Court name
High Court General Division
Case number
875 of 1991

Dimon (Malawi) Ltd v New Building Society (875 of 1991) [2006] MWHC 85 (16 March 2006);

Law report citations
Media neutral citation
[2006] MWHC 85



CAUSE NO 875 OF 1991






G. Mwale; Counsel for the Plaintiff

M. Chilenga; Counsel for the Defendant

Court Interpreter

(Mrs); Court Reporter



this action commenced by writ of summons endorsed with a statement of
claim the plaintiff seeks to recover from the defendant
the sum of
K391,795.60 and interest. The case is not complicated on facts but
raises very challenging legal considerations.

claim arises out of six cheques raised by the plaintiff which were
transacted through the defendant bank. The short story
is that a
plaintiff’s employee, Mr Gondwe, who was a clearing clerk
facilitated preparation of six cheques using duplicated bills
entry. What this meant in the circumstances of the case and from the
testimony of Mr Paul Banda, the plaintiff’s financial
is that Mr Gondwe was responsible for clearing the plaintiff’s
goods. As often is the case there would be a clearing
agent in
between who actually handles the clearing technicalities with the
Department of Customs and Exercise and then pass on
the clearing
charges and all other bills to the importer for payment.

this particular case the clearing agents were Carlo Freight in
respect of five transactions, and Surfair Freight in respect
of one
transaction. According to Mr Banda from the clearing agents the
papers, Customs Bills of Entry, were coming to Mr Gondwe
as their
internal clearing clerk for him to facilitate payment. It is said
in the instant case the Bills of Entry had already
been paid for but
that Mr Gondwe fraudulently resubmitted the Bills for a second
payment. He succeeded in doing that.

Gondwe managed to get all the six cheques at different intervals from
the plaintiff and managed to have them deposited into
his account
which he operated with the defendant bank. This is how the
defendant bank comes in. Although five of the cheques
were crossed
to Carlo Freight and one crossed to Surfair Mr Gondwe managed to get
the cheques deposited to his personal account
and eventually got them
cleared and took away with the money. How did he do this?

Gondwe had his wife, Mrs Gondwe, working for the defendant bank. She
is the one who facilitated the deposit of the cheques
into her
husband’s account. I must say this is a very rare combination of
husband and wife, both of them shrewed crooks and
criminals. Apparently, after these transactions they both
disappeared from their work places. Probably police caught
up with
them but that part of the story has not been uncovered in this case.

total amount of money on the six cheques is K391,795.60 and the
transactions took place between 19
October 1998 and 13
January 1999.

the matter came to light through an internal audit at the plaintiff
the defendant bank was contacted and the matter was discussed.
outcome of the discussion is in a letter

from the defendant bank to the plaintiff company in which the
defendant bank offered to pay half the money to the plaintiff because

it was viewed that both of them had to some extent contributed to the
loss. A paragraph from the letter reads:

“During the
discussion, it was made clear that whilst the Society agreed that it
acted negligently in handling the above cheques,
there was also
contributory negligence on the part of Dimon in that the signatures
on the cheques were genuine and not forged and
also that the cheques
were raised by Dimon for non-existent transactions.”

Filisi gave evidence on behalf of the defendant. He was the Chief
Internal Auditor for the defendant at the material time.
Mr Filisi
confirmed events as narrated by the plaintiff. He confirmed that
all the cheques in question were not forged. They
were properly
signed by authorized signatories for the plaintiff. There was no
immediate cause for suspicion on the face of the
cheques. He went
on to accept that for the cheques to end up in Mr Gondwe’s account
it was the work of Mr Gondwe’s wife
who was the defendant’s
employee. She has since been dismissed. The proceeds of the
cheque were collected by Mr Gondwe obviously
with the help of the

is on these few facts that this matter must be determined and I am
grateful to counsel on both sides for their sound submissions
and for
the authorities made available to the court. They will surely be
considered were relevant.

first consideration in this matter obviously is whether there was a
relationship between the plaintiff and the defendant from
which there
could be liability at law considering the position of a bank in
relation to those it deals with in myriad capacities.

most direct relationship a bank has with the outside is that with its
customers; but who is a customer. In a typical banking
design a
bank’s customer is a person who has an account opened with the bank
in his name, see

Lacave and Co v Credit Lyonnais [1897] 1 QB 148

or a person from whom the bank has accepted instructions to open an
account and receives a deposit to be credited to it, see
v Todd[1914]30 TLR 433
v Martin’s Bank Ltd [1959]1 QB 55.

has been said the fact that a banker performs a casual service for a
person such as when a bank cashes over the counter cheques
by that person from third parties, does not render that person a
customer, see
on Contract, Twenty Eigth Edition Volume 2
Western Ry v London and County Banking Co.[1901]A.C. 414.

What this says, in the context of the present case, is that the
plaintiff was not a customer. It is not contended that the plaintiff

had an account with the defendant. The facts are that cheques
belonging to the plaintiff were transacted through defendant’s

customers account.

the facts of this case the plaintiff’s account from which the money
was to be drawn was with the Commercial Bank of Malawi.
defendant bank was therefore merely what is termed a collecting bank.
In a vast majority of cases, cheques are not presented
by the payee
directly to the drawer bank but are remitted by him to his own
banker, who arranges for their clearance. In such
cases the payee’s
banker assumes the role of a collecting banker. This is what
happened in the instant case where Mr Gondwe
cleared the cheques in
question through his banker, the defendant bank. It is in that
capacity therefore that the defendant
bank’s liability, if at all,
must be considered.

recent position, especially in cases where a collecting banker
handles a cheque remitted by a customer who does not have title
it, is that the banker may be liable in conversion or in money had
by the true owner of the cheque, see
v London County and West Minister Bank Ltd [1914] 3 KB 356
Bank Ltd v Chartered Bank of India, Australia and China [1928]1 KB
40,at 53-60

the foregoing analysis the claim against the collecting bank will be
brought by the true owner of the cheque. The question
that arises
then is who is the true owner of a cheque. Unfortunately my
research in this respect has led to a limited clue.
There is
barely any direct authority I could place my hands on except for some
extracts that I am about refer to.

Cranston in ‘Principles of Banking Law’, 1997 considers that the
true owner of a cheque might vary depending on the intention
of the
parties concerned. It is generally considered though that the true
owner of a thing is the person who has the greatest
interest in it.
The following analysis from Cranston which I tend to agree with is
particularly instructive:

“The claim against the
collecting bank will be brought by the true owner of the cheque.
There is no definition of true owner in
the statutory or case law.
Normally, where A hands a cheque to B as payee, B becomes the true
owner. What if A posts the cheque
to B and it is stolen in transit:
is B the true owner? What if a third party fraudulently induces A to
make a cheque payable to
B, by inducing A to think that he is buying
something from B? Does B become the true owner, so as to be able to
sue the fraudster’s
bank in conversion for having collected the
cheque? To answer these questions, courts have invoked a variety of
concepts. In
the decisions from which these facts are taken,
reliance was placed, respectively, on the absence of delivery and any
request to send the cheque by mail, and the absence of a real
business transaction despite the intention of the drawer. In such

situations, where one of two innocent parties has to bear the loss of
fraud, it may be better if the court is empowered to apportion
loss. In the absence of such discretion, however, it is necessary
to determine the true owner.

The owner of a thing is
the person who has the greatest interest in it. Among the standard
incidents of ownership are the right
to exclusive physical control,
the right to use it, the right to decide how and by whom it is to be
used, and the right to alienate
it. Most important for the present
discussion is that ownership can generally only be acquired or lost
with the consent of the
parties. Exceptionally, English law
recognizes that in a limited number of cases third parties may
acquire a good title to property,
even though they obtain the
property from someone not having a good title. This occurs without
the consent of the owner, and indeed
so as to divest the owner of
the incidents of ownership.

This analysis of
ownership is consistent with the reasoning used by the court which
considered the first fact situation posited
above. Since the Post
Office is the owner’s agent, the drawer remains the owner of a
posted cheque until the payee receives
it, unless the payee has
requested him to post it, expressly or by implication. But it is
not consistent with the approach of
the court which decided the
second case. There, the court disregarded the intention of the
parties, and said simply that the payees
were never the true owners
of the cheque because the whole thing was a fraud and a sham. In
fact, the reason that the payee never
became the true owner of the
cheque was that the payee never consented to it, although the drawer
had intended it. That the whole
thing was a sham was only relevant
inasmuch as it meant that the payee never knew about it, and
therefore could not consent to
becoming owner.”

facts in the instant case are that Mr Gondwe infact fraudulently
induced the plaintiff to issue cheques to payees who were clearly
expecting them. The payees had already been paid for the services
they rendered to the plaintiff. These cheques were a duplication,

obviously intended by Mr Gondwe to be put to his own use. From the
above analysis of a true owner I am led to a clear conclusion
the plaintiff remained the true owner of the six cheques and
therefore was entitled to sue the defendant bank.

in what circumstances does a collecting bank expose itself to
liability to the true owner of a cheque. I have combed
through the
Banking Act Cap 44:01 of the Laws of Malawi and could not be assisted
by any provision in that Act. Section 79(1)
of the Bills of Exchange
Act Cap 48:02 however provides for the ‘protection of bankers
collecting payment of cheques etc.’
and states:

“(1) Where a banker,
in good faith and without

negligence –

(a)receives payment for
a customer of an instrument to which this section applies; or

(b)having credited a
customer’s account with the amount of such an instrument,
receives payment thereof for himself,

and the customer has no
title, or a defective title, to the instrument, the banker does not
incur any liability to the true owner
of the instrument by reason
only of having received payment thereof”

provision is in the same terms as Section 82 of the Bills of
Exchange Act 1882 later widened by Section 4 of the Cheques Act
of England. English cases were these provisions were considered
would therefore be persuasive authority in the instant case.
describing the required standard of care by a banker under these
provisions in
Bank v Savory & Co. [1933]AC 201 at 221

it was said the standard is based on “the practice of

carrying on the business of bankers, and endeavoring to do so in such
a manner as may be calculated to protect themselves and others
fraud. Chitty on Contract, Twenty-Eigth Edition Volume 2 at para
34-339 says, with reference to the dictum of Cairns J.
in the case of
& C Ltd v Midland Bank Ltd [1968]1 WLR 956

“Emphasis is to be
placed on the words “reasonable men”; they imply that the courts
will be reluctant to be guided by, or give
effect to, a banking
practice which is unreasonably lax or which may exonerate bankers
from liability where they fail to exercise
the degree of skill
expected of conscientious businessmen.”

supra, paragraph 34-340 has gone on, with reference to specific case
authorities, to give examples of instances where courts
have held a
banker to be negligent. He states:

“Bankers have been
held to have acted negligently in the actual collection of cheques in
the following cases:

  • Where an employee,
    official or agent was allowed to place to his credit cheques payable
    to or, in some cases, drawn by his employer
    or principal,

  • Where a cheque was
    collected and credited to the private account of an agent although
    the cheque indicated that he obtained it
    in his representative

  • Where a banker
    collected a cheque crossed “a/c payee only” for a person other
    than the specified payee, and

  • Where a banker
    collected for his customer, without inquiry, cheques to an amount
    clearly out of proportion to the known position
    in life of the

  • A banker is, however
    not considered negligent merely because he fails to compare the
    signature of the drawer with an endorsement,
    and consequently fails
    to discover that the customer is not only the payee but also the
    drawer of a company’s cheque paid
    into his account.

the six cheques that were deposited into the defendant’s customer’s
account, that is Mr Gondwe’s account, were crossed
payee only.”

The defendant was therefore prima facie negligent in allowing such
a transaction. The defendant however blames the transaction
on their
employee who is said to have acted fraudulently. It is also argued
that infact it is because of the plaintiff’s own
negligence that
this whole problem came to be.

At this point let
me briefly state the position regarding an employer’s liability
for actions of its employees in so far as would be relevant
to the
facts of the present case. The known position is that where the
relationship of employer, and employee exists, the employer
is liable
for acts of the employee so long and only to the extent that the acts
are committed in the course of the employee’s
Salmond and Henton on the Law of Torts (20
ed; 1993)p 457 states that an employer will be laible for an
employee’s act,

“if it is either (1) a
wrongful act authorized by the master, or (2) a wrongful and
unauthorized mode of doing some act authorized
by the master. It is
clear that the master is responsible for acts actually authorized by
him: for liability would exist in this
case, even if the relation
between the parties was merely one of agency, and not one of service
at all. But a master, as opposed
to the employer of an independent
contractor, is liable even for acts which he has not authorized,
provided they are so connected
with acts which he has authorized that
they may rightly be regarded as modes----although improper
modes----of doing them.”

What this says is that courts will distinguish between those acts of
an employee which are specifically authorized or which constitute
improper mode of carrying out his duties and those which fall outside
the scope of his or her employment, see
and Lindsell on Tort (Twenty Seventh Edition) p 176

The undisputed facts of the present case are that Mr Gondwe, an
employee of the plaintiff, was allowed by the defendant bank,
place to his credit, cheques drawn by his employer. Further more Mr
Gondwe was allowed to deposit to his credit cheques which
clearly marked
payee only.”

It is further undisputed that the deposits were handled by Mrs
Gondwe, an employee of the defendant bank. But did Mrs Gondwe
the cheques in the course of her employment. It is here that Lord
Wilberforce in
Investment Pty Ltd v Richardson and Wrench Ltd [1982] AC 462 at 471

observed that in establishing a particular employee’s “course of
employment” the court should not dissect the employee’s
into component parts, but should ask in a general sense, “what was
the job at which he was engaged for his employer.”

Mrs Gondwe was the defendant bank’s employee. The plaintiff or
indeed any person approaching a bank and received by a bank’s

employee would not be expected to imagine or speculate that the
employee was not authorized to receive and handle cheques. It
not as a matter of fact been suggested by the defendant that Mrs
Gondwe was not authorized to receive cheques. She therefore

received and dealt with the cheques in the course of her employment.

The defendant’s contention is that Mrs Gondwe fraudulently dealt
with the cheques and therefore that she was on a frolic of
her own in
which case the defendant cannot be held responsible for what she did.
A very instructive passage is from
Permanent Benefit Building Society v Pickard [1939]2 K.B. 248 at 254,

a case of fraud committed by a solicitor’s clerk, where counsel for
the defendant solicitor argued that the case should be treated
analogous to those cases in which an employee had been held to be on
a frolic of his own. Lord Greene rejected the argument
and said :

“It appears to me to
be drawing an analogy where no analogy exists, because in the case of
the servant who goes off on a frolic of
his own, no question arises
of any actual or ostensible authority upon the faith of which some
third person is going to change
his position. The very essence of
the present case is that the actual authority and the ostensible
authority to [the clerk] were
of a kind which, in the ordinary course
of an everyday transaction, were going to lead third persons, on the
faith of them, to
change their position, just as a purchaser from an
apparent client or a mortgagee lending money to a client is going to
his position by being brought into contact with that client.
That is within the actual and ostensible authority of the clerk.
is totally different in the case of a servant driving a motorcar or
cases of that kind, where there is no question of the
action of
third parties being affected in the least degree by any apparent
authority on the part of the servant.”

therefore even in instances of fraud by employees an employer will be
liable if the fraudulent conduct of the employee
falls within the
scope of the employee’s authority, actual or ostensible, see
Railway Traffic and Electricity Co. v Poper (1940) 162L.T. 217

I have earlier in this judgment discussed Mrs Gondwe’s involvement
in the transaction in question. My consideration would
be the same
here. This is to say the circumstances of the fraud in the instant
case do not exonerate the defendant from responsibility
for the
actions of Mrs Gondwe. Mrs Gondwe even within her fraudulent mind
and action, remained within her ostensible authority
to anyone
coming to transact with the defendant bank.

The issue that has preoccupied my mind for the most part in this
matter is that of contributory negligence as argued by the defendant.

I have already determined that the defendant bank was negligent in
its operations. To what extent though, is the question, in
circumstances of this case where the facts are that the cheques which
found their way to the defendant were fraudulently obtained
plaintiff’s employee, Mr Gondwe.

At Common Law contributory negligence was a complete defence. The
position has now drastically changed. In England Section
1 (1) of
The Law Reform (Contributory Negligence) Act 1945 provides :

“Where any person
suffers damage as the result partly of his own fault and partly of
the fault of any other person or persons, a
claim in respect of that
damage shall not be defeated by reason of the fault of the person
suffering the damage, but the damages
recoverable in respect thereof
shall be reduced to such extent as the court thinks just and
equitable having regard to the claimant’s
share in the
responsibility for the damage.”

Winfield and Jolowicz on Tord (Twelfth Edition) p. 157 has said, ‘
between the plaintiff and the defendant each is identified with any
third person for whom he is vicariously responsible. The
rule that
the negligence of a servant in the course of his employment is
imputed to his master applies whether the master is the
plaintiff or
the defendant.’

Thus evidence that the plaintiff own negligence contributed to the
loss or damage in question will result in apportionment of
according to the degree of fault on either side. This necessarily
means that the relevant evidence in the case must show
that the cause
of loss or damage suffered by the plaintiff is a combination of fault
on the plaintiff’s part and the wrongdoing
of the defendant.

& Co. v London Trustee Savings Bank [1971]1 Lloyd’s Rep 114

a collecting banker failed to establish that he had acted without
negligence in the collection of a certain cheque and was held
to his customer. It was, however, held that the customer was
guilty of contributory negligence and the amount was reduced
to the
extent of the negligence. The Learned Judge Justice Donaldson held
that in such cases the defence of contributory negligence
is not
confined to instances in which the plaintiff against whom it is
raised owes a duty of care to the defendant. It is sufficient
if the
plaintiff’s carelessness or fault has contributed to the occurrence
of the loss. In
v British Collumbia Electric Ry [1951]AC 601 at 611

Viscount Simon said :

“When contributory
negligence is set up as a defence, its existence does not depend on
any duty owed by the injured party to the
party sued, and all that is
necessary to establish such a defence is to prove…. that the
injured party did not in his own interest
take reasonable care of
himself and contributed, by his want of care, to his own injury. For
when contributory negligence is set
up as a shield against the
obligation to satisfy the whole of the plaintiff’s claim, the
principle involved is that, where a
man is part author of his own
injury, he cannot call on the other party to compensate him in full.”

Obviously the issue that falls for determination first in this
regard is whether the plaintiff was at all negligent on the
facts of
this case.

The facts, which are necessary to repeat, are that Mr Gondwe used
customs clearance documents that had already been paid for
managed to get second cheques written for each of the six
transactions. The cheques were properly signed by the appropriate

signatories of the plaintiff. What the plaintiff has not assisted
the court with is an explanation how Mr Gondwe was able to
the documents through the plaintiff’s system.

I have looked at the documents which Mr Gondwe used to get the
cheques written. They are Bills of Entry for Clearance of Goods.

Like every standard Bill of Entry for Clearance of Goods, each one
of them will contain a description of the goods and the Bill
is allocated its own number. This is correct about all the six Bills
of Entry tendered by the plaintiff. Exhibit P2 (A
to F). If the
plaintiff had a checking system in place it would have been pretty
easy to establish a duplication. In my judgment
there was
contributory negligence on part of the plaintiff which caused the six
cheques to be prepared which eventually found their
was to the

in every case the extent and degree of contributory negligence is a
matter of fact to be determined in the circumstances of
the parties.
The position however is that where the defendant is charged with
breach of a statutory duty, the standard by which
the plaintiffs’
contributory negligence is judged is on occasion less exacting than
that used for ordinary negligence. Lord
Tucker put the matter in
this way:

“This is not so
illogical as may appear at first sight when it is remembered that
contributory negligence is not founded on breach
of duty, although it
generally involves a breach of duty, and that in Factory Act cases
the purpose of imposing the absolute obligation
is to protect the
workmen against those very acts of inattention which are sometimes
relied upon as constituting contributory negligence
so that too
strict a standard would defeat the object of the statute.”

v National Smelting Co Ltd [1961]1 WLR 401 at 408

Sellers L.J. said
nature and extent of the defendant’s duty is, in my view, highly
important in assessing the effect of the breach or failure
of duty on
the happening of the accident giving rise to the plaintiff’s claim
and on the conduct of the plaintiff. There is
an interaction of
factors, acts and omissions to be considered.”

What this says is that the plaintiff’s conduct must be judged in
the context of the circumstances of his work and in the light
of the
defendant’s statutory responsibility for his welfare, see
and Lindsell Torts (Twenty Seventh Edition) at p. 75.

have earlier in this judgment referred to Section 79 of the Bills of
Exchange Act Cap 48:02 on the protection of bankers collecting

cheques. While the provision protects bankers from liability to some
degree, in the reverse it clearly calls upon bankers to exercise
care and diligence; the care and diligence I have referred to earlier
as “the
practice of reasonable men carrying on the business of bankers, and
endeavoring to do so in such a manner as may be calculated
to protect
themselves and others from fraud.”

my judgment, and for all that I have said, the plaintiff in this
case has less to bear. I determine that the plaintiff should
and be responsible for twenty percent of the loss. In the result the
defendant is liable to the extent of eighty percent
of the total sum
lost by the plaintiff. This translates to K313436.48.

the fraud was discovered the parties attempted to resolve the matter
by way of discussions between them. There was apparent
on part of the defendant to quickly resolve the matter except that
the fifty percent offer that was made was not
acceptable to the
plaintiff, resulting in the matter coming to court. It was filed on
the 18
November, 1999 and the writ was served on the defendant on the 3
of December 1999. Thereafter the matter dragged in the thin pipes
of court process and schedules. It is being resolved now
after a
lapse of five years three months. It would be unfair in all these
circumstances to expect the defendant pay interest on
the determined
amount for all these years. I order that the defendant shall pay
interest at the Commercial Bank lending rate on
the amount of
liability determined for three and half years.

have not cause me much difficulty in the outcome of the matter. The
defendant shall pay eighty percent of the plaintiff’s

in open Court at Lilongwe this 17
day of March, 2006.