Cheques Act 1986

The Act regulates dealings between four populations. Drawers (the people or entities who write cheques) take on liability under section 71. Payees and indorsees (the people who receive cheques) acquire rights through delivery and negotiation under Parts II and III. Indorsers (people who sign and pass cheques on) take on liability under section 73. Financial institutions sit at the centre as drawee institutions, deposit institutions, collecting institutions and (where applicable) FCA institutions. Each role carries different obligations and protections under Parts IV, V, VI and VII. Lawyers, accountants and trustees who handle settlement cheques, deposit cheques into trust accounts, or run conveyancing settlements interact daily with the Act's presentment, dishonour, collection and crossing rules. Estate administrators must understand sections 89 and 90, which deal with stale cheques and notices of countermand, mental incapacity or death.

The principal operational obligation is on the drawee institution. Section 67(1) requires the drawee institution to either pay or dishonour a duly presented cheque "as soon as is reasonably practicable". If it fails to do so, then unless it has become aware of a defect in the holder's title or that the holder has no title, the drawee institution may not dishonour the cheque and is liable to pay it to the holder. The factors for determining what is reasonably practicable are listed in subsection 67(2) and include the means and place of presentment, the institutions' usage, and the relative speed, reliability and cost of the means available. Section 66 imposes a parallel duty on the deposit institution to present cheques promptly. Section 97 imposes the equivalent obligation on FCA institutions.

A drawer is liable on the cheque under section 71 once it is dishonoured, subject to the estoppel rules in section 72. An indorser is liable under section 73, subject to estoppels in section 74 and to discharge under sections 83 to 86. A stranger who signs a cheque takes liability as an indorser under section 75. Section 76 sets the measure of damages on dishonour.

Section 88 makes clear that the drawing of a cheque is not, of itself, an assignment of funds. The holder cannot sue the drawee institution simply because the drawer's account is in funds; the obligation runs to the drawer.

Section 90 sets the duty boundary on death, mental incapacity, and countermand. The duty and authority of the drawee institution to pay are terminated by countermand of payment, notice of the drawer's mental incapacity to incur liability, or notice of the drawer's death. Subsection (2) carves out a narrow window: paragraph (1)(c) does not apply to a cheque if not more than 10 days have elapsed since the drawee institution received notice of the customer's death, and it has not received a countermand from a person who claims to be entitled to administer the estate or to be a beneficiary. This window matters in estate administration where a small payment cleared shortly after death needs to stand.

The drawee institution has discretion to refuse a stale cheque (section 89) but may not refuse where it is obliged by an agreement with the drawer to pay or where the drawer directs payment despite staleness; it must refuse where its agreement with the drawer or the drawer's direction calls for refusal. The drawer may add or alter a crossing under section 56. A holder may cancel a cheque or signature under section 81. The court has the power to order, on terms, that the loss or destruction of a cheque not be set up against an action on the cheque (section 116). Section 6 lets the rights, duties and liabilities under the Act be altered by agreement, which makes the Act largely a default-rule regime as between contracting parties.

The Cheques Act is private law and does not create a parallel offence regime. Liability runs in damages on the cheque under sections 71, 73, 75 and 76, and through the protections and exposures attached to each role of financial institution under Part VI. Section 95 protects a collecting institution that, in good faith and without negligence, receives payment of a cheque for a customer who has no title or a defective title; the collecting institution does not incur liability to the true owner by reason only of having received payment. Section 91 protects a drawee institution that, in good faith and without negligence, pays an improperly raised cheque (where a fraudulent alteration is the only material alteration); it may debit the drawer's account according to the tenor of the cheque as drawn. Section 92 protects payment of a crossed cheque to a financial institution. Section 93 leaves the drawee institution liable to the true owner for any loss where it pays a crossed cheque otherwise than to a financial institution. Section 94 protects payment of a cheque lacking indorsement or with an irregular or unauthorised indorsement.

These protections are not absolute. They depend on (1) good faith, (2) absence of negligence, and, for some sections, (3) compliance with the relevant rule about presentment or crossing. The Act sits alongside conversion at common law: a financial institution that does not establish the elements of section 95 protection remains liable in conversion to the true owner of the cheque.

• Presentment: a cheque must be duly presented (sections 61, 61A, 62, 62A and 63), at the proper place (section 64). Sections 65 and 65A address designated and notified places of external and internal presentment.
• Promptness: section 66 requires the deposit institution to present promptly; section 67 requires the drawee institution to pay or dishonour as soon as is reasonably practicable; section 97 imposes the same on FCA institutions.
• Dishonour: section 69 defines dishonour. Section 70 says drawer and indorser are liable whether or not given notice of dishonour. Sections 70A and 70B deal with cheques taken to be dishonoured and consequences.
• Stale cheques: section 89 lets the drawee institution refuse a stale cheque, with mandatory rules where there is an agreement or direction with the drawer.
• Death of drawer: under section 90(2), the duty and authority of the drawee institution end on notice of death, except for the 10-day window with no countermand from a person who claims to be entitled to administer the estate or to be a beneficiary.
• Replacement of lost or destroyed cheques: section 115 requires written notice to the drawer; the drawer may require an indemnity within 14 days; the drawer must then issue a replacement cheque to the same tenor.

The Act interacts with the Banking Act 1959 (definition of ADI under the financial institution definition in section 3), the Reserve Bank Act 1959 (RBA as a financial institution), the Financial Sector (Collection of Data) Act 2001 (definition of FCA institution), and the Australian Constitution at section 51(xiii) (State banking). For taxation, section 117(4) to (6) preserves the validity of cheques drawn outside Australia for stamp purposes. Section 4 says the Act applies subject to rules in bankruptcy, laws of States and Territories not inconsistent with the Act, and rules of common law. The Act does not displace contract law: parties can vary the default rules under section 6. The criminal law relating to forgery and fraud sits independently in the Criminal Code and State equivalents.

• Section 88 cuts off any direct claim against the drawee bank by the holder where the drawer's account is in funds. The holder must sue the drawer, not the bank, on the cheque itself. This catches lay claimants out repeatedly.
• "Not negotiable" does not mean "not transferable". Under section 55, a not negotiable crossed cheque can still be transferred, but the transferee takes no better title than the transferor and cannot be a holder in due course. A bank that takes a not negotiable cheque as the proceeds of a fraud cannot rely on holder-in-due-course status.
• The protections in sections 91, 92, 94 and 95 each require both good faith and absence of negligence. Negligence in a customer-onboarding or cheque-deposit process can defeat the protection and expose the bank to a conversion claim by the true owner.
• Section 100 agency cheques have an unusual deeming structure: when signed by the customer, the issuing institution is treated as not the drawer for purposes of holders and indorsers, but is treated as the drawee institution for purposes of its relationship with the customer. This is the critical mechanism that lets bank-supplied cheque forms function commercially.
• The 10-day window under section 90(2) is narrow, and it does not protect against a payment made with knowledge of mental incapacity or after a countermand. Estate practitioners should treat any post-death cheque with caution.
• Section 67(1) creates a dual hazard for the drawee bank: communicate dishonour too slowly and the bank loses its right to dishonour and becomes liable to pay the holder; communicate too widely and the bank may face exposure outside the Cheques Act, including in defamation, as illustrated by the High Court's discussion of section 67(1) in Aktas v Westpac Banking Corporation Limited.
• The Act applies to dividend warrants under section 118, so the rules on protection, dishonour and presentment carry over.

A solicitor's trust account presents a settlement cheque to its drawee bank. The drawee bank realises the drawer's account is closed but does not communicate dishonour until a week later. Under section 67(1), the drawee bank may have lost its right to dishonour and become liable to pay the holder, depending on the application of the section 67(2) factors. The solicitor's claim is on the cheque under section 71 (against the drawer) and potentially also against the drawee under section 67(1) for failing to act as soon as reasonably practicable.

A cheque is fraudulently raised from $5,000 to $50,000 by alteration, then deposited to an account at a different bank. If the drawee institution paid the altered cheque in good faith and without negligence, section 91 lets it debit the drawer's account according to the original tenor (so $5,000 only). The drawer wears the loss for the original sum; the drawee bank wears the difference unless it can recover from the fraudster. The collecting institution is protected only if section 95 applies in its hands (good faith and no negligence in receiving payment for the customer).

A bearer cheque is found in the street and paid into the finder's account. The collecting bank may be exposed to conversion at common law. Section 95 protection applies only if the bank acted in good faith and without negligence; ordinary onboarding and account-monitoring failures will defeat the protection.

A landlord lodges a $50,000 cheque to settle a property purchase, but the cheque is drawn against an estate account and the drawer dies the day before the cheque is presented. Section 90 terminates the drawee institution's duty and authority to pay, subject to the section 90(2) 10-day window. The 10-day window is narrow and depends on no countermand from a person claiming to be entitled to administer the estate or to be a beneficiary.

A customer claims a cheque has been lost. They serve notice on the drawer under section 115, requesting a replacement of the same tenor. The drawer responds within 14 days requiring an indemnity, which is given. The drawer issues the replacement; if proceedings are later brought on the lost original, the court can order under section 116 that the loss or destruction not be set up.