 and 1994 until after June 1994. While financial statements for Hokit were prepared, Mr Mark Cordony knew that there was no auditing or independent verification of the financial information provided, that those who prepared them were not given bank statements or cheque butts, and that they were only given the information produced by a computerised accounting system which was maintained by Mrs Banno. If his own evidence be accepted, Mr Mark Cordony was in the habit of leaving signed bank cheques with Mrs Banno and did not follow them up to verify that they were completed in the manner and used for the purpose for which he had left them with her. Nor did he seek proper supporting documentation for cheques he did sign. So far as there was any control to detect fraud, Mr Mark Cordony's inspection of monthly income and expenditure statements, Mr Mark Cordony did not perform that task adequately and on the few occasions when he questioned expenditure he did not question it effectively by going to primary records."

It has been established for a very long time that, in the absence of a written cheque or order, or some obligation or entitlement arising out of an express or implied contract with a customer or recognised or laid down by the law, a banker is only entitled to make debits to its customer's account in accordance with the customer's authority (Price v Neal [1762] EngR 70; [1762] 97 ER 871; Kepitigalla Rubber Estates Limited v The National Bank of India Limited [1909] 2 KB 1010; London Joint Stock Bank Limited v Macmillan & Arthur (1918) AC 777; Commonwealth Trading Bank of Australia v Sydney Wide Stores Pty Limited (1981) 148 CLR 394, at 310).

Should a bank pay out moneys without a customer's authority or written mandate, the bank is regarded in law as having paid away its own money and will be obliged to restore the credit balance to its customer's account (Weaver & Craigie, "Banker & Customer", para 6.30). Accordingly, it is well settled that where a bank pays out its moneys to a person who forges a customer's authority or signature the loss, prima facie, falls upon the bank.

In Young v Grote [1827] EngR 527; [1827] 4 Bing 253 (130 ER 764) it was held that there was an exception to the general rule that a bank remained liable to its customer if it paid out moneys without the customer's authority where the customer or his or her agent was guilty of carelessly drawing the cheque in such a way as to facilitate the fraudulent alteration of the amount of the cheque which would not have been made but for the careless manner in which the cheque was drawn. (See Sydney Wide at 310.)

In cases which followed Young it was made clear in England that there was no exception to the general rule in a case where a customer had failed to exercise reasonable precautions or implement reasonable systems to prevent fraud in respect of matters `collateral to' or beyond the manner in which the cheque was drawn (see Bank of Ireland v Evans Charities Trustees in Ireland [1855] 5 HL Cas 3289; Bank of England v Vagliano Brothers (1891) AC 107; Laws Sanitary Steam Laundry Co v Barclay Bevan & Co (1906) 97 LT 444 and Kepitiglalla Rubber Estates v National Bank of India [1909] 2 KB 1010.)

In London Joint Stock Bank v Macmillan & Arthur (1918) AC 777 the principle in Young was endorsed. Lord Finlay LC said, at 795:

"Of course the negligence must be in the transaction itself, that is, in the manner in which the cheque is drawn. It would be no defence to the banker, if the forgery had been that of a clerk of a customer, that the latter had taken the clerk into his service without sufficient enquiry as to his character. Attempts have often been made to extend the principle of Young v Grote beyond the case of negligence in the immediate transaction, but they have always failed."

(See also Viscount Haldane p 815 and Lord Parmoor at p 834.)

Because a passage in the speech of Viscount Haldane is of primary relevance to the bank's argument it is desirable that I set out part, at least, of that passage. Viscount Haldane said:

"... because of what has been repeatedly laid down in the decided cases as essential, that the negligence should be of such a kind that the loss has resulted immediately from it, and not from some intervening cause which, although it was able to produce its effect because of what the customer had previously done or omitted to do was not itself brought into existence as the immediate and natural outcome of his actions. Thus a man may be imprudent in leaving his cheque book and passbook in the hands of his clerk, who is thereby enabled to forge a cheque but he is not liable, for this reason, that the direct and real cause is the intervention of an act of wickedness on the part of the clerk, which the law does not call on the customer to anticipate in the absence of obvious grounds of suspicion. In The Kepitigalla Rubber Estates Limited v National Bank of India Limited Bray J states the principle with conspicuous lucidity." (p 815)

In Kepitigalla Bray J concluded that the leading cases on the subject clearly showed that a bank could not argue that its customer had impliedly agreed to take precautions in the general course of carrying on his business to prevent employees forging his cheques. Bray J said (at 1025-6):

"If the bank desires that their customer should make these promises they must expressly stipulate that they shall. I am inclined to think that a banker who required such a stipulation would soon lose a number of his customers. The truth is that the number of cases where bankers sustain losses of this kind are infinitesimal in comparison with the large business they do, and the profits of banking are sufficient to compensate them for this very small risk. To the individual customer the loss would often be very serious; to the banker it is negligible."

Turning to the law in Australia it is unnecessary for present purposes to refer to cases earlier than the decision in Sydney Wide in 1981. The High Court pointed out that the principle enunciated by Macmillan had been adopted in Canada, in New Zealand, in India, in Sri Lanka and in South Africa. Ultimately the court resolved the case by saying:

"The question of law submitted for determination by this Court may be answered by saying that, arising from the contract between customer and banker, there is a duty upon the customer to take usual and reasonable precautions in drawing a cheque to prevent a fraudulent alteration which might occasion loss to the banker."

It has also been held in England that a customer owes a duty to a bank to disclose forgeries of which he or she became aware so as to enable the banker to take steps towards recovering the money wrongfully paid on the forged cheques (Greenwood v Martins Bank Limited (1933) AC 51). This decision was ultimately founded on the law of estoppel, as was West v Commercial Bank of Australia Limited [1935] HCA 14; (1936) 55 CLR 315 where a customer became aware that cheques on his account were being signed irregularly by his son but took no step to stop the practice or to communicate with the bank.

Over the years a number of attempts have been made to widen the basis upon which a customer may be liable to a bank, most notably in Tai Hing Cotton Mill Limited v Liu Chong Hing Bank Limited & Ors (1984) 1 LLR 555; [1986] 1

AC 80. In the Hong Kong Court of Appeal both Collins JA and Hunter J delivered judgments, with which Fuad JA agreed, to the effect that the banker/customer relationship is such as to give rise to a general duty of care in the operation by a customer of its banking accounts. They held that the duty arose in tort as well as in contract. On appeal to the Privy Council the banks accepted that the reasoning to be found in Macmillan appeared to negative the existence of both the duties for which they contended but they sought to explain the decision in the Court of Appeal upon the basis that the law of contract and the tort law were significantly different in 1918 from the state of relevant modern law.

One of the arguments presented by the banks (which was rehearsed in substance in this appeal) was that Macmillan's case was decided before the Privy Council substituted `foreseeability' for `direct cause' as the test of liability for negligence in "The Wagon Mound" [1961] UKPC 1; (1961) AC 388. Their Lordships rejected that submission upon the ground that in Macmillan the House of Lords had proceeded upon the basis that the only relevant duty arose out of the contractual relationship between banker and customer. This approach was, according to the Privy Council, correct. The Privy Council also rejected the submission that there was an implied term in the contract between banker and customer of the nature suggested by the banks, and found in the Court of Appeal, and went on to conclude that it was correct in principle to adhere to the contractual analysis. Accordingly it held that it was unnecessary to embark upon an investigation as to whether in the relationship of banker and customer it was possible to identify tort as well as contract as a source of the obligations owed by the one to the other. Further their Lordships expressly said that they did not accept that the parties' mutual obligations in tort could be any greater than those to be found expressly, or by necessary implication, in their contract.

The bank has submitted that this court should not follow the decision in Tai Hing. Fundamental to its primary submission that a customer owed a duty to a bank to take reasonable care in the management of its account to avoid the possibility of forgery, and consequent loss to the bank, was the proposition that Macmillan was a decision on contract law (as Tai Hing had held) and that, upon analysis of the recent developments in tort law, it should be found that the relationship of proximity between the parties was such as to give rise in tort to the customer's wider duty. Alternatively, it submitted that if the Privy Council was wrong to characterise Macmillan as a decision based on contract, the alteration to the law effected by "The Wagon Mound" opened the door to a re-examination of the whole question of the duties owed by a customer to a banker. In that re-examination, so the argument ran, the court would be led to the conclusion that the duty for which the bank argued did in fact exist.

The consideration of the Bank's arguments takes place against a background of the continued rejection by the courts in England of the wider duties for which the bank's contend. The decision in Tai Hing, although a powerful recent rejection of the wider duties, in substance reiterated and reinforced a long line of authority. That line of authority has not been questioned in Australia and has been accepted in other Commonwealth countries. In New Zealand Richmond J, who delivered the judgment of the Court of Appeal in National Bank of New Zealand Limited v Walpole & Patterson Limited (1975) 2 NZLR 7, said (at 19):

"The Kepitigalla case was cited with approval by Lord Finlay LC in the Macmillan case (1918) AC 777, 801, and also by Viscount Haldane in the passage which I have already cited. I know of no significant reason why we should not retain, in New Zealand, the principle so clearly laid down by the House of Lords that the only type of negligence on the part of a customer which will remove from the banker the risk of paying on a forged cheque is negligence in or immediately connected with the drawing of the cheque itself. "

In India Khalid J, who delivered the judgment of the Supreme Court of India in Canara Bank v Canara Sales Corporation & Ors (1988) LRC (Comm) 5 (at 13-16) discussed Tai Hing at length and went on to say: "The limits of the duty and the confines of contractual obligation cannot be better expressed ... we adopt the reasoning indicated above with great respect."

Again in Canadian Pacific Hotels Limited v Bank of Montreal (1987) 40 DLR (4th) 385 Le Dain J, who delivered the judgment of the majority of the Supreme Court, said, (at 432):

`In conclusion, then, I am of the opinion that a customer of a bank does not, in the absence of a verification agreement, owe a duty to the bank to examine his bank statements and vouchers with reasonable care and to report any discrepancies within a reasonable time, nor does a customer, `sophisticated' or otherwise, owe a duty to its bank to maintain an adequate system of internal accounting controls for the prevention and minimisation of loss through forgery."

Not only do these authorities represent the response of the highest courts in the countries mentioned to the attempt to impose the wider duty which is now urged upon this court but in each of the cases mentioned the judgments adverted to the question whether the duty could be found in tort although not arising under the banker-customer contract between the parties. In Tai Hing, as I have mentioned, Lord Scarman saw no benefit in seeking to examine the tort law in order to determine whether liability consequent upon the wider duty should be found. He said (at p 107):

"Their Lordships do not believe that there is anything to the advantage of the law's development in searching for a liability in tort where the parties are in a contractual relationship. This is particularly so in a commercial relationship. Though it is possible as a matter of legal semantics to conduct an analysis of the rights and duties inherent in some contractual relationships including that of banker and customer either as a matter of contract law when the question will be what, if any, terms are to be implied or as a matter of tort law when the task will be to identify a duty arising from the proximity and character of the relationship between the parties, their Lordships believe it to be correct in principle and necessary for the avoidance of confusion in the law to adhere to the contractual analysis: On principle because it is a relationship in which the parties have, subject to a few exceptions, the right to determine their obligations to each other, and for the avoidance of confusion because different consequences do follow according to whether liability arises from contract or tort, e.g. in the limitation of action."

Later his Lordship summed up the law in these words:

"Their Lordships do not, therefore, embark on an investigation whether in the relationship of banker and customer it is possible to identify tort as well as contract as a source of the obligations owed by the one to the other. Their Lordships do not, however, accept that the parties' mutual obligations in tort can be any greater than those to be found expressly or by necessary implication in their contract. If, therefore, as their Lordships have concluded, no wider duty than that recognised in Macmillan and Greenwood can be implied into the banking contract in the absence of express terms to that effect, the respondent banks cannot rely on the law of tort to provide them with greater protection than that for which they have contracted."

In Canara the Supreme Court expressly adopted that reasoning. In Walpole Richmond J dealt with a similar argument saying:

"... what is suggested is that a duty of care should be constructed in order to defeat a settled cause of action in a non-tort situation. It is difficult to equate the expansion of the duty of care in tort with the importation of such a duty, by way of an implied term, into a commercial contract. Moreover, there are no policy reasons for such a change. Banking is conducted on the basis of long established rules and customs, and there is no evidence of any need for a dramatic change."

The need for clear rules of general application was also adverted to by Le Dain and La Forest JJ in the Bank of Montreal case. La Forest J said (at p 434):

"The fact is, however, that a choice was made in favour of a narrow duty at a time before and during which notions of tort and contract were emerging. That policy choice was based on considerations having nothing to do with distinctions between tort and contract. It was felt to be appropriate to the governance of negotiable instruments. To introduce a wider duty today under the rubric of the tort of negligence would effect the same uncertainties as those referred to by Parke B in the Bank of Ireland case (Bank of Ireland v Evans' Trustees [1855] EngR 714; (1855) 5 HLC 389, at 410-411). The line between carelessness in negligence in many everyday situations can be extremely hard to draw, and as I mentioned before, there is need for more precise boundaries in this area."

The observations of Le Dain J should also be cited in the light of his judgment in Central Trust Co v Rafuse, 1986 31 DLR (4th) 481 (to which reference will later be made) as to concurrent liability in contract and tort. Le Dain J said:

"... as to whether the customer of a bank could owe a duty in tort, in the absence of a verification agreement, to examine bank statements with reasonable care and to report any discrepancies within a reasonable time, I am of the opinion, assuming it to be arguable that such a duty could arise in tort, that the principle of concurrent or alternate liability in contract and in tort affirmed in Rafuse cannot extend to the recognition of a duty of care in tort when that same duty of care has been rejected or excluded by the courts as an implied term of a particular class of contract."

All of these judgments are entitled to the greatest of respect and they represent a formidable obstacle to the bank in this case. What it is seeking to do is to persuade this Court that a long line of authority, accepted in the countries I have mentioned, which has rejected the imposition of the wider duty upon the customer of a bank, should not be followed for the reason that the recent examinations in Australia of the circumstances in which concurrent duties can arise in contract and in tort lead inevitably to the conclusion that a customer should be found to owe to a bank a duty to exercise reasonable care in the management of its affairs with the bank. Not only does the argument seek to challenge the authority of the decisions I have mentioned but it does so in circumstances in which the very point upon which it relies has been considered in, at least, some of the cases.

I would be extremely hesitant, sitting as a judge in an intermediate appellate court, to reject a principle accepted for so long and restated by courts of high authority in other Commonwealth countries as recently as the cases I have mentioned. I certainly would not do so in the absence of circumstances showing that the principle is no longer appropriate in this country. In my opinion not only has the bank failed to show that there are any circumstances which should lead courts in Australia to strike out on a different path but, as the helpful submissions of the Consumers' Federation of Australia (appearing as amicus curiae) demonstrate, the recent passing by the Australian Parliament of the Cheques and Payments Orders Act 1986 (the Act) in which no change was made to the substantive common law of banker and customer stands as a very strong factor favouring the retention of the established principle. In my view if the law in this question is to take a path different from that followed in the countries to which I have referred, then it should do so only after a binding decision of the ultimate court of appeal. I would, for this reason alone, be disinclined to accept the Bank's contention that the wider duty is to be found either in tort or as an implied term of the banker-customer contract.

In deference, however, to the careful argument advanced by Mr Oslington QC on behalf of the banks which fastened on the recent developments in this country of the law relating to concurrent liabilities in contract and in tort, I feel obliged to give the reasons which lead me to the same conclusion.

The Bank's claim is that it lost moneys as a consequence of the negligence of the customer. It is a claim for pure economic loss. There is no way in which the loss can be regarded as analogous to, or only technically different from, the loss of physical property. Cases relied on by the Bank, and to which I will refer, recognise that even in such a case there can be a relationship of proximity between the parties, albeit a special or exceptional relationship, in which one can be held to owe a duty of care to prevent economic loss to the other, or to protect that other from economic loss. These cases also recognise that such a relationship may arise despite the fact that there is a contract between the parties. Although this area of the law has been developing through a series of decisions in the High Court it is unnecessary to go beyond the most recent decision in Bryan v Maloney (1995) 182 CLR 609, except in limited respects.

In that case the majority said that the recent cases had established the recognition at law of the existence of concurrent duties in contract and in tort and the judgment went on to say that that recognition:

"... does not mean that the existence of a contractual relationship is irrelevant to either the existence of a relationship of proximity or the content of a duty of care under the ordinary law of negligence ... In some circumstances, the existence of a contract will provide the occasion for, and constitute a factor favouring the recognition of, a relationship of proximity either between the parties to the contract or between one or both of those parties and a third person. In other circumstances, the contents of a contract may militate against recognition of a relationship of proximity under the ordinary law of negligence or confine or even exclude the existence of, a relevant duty of care." (619-21)

Their Honours then expressed their agreement with three propositions which they extracted from the judgment of LeDain J, speaking for a unanimous Supreme Court of Canada, in Rafuse.

I do not propose to set out the whole of the relevant passage but will confine myself to paragraphs 2 and 3:

"2. What is undertaken by the contract will indicate the nature of the relationship that gives rise to the common law duty of care, but the nature and scope of the duty of care that is asserted as the foundation of the tortious liability must not depend on specific obligations or duties created by the express terms of the contract. It is in that sense that the common law duty of care must be independent of the contract. The distinction in so far as the terms of the contract are concerned, is, broadly speaking, between what is to be done and how it is to be done. A claim cannot be said to be in tort if it depends for the nature and scope of the asserted duty of care on the manner in which an obligation or duty has been expressly and specifically defined by a contract. Where the common law duty of care is co-extensive with that which arises as an implied term of the contract it obviously does not depend on the terms of the contract, and there is nothing flowing from contractual intention which should preclude reliance on a concurrent or alternative liability in tort. The same is also true of reliance on a common law duty of care that falls short of a specific obligation or duty imposed by the express terms of a contract.

3. A concurrent or alternative liability in tort will not be admitted if its effect would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort. Subject to this qualification, where concurrent liability in tort and contract exists the plaintiff has the right to assert the cause of action that appears to be most advantageous to him in respect of any particular legal consequence."

Those passages do not, however, include guidance on the features of a relationship, whether contractual or not, which would lead the court to conclude that where a claim is made solely for economic loss a relevant relationship of proximity exists. Those features were, however, adverted to by the majority in Bryan. Having referred to the judgment of Stephen J in Caltex Oil (Australia) Pty Limited v The Dredge `Willemstad' (1976) 136 CLR at 575 and the relevance of `policy considerations' to that question the majority said that, in this difficult and developing area, there would gradually develop a body of precedent "productive of the necessary certainty". The important passage, for present purposes, in the judgment is at p 619 and reads:

"Commonly, but not necessarily, they (the categories of case in which a relationship of proximity will arise with respect to mere economic loss) will involve an identified element of known reliance (or dependence) or the assumption of responsibility or a combination of the two." (See generally Sutherland Shire Council v Heyman (1985) 157 CLR at pp 466-468, 501-2; Hawkins v Clayton (1988) 164 CLR 545, 576 and 593.)

This passage identifies two, or possibly three, elements which will be directly relevant to the question whether a relationship of proximity with respect to mere economic loss exists. On the other hand it leaves open the possibility that such a relationship will arise in the absence of any of those elements. In one of the passages identified by the courts as supporting the proposition I have just mentioned, Deane J (Hawkins p 576) cited a passage from the judgment of the majority of the High Court in San Sebastian Pty Limited v The Minister Administering the Environmental Planning and Assessment Act 1979 and Anor [1986] HCA 68; (1986) 162 CLR 340, at 355, which read:

"The notion of proximity, because it limits the loss that would otherwise be recoverable if foreseeability were used as an exclusive criterion of the duty of care, is of vital importance when the plaintiff's claim is for pure economic loss. When the economic loss results from negligent misstatement, the element of reliance plays a prominent part in the ascertainment of a relationship of proximity between the plaintiff and the defendant, and therefore in the ascertainment of a duty of care. But when the economic loss results from a negligent act or omission outside the realm of negligent misstatement, the element of reliance may not be present. It is in this sphere that the absence of reliance as a factor creates an additional difficulty in deciding whether a sufficient relationship of proximity exists to enable a plaintiff to recover economic loss."

Immediately following that citation Deane J went on to say:

"Implicit in that passage is the recognition that the requisite relationship of proximity must exist with respect to the allegedly negligent class of act and the particular kind of damage which the plaintiff has actually sustained."

What I deduce from these statements is that in cases where the elements of reliance and assumption of responsibility are absent the court must consider the policy considerations bearing on the question whether in respect of the negligent class of act and the particular kind of damage which is relevant it should be held that a relationship of proximity should be found to exist between the parties. One of those considerations may properly be described as a commercial one. It was put in this way in Bryan:

" ... the perception that, in a competitive world where one person's economic gain is commonly another's loss, a duty to take reasonable care to avoid causing mere economic loss to another, as distinct from physical injury to another's personal property, may be inconsistent with community standards in relation to what is ordinarily legitimate to the pursuit of personal advantage."

That is obviously a relevant matter in this case but it must be said that there is little guidance to be found in the cases to date as to when a duty of care should be found in respect of mere economic loss where the elements of assumption of responsibility and reliance are absent. One case in point is the `Willemstad' but in that case the judges were far from unanimous in their approaches and there has been considerable criticism of this decision in England (Junior Books Limited v Veitchi Co Limited, [1982] UKHL 4; [1983] 1 AC 520 at 532-3_; Candlewood Navigation Corporation Limited v Mitsui OSK Lines Limited_ [1986] AC 1, at 23-26; Lee & Sillivan v Aliakmon Shipping Co Limited [1985] UKHL 10; [1986] AC 785). Nonetheless, as the majority of the High Court said in San Sebastian, the critics have themselves been unable to offer a solution to the problem. All I think that can be said is that in unchartered areas a court, faced with having to decide whether, in a particular category of case in which there is no reliance or assumption of responsibility, a duty of care arises in respect of purely economic loss would be obliged to take into account considerations of policy and fairness and reasonableness. (See generally Stephen J `Willemstad', 575.) These are broad considerations but in the absence of greater guidance from binding authority, represent the salient factors which have been identified.

In these circumstances it is convenient first to turn to the Bank's submission to the effect that there was reliance. What Mr Oslington said, in his written submissions, was that if reliance, or dependence, or the assumption of responsibility is required there is reliance in this case in the sense that the Bank, not having heard from its customer that there were entries on the bank statements that were incorrect, was entitled to assume that the entries were correct and regular and therefore to take no action to preclude a future irregularity.

My difficulty with this submission is that in the absence of express evidence of reliance it is difficult, if not impossible, to understand how the Bank could have relied upon the companies to exercise reasonable care in the management of their accounts in the light of the state of authority concerning the limited nature of a customer's duty to its bank. There being in this case no evidence of reliance it must follow that the bank has failed to establish any relevant reliance for the purposes of the imposition of a duty. Again there was no evidence that the companies assumed responsibility towards the Bank and for similar reasons that claim must also fail. The most obvious cases in which there will be an assumption of responsibility are those involving professional persons such as accountants or solicitors who take upon themselves the responsibility of advising or acting for clients. It may be that a bank assumes responsibility towards its customer but I am completely unconvinced that the reverse is, generally speaking, true.

It follows that, if the Bank is to succeed, it must show some other features of the relationship which support the imposition of the wider duty. The Bank's substantive argument was that having regard to the difficulty of detecting forgery and the ease with which the companies could have avoided their loss it was neither fair nor just to require the Bank to meet that loss. It was therefore appropriate to recognise the existence of the wider duty on broad policy grounds and as a matter of fairness. In addition, the Bank submitted that, as there was no question of an indeterminate liability to an indeterminate number of people, there were no policy reasons contrary to the acceptance of its argument.

I am unable to accept these submissions. In my opinion no relevant duty arose. There are a number of considerations which lead me to that conclusion. In the first place, as will be seen, this is not a case in which the court should imply a term in the contract between the banker and customer that the latter would exercise reasonable care in the management of its account in order to detect forgeries and in order to save the bank from loss. In Bank of Montreal Le Dain J refused to recognise the existence of a duty of care in tort "when that same duty of care has been rejected or excluded by the courts as an implied term of a particular class of contract'. This is a view which I find persuasive. On the other hand Deane J in Hawkins (at p 583-4) expressed a preference for identifying the relevant duty according to the principles of tort law rather than by seeking to draw from the presumed intention of the parties an implied term of the contract which "is coextensive in content and concurrent in operation with a duty which already exists under the common law of negligence".

In the light of this dictum, and despite my preference for the view of Le Dain J, I am inclined to base my decision on another ground which I find even more compelling. The cases of which Tai Hing is a recent example have laid down a clear principle which is simple of application and which has lasted for a very long time. One cannot deny the need, or at least the desirability, of clear rules which govern the relationship of banker and customer. This is particularly so as the range of customers may be very diverse indeed, ranging from the illiterate to the highly sophisticated. That rule will no longer stand if the law is changed so that the duty for which Mr Oslington argued is recognised. Both as a matter of fairness and of policy I favour the maintenance of the clear rule in preference to the imposition of a duty of care which may conceivably lead to much uncertainty in application.

Furthermore, there are commercial considerations which support this view. It has always been open to banks to contract upon the basis of an express term imposing the duty contended for on the customer. No doubt for good commercial reasons the bank in the present case has not elected to take that course. It is inconceivable that it would not have been aware of the long line of authority rejecting the wider principle for which it argues and where, in that knowledge, it declines to provide contractually for the duty there appear to me to be no grounds to impose it on the customer. For these reasons I would conclude that it should be held that there is no duty at common law binding on the companies to take reasonable care in the management of their bank accounts to avoid economic loss to their banker.

I would make two further observations. First, there are other policy considerations, not the least of which is the passing in 1986 of the Act which did not alter the common law in relevant respects, which would also support my rejection of the existence of the duty. Those policy considerations are set out in the written submissions of the companies and the Consumer's Federation of Australia, which, with the leave of the court, provided written submissions. Many of them also appear in Vol 11, Australian Banking Law Bulletin, at p64 (see also p 29). In the circumstances I do not find it necessary to repeat them in this judgment.

Secondly, the same result is reached by the application of the principle expressed in Henderson v Merrett Syndicates Limited [1994] UKHL 5; [1995] 2 AC 145. In that case Lord Goff of Chieveley, in whose judgment the other law lords concurred, held that liability for pure economic loss could and should be founded squarely on the principle established in Hedley Byrne itself:

"From which it follows that an assumption of responsibility coupled with the concomitant reliance may give rise to a tortious duty of care irrespective of whether there is a contractual relationship between the parties, and in consequence, unless his contract precludes him from doing so, the plaintiff who has available to him concurrent remedies in contract and tort, may choose that remedy which appears to him to be the most advantageous". (p194)

The Bank did not argue that the term was implied as a matter of law (see Liverpool City Council v Irwin [1976] UKHL 1; [1977] AC 239). Nor did it argue that the implied term arose out of custom or usage. Rather it submitted that the term should be implied as representing the presumed intention of the parties. In support of that argument it contended that the term satisfied the tests in Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, at 347. It is unnecessary to rehearse the well known passage of the judgment in Codelfa which restated principles of implication which had stood for many years. I regard the submission as without substance. Having regard to the line of authority to which earlier reference has been made it is impossible, in my view, to contend that the term is necessary to give business efficacy to the contract. Nor can it be said that the term "goes without saying". Accordingly, I am quite unable to conclude that the intention that such a term existed should be presumed between the parties.

The trial judge held that the fact that Mark Cordony knew of, and acquiesced in, Mrs Banno signing in his name the cheques for head office wages did not generate an estoppel. He pointed out that there was no evidence of detriment to the bank other than the payment of the forged cheques and there was no evidence `at all of reliance upon an assumption to which the plaintiffs' conduct contributed'. In this respect the critical factual finding was that Mark Cordony did not know of the other forged cheques and `had no reason to believe that the bank was acting on the assumption that other cheques signed by Mrs Banno in his name could properly and safely be paid'. I agree with his Honour's reasons and for this reason the Bank's challenge on this ground must fail. Notwithstanding, it is desirable that I express shortly my own reasons for that conclusion.

The Bank's argument is that as it was not aware that any cheques were being signed by Mrs Banno in Mark Cordony's name that he, by allowing her to sign some in his name, was permitting an assumption to continue that all cheques were signed by him when they were not. There is an initial difficulty with this submission in that Mark Cordony did not, on his Honour's findings, know that other cheques were signed by Mrs Banno and could hardly have permitted that of which he was unaware. I will, however, put that to one side for the moment.

What, in essence, the Bank submits is that if it had been told that Mrs Banno signed Mark Cordony's name, with his consent, on head office wages cheques it would have taken steps to avoid the risk of loss flowing from Mrs Banno writing his signature on other, unauthorised, cheques. To my mind the submission fails for want of proof. This is not a case, as was West's, in which there could be no doubt how the Bank would have reacted. Here I am unable to draw any inference as to the way in which the Bank would have reacted if told what Mark Cordony knew. It may be that it could be argued that the Court should infer that the Bank would have instructed Mark Cordony not to permit Mrs Banno to sign any more head office wage cheques. Even if I were to draw that inference it is sheer speculation that that instruction would have prevented the Bank's loss. It may be that the Bank would have instructed Mark Cordony to conduct a secret audit. It may be that it would have taken other steps designed to discover whether there had been any forgeries. The point is that by declining, or failing, to call evidence as to what action it would have taken if Mark Cordony had told it that he had permitted Mrs Banno to sign, in his name, head office wages cheques it left the court without sufficient evidence upon which to draw an inference that it had, relevantly, acted to its detriment.

No doubt the Bank assumed that all cheques were signed by him, or with his authority, but that assumption could not have been affected by the receipt of information that some cheques were signed with his authority, rather than by him. I suspect that the real complaint is that the Bank would not be content to allow a system to continue whereby someone else signed Mark Cordony's signature. But even if that were so, and in the absence of evidence I am unable to say, advice to Mark Cordony to discontinue that practice may well have had no effect on the forgeries, of which he was unaware.

The failure to call evidence on matters which were solely within the knowledge of the Bank is, in my view, fatal to the estoppel (see Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298).

I would propose that the appeal be dismissed with costs.

WADDELL AJA: I agree with the judgment of the President.