§ 5.53 p.m.
§ Debate resumed.
§ LORD CHORLEY
My Lords, before the House adjourned, I was explaining that the law of cheques is one of the most difficult and complicated branches of our English law. One of the main reasons for this is that it derives from the law of bills of exchange. When modern banking began to develop, a bill of exchange drawn on a banker was the obvious method by which the depositor could get back the money which he had deposited with his bank or by means of which he could transfer it to another person if he wished to do so. Here we meet the important distinction which really is, or should be, at the back of the discussion of this Bill: that, where the depositor is getting the money out for himself, so to speak, the endorsement which he puts oil the cheque, the bill of exchange, is in the nature of a receipt. That is probably not a technically legally correct description of it, but that is the way in which it has been regarded, and it is this receipt endorsement, if I may so describe it, which it is the object of Mr. Graham Page and those who have been working with him to get rid of. With that objective I am certainly in wholehearted agreement.
But, when the cheque is transferred to another person as a bill of exchange, It is a negotiable instrument, and the payee named in it transfers it to some other person by means of endorsing it over. Of course, it is in connection with this endorsement over—a negotiation endorsement, it one can so describe it—that the risk of forgery is so important. The law as it originally stood put the risk of forgery, loss through forgery, upon the paying banker, but in the nineteenth century, when the growth of the cheque system became enormous and rapid, this was felt—and I think was very naturally and properly felt—to be unfair, and the bankers were given protection by various Statutes passed during that period, provided—and his is important—they acted in good faith and in the ordinary course of business.
Now it is the ordinary course of business in banking for a banker to examine endorsements for any irregularity that there may be there, and, if an irregularity 275 is found, to assure himself that the matter is in order, if necessary by referring the instrument to the drawer himself so that the drawer can give his consent to paying the cheque. This obviously is a great safeguard to the customer. Indeed, it is almost the only safeguard which remains to him vis-à-vis himself and his own banker, the paying banker. The Mocatta Committee considered that it was very important that this requirement in regard to negotiation endorsements should be maintained.
The Bill which is before your Lordships this afternoon throws away this safeguard completely, as I read subsection (1) of Clause 1, because it does not have regard to this distinction between the two types.Where a banker in good faith and in the ordinary course of business pays a cheque drawn on him and which is not endorsed or is irregularly endorsed, he does not, in doing so, incur any liability by reason only of the absence of, or irregularity in, endorsement.So he is no longer responsible for anything in the nature of an irregular endorsement. That I suggest in connection with these negotiation endorsements is a very serious thing. It might have been preserved quite easily, of course, as the Mocatta Committee clearly showed, I think, in the draft proposals for the modification of the law which they appended to their Report.
This same clause would also free a bank from any responsibility in connection with endorsements, in regard to payments made over the counter where a man who has perhaps stolen a cheque turns up with it at the bank on which it is drawn, presents it to the cashier at the desk and obtains money over the counter. The need which at present exists of having to endorse it, of having in effect to put a forgery on it, for which he can be held liable in a criminal court, is a safeguard of great value. That under this clause will entirely disappear. The Mocatta Committee attached a good deal of importance to that and dealt with it in three paragraphs of their Report, paragraphs 63 and the following paragraphs, to which I should like to refer. They point out:Where a cheque is collected by a bank it is possible to ascertain the account to which it has been credited and hence the identity of the actual recipient, and this will continue to be so whether the cheque is endorsed or not. Where "—276 and this is the important point—however, cash is paid against a cheque the identity of the recipient of the payment cannot afterwards be established by the same process of enquiry and the presence of an endorsing signature is thus a most important link in the chain of evidence.Then, after some argument which is to the same effect and with which I will not trouble your Lordships, they say in paragraph 55:Further, in all the three cases distinguished above we think that the requirement of endorsement would give an added security to those concerned. If payment in cash could be obtained against an unendorsed cheque, the risk of theft and dishonesty by agents would certainly he increased. The continued need for endorsement in these cases would enable payees to hold cheques without special risks of loss until they were about to be cashed.Then, in paragraph 66, they say:On grounds of both evidence and security, therefore, we consider that endorsement should continue to be required in all cases of encashment of cheques.This point was raised on an Amendment on the Committee stage in another place, when the sponsor of the Bill tried to get over it by saying that, in practice, the banks would continue to require an endorsement. I have no doubt that they will do so, but a promise of that kind on behalf of the banks is, of course, no equivalent to a section in the Statute Law of England. Nor would it be fair, because at some stage or another a bank official having forgotten to ensure that there was such an endorsement, and an action being brought against the bank on that basis, the bank's lawyers would undoubtedly say, "We are legally all right. Therefore, we will take our stand on the law as enacted by Parliament." I suggest that in regard to the payment of cheques the safety of the customer has been completely ignored in this Bill. That is the most serious aspect of it.
The Bill gives not dissimilar privileges to the collecting banker. I should like to say a word or two about that. It is difficult to explain it shortly, but when the responsibility of the paying, bankers was so much reduced by the Statutes to which I have referred, particularly by Section 60 of the Bills of Exchange Act, 1882, the courts began to build up a system under which the banking public have been given a large measure of protection through the precautions which the banker who collects a cheque for the credit of his customer's account is required to take, in order to 277 secure the protection of Section 82 of the Bills of Exchange Act. If a customer who had somehow or another got hold of a cheque to which he had not a title paid it into his bank account for collection, the bank became guilty of the wrongful act of conversion. Section 82 of the existing Bills of Exchange Act gives protection in that type of case in connection with crossed cheques, provided that he acts without negligence and in good faith.
One of the most interesting developments of the whole of banking law over the last fifty years or so has been the building up by the Courts of the required standards of care on the part of the banks, and it seems to me that to a substantial degree this is now removed by the insertion of the proposed Clause 4 in this Bill. In other words, the Bill seems to me to cut into the degree of care which the courts have required that the banks should take in collecting their customers' cheques. There are a number of instances in which it seems to me that this would be so. I will not trouble your Lordships with all of them but will refer to just one. Perhaps the most obvious way in which a banker can be negligent is in not concerning himself with the regularity of the endorsement on the cheque which is paid into the account by the customer for the bank to collect the amount for him. If the endorsement is in fact irregularity then the banker should be put on his guard, and obviously it would be negligence on his part not to go into the matter and satisfy himself that the irregularity did not cloak some criminal offence or some lack of title, at any rate, in his customer.
In the case of cheques which have been endorsed over—negotiation endorsements—this is particularly important, as I think any banker will agree, and as indeed the precautions which are taken by the banks at the present time in handling third party cheques amply prove. Clause 4 (3) of this Bill seems to me to go a long way towards removing, if it does not remove altogether, any need on the part of the collecting banker to pay attention to irregularity in regard to these negotiation endorsements. It is all part of the same weakness in this Bill that the fundamental distinction between receipt endorsement and negotiation endorsement, which is emphasised on so many pages of the Mocatta Committee Report, has, as 278 I see it, been completely ignored when this Bill was drafted.
These matters all come back really to the same point. There are a number of other points which are of lesser importance and with which I need not trouble your Lordships at this late hour. One obvious point is that there are references to Section 82 of the Bills of Exchange Act in quite a number of statutory instruments. Section 82 of the Bills of Exchange Act is repealed by the Schedule to this Bill without any regard being taken of a point of that kind. No doubt these matters will be looked at in due course and provision will be made for dealing with them. I am sorry to have taken up so much time, but it seemed to me that your Lordships should be aware of what seem to me to be grave defects in a Bill which has been presented almost as being, of a non-controversial character.
§ 6.7 p.m.
§ LORD BALFOUR OF BURLEIGH
My Lords, I am afraid that even at this late hour I must ask your Lordships to hear with rue for a few moments in order that I may make some observations from the point of view of the banks. I would agree without any demur that there is a great deal of waste of time and labour to the public (I am referring mainly to the trading community: such people as shops, insurance companies, local authorities and others) in having to endorse cheques which are going straight into their own accounts with their own bank. There is also, of course, the waste of time and labour in the banks, both the collecting and paying banks, in examining endorsements of cheques which are paid by payees to the credit of their own accounts. I agree at once that it is a good thing to get rid of that.
The system of endorsements has become, I think, both superfluous and cumbrous. One of its disadvantages I can illustrate, perhaps, by an incident which occurred not long ago, when a gentleman who had the misfortune to have to pay alimony to a certain lady, feeling perhaps a little vindictive, had the bright idea, remembering the bank's meticulous attention to endorsement, of drawing the cheque to "naughty Annie, or order." I suppose he hoped the bank would insist upon the endorsement being in proper form—and to doubt, in certain circumstances, had the hank not insisted 279 on that precise endorsement they might have been guilty of negligence. I think I can assure your Lordships that the banker was sufficiently generous to take the risk, whatever it was, of being held guilty of negligence in that case by accepting an irregular endorsement.
My Lords, when I came to the House for the debate on this Bill I had no idea that the noble Lord, Lord Chorley, was going to take such ferocious exception to the Bill. I had understood that it would he an agreed Bill, and there were just three points which, in those circumstances, I felt it right to put before your Lordships. I think I had better make those points in the first instance and then, if I may, say a word in reference to what has fallen from the noble Lord, Lord Chorley, in objection to the Bill. The three points I should like to get on the Record arc, first, that this Bill is primarily designed in the interests of the trading community. It is true that the banks will, incidentally, obtain some relief from work which has been largely useless. Frankly, that relief is welcome, but I must make the point that it is not a relief for which the banks have specifically asked; and we do not expect any really great or material saving in expense through being relieved of these duties.
My second point, which I believe is important from the point of view of the public, is that it might he feared that the elimination of an apparent safeguard would expose the hank customer—the cheque user—to greater risks than those to which he is already exposed. I believe I can give your Lordships a categorical assurance that that is not so, and that there will be no greater risk involved than at present. I can illustrate that simply by pointing out that in a way it is safer from the point of view of possible theft to send an unendorsed cheque through the post than an endorsed cheque, because if a cheque to order is unendorsed nobody can get money without putting on the endorsement—and that would be forgery. On the other hand, if the cheque is endorsed, then it is payable to bearer.
My third point is that I wish to make clear that, in spite of what the noble Lord opposite has said (at all events this was my view before I came down to the House), the Bill does not confer new protection on the banks, except in one 280 particular point. I am instructed that under Clause 4 the protection of Section 82 of the Bills of Exchange Act, 1882, is extended to open cheques. I believe the noble Lord mentioned that point. That is a change which was proposed by the Mocatta Committee.
§ LORD CHORLEY
My Lords, if the noble Lord will forgive me for interrupting him, I am in entire agreement with the extension of the protection to open cheques. The position there was quite illogical and the Mocatta Committee recommended that that concession should be made.
§ LORD BALFOUR OF BURLEIGH
My Lords, I am obliged to the noble Lord. That is what I was about to say when the noble Lord interrupted me. We welcome the concession, though we did not seek it. Before I pass to the other remarks of the noble Lord, I should like to confirm that which fell from the noble Lord who moved the Second Reading of the Bill: that the banks are willing to continue to co-operate in the matter of combined cheques and receipts which are of importance, particularly, I believe, to insurance companies.
May I now say a word about Lord Chorley's two main criticisms of the Bill, as I understood them? The first is that Clause 1 goes wider than the Mocatta Report. The noble Lord cites paragraph 66 of that Report. I entirely agree that the Bill certainly goes outside the Report; but I can tell your Lordships that truly the noble Lord need not worry; for, from long experience, the banks have found it necessary to protect themselves and I do not think it at all likely that the banks will pay order cheques over the counter without getting an endorsement. It seems to me that they would be foolish if they did so. I am not in a position to give an undertaking, because, for one thing, I did not know that the point was to be raised; and even had I known I should not have been in a position to give an undertaking on behalf of the banks. But if an Amendment is necessary on that point, I do not think the banks will object.
On the noble Lord's second point on Clause 4 (3), which refers to the collecting bank—it is a rather large point—I must tell your Lordships that the advice given to the banks on this point is different 281 from the interpretation put upon it by the noble Lord. The banks have been advised that Clause 4 (3) would not enable them safely to collect for the account of a third party a negotiated cheque without looking for an endorsement which would be required to confer title upon the third party. I have no doubt that they will continue so to act for their own protection. I do not know whether Amendments will be moved en that point, but here again I do not think there will be any objection taken by the banks. I do not think I need add anything else.
§ LORD CHORLEY
My Lords, would the noble Lord agree that my view of the effect of Clause 4 (3) is correct, and that the banks are, in fact, being given a very substantial advantage?
§ LORD BALFOUR OF BURLEIGH
My Lords, I cannot agree, because, as I have told your Lordships, the banks have had legal advice in a different sense. However, that is a legal matter which I am not competent to judge: I can only tell your Lordships of the advice which has been given to us. I need only add that we welcome the Bill and I have no doubt that any difficulties such as the noble Lord anticipates can be threshed out at a later stage.
§ 6.17 p.m.
§ VISCOUNT HAILSHAM
My Lords, it falls to my lot to indicate the attitude of Her Majesty's Government on this Private Member's Bill. In doing so, I should explain that I have not been in a position to inform myself fully upon all matters of detail which have been raised. My own feeling about most of them is that they are primarily Committee matters and are very different, individual and particular points which might have to be discussed in detail at a later stage. In general, Her Majesty's Government endorse—if I may use the word—the provisions of the Bill—
§ LORD CHORLEY
My Lords, to what kind of endorsement is the noble and learned Viscount referring—a receipt endorsement or a negotiation endorsement?
§ VISCOUNT HAILSHAM
My Lords, I think this will be a receipt endorsement, and I shall seek to negotiate the instrument with the House afterwards. Her Majesty's Government support this Bill. I should like to add the thanks of the Government to the Committee who, 282 despite the noble Lord's disavowal of parentage, still remain, in our view at any rate, substantially the author of this Bill. The tribute was paid in another place. The noble Lord himself rendered his thanks to the Chairman of the Committee and its other members, but I feel it would be at least graceful for me to repeat here en behalf of Her Majesty's Government what has been said.
I do not think it is correct to complain, as the noble Lord did, that this is a Private Member's Bill. It is a Private Member's Bill in your Lordships' House for the very adequate reason that it was introduced as a Private Member's Bill in another place, and it is the invariable practice of your Lordships' House to pursue a matter of this kind on the same footing as that on which A has been received from another place. I am advised that it would not be altogether in accordance with the Rules of Order—
§ LORD CHORLEY
My Lords, if I might interrupt the noble and learned Viscount, my complaint is that Her Majesty's Government did not introduce the Bill in another place originally. I quite appreciate that after it had gone so far in another place it could not become a Government Bill in your Lordships' House.
§ VISCOUNT HAILSHAM
My Lords, the thought had flickered across my mind, and I was proceeding, in my own way, to deal with it when the noble Lord rose. I am advised that it would not be within the Rules of Order to speculate as to the motives which led a private Member in another place to introduce a particular measure—a fact which somewhat limits what it would be appropriate for me to say. But the noble Lord really gave the answer to his own question, when he said that he understood that the services of the Parliamentary draftsman had been invoked in this matter. Those of us who have served in both places know very well the way in which these things are done, and how very much in accordance with Parliamentary custom it is that when a particular Member of either House has interested himself in a private capacity in a public matter it is considered appropriate for the Government to allow the initiation of what is virtually a public measure to fall to the lot of that particular Member as a recognition of his public 283 spirit in initiating the discussion. I think that I have now gone to the extreme lengths of what the Rules of Order will permit me to say. So much for that point, in which, I venture to suppose, there really is very little.
Of course, one is necessarily sorry that the noble Lord should feel not merely that we should have set about, or that the Bill should have set about, the solution of the problem with the objects in view which the Committee maintain but that it should have followed with complete correspondence the draft of the measure contained in the Annexe to the Committee's Report, and, indeed, the ways in which the substance of that Report recommended that the problem should be solved. This is where I find it difficult to answer all the noble Lord's points without indulging in a discussion of detail which I fear would prove intolerable to your Lordships at this stage of the Bill and at this hour of the day.
Broadly speaking, what I would say at this stage is this. So far as Clause 1 is concerned, the Committee suggested that it should be provided that it was to be no requirement that a cheque should be endorsed. According to the advice I have received, there is no requirement that a cheque should be endorsed otherwise than in existing practice. Therefore the proposal in the form in which it was originally recommended would have been an inappropriate way of drafting the particular clause. Clause 1 (1) gives protection to the paying banker notwithstanding that the cheque is not endorsed. According to the view held by the Government's advisers, that is the appropriate way in which to achieve that result. So far as the position of cheques paid across the counter is concerned, 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. If that view be correct, I should have thought that the Bill in its present form was a preferable solution. I would say 284 that it cannot be too strongly emphasised that the only certain way for a drawer to protect himself against payment being made to the wrong person is to use a crossed cheque.
Concerning Clause 2, it is, as the noble Lord opined, correct that the clause goes somewhat wider than is recommended in paragraphs 52 and 53 of the Report of the Mocatta Committee. Paragraph 53 of the Report recommended that endorsement should still be required in the relatively rare case where a customer presented for collection a cheque which was endorsed specifically to him by name. The clause, as drafted, will dispense with endorsement not only where the cheque is to be paid into the payee's account but also where the cheque is specially endorsed. In our view, there is no essential difference between the two cases. So far as third party cheques are concerned—by which I mean cheques negotiated by the payee—the clause does not in any way destroy or lessen the necessity for an endorsement, and a regular endorsement, by the payee.
The third point which the noble Lord, Lord Chorley, raised was related to subsection (3) of Clause 4 of the Bill. Subsection (3) is necessary to clarify the position of collecting bankers in relation to negligence and endorsements, and makes it clear that a collecting bank is not to be held negligent in an action for conversion merely because it did not concern itself with the absence of, or irregularity in, endorsement of an instrument. The Bill as originally drafted did not include this provision, for the reason that it was not thought necessary; it was felt unlikely that any court would hold negligent a collecting banker who failed to look for something with which a paying banker need not concern himself as a result of Clause 1 of the Bill. During the passage of the Bill through another place, however, clearing banks and their legal advisers represented that the risk, however small, did exist, and that it should be removed. The subsection does not give bankers any protection additional to that already afforded by the law (that, at any rate, is the view of those from whom I receive advice), and does not seek to excuse them from any risks other than those arising from the abolition of the need for endorsement—which is again a purpose of the Bill. It was thought that 285 the subsection would remove this slight element of risk.
I cannot say how far these explanations will satisfy the noble Lord, Lord Chorley. Perhaps he will be good enough to look at them and consider them and, if at a later stage he still finds himself unsatisfied, what remedies he would apply. 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 must confess that I have not fully informed myself on these points. I should like to add a word of thanks to my noble friend who moved the Second Reading of this Bill, which, in our view, is a useful and necessary measure and one which will be widely welcomed in the business world.
§ 6.28 p.m.
§ LORD MATHERS
My Lords, before the noble Lord in charge of the Bill says his final word about it, I think it would be appropriate that a word should be said by one of my nationality, that being a nationality which looks upon anything relating to money as being worthy of very special attention at all times. When any guidance is sought by my fellow-countrymen with regard to this measure, they will net find in the Bill any reference to Scotland. There is a reference in Clause 7 to Northern Ireland, which is made necessary because of certain circumstances. In order to resolve any doubts that might be in the minds of my fellow-countrymen as to how far this Bill goes (they certainly would not get any guidance from the debate that has taken place here, because there have been several references to the law of England, but nothing to indicate that this is a Bill which is intended to be made the law of the United Kingdom), I rise to express the hope that the sponsor of the Bill will say that it is intended to apply to Scotland.
§ 6.30 p.m.
§ LORD JESSEL
My Lords, I should like to thank till noble Lords who have taken part in the debate. I would especially like to thank the noble and learned Viscount, Lord Hailsham, for giving the Government's blessing to this measure and for dealing at some length with the criticism which the noble Lord, Lord Chorley, has advanced. I think that we are all trying to do the same thing, and perhaps the only point we are arguing about is how we are going to do it. If, 286 having heard the noble and learned Viscount's remarks, the noble Lord, Lord Chorley, feels he ought to put down some Amendments on Committee stage, I think he would be quite right to do so. Then we can consider his points and see what is the best way of doing what we want to do. I should like to thank the noble Lord, Lord Balfour of Burleigh, for his remarks, and especially for the comment that this Bill involved no greater risk to the public (I think that was the phrase he used). I think that that is very important and I hope that it will reassure everybody. The mention of Scotland by the noble Lord, Lord Mathers, took me by surprise, but I will consult the sponsors of the Bill and see whether we can meet his point.
§ LORD MATHERS
My Lords, I have no doubt that the Bill applies to the whole of Scotland, but I thought that it might be made clear for the guidance of anyone reading the record.
§ VISCOUNT HAILSHAM
My Lords, may I say that, if I am not mistaken—because I was taken by surprise like my noble friend—the general rule as regards Statute Law covers the point, and the absence of any reference to Scotland in the Bill will guide Scots lawyers completely as to the intention.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.