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5. Duty of Care on Customers
Following the above discussions, in China the rigid execution of formality of cheque renders the customer a fundamental duty that is to control and safeguard the use of registered seals. The customer is responsible of his negligence that leads to abuse of seals by unauthorized persons. Losing the seal is losing the power. Since the application of seals is not appropriate to personal cheque, it may be another reason why the personal cheques are not acceptable in practice.
However, the common law adopted different approach to protect the bank by means of establishing principles of duty of care on customers. Two cases have set out the principle that a customer’s negligence may exempt the bank from compensating the loss of the customer. In London Joint Stock Bank v Macmillan and Arthur , which concerned the partners of a company left a clerk to fill the sum in words on a cheque after they had signed it and the clerk took this fraudulent advantage, it was held that ‘the customer is bound to exercise reasonable care in drawing the cheque to prevent the banker being misled. If he draws the cheque in a manner which facilitates fraud, he is guilty of a breach of duty as between himself and the banker…’. In another case of Greenwood v Martins Bank Ltd, which concerned a husband who knew his wife had forged his signature on cheques did not make any notice to the bank until he brought an action after the suicide of his wife, the Court of Appeal decided: ‘the banker, if a cheque were presented to him which he rejected as forged, would be under a duty to report this to the customer to enable him to enquire into and protect himself against the circumstances of the forgery. This, I think, would involve a corresponding duty on the customer, if he became aware that forged cheques were being present to the banker, to inform his bank in order that the banker might avoid loss in the future.’
If these two cases were happened in China, the results would be slightly different. It would be no doubt that the company clerk in the first case would be treated as an authorized person to fill the blank on the cheque because the ‘signature’ (it should be the seals of company in China) conferred him the power. Here, the result would be the same but the reasons were different. In the second case, the bank would not be immune in any circumstance, for the reason that it did not detect the forged signature successfully. If the bank presented evidence to prove the customer’s fault like that happened in this case, its liability would be released partly. This principle has been established in the Principles of Civil Law as ‘if a victim is also at fault for causing the damage, the civil liability of the infringe may be reduced.’ Here, both the result and the reason are different. It is true that many disputes between customer and paying bank have been resulting from forged or unauthorized signatures on cheques in the UK. In China this is often the criminal case rather than civil disputes. Since the bank is only liable of negligence of detecting the forged ‘signatures’, it always targets to develop new measures by which the detecting work could be quick and efficient. Nowadays, the Chinese banks apply use of password on cheques. Every cheque is printed the wording ‘no password, no effect’ on it and each cheque is given a specified password. The detecting work is to check whether the password is compatible with the specified cheque number. This measure may be suitable for the use of personal checks to complement the absent function of seals.
An Privy Council case of Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd and Others caused strongly arguments from banks in the UK and it considerably surprised me when I first heard the facts of this case in my banking law class. In this case, an employee of the plaintiff company had forged cheques for six years on the employer’s accounts with three banks to the total amount of $ 5.5 million. When the fraud was disclosed, the plaintiff claimed repayment against the banks through an action. The main argument of the banks was the plaintiff had been at the negligence of failure in checking the monthly bank statements. During the appeal in Privy Council, the banks’ argument was rejected. It was held that the customer’s duties as lain down in London Joint Stock Bank case and the Greenwood case could not be extended, and the more duties imposed on the customer should rely on banks themselves, either by changing the terms of business, or by seeking further statutory protection. This decision surprised me because I assumed that the law imposed the bank a duty to send the customer bank statements frequently, then what was the purpose of this duty? The bank statements are private correspondences but it shall not be regarded as any rubbish advertising letters. If there were no necessary for the customer to read it, should the bank own the duty to send it, or should it leave the bank to decide whether send the statements or not only in a way of considering the good service? Concerning the principle laid down in Lipkin case, the bank owned a duty to inform the customer when the bank suspected the customer was under a circumstance of being defrauded. Supposing that the private correspondence was an illegitimate way for informing because the customer might ignore it like that he ignored the bank statements, the bank had to seek an proper way until it was aware that its customer had be reached, if not the customer would excuse not checking the notice. Whatever delivering the notice or sending the statement, too much unjust burden would be put on the bank if the awareness of the documents achieved were impose on the bank.
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