§ 3.52 p.m.
§ Order of the Day for the House to be put into Committee read.
§ Moved, That the House do now resolve itself into Committee.—(Lord Jessel.)
§ On Question, Motion agreed to.
§ House in Committee accordingly.
§ [The EARL OF DROGHEDA in the Chair]
§ Clause 1:
§ Protection of bankers paying unindorsed or irregularly indorsed cheques, &c.
§ 1.—(1) Where a banker in good faith and in the ordinary course of business pays a cheque drawn on him which is not indorsed or is irregularly indorsed, he does not, in doing so, incur any liability by reason only of the absence of, or irregularity in, indorsement and he is deemed to have paid it in due course.
§ (2) Where a banker in good faith and in the ordinary course of business pays any such instrument as the following, namely—
- (a) a document issued by a customer of his which, though not a bill of exchange, is intended to enable a person to obtain payment from him of the sum mentioned in the document;
- (b) a draft payable on demand drawn by him upon himself, whether payable at the head office or some other office of his bank;
§ LORD CHORLEY moved to leave out Clause 1 and to insert the following new clause:
§ Protection of bankers paying unindorsed or irregularly indorsed cheques, &c.
§ " 1.—(1) Where a banker in good faith and in the ordinary course of business pays an instrument drawn on him to which this section applies which is not indorsed or is irregularly indorsed, he does not, in doing so, incur any liability by reason only of the absence of, or irregularity in, indorsement and he is deemed to have paid it in due course provided that he pays such instrument to the credit of an account of a customer of his or pays such instrument to another banker.
§ (2) This section applies to the following instruments, namely—
- (a) cheques;
- (b) any document issued by a customer of a banker which, though not a bill of exchange, is intended to enable a person to obtain payment from that banker of the sum mentioned in the document;
- (c) any draft payable on demand drawn by a banker upon himself, whether payable at the head office or some other office of his bank."
The noble Lord said: In the speech which I made on the Second Reading of this Bill I criticised what I regard as rather serious departures from the recommendations made by the Committee set up by the Chancellor of the Exchequer on this problem, familiarly known as the Mocatta Committee. In his reply on behalf of Her Majesty's Government the noble and learned Viscount, Lord Hailsham, expressing the support of the Government for the Bill, took the view that these criticisms, if they were sound, could be given effect to by Amendments at the present stage. He invited me to put down the necessary amendments and said [OFFICIAL REPORT, Vol. 204 (No. 78), col. 285]:
I should be glad to be the recipient of his confidence in this connection, so that the matter can be discussed at a later stage.
I took the noble and learned Viscount at his word and have put down the Amendments which stand in my name on the Order Paper. I also offered to discuss these matters informally with the noble and learned Viscount, and I should like to express my gratification at the very forthcoming way in which he arranged a meeting (although unfortunately he could not himself be present) which was held a day or two ago. I should like to say a word or two more on that matter in a few minutes.
§ There are a number of observations which I should like to make, partly in answer to points made by the noble and learned Viscount in reply to my own speech, and partly in view of the very great importance of this Bill, which I feel ought not to be allowed to pass without further discussion. When we are dealing with a measure which, as I believe the noble Lord, Lord Jessel, said, involves some seven and a half million cheques per annum and affects the procedure followed by every branch bank in Great Britain, the matter is obviously one of importance and worthy of careful scrutiny. But before making them, perhaps it would be advisable if I explained shortly the purport of the Amendments in my name.
§ As your Lordships are aware, the object of the Bill is to obviate the necessity for endorsements on cheques in connection with what might be called the banking side of the operation, not in 667 connection with negotiation or the transfer of property in cheques from one person to another, except in so far as the bank may come into the matter. The need for endorsement by the payee of a cheque who wishes to receive payment from the drawer's banker, in a general way, largely originated, as the Mocatta Committee pointed out in their Report, in banking practice; and, in the conditions of modern banking, this has led to an enormous waste of time. The object of this Bill is to get rid of that.
§ The view of the Mocatta Committee was that this practice might well be abolished but that legislation would be required, in view of the way in which the law had grown up during the last century; and that if that abolition was to be carried through with safety, and with general regard to the interests of customers of banks, the abolition should be restricted to those cheques which pass through a bank account. Very little reflection will, I am sure, satisfy your Lordships that that can safely be done, particularly in contradistinction to cases of another type, where a cheque is presented for payment over a bank counter. Your Lordships will recall that it appeared to members of the Mocatta Committee particularly necessary in such cases that the person presenting the cheque should put his endorsement on it before receiving payment. Without that requirement there would be a great temptation to clerks, servants and other employees to steal cheques which were passing through an office or shop, as they had only to take those cheques round to the bank to receive payment on them over the counter. That might occur if those cheques did not need the kind of endorsement which I believe everyone would agree has proved a considerable deterrent in the past to the stealing of cheques.
From time to time, as the noble Lord, Lord Balfour of Burleigh, would no doubt tell us, there has been a considerable loss of money to the banks as a result of the theft of cheques and forgery of endorsements; but it is generally agreed by those experienced in the ways of criminals that a criminal who is pre-pared to steal will, in most cases, stop short of committing forgery. The Bill as drafted is quite general in its terms, and it provides, in Clause 1 (1), that a banker
need pay no attention at all to the question of endorsements. It says:
Where a banker in good faith and in the ordinary course of business pays a cheque drawn on him which is not indorsed or is irregularly indorsed, he does not, in doing so, incur any liability by reason only of the absence of, or irregularity in, indorsement and he is deemed to have paid it in due course.
So here the principle of not requiring endorsement is applied generally and not, as the Mocatta Committee suggested, only to those cheques passing through a bank account. My Amendment would have the effect of putting into the Bill the recommendation of the Mocatta Committee.
§ If your Lordships will look at the last two lines of subsection (1) of the Amendment you will see that it is limited to the case of an instrument which is paid to the credit of an account of a customer of his or where such instrument is paid to another banker. So it is limited to cheques passing through bank accounts, where, in the view of the Mocatta Committee, it could be safely done. The actual Amendment begins with a proposal to delete the whole of the existing Clause I and to substitute this other clause for it. The substance of the proposed new clause is exactly the same as the old one except for this particular point about the cheque passing through a bank account. The reason I put it in this way is to restore what one might call the elegancy of the clause as it originally stood. As it went through another place it was amended in Committee and the Amendment, in my view, rather detracted from the earlier admirable draftsmanship. It seemed to me better to put it in this way.
§ What I have done requires that in order to obviate endorsement a cheque should be passed through a bank account. I do not want to repeat in detail the arguments I addressed to your Lordships on the previous occasion. The subject is a very technical one, but the noble Viscount, Lord Hailsham, answering me in the Second Reading debate, made a number of points which he invited me to consider in the interval, and I have naturally taken the opportunity of doing so. At the same time, he made it clear that, for his own part, he had not had time to inform himself fully on the points at issue, and he indicated that he was giving to your Lordships advice that he had received from elsewhere. It is, of course, difficult to use 669 a brief which has been prepared in anticipation of points which are expected to be made in a debate in your Lordships' House and which, when made, may be not quite the same as those anticipated. With great respect to the noble Viscount, I do not think he met the point I was putting in regard to this matter.
He said [OFFICIAL REPORT, Vol. 204 (No. 78) col. 283]:
According to the advice I have received there is no requirement Chat a cheque should be endorsed otherwise than in existing practice "—
which was the view propounded in the Mocatta Committee Report. He went on to say:
Therefore the proposal in the form in which it was originally recommended would have been an inappropriate way of drafting the particular clause "—
which was, if I may suggest it with all respect to the noble Viscount, really a non sequitur. The proposal has, in fact, that very point specifically in mind. The noble Lord went on to deal with the particular point of cheques paid across the counter, and he said:
The view of the Government is that the exclusion from subsection (1) of cheques paid in cash might produce an anomalous result in that it would appear to imply that a paying banker was not absolved from liability if he paid over the counter on an unendorsed cheque presented by the wrong person, whereas under Section 60 of the Bills of Exchange Act, 1882, he would in fact be absolved from liability if he paid that cheque on a forged endorsement".
§ Really the noble Viscount is giving the argument away, for it is because we wish to ensure that the banker should take these pains that we want to put this in, because he ought not to be absolved in cases of this sort. I thought that was clear; and Lord Balfour of Burleigh, in effect, and those who spoke on behalf of banks in another place, said that they did not wish to be relieved of this obligation and would continue, as a matter of practice, to see that such cheques were endorsed. Lord Balfour of Burleigh said that; he would be glad to support any Amendment which had this object in view and which might be put down at the present stage of the Bill. So it seems to me that, in regard to this matter, Lord Hailsham has not succeeded in answering the arguments which I put before your Lordships. I cannot understand the reluctance of the promoters of the Bill to cover this point, because it would not put 670 any real extra burden on the bank officers. The number of these cheques presented for payment over the counter is really quite small. In any case, where that happens, the business of paying a cheque over the counter involves the bank officer obviously in a certain operation which is bound to last for a few minutes, and to turn the cheque over to see whether it is in order adds only a minute fraction of time. So there seems to me to be no reason why the Amendment should not be accepted. I think that the banks themselves admit that this is so, because they would not have said: "We shall continue this practice", if they were not in fact accepting substantially the burden. In the circumstances, I find it impossible to understand why the promoters of the Bill should resist this Amendment.
§ Your Lordships may ask: "How do you know that they are going to do so?" That is where I come to the meeting which the noble Viscount so kindly arranged for me. I met Mr. Graham Page and Lord Jessel, the promoters of the Bill and other people, including the Parliamentary draftsman. It was unfortunate that Mr. Mocatta, who was invited to: he meeting, was detained in court and could not be there. What I thought still more unfortunate was that the banks were not represented. So I still do not know whether Lord Balfour of Burleigh feels that this is an Amendment of the sort which he said in the Second Reading debate he would be prepared to support. We had a very interesting discussion, but the meeting was not fruitful Mr. Graham Page and the Parliamentary draftsman tried to persuade me that I was wrong, and I tried to persuade them that they should accept this Amendment. In the result, neither party succeeded in persuading the other. It was made clear that the Government would not be prepared to advise your Lordships to support this Amendment.
§ The only other thing I need say is this. The Amendments have been prepared in consultation with Mr. Mocatta, who kindly gave me a whole morning during the Whitsun vacation, and also with the help of Dr. Milnes Holden, a junior member of the Bar and a specialist in this sort of law, whose evidence before the Mocatta Committee was of the greatest value to us. I hope I have said enough to explain the objects of 671 the Amendment and to persuade your Lordships that it is one that ought to be accepted. I beg to move.
§ Amendment moved—
§ Leave out Clause 1 and insert the said new clause.—(Lord Chorley.)
§ LORD JESSEL
I am sure the noble Lord, Lord Chorley, will not be surprised when I say that I am afraid I cannot accept this Amendment. I do not agree with the argument which has been advanced in support of it, and even if that argument were valid I am advised that the wording of the Amendment is defective. In the debate on Second Reading, and again to-day, the noble Lord, Lord Chorley, has expressed fears in regard to the situation arising out of the non-endorsement of cheques paid over the counter. He seems to fear that in some way the position of the drawer of a cheque will be worse than it is under existing law. This is not the view of the promoters of the Bill—and may I add that the point has been considered most thoroughly by eminent legal practitioners. The noble Lord takes a different view of the legal situation, but I can assure him that it is not only the legal advisers of Her Majesty's Government, but also those of great institutions who have formed this opinion. I may also add that this clause was thoroughly debated and accepted by another place, and there are plenty of good lawyers there, many of whom spoke both on Second Reading and on the Committee stage of the Bill. So that nobody can say that the promoters of the Bill have not had an enormous weight of well-informed legal opinion behind them.
On Second Reading in your Lordships' House, and again to-day, the noble Lord, Lord Chorley, has stated that Mr. Mocatta, the chairman of the departmental committee which investigated this problem, was worried, like the noble Lord, about Clause 1 as drafted. That may be so, but all I can say is that the promoters of the Bill naturally took the first opportunity, when the Bill was printed, to send a copy to Mr. Mocatta; and no adverse comment resulted.
As the noble Lord, Lord Chorley, has said, we are concerned here with a tiny percentage of the cheques annually drawn and in circulation. Only 3 per cent. of the cheques drawn are not paid into the 672 account of the payee, and of this 3 per cent. a great many are cashed by the drawers of the cheques, and others are negotiated. As I see it, the noble Lord's Amendment intends to restrict the effect of the clause to cheques paid into the payee's accounts and, by inference, makes it necessary for the paying banks to insist on an endorsement when a cheque is paid in cash. As the noble Lord reminded us, the noble and learned Viscount, Lord Hailsham, pointed out on Second Reading what an absurd situation this would lead to. The result would be that the banker who paid a wrong person on an unendowed cheque would attract some liability, yet if he paid out on a forged signature he would be protected under the Bills of Exchange Act, 1882.
The noble Lord, Lord Chorley, said again to-day that he thought the effect of Clause 1 of our Bill would be to encourage people to try to cash unendorsed cheques, as they would not have to forge a signature. I am not sure that I find this argument convincing, but I know that the noble Lord is a chairman of quarter sessions and has probably had more experience of crime than I have. After all, Clause 1 does not diminish the responsibility of the paying bank to take proper care about the identity of persons it pays. The clause does not affect in any way the position of the drawer of the cheque. He can always cross a cheque; and if he does not, why should he be given additional protection over and above the protection of the law as it exists to-day? That would be the result of the noble Lord's Amendment. Let us remember that, while the noble Lord's legal opinion differs from the opinions of those I have consulted, the law contains no positive requirements for the endorsement of cheques at all. On Second Reading we heard from the noble Lord, Lord Balfour of Burleigh, that he thought that the banks would still continue to insist on endorsement when they found it necessary.
May I say just a word or two about the actual drafting of the Amendment? In subsection (1) it says:Where a banker in good faith and in the ordinary course of business pays an instrument drawn on him….and "instrument" is defined in subsection (2) (a), (b) and (c). Instruments other than cheques are not always drawn on the paying bank. Therefore, while the 673 Amendment talks of an instrument drawn on a banker, later on it deals, by inference, with instruments which are not always drawn on the paying bank. I admit that these are small in number, but a Bill must cover everything. We must try to let nothing escape. I can give two instances. I am told that a local authority order on their treasurer, who is also a bank manager, is drawn on him in his capacity as a treasurer and not drawn on the bank as the paying bank. And apparently building society interest warrants are made payable "at" a bank but not "on" a bank. I appreciate that these are legal niceties, but this is a technical Bill and that is the sort of thing that we have to cover.
Some instruments intended to be covered by the Clause are not bills of exchange. "Instruments" are defined in subsection (2), and two classes of these are not bills of exchange, and therefore, the phrase "is deemed to have paid it in due course" does not apply. This is why the Bill is drafted most carefully and deliberately to use the phrase "the payment discharges the instrument" referring to instruments other than cheques. I would repeat that the promoters of the Bill are not convinced by the legal argument put forward by the noble Lord, Lord Chorley; and, even if they were, they still do not think that the Amendment drafted covers these points.
§ LORD BALFOUR OF BURLEIGH
I had hoped that it would not have been necessary for me to burden your Lordships with a speech this afternoon, but in view of the fact that the noble Lord, Lord Chorley, has quoted me (I am sure quite unintentionally) not quite accurately, I feel that I must make my position clear. The noble Lord quoted me as having said on Second Reading that I should be glad to support an Amendment. What I actually said was [OFFICIAL REPORT, Vol. 204 (No. 78), col. 280]:But if an Amendment is necessary on that point, I do not think the banks will object.That was hardly a promise of support. As my noble friend Lord Jessel has said, this is a very technical matter. I am thankful that I have not to endeavour to deal with the technicalities, because, quite frankly, I am entirely incapable of doing so. I admire the courage with which my noble friend Lord Jessel has 674 tackled the technicalities—they are, indeed, terrible. I know that this Amendment, for technical reasons, is entirely unacceptable. I support my noble friend Lord Jessel and hope that the Committee will not accept the Amendment.
§ 4.21 p.m.
§ THE MINISTER OF EDUCATION (VISCOUNT HAILSHAM)
As I indicated on the Second Reading, there was then at my disposal official advice, but I had not had time to absorb it to the extent of forming a personal opinion. I would say this to-day, at the outset: I think, on a Bill of this kind, the spokesman of the Government should record the official attitude of the Government, rather than try, on a highly technical matter, to spell out a legal opinion because he happens to be someone who has practised at the Bar. That is my position to-day. I would say, however, that I am persuaded, for the little that that is worth, that the official view is right, and therefore I line myself up, both officially and personally, with my noble friends Lord Jessel and Lord Balfour of Burleigh.
The objections to this Amendment seem to me to be insuperable. In the first place, I am advised that for various reasons, which Lord Jessel has given, it is not aptly drawn. I am quite certain that it creates an anomaly; it is certainly unacceptable to the banks; I do not believe that it gives anybody any new effective security; and I think it introduces a new distinction into the law when the whole purpose of he Bill is to try to get rid of what was thought, rightly or wrongly, by Mr. Mocatta's Committee (of which the noble Lord, Lord Chorley, was a member) to be an anachronism—namely, the necessity for endorsement.
It is not aptly drawn for the reasons which my noble friend Lord Jessel gave. Instruments other than cheques are not always drawn on the paying bank. Some of the instruments intended to be covered by the clause are not bills of exchange, and therefores the phrase in the Amendment,is deemed to have been paid in due course,becomes inappropriate, and the phrase in the Bill, as drawn,the payment discharges the instrument,is the appropriate one. Moreover, I am told that the Amendment overlooks the 675 agency arrangements between banks. These are formidable drafting objections.
I am, of course, aware that the noble Lord, Lord Chorley, has taken powerful legal advice in drafting the Amendments. The Government have the advantage of a cross-bearing: they rely not only on their Parliamentary draftsmen, but they have seen the legal advice obtained by the banks, which is also of the highest quality, and those opinions happen to coincide. Therefore, I should have thought, particularly in the matter of draftsmanship, that the balance of authority lay in favour of my noble friend Lord Jessel. Then I fell that the noble Lord, Lord Chorley, rather "rode off" the point which I made, I thought effectively, on Second Reading (I have now checked my references and I think it is correct) that, under Lord Chorley's proposal a bank would be protected, under Section 60 of the Bills of Exchange Act, if it paid under a forged endorsement, but if it paid on a cheque which was unendorsed, it would not be protected, notwithstanding that in other respects the whole object of the Bill is to get rid of the need for an endorsement. That seems to me to be an anomaly which verges on the absurd.
The argument presented by the noble Lord, Lord Chorley, that theft is encouraged, seems to me to have no real relation to fact. According to his argument, the prospective thief steals the cheque before he starts thinking what to do with it. When he has stolen the cheque, he argues to himself whether he would be rather hanged for a sheep or for a lamb. He has committed larceny by stealing the cheque, but according to the noble Lord, Lord Chorley, in his speech for the Amendment, he is appalled at the thought of writing somebody else's name on the back of the cheque and thereby committing forgery. My own view is that, having swallowed the camel, he would hardly be inclined to strain at; he gnat. The experience of the noble Lord as chairman of a quarter sessions should, I think, have warned him against the practice of trying to rationalise the criminal's mentality to that extent.
The practical sense of the matter, I should have thought and believe, is this. We were all brought up when we were 676 young to believe that the only way of protecting a cheque is to cross it. That seems to me to be sound sense. A crossed cheque is protected, and by virtue of Section 77 of the Bills of Exchange Act a cheque can be crossed by the holder no less than by the drawer. If a business man is so careless as not to cross a cheque he holds he will not get any further or additional protection from the faint chance that the criminal, having already stolen the cheque, would fear to endorse it. If he wants to get any real protection, he must learn better sense and cross his cheques in future.
Moreover, the Amendment is unacceptable to the clearing banks. Of course, if one were persuaded of the virtue of the Amendment one would try to argue the clearing banks out of their opposition. But we had before the Amendment was produced, and we have now, so long as the Amendment is not passed, a measure which I think has balanced opinion behind it. I ventured on Second Reading to enumerate the various bodies who supported it and one of the most important was the clearing banks.
§ LORD CHORLEY
Perhaps I may interrupt the noble Viscount. The clearing banks were represented before the Mocatta Committee and accepted the proposal which the Mocatta Committee were making. Now that they are getting an additional advantage it is understandable that they should want to cling on to it, but the representatives of the clearing banks did accept the views of the Mocatta Committee about the matter.
§ VISCOUNT HAILSHAM
This Amendment is not, in fact, the same thing as the draft which Mr. Mocatta and the noble Lord put in the Appendix to the Committee's Report. That has already gone by the board: this is a new Amendment by the noble Lord, and all I know is what is the attitude of the clearing banks to this Amendment. I hold in my hand a copy of the letter written on their behalf to the Bank of England which concerned this and other Amendments proposed by the noble Lord, and I must tell him that the words at the end of the first paragraph are:The Amendments are unacceptable to the clearing banks.677 This is a very technical subject, but one thing we can all understand is that the effect of the noble Lord's Amendment is to turn what has hitherto been a Bill which was wholly uncontroversial, except to the noble Lord, into a Bill which is opposed by one of the main parties for whose advantage it is being passed through Parliament. Therefore I cannot regard that as a matter which I was wrong to draw to the attention of the Committee.
Finally, I would say, with respect, that the idea that Parliament, by a statutory enactment in a Bill which is designed to get rid of the need for endorsement in something over 99 per cent. of the cases, should create a statutory obligation on the banks which they have never had hitherto—namely, that in a particular narrow class of case they should insist on endorsement—seems to me to be manifestly an unacceptable way of setting about the business. As I think the Mocatta Committee reported, at least 97 per cent. of the cheques which are passed are paid into banking accounts. Of the remaining 3 per cent., I suppose that well over 99 out of 100 are "Self" cheques, to which this clause does not apply. What the noble Lord is seeking to do is to legislate for something like, I should think, a one-thousandth part of the cheques which go through banks in a special kind of way which gives offence to the banks, and which seems to me to have no merits when it is exposed to criticism. For that reason I can only say that both the Government and I are against the noble Lord's Amendment.
§ LORD PETHICK-LAWRENCE
I rise as a person who has for a considerable number of years drawn and paid cheques into my account and cashed cheques. Beyond that, I have no great knowledge of this question. But I should like to ask the noble Viscount who has just sat down one or two simple questions, as I understand them to be, to elucidate the points in which those of us who are not experts in the law on this matter are probably a little in ignorance. Suppose I draw a cheque in favour of Mr. Brown. The cheque is "To Bearer". Now as I understand the law, the question of endorsement does not arise in that case at all; it is an open cheque and anybody can go and cash it, even if he is not Mr. Brown. Anybody can go to my bank or pay it into his account, or pay it over 678 to somebody else and pay it into that person's account. I think that is correct. On the other hand, I can draw a cheque "To Order" and make it out to Mr. Brown. Under the present law, Mr. Brown is supposed to endorse it on the back; and the bank as I understand it (I am merely asking for information) is not entitled to pay out cash to a person claiming to be Mr. Brown who presents a cheque which is made out to Mr. Brown unless he signs it on the back—in other words, endorses it. I think I am right there.
I have been in the United States, and I have been given a cheque made out to me. I have gone to the bank and written my name on the back and handed it to the cashier. In the United States the cashier says to me: "But we have no proof that you are Mr. Pethick-Lawrence, and we cannot cash your cheque unless you bring some evidence to that effect." I have either to produce my passport or some other good evidence to the bank in order to get the money for the cheque which is made out to me, and which I have endorsed, as I do in this country. But in this country that is not, I think, the practice. Here, I make a cheque out to Mr. Brown; he goes to my bank; he endorses the cheque, either before he takes it or in their presence, and the bank hand him out the money without question. I may be wrong, but I want to know if that is the fact.
What I understand to be the effect of this Amendment is this. As I understand it, the Bill as drafted will not only relieve the banker in the case of a cheque being paid into an account, but it will also relieve the bank if it pays out to a man who is apparently Mr. Brown to whom I have made the cheque out, and who endorses the cheque and presents it to the bank for payment. Is that the real distinction between the Amendment and the Bill as it stands? I see the noble Viscount shakes his head, so I am probably quite wrong. I should be glad if he could explain in very simple words, intelligible even to me, precisely what the point at issue is. If it is something far more technical than that, then I am afraid I am quite unable to understand it.
There is one further point. I once had a case of a cheque drawn by a friend of mine to a certain man, and it was not only made out "To Order", but was 679 crossed. The man claimed that he had not received the cheque. The cheque was found, and it had been paid through, but it had been paid into an account by a publican. Someone had given the cheque to the publican who had handed out the money to the person, and the publican paid it into his account. The banker paid through the account of a recognised customer and another bank paid the money over. But the man who should have received the money and, in my opinion, did receive it, claimed that it was not his endorsement but that it was forged, and that he had nothing to do with it. Short of prosecuting the man and ultimately prosecuting the public house—although the cheque was not only made "To Order" and was actually crossed; it was not made "Not Negotiable"; it was an ordinary crossed cheque—it appeared that, short of proceedings in an expensive prosecution, there was no means of recovery at all. I hope that I have not asked questions which are too complicated and tiresome, but it will help us to understand the position if the noble Viscount could enlighten us on the points I have raised.
§ VISCOUNT HAILSHAM
I would not say that any of those questions are either too tiresome or too difficult. On the contrary, anything which comes from the noble Lord is always extremely pertinent and difficult to answer only because the subject is inherently a complicated one. Although, as the noble Lord knows, I have for many years practised in the courts, I have not in the course of this debate set myself up as specially qualified to answer questions of this kind. The first thing to get into one's mind, I think, is this. There is no requirement of law now that an "Order" cheque requires endorsement—none at all. It is part of the practice of mercantile people which is so universal that it is recognised in the courts for almost every purpose and, therefore, legislation is required to alter it. The noble Lord is quite right in saying that a "bearer" or open cheque, whichever one is talking about, requires no endorsement or further endorsement, as the case may be. We are not talking about these and, therefore we can exclude them. We are limiting ourselves to "Order" cheques which, by universal custom in this country, at present require endorsement.
680 The noble Lord is quite right in thinking that the purpose of the Bill is to remove the necessity for endorsement, in the sense which I have explained, and to protect a banker who pays an order cheque without an endorsement or with an irregularity in endorsement. The Mocatta Committee, in effect, said that endorsement was in general an expensive and unnecessary anachronism. The banker is protected where he pays in good faith and in the ordinary course of business, but not otherwise. Let us see the actual language of the clause. It is:in good faith and in the ordinary course of business".The noble Lord, Lord Chorley, by his Amendment, says that this exemption ought not to apply to cheques cashed across the counter. Where I began to differ from the noble Lord, Lord Pethick-Lawrence, was this. I ventured to point out to the noble Lord, Lord Chorley, and I point out now to him, that if I draw a cheque payable to the noble Lord "or Order" thereby, which at present requires an endorsement, the absence of the noble Lord's endorsement under the Bill as drafted, will not render the paying bank liable if it pays that cheque in the ordinary course of business and in good faith. If somebody steals that cheque before the noble Lord has endorsed it and writes the words, "Pethick-Lawrence" on the back, the bank is similarly protected under both the Amendment and the Bill as drafted, because Section 60 of the existing Bills of Exchange Act, 1882, exempts a bank acting in good faith in such a case.
Now the very anomaly which is created by the noble Lord's Amendment is this—that, on the other hand, the thief, instead of forging the name of the noble Lord, Lord Pethwick-Lawrence, on the back of the cheque, presents it to the bank without any endorsement at all; then the paying bank, which is exempt under the Bill, as drafted, becomes liable under the noble Lord's Amendment. It is precisely because that seems to me to create an absurdity that I ventured to attack the Amendment. The noble Lord also raised some very difficult questions about the crossing of cheques. I do not think those points are really raised by the Amendment, but, if the noble Lord wishes to pursue it further, he will find it all in Section 77 of the existing Act.
§ 4.41 p.m.
§ LORD CHORLEY
In answer to the noble Viscount, I am quite prepared to accept a certain slight absurdity if that will protect a substantial number of people from having their money stolen from them. There are numerous anomalies in the law which have been laid down on the basis of protecting people. I quite agree with what the noble Viscount says, that this need for endorsement arose from a banking practice—that is agreed by everybody. But it is carrying it a little too far to say that it is not now legally necessary. It has become so as a result partly of the fact that usage grows into law, as the noble Viscount knows, and partly because of the way in which the courts have applied Section 60 of the Bills of Exchange Act.
For example, I have here a book on the law of banking by the late Sir John Paget, who was much the greatest authority on this subject who ever lived. For something like thirty years, I think, he was the standing counsel to the Bankers' Institute. This is the book which is always quoted before the courts as being the most authoritative textbook. He says:There used to be a superstition that the paying banker was not concerned with the indorsements on an order cheque. Such an idea is, of course, utterly opposed to the whole drift of s. 60, and if a patent irregularity in the indorsements were overlooked or disregarded by the banker, it would be hopeless for him to invoke the protection of s. 60.That was the way in which the law stood as a result of the judgments of the court under Sect on 60 of the Bills of Exchange Act, 1882 which really goes back to 1853 when it was brought in by the Stamp Act of that year. There was the interconnection of the two, the "ordinary course of business" and the section, and in that way we got this obligation on the banks, which has been of substantial use in protecting people from the theft of cheques. It is because I wish to preserve something in regard to this small area of the subject which is not really going to interfere seriously with this Bill that I wish to have this Amendment accepted.
Undoubtedly, there is here a conflict of legal opinion and, indeed, a conflict of opinion in regard to the common sense of the matter. The noble Viscount rather made fun of me as being the sort of person who takes an exaggerated view about the danger of people stealing 682 cheques and dealing with them in this way. But this view is not peculiar to me. I will read the passage in my speech on Second Reading [OFFICIAL REPORT, Vol. 204 (No. 78), col. 276] where I quoted the Mocatta Committee. I did not want to repeat it, but I think perhaps, in view of what the noble Viscount said, I ought to. This Report was not only the Report of a couple of lawyers, Mr. Mocatta and myself, but was the Report of a Past President of the Bankers' Institute, a gentleman who has been, I believe, a general manager of one of the "Big Five" banks, a distinguished chartered accountant and a practical business man of great eminence, so it is not a peculiar little fad of my own. It is the view of men of great experience in the law of banking and in the business world. They said:If payment in cash could be obtained against an unendorsed cheque, the risk of theft and dishonesty by agents would certainly be increased.It may be that we are wrong and the noble Viscount is right; but surely there is here a difference of opinion which if it can be, so to speak, resolved in favour of the protection of a customer drawing cheques on his bank, ought to be. It may be that in an attempt to get back to the elegance of the original clause we have drafted this Amendment in such a way that it is not quite right—I think there is a good deal of substance in what the noble Lord, Lord Jessel, said about that—but that could be put right, and if the Government would lend us the assistance of the Parliamentary draftsman, it could be put right very easily at the next stage.
In effect, what has happened in this case is that the noble Viscount and those who are advising him have constituted themselves a court of appeal in regard to the legal findings of the Mocatta Committee. It may well be that they are right or it may easily be that the House of Lords, sitting judicially, when the matter eventually came before them, would prefer the view of the Mocatta Committee on this particular point. That the promoters of this Bill are not necessarily right is shown to some extent, I think, by the fact that, when the Bill was first introduced, it left out bankers' drafts and these other instruments which are now inserted in subsection (2)—then were put in by another place in an Amendment; 683 this shows that the promoters are not necessarily always right. Moreover, another place also added subsection (3) to Clause 4 of the Bill which, although the noble Viscount said it was quite unnecessary, other lawyers with whom I have discussed the matter have regarded as a necessary improvement. So I suggest that the noble Viscount and those who think with him are not necessarily right in regard to this matter. It is a great pity that we did not have the advantage of some assistance from the legal Members of your Lordships' House. I remember the great assistance that the observations of the noble and learned Viscount, Lord Maugham, were when we were passing the Companies Act, 1947, through the House. As a result of his advice, we were able to avoid a number of pitfalls on that occasion.
I should have liked similar assistance on this occasion. It seems to me that one ought not to put on the Statute Book, a Statute which is open to differences of opinion of this kind between lawyers and which is almost bound to lead to expensive litigation. This type of litigation, as the noble Viscount knows, has been before your Lordships' House in a substantial number of cases at very great expense. A substantial percentage of cases coming before this House has resulted from the drafting of the Bills of Exchange Act, which is nevertheless an ably drafted Act. If that can be avoided, as in my submission it can be, by this Amendment being put into the proper form, it is our duty to see that that is done. In view of the criticisms in regard to the actual drafting, I agree that I ought not to press this Amendment this afternoon, but I will try to get it put into a proper state by the next stage, because I feel we ought to take a decision on this matter, which is one of considerable importance. Therefore, I beg leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Clause 1 agreed to.
§ Clause 2 [Rights of bankers collecting cheques not indorsed by holders]:
§ LORD CHORLEY
The Amendments in my name to Clause 2 are really ancillary to the first Amendment, and were designed to carry out in Clause 2 what I was trying to do in regard to 684 Clause 1. Therefore there is no need to move them, and with your Lordships' consent I will not do so.
§ Clause 2 agreed to.
§ Clause 3 agreed to.
§ 4.50 p.m.
§ Clause 4:
§ Protection of bankers collecting payment of cheques, &c.
§ (3) A banker is not to be treated for the purposes of this section as having been negligent by reason only of his failure to concern himself with absence of, or irregularity in, indorsement of an instrument.
LORD CHORLEY moved, in subsection (3), to leave out "indorsement of an instrument." and insert:
the payee's indorsement provided that the customer is the payee of the instrument.
The noble Lord said: This Amendment is directed to subsection (3) of this clause which was inserted in the Bill on the Committee stage in another place. In my speech on Second Reading I explained how the courts have, over the last half-century or so, built up a rather elaborate jurisprudence for protecting the true owners of cheques which have been stolen, or when they have been deprived of them by fraud or in some other way, from the results of their being encashed, so to speak, by a fraudulent person passing them through his bank account, by putting the job of taking reasonable precautions to see that that sort of thing does not happen upon the collecting banker, the banker into whose account the thief or fraudulent person pays the instrument in order to get it cashed. Obviously, it is necessary to amend the law in relation to this collecting of cheques by bankers to meet the alterations in the law which are being carried through by this Bill in regard to the removal of the need for endorsement.
§ But in regard to what I call "negotiation endorsements" I submit that it is still important that this obligation of the bankers should be maintained in its entirety. One of the important things which the collecting banker has to do when he is collecting a cheque on behalf of his customer, is to examine the endorsement or endorsements in order to make quite sure that they are in order. If in fact on something going wrong it is found that that necessary examination was not made, or was made inefficiently, 685 then the bank will be held negligent and will lose the protection which Section 82 would otherwise give them. This is an important aspect of the banking business and the books, such as the one which I have already quoted, contain elaborate advice to bankers, based on the cases which have been decided in the courts, on how they are to concern themselves with these endorsements.
§ The trouble about subsection (3) as printed is that it applies to endorsements generally and is not limited to the type of endorsement which I was discussing in my earlier speech—that is, to the type of cases where the cheque is being collected for the payee only, and is so widely drawn that it covers the case of cheques being paid for persons who have become holders by virtue of endorsement. My view, and that of those who think with me, is that it is a mistake to confer this additional protection upon the bankers. In respect of cheques which have been negotiated and which have been collected by bankers, the bankers ought to remain under the obligation to take care that the endorsements are in order. This, type of cheque will continue to require endorsement, and in the case of this type of cheque it must be perfectly clear to the banker that it is a cheque which has been endorsed over. This is a small proportion of the whole—certainly not more than 3 per cent., according to the findings of the Mocatta Committee, and therefore the burden which is put upon the bankers is quite a small one. In those circumstances, I cannot see why this Amendment should not be accepted, and I hope that here, at any rate, the noble Lord, Lord Jessel, will be able to help me. I beg to move.
Page 2, line 29, leave out (" indorsement of an instrument.") and insert the said new words.—(Lord Chorley.)
§ LORD JESSEL
The effect of this Amendment would be to restrict the protection given under subsection (3) of our Bill in the case where the customer is the payee of an instrument. Obviously, the idea behind the Amendment is the fact that the subsection as drafted tends to remove any need on the part of the collecting bank to pay attention to the negotiated endorsement. I suggest that this Amendment is unnecessary. I have been advised—and I understand that the 686 clearing banks have been independently advised to the same effect—that subsection (3) would not enable the bank safely to collect for the account of a third party a negotiable cheque without looking for endorsement: which would be required to confer a title upon the third party.
The important words in that subsection are "by reason only of" there being no endorsement, or an irregular endorsement. If someone other than the person in whose favour the cheque is drawn tries to pay it into his account, obviously the collecting banker knows from the face of the cheque that something is unusual—either that it has been negotiated by special endorsement to the customer, or it has become a "bearer" cheque for which no endorsement is necessary, or that there is some fraudulent element about it. So if he fails to turn the cheque over, having looked at the face, he is negligent because he has not bothered to investigate the possibility of fraud, and it is not because he has failed to deal with the question of endorsement only. Therefore, I am advised, and I agree, that although the intention is excellent, this Amendment is unnecessary, and I am afraid I cannot accept it.
§ LORD BALFOUR OF BURLEIGH
I have only two words to add to what the noble Lord, Lord Jessel, has said. I am advised that this Amendment would impose upon the banks far more stringent liability than even the courts have hitherto suggested or imposed. For that reason, I support the noble Lord in resisting the Amendment.
§ VISCOUNT HAILSHAM
I do not think it necessary for me to add much, because the advice which we in the Government have received is identical with that which my noble friends Lord Jessel and Lord Balfour of Burleigh have been given. I think this would be a damaging Amendment to accept. The purpose of the Bill is to get rid of the necessity for endorsement. When you get to Clause 4 (3) which we are discussing, you have left the paying bank and you reach the collecting bank. The noble Lord, Lord Chorley, wants to limit the protection granted by subsection (3) in the case of the paying bank to cases where the customer is the payee of the instrument. That is wrong, according to the advice we have received, partly for 687 the reasons given by my noble friend Lord Jessel, and partly for the additional reason given by my noble friend Lord Balfour of Burleigh.
To deal with the latter first, the clearing banks have pointed out to us that the Amendment would impose upon banks a more stringent liability than the courts have so far suggested or imposed. It would have the result that, by inference, a banker is to be treated as negligent by reason only of his failure to concern himself with the absence of endorsement in every case where the customer turns out not to be the payee of the cheque. That, I am advised, is more than the courts have ever suggested a banker is even now liable for. Therefore, what was intended to be a precaution has become an added imposition.
The idea which the noble Lord, Lord Chorley, has of protecting in his Amendment is, as the noble Lord, Lord Jessel, has pointed out, unnecessary; and the reason is that he has not, I think, read carefully enough the subsection as drafted. The protection conferred by the subsection as drafted is limited to cases where the negligence which would arise arises by reason only of the absence of or irregularity in endorsement of the instrument. But as the noble Lord, Lord Jessel, pointed out, in the case which Lord Chorley has in mind, that of a negotiated cheque originally payable to a person other than the customer of the bank, the advice which we have received—and I am bound to say I should concur in it—is that such negligence as would arise by virtue of the bank's failure to look at the back of the cheque to see whether it had been endorsed would arise not merely from the absence of or irregularity in endorsement but by reason of the fact that the bank had not paid proper attention to what was on the face of the cheque. The subsection as drafted gives no kind of protection to a bank which fails to pay proper attention to what appears on the face of a cheque, except, of course, the general protection already conferred by Section 82 of the Bills of Exchange Act, 1882. The result is that, even from his own point of view, the noble Lord's Amendment is unnecessary; and from the point of view of my noble friend Lord Balfour of Burleigh, it is detrimental.
§ 5.2 p.m.
§ LORD CHORLEY
I am sorry that I cannot agree with the noble and learned Viscount. He has overlooked the fact that in subsection (1) of this clause the wording of the present Section 82 of the Bills of Exchange Act, 1882, is reproduced—and, in parenthesis, I should like to compliment the draftsman on Clause 4. It is a most brilliant piece of drafting, and in particular incorporates the Crossed Cheques Act of 1906 into this Bill in a few words and in one of the most ingenious pieces of wording which, in my experience of statutory drafting, I have ever come across. But the governing subsection of this clause is subsection (1), which provides thatWhere a banker, in good faith and without negligence…receives payment…and the customer has no title, or a defective title, to the instrument, the banker does not incur any liability to the true owner of the instrument by reason only of having received payment thereof.That is where the words "by reason only of" come in, and the protection here is general protection against conversion. In subsection (3) we are dealing with this particular case and it is limited and governed by the words of the earlier subsection. I therefore suggest to the noble and learned Viscount that he is reading too much into this matter.
§ VISCOUNT HAILSHAM
I believe the noble Lord, Lord Chorley, is under a misapprehension. The words "by reason only of" to which he was referring occur in line 29, in subsection (3). I was not referring to the same words where they occur in subsection (1).
§ LORD CHORLEY
I have just indicated to the noble and learned Viscount that they originate in Section 82 of the Bills of Exchange Act and have been there all the time; and in the dozens of cases which have been before the courts in regard to negligence on the part of the collecting banker these words have been in the section. I suggest that they support my view that it cannot be prayed in aid that these words inculpate the banker in the way that the noble and learned Viscount is suggesting. I suggest that if the obligation to the banker to pay proper attention to endorsements in the case of negotiated cheques is to be maintained the words of the Amendment, 689 or something like them ought to be in the Bill, and that without them, the Bill is ineffective. I am afraid that I must press your Lordships to accept this Amendment.
§ Clause 4 agreed to.
§ Remaining clauses and Schedule agreed to.
§ House resumed.
§ Bill reported without amendment.