A recent decision of the NSW Supreme Court in a cheque
conversion claim has left the gate open for banks to rely on the
proportionate liability defence under Civil Liability legislation
to reduce their liability when sued in conversion as the collecting
bank of cheques.
In ASF Resources Ltd v Clarke & Ors1,
the 'recipient bank' was the collecting bank for cheques
which were alleged to have been obtained by the fraud of a
consultant retained by the plaintiffs
The plaintiffs sued the recipient bank in conversion of the said
In defence of the conversion claim, the recipient bank argued
it acted in good faith and without negligence when it collected
the cheques, relying on section 95(1) of the Cheques Act
1986 to this end, and
it is entitled to rely on Part 4 of the Civil Liability
Act ie to the extent that it is liable to the plaintiffs in
conversion, its liability should be apportioned (proportionate
The plaintiffs filed a motion seeking orders that the recipient
bank's defences, both the defence under the Cheques
Act and its proportionate liability defence, be struck
Proportionate liability defence
The issue before the Court centred on whether the
plaintiffs' claims against the recipient bank as the collecting
bank were 'apportionable claims' and, therefore, subject to
Part 4 of the Civil Liability Act.
The recipient bank argued that under section 34(1)(a) of the
Civil Liability Act, the four threshold requirements to be
satisfied for there to be an apportionable claim, were that:
the claim is for economic loss or damage to property
the claim is in an action
the action is for damages (whether in contract, tort or
the claim (or action for damages) is one "arising
from" a failure to "take reasonable care".
The Court was satisfied that the first three threshold
requirements were met. The real question then to be determined was
whether the plaintiffs' claim was one "arising from"
a failure to "take reasonable care".
The Court dismissed the plaintiff's motion. In finding for
the recipient bank, the Court held that as the recipient bank's
defence under section 95(1) of the Cheque's Act was to
proceed, there was merit in allowing the recipient bank to present
its case in various ways, including invoking Part 4 of the
Civil Liability Act. In particular, the Court indicated
that it was well satisfied "that there is much to be said for
both sides of the argument".
In reaching its decision, the Court also said that the Civil
Liability Act is a "significant and groundbreaking piece
of law reform", and noted that in the recent High Court
decision in Hunt & Hunt Lawyers v Mitchell Morgan Nominees
Pty Ltd (No 2),2 the Civil Liability Act
had already produced a diversity of views across three levels of
judicial hierarchy in NSW. As a matter of policy, the Court
considered it to be an undesirable exercise (unless absolutely
necessary) to construe a piece of legislation such as the Civil
Liability Act outside a factual context determined after a
The result of this decision is that, depending on the
circumstances of the case, banks may now have the option of
employing the Civil Liability Act to potentially reduce
their liability when sued in conversion as the collecting bank of
1 NSWSC 252. 2(2013) 247 CLR 656.
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This was an interlocutory decision about the appointment of a tutor for the child appellant, to carry on his proceedings.
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