1 The plaintiffs are a trading company. On 4 September 1979 they applied to the first defendants for the opening of a current account. By the said application which was accepted, the plaintiffs agreed `to observe the clauses of the agreement on the back hereof and undertake to hold your bank free from any loss whatsoever resulting through my/our failure to abide by such clauses` (the opening clause). Among the clauses on the reverse side are:

2 The requests so far as relevant and referred to as `caution` on the cover of the cheque book (AB14) read:

3 For your security in sending cheques through the post, or otherwise paying them away, you should `cross` them thus:

4 On or about 10 May 1990, the plaintiffs issued a cheque crossed `Not Negotiable. A/C Payee Only` No 391542 (the said cheque) in the sum of $260 payable to GD Printing Services. The said cheque drawn on the first defendants was handed to the receptionist for posting to GD Printing Services on 11 May 1990. It never arrived. The amount was eventually altered to $126,260 and the payee to one `Chong Sau Kam IC No 7494646`.

5 On or about 14 May 1990, a female purporting to be `Chong Sau Kam` opened a savings account at the Bukit Timah branch of the second defendants.

6 On 15 May 1990, the said cheque was deposited into the account of `Chong Sau Kam` at the second defendants` Robinson Road branch for collection. The second defendants as collecting bank cleared the cheque for collection. On 16 May 1990 the first defendants paid over to the second defendants the sum of $126,260 and debited the plaintiffs accordingly.

7 On 17 May 1990 `Chong Sau Kam` made a withdrawal of $900 at the second defendants` Bukit Panjang branch followed by a further withdrawal of $95,000 at the second defendants` Bukit Timah branch, thus leaving a balance of $30,360 in that account.

8 Upon receiving from the first defendants the statement of account for the relevant period, this matter came to light and the plaintiff notified the first defendants that they did not authorize the debit. A report was then made to the police. Pending direction of the court or disposal enquiry, the $30,360, under an order of seizure by the police, now remains `frozen` in the account of `Chong Sau Kam`.

9 On 7 March 1991, the plaintiffs commenced these proceedings claiming:

10 As against the first defendants, the plaintiffs` case is that a banker who pays on a materially altered cheque does so without the customer`s mandate. In Hall & Anor v Fuller & Ors , a cheque for £3 was altered by the holder to £200 in such a way that no one in the ordinary course of business could have observed it. It was held that the bank could not charge the customer anything beyond the sum for which the cheque was originally drawn. In giving his judgment, Bayley J said at p 757:

11 In the present case, not only was the amount altered, the payee`s name was also altered. The first defendants, however, denied liability contending that:

12 On (i), s 80 of the Act reads:

13 The alterations to the said cheque were clearly material alterations in the light of s 64(2) of the Act. The said cheque was thus avoided by s 64(1) of the Act.

14 Section 64 of the Act reads:

15 In Slingsby & Ors v District Bank Ltd , the plaintiffs, executors of a will, kept an executors` account with the defendants, and retained a firm of solicitors, Cumberbirch & Potts, who used to assist them in matters connected with their testator`s estate. The acting member of the firm was one James Cumberbirch. The plaintiffs, in conference with James Cumberbirch, decided to invest through John Prust & Co, stockbrokers, a sum of 5000 l, part of the estate lodged on deposit with the defendants. James Cumberbirch accordingly drew out a form of cheque for signature by the plaintiffs. It was in the form `Pay John Prust & Co or order` and was drawn on the plaintiffs` deposit account with the defendants. The cheque was signed by the plaintiffs and left with James Cumberbirch to be posted to John Prust & Co with instructions to invest the money. James Cumberbirch instead of posting the cheque to John Prust & Co fraudulently inserted the words `per Cumberbirch & Potts` in the blank space between the payees` name and the words `or order`; he then indorsed the document with the names `Cumberbirch & Potts` and paid it so altered and indorsed into the Westminster Bank to the credit of a company in which he was interested and which had an account at that bank. The document was accepted without question by the Westminster Bank and passed through the clearing house, and the account of the plaintiffs with the defendants was debited, and that of the company with the Westminster Bank was credited, with the amount on the face of the document. In an action by the plaintiffs against the defendants for conversion, negligence and breach of duty, the Court of Appeal in dismissing the appeal by the defendants held, inter alia, that the cheque had been `materially altered` within the meaning of s 64 of the Bills of Exchange Act 1882, (the English Act) and was avoided as between the plaintiffs and defendants by that section, and that, therefore, the defendants could not rely upon ss 60 and 80 thereof as excusing them for paying the cheque and that, in leaving a blank space between the name of the payee and the words `or order`, the plaintiffs were not guilty of any breach of duty towards the defendants.

16 In the course of his judgment, Scrutton LJ said, at p 559:

17 The protection given by ss 80 and 82 is excluded in my opinion by the fact that the alteration has made the paper a null and void document, no longer a cheque.

18 Another member of the court, Greer LJ, said at p 562:

19 Sections 64 and 80 of the English Act are in pari materia with the corresponding sections of the Act.

20 Accordingly, I hold that the first defendants are not entitled to rely on s 80 of the Act.

21 On (ii), the customer owes a duty to his banker to exercise reasonable care and take reasonable precaution against fraud. The duty has been stated by Lord Finlay LC in London Joint Stock Bank Ltd v Macmillan & Arthur , at p 789, as follows:

22 At p 810 he said:

23 Thus whether the plaintiffs had exercised reasonable care and taken reasonable precaution against fraud in drawing the said cheque is one of fact taking into account the course of dealings between them and the first defendants.

24 From the evidence, following the plaintiffs` standard procedures, a payment voucher in favour of GD Printing Services was prepared by the assistant accounts officer, Miss Lo Hee Hoon. The voucher was then checked by the accounts manager, Madam Koh Chye Ngoh, then certified by the assistant vice-president, Mr Shiomi, and finally approved by Mr Haw Thar Heong, the senior vice-president. The approved voucher then went back to Madam Koh Chye Ngoh who made out the said cheque in favour of GD Printing Services. For the amount to be written in words she used a cheque printer to print after the word `Dollars` of `Singapore Dollars` the words `the sum of 260 DOLS 00 cts`. She then wrote in figures `260.00` in the box after the `S$` sign. The said cheque attached to the payment voucher and approved invoice was then signed by Mr Shiomi and Mr Haw Thar Heong. It was then handed to the receptionist for posting to the payee. The main criticism by the first defendants is that there were spaces between the word `Dollars` and the printed amount and between `$` sign and the written amount in figures. But this is not even supported by the evidence of their own manager, bank office, Mr Lim Wee Hian (1DW1) on their course of dealings with the plaintiffs and with other customers.

25  Cheque printing machine

26  Failing to write the amount in figures in the box and leaving too wide a gap

27 If the first defendants were prepared to accept cheques with the amount in the box after the `S$` sign left blank, it is surprising that they should be heard to complain that the amount in figures in the box in the said cheque was not written close enough to the `S$` sign. On the complaint that the words `The sum of ...` were not printed close enough to the word `Dollars`, an examination of the said cheque will show these words as originally written were close to the word `Dollars` but had been erased and rewritten well past the word `Dollars`.

28 Accordingly, it is my view that the plaintiffs, following the previous course of dealings between them and first defendants, had exercised reasonable care and had taken reasonable precaution in drawing up the said cheque.

29 Even if the said cheque had been drawn up leaving spaces facilitating the alterations, the alterations were apparent. This is the evidence of Ms Jean Tham Mun Yee (1DW2), the first defendants` assistant officer in the payment and receipt department in charge of clearing of cheques.

30 1DW1 upon his attention being drawn by counsel for plaintiffs to the discrepancies on the said cheque also agreed as follows:

31 In Leeds and County Bank Ltd v Walker , the defendant, in satisfaction of a debt, gave the plaintiffs two Bank of England notes, for £100 each. The date and number on one of the notes had been altered but the plaintiffs and defendants were not aware of the alterations. Payment on the note was refused by the Bank of England, and the plaintiffs sought to recover the amount of the note from the defendants. The defendants relied on, inter alia, s 64 of the English Act. In rejecting the defence, Denman J said at pp 90-91:

32 Where the alterations are apparent, the Macmillan case does not apply to relieve the bank from liability - Paget`s Law of Banking (10th Ed), pp 222-223:

33 Accordingly, I hold that the first defendants are not entitled to rely on the plea of estoppel against the plaintiffs.

34 On (iii), the first defendants relied on the exclusion clauses in the opening clause and cl 13 supra.

35 On the construction of exclusion clauses, Chitty on Contracts, General Principles

36 (26th Ed), para 945 states:

37 On the opening clause read with cl 2(a), it is my view that the plaintiffs had exercised reasonable care and had taken reasonable precaution in drawing up the said cheque. The loss could not be attributed to the plaintiffs` failure to abide by the clauses on the reverse side of the agreement because these clauses had been disregarded by the first defendants in their course of dealings with the plaintiffs and their other customers.

38 On cl 13, to exclude liability including liability for negligence in failing to detect the said alterations, the clause must clearly say so without ambiguity. Thus, in Moran v Lipscombe , the plaintiff left his car at the defendant`s garage and instructed him to adjust the headlights of the car. In the garage was exhibited a notice, seen by the plaintiff, reading `Cars garaged and driven at owner`s risk - Every care but no responsibility`. The defendant drove the car on the road to test the headlights when a collision caused by the defendant`s negligence damaged the car. In an action by the plaintiff for damages, it was held that the notice did not amount to an unequivocal and unambiguous notification to the plaintiff that the car was being accepted by the defendant on terms that the defendant was not to be liable for the consequences of his own negligence in driving and therefore the defendant was liable. At p 15 Macfarlan J said:

39 Clause 13 was not sufficiently clear to exclude liability for failure to detect the alterations. I therefore hold that the first defendants are liable to the plaintiffs in the amount of the claim.

40 I now turn to the plaintiffs` claim against the second defendants. It is based on conversion of the said cheque and money had and received in the sum of $126,260. In Marfani & Co Ltd v Midland Bank Ltd , at p 578, Diplock LJ said:

41 The second defendants, however, contended that since the said cheque had been avoided by virtue of s 64 of the Act by the material alterations, it was a valueless piece of paper and there could be no conversion of the same; alternatively, any conversion must be of the original value of the said cheque, that is, $260. The second defendants relied on the judgment of Finlay J in Slingsby & Others v Westminster Bank Ltd . In that case, Finlay J held that the plaintiffs could not recover against the defendants who were the collecting bank. He said at pp 585-586:

42 I have come to the conclusion that this submission is right and ought to prevail. It seems clear that the document, when it came into the hands of the defendant bank, was not a valid cheque at all. It had been avoided by the material alteration made in it. This being so, it seems to me that no action can be brought upon it against the defendants. They have not dealt either with a cheque or the money of the plaintiffs, and on this short ground I think this action must fail.

43 It was after having failed against the collecting bank, that Slingsby brought an action against his paying bank on the same cheque in Slingsby v District Bank Ltd . Wright J gave judgment for the plaintiff and his judgment was upheld on appeal by the Court of Appeal. At p 558, Scrutton LJ expressly overruled Finlay J:

44 In Midland Bank Ltd v Reckitt & Ors , Lord Terrington, a solicitor, had from a client a power of attorney entitling him to draw cheques on the clients` banking account and to apply the moneys for the purposes of his client. Lord Terrington for his own purposes fraudulently drew 15 cheques on his client`s account with the Barclays Bank, signing the cheques by using a rubber stamp which had on the upper line the name of the client and on the lower line `his attorney` and by placing his own signature between the lines. Lord Terrington paid the cheques into his own account with the Midland Bank, the defendants, with whom he had an overdraft. On discovering the facts, the client brought an action against the defendants for damages for conversion of the cheques, and the defendants relied on s 82 of the English Act [in pari materia with s 85 of the Act], alleging that the cheques were crossed cheques and that they had received payment of them in good faith and without negligence. It was admitted that the defendants had acted in good faith.

45 It was held that, except in the case of two of the cheques, the defendants, in presenting and receiving payment for the cheques, had converted them, and that, as the defendants had, from the form of the cheques, notice as to the money not being Lord Terrington`s money, they were negligent in making no inquiry as to Lord Terrington`s authority to make these payments into his own account, and, therefore, the action succeeded.

46 Lord Atkins, with whom the other Law Lords concurred, in delivering his judgment said, at pp 273-274:

47 In the light of these authorities, I hold that the second defendants are liable to the plaintiffs in conversion for the amount of $126,260.

48 Against the claim for conversion, the second defendants also claimed statutory protection under s 85 of the Act. Section 85 reads:

49 In Bank of Ceylon v Kulatilleke , the amount of a cheque crossed `not negotiable` was subsequently altered fraudulently by a third party. In a suit by the drawer, the collecting banker`s reliance on s 82 of the Bills of Exchange Ordinance of Ceylon [also in pari materia with our s 85] was rejected. Basnayake CJ, delivering his judgment, said at p 189:

50 This decision is consistent with English authorities dealing with statutory protection given to a paying banker. See Slingsby v District Bank Ltd , where Scrutton LJ said (at p 559):

51 Accordingly, I hold that the second defendants are not entitled to statutory protection under s 85 of the Act.

52 Against the plaintiffs` claim for money had and received, the second defendants contended that, as collecting bank for $126,260 on behalf of their customer `Chong Sau Kam`, they had paid over $95,900 to her with the balance being `frozen` on an order of seizure by the police in the account of `Chong Sau Kam`. Accordingly, they are not liable.

53 In his Modern Banking Law (1987 Ed), Prof EP Ellinger states (pp 412-413):

54 From a practical point of view, the cause of action in conversion is to be preferred to the quasi-contractual action based on waiver of tort. The reason for this is that the collecting bank receives the funds as its customer`s agent. It is established that an agent who in good faith has paid over to his principal money to which it is subsequently discovered that the principal has no right cannot be required to return the money to the payor. This doctrine applies to a collecting bank that has received the proceeds of cheques collected by it on behalf of a customer. Once the money is paid to the customer, the bank has changed its position and, being a mere agent, is no longer answerable in an action in money had and received. However, the doctrine in question applies only where the action is brought under this heading and is thus based on the wrongful receipt of the funds.

55 Having considered the statement, I accept it as a correct statement of the law. Accordingly, I hold that the second defendants are not liable for money had and received but they are liable in conversion.

56 There will thus be judgment for the plaintiffs in the sum of $126,260 plus interest wrongly debited against them thereon calculated to date of judgment and costs. As both defendants are liable for the same loss and both are equally to blame in that they failed to detect the alterations, I apportion liability between them equally. As between the defendants there will be no order as to costs.

57  Plaintiffs` claims allowed.