Implied Terms in Tort Law - Essay Example

Tort Law of Institute Tai Hing Cotton Mill Ltd. V Liu Chong Hing Bank Ltd. and Others Respondents The case of Tai Hing Cotton Mill Ltd. V Liu Chong Hing Bank Ltd. involves a case whereby a company (Tai Hing Cotton Mill Ltd.) appeals against the Court of Appeal’s decision. It sought to recover some sums of money from three banks. The banks had allegedly debited the amounts wrongfully against the company’s current account. The appeal was dismissed. From the appeal, one question that rises is one of general principle in the law that governs how a banker and customer relate (Beale, Bishop and Furmston, 2007, p. 105). The company maintained a current account with each of the banks. The banks received and paid some cheques worth approximately HK$5.5 million. The cheques appeared to be genuinely drawn by the company and they bore the signature of Mr. Chen who was one of the authorized signatories for the company to the cheques. In each of the instances, the banks used each cheque to debit the companys account. However, these cheques were forgeries and not the companys cheques. An accounts clerk had forged Mr. Chen’s signature on each cheque. The main issue in the appeal is to determine who was to bear the loss arising from the forgeries. The question of general principle was to determine the nature and extent to which a customer has a duty of care to his bank in relation to the operation of his current account. The companys submission was that, where no other agreement exists between the banker and customer, the customers duty could only be limited to two sets of circumstances. In drawing his cheque, the customer must exercise due care. A cheque having a forged signature is not the customer’s and the bank therefore cannot pay it. The customer must also bring to the attention of the bank any forgery, which he discovers so that the bank may take precautions to avoid loss. If any breach of such duty by the customer leads the bank to make payments on the forged cheque, the customer is liable to bear the loss. The banks’ submission on the issue was that from the relationship between banker and customer, the latter has a duty to the former to take precautions to prevent the presentation of forged cheques to the bank and to check his periodic bank statements. That is so as identify and report to the bank any items, which he may not have authorized. The duty is both in contract and in tort (Hodgson and Lewthwaite, 2004, p. 417). In delivering the Lordships’ ruling, Lord Scarman said that their Lordships believed there was nothing to the advantage of the laws development in trying to find a liability in tort where the relationship between parties is a contractual one. They were convinced that it was correct in principle and necessary to avoid doubt to adhere to the analysis of contractual relationships. As this was an example of a commercial relationship, they chose to take it as forming contractual relationship rather than try to define the duty arising from such a relationship in tort. If they were to treat the case as falling under tort, they would have had to take into consideration the submissions by the banks as regards the duty of care owed by the company (Cooke, J., 2007, p. 335). However, that being a contractual relationship, the parties had freedom to determine what their obligations to each other were (Samuel, G., 2001, p. 205). Their Lordships concluded that the banks could not rely on the law of tort unless there exist express terms in the contract since no other duty other than that recognized in the London Joint Stock Bank Ltd. v. Macmillan [1918] case and Greenwood v. Martins Bank Ltd. [1933] case can be implied into the contract (Beale, 2002, p. 487). Recognizing such other duty would provide the banks with more protection than what they deserve as per the contract (Austen, 2011, p. 80). Based on the English law as set in the Macmillan and Greenwood cases, their Lordships accepted the company’s submissions. Having accepted the Company’s submissions, their Lordships now set to analyze the contract to determine all terms of the contracts between the company and the banks (Austen, 2011, p. 80). Found in the contract with Chekiang Bank were the terms that the bank would send a monthly statement of account to the company. The balance contained in the statement serve to be correct if the company failed to notify the bank of any error within ten days after they sent the statement to the company. Their Lordships established that the company sent a confirmation slip bearing signatures of two authorized signatories. Tokyo’s terms provided that the bank would consider the statements sent to the company correct if the company did not confirm the statements within a fortnight. The bank never sent any confirmation to the bank. Liu Chong Hing’s terms required the customer to examine the statements and report any error. The customer also had to sign and send back the confirmation slip to the bank within seven days or else the bank would consider the accounts correct. Their Lordships agreed that these terms were contractual but did not impress upon the customer the importance of the inspection of the statements being implied by the terms (Smith, 2004, p. 371). According to them, the banks were to include clear and unambiguous terms in the contract to create a binding obligation on the customer as regarding the confirmation of the statements (Austen, 2011, p. 80). They thus held that the company had not breached any duty owed to the banks and hence could not establish any estoppel based on silence or failure to act. Accordingly, their Lordships established that the company only came to know about the forgeries after the accounts clerk was exposed. The company could therefore only be liable for breach if it had been under the duty of care as per the banks’ submissions. They held that failure to object the statements sent by the banks could not be a representation of the correctness of the statements (Hong Kong Institute of Bankers, 2012, p. 97). As the banks could not establish the duty of care owed to them by the company as per their submissions, they could not rely on the doctrine of estoppel for defense. Their Lordships also held that the banks were only liable to pay interest on the amounts from the time the company communicated to them about the forgeries and asked them to correct the debits in the accounts. In delivering their ruling, they were able to set aside what would have been treated as tort had they maintained the submissions by the banks. They however chose to treat it as a contractual relationship and based their ruling on the terms of the contracts. References Austen-baker, R., 2011. Implied Terms in English Contract Law. Cheltenham: Edward Elgar Pub. Beale, H. G., Bishop, W. D., and Furmston, M. P., 2007. Contract: Cases and Materials. Oxford: Oxford University Press. Beale, H., 2002. Cases, Materials and Text on Contract Law: Ius Commune Casebooks for the Common Law of Europe (Casebooks on the Common Law of Europe). Portland, Oregon: Hart Publishing. Cooke, J., 2007. Law of Tort (Foundation Studies in Law Series.) Essex: Longman. Hodgson, J., and Lewthwaite, J., 2004. Tort Law Textbook. Oxford: Oxford University Press. Hong Kong Institute of Bankers (HKIB), 2012. Banking Law and Practice. New Jersey: Wiley. Samuel, G., 2001. Law of Obligations and Legal Remedies Textbook London: Routledge- Cavendish. Smith, S. A., 2004. Contract Theory (Clarendon Law.) Oxford: Oxford University Press. Read More