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Hot From The Bench

This is a free critical analysis on current legal issues. It can either be a thematic analysis of a topic while referencing relevant cases or analysis of certain authoritative or jurisprudence making cases decided by various courts in the Eastern African region.

Banker/ Customer Relationship
Date: Tue 5 Oct 2010

In this week’s Hot From The Bench, LawAfrica’s Charles Kanajama analyses Justice Visram’s latest decision. He sees it as a refreshing 60 page peek into a fascinating area of law : the banker–client relationship. It is an attempt to reconcile the banker’s duty of care to the owner of a cheque with its duty of confidentiality to its client. The case extends the banker’s duty to its client to include a duty to a signatory of an account who the bank should reasonably foresee would be affected by its actions. The judgment disapproves of bank enquiries directed to the Central Bank and builds a bigger wall of confidentiality to protect the customer’s account. The entire judgment is available to subscribers of LawAfrica Law Reports on


Intercom Services Ltd & 4 others v Standard Chartered Bank






Date of Judgment: 18 November 2002

Citation: [1999] LLR 2536 (HCK)

Sourced from: LLR

Edited By: C Kanjama


BANK – Customer account – Account in company’s name – Account operated by director of company as sole signatory – Whether bank owed any duty of care to the signatory – Whether bank liable to director of company for losses suffered due to breach of duty of care to the company

BANK – Duty of care – Duty of collecting bank – Duty to act in good faith and avoid negligence – Extent of duty of care – Duty of confidence – Limitations to the duty of non-disclosure – Collecting bank conducting inquiries with signatories of cheque and officers of Central Bank – Inquiries resulting in freezing of funds and subsequent criminal prosecutions – Whether bank exceeded responsibility in its inquiries and disclosures – Whether there was breach of confidentiality – Cheques Act (Cap 35) ss. 2, 3, 4 – Bills of Exchange Act (Cap 27) s 80.

WORDS & PHRASES – “true owner of a cheque” – Who is entitled to the proceeds of a cheque.


The 5th plaintiff was the managing director of various companies (IS, IC, SK and KC) of which his wife was the other shareholder. He received an export compensation cheque for Kshs.17 million from Customs & Excise in the name of IS and deposited it with the defendant bank in a one-week old account. The defendant was subsequently requested by the bank to obtain the payment voucher accompanying the cheque issued by the drawee (Commissioner of Customs and Excise). The voucher was made out to IC, not IS, and had a minor discrepancy of Kshs.70,000 on its face. The defendant made inquiries with the paying bank and the signatories of the drawee. It was confirmed that the cheque was in order.


The funds were collected and credited to IS’s account. Shortly thereafter, Kshs.15 million was transferred to SK’s account in the same bank. The 5th plaintiff then instructed the bank to transfer the moneys to SK’s account with another bank. Meanwhile, the bank inquired with the Central Bank regarding the export compensation payment. The Central Bank’s investigation officers, who happened to be police officers, acquired various documents from the defendant as a result of which the 5th plaintiff was charged with various counts of obtaining by false pretences. He was convicted on trial but eventually acquitted on appeal.


Shortly after instituting the criminal case, a police officer obtained orders freezing the accounts of SK and IS. The orders were quashed by the High Court. The drawee then filed a suit against the Plaintiffs for recovery of the funds. He obtained ex-parte orders of attachment before judgment. By consent, the Kshs.15 million in SK’s account was deposited into a joint interest-earning account and the remaining amounts released. The suit was later settled by consent and all the money released to the Plaintiffs.


The 5th Plaintiff’s companies therefore brought this suit against the bank seeking more than 600 million shillings in damages, on ground of breach of fiduciary relationship through the disclosures to Central Bank, which resulted in freezing of the accounts and eventual closure of the business of IS, IC and SK. The 5th Plaintiff’s case was that his arrest in his capacity as managing director of the aforesaid companies resulted in restriction of his movement and crippled day-to-day operation of the Plaintiffs.


The issue for determination herein was the question of liability, quantum being reserved for later. In essence, did the bank breach its duty of confidentiality by making the disclosures it did to Central Bank? Further, was the bank liable to the 5th Plaintiff, the managing director of the first four Plaintiffs, because its actions resulted in his arrest and the crippling of his family businesses?




1. A collecting banker has a responsibility to the true owner of a cheque, i.e. the person who is in the circumstances of the case entitled to the proceeds of the cheque. If the banker receives payment for a defective cheque and credits it to the customer’s account while (1) acting in good faith and (2) without negligence (3) in the ordinary course of business, he does not incur liability if the customer appears to be the payee thereof. The collecting banker’s common law duty to the owner of a cheque is qualified by statute. It is now a duty to take reasonable care not to take a step that he can reasonably foresee is likely to cause damage to the true owner. The banker’s responsibility is to ensure that his own customer’s title to the cheque delivered to him for collection is not defective. Marfani & Co. Ltd v Midland Bank Ltd [1968] 2 All ER 573, Bissell & Co v Fox Brothers (1884) 51 L.T. 663 adopted.


2. Conversely, the collecting banker has a contractual duty of non-disclosure to his own customer. He should not be abnormally suspicious, but is entitled to make inquiries where the circumstances in which the cheque is presented for collection are unusual and out of the ordinary course of business. Thackwell v Barclays Bank Ltd [1986] 1 All ER 676 adopted. It is an implied term that the banker will not divulge to third persons without the express or implied consent of the customer either the state of the customer’s account, or transactions relating thereto unless the bank is compelled to do so by order of a court or the circumstances give rise to a public duty of disclosure (e.g. to prevent frauds or crime) or the protection of the banker’s own interests require it. Halsbury’s Laws of England 4th Ed Vol.3(1) at 200, Tournier v National Provincial & Union Bank of England [1923] All ER 550 adopted.


3. A paying bank has a similar duty as a collecting bank to act in good faith and without negligence. Karak Rubber Co Ltd v Burden & others (No.2) [1972] 1 All ER 1210 adopted. The only difference is that the collecting banker has a positive burden of proof to establish that he collected without negligence while in the case of the paying bank the burden is shifted to the customer to prove negligence. Lipkin Corman v Karpnale Ltd & anor [1992] 4 All ER 409 adopted.


4. The collecting banker need only inquire with the true owner of a cheque to avail himself the statutory protection conferred by section 3(2) of the Cheques Act (Cap 35). The fact that the cheque in this case represented a statutory payment made by a government agency did not imply a higher duty of care. The bank is not entitled to inquire what the moneys are that are paid into or drawn out of the account. Bodeham v Hoskins [1843-60] All ER 692 adopted.


5. In the circumstances of this case, the inquiry made to the Central Bank breached the duty of disclosure. The bank’s duty to prevent a crime does not imply a duty to investigate the funds in a client’s account. Further, the bank’s responsibility to the true owner of a cheque ceases when the bank allows the customer to make use of that money; the bank should therefore not have continued with enquiries after that moment.


6. While the 5th Plaintiff was not a customer of the bank, he was the sole signatory of the company accounts. The bank’s own conduct shows that it intended to deal with the 5th Plaintiff personally, and was treating the aforesaid accounts as the 5th Plaintiff’s accounts. It therefore must have had the 5th Plaintiff in contemplation as the person who would suffer damages as a result of its irregular actions.


Per curiam: The true owner of a cheque is the person who would be kept out of his money were the proceeds to be paid out to the wrong person. Where the cheque is not a forgery, the true owner is the intended payee or indorsee of the cheque or the bearer of it. If the cheque is forged, the true owner is the drawer thereof.


Judgment entered on liability in favour of the Plaintiffs against the Defendant. Case set down for assessment of damages, however because of the magnitude of the decision it is more than likely that the Defendant will appeal to the Court of Appeal.


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