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Loss Allocation for Materially Altered Cheques

Published online by Cambridge University Press:  29 May 2001

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Extract

In the conjoined appeals Smith v. Lloyds TSB Group plc; Jones v. Woolwich plc [2000] 3 W.L.R. 1725 the Court of Appeal had the opportunity to consider the single issue of whether the true owner of a cheque or banker’s draft, which it was accepted had been “materially altered”, and so, subject to irrelevant exceptions, avoided within the terms of the Bills of Exchange Act 1882, s. 64, and subsequently converted, is entitled to damages equivalent to the face value of the instrument. In Smith the Insolvency Service drew a cheque crossed “account payee” in favour of the Inland Revenue, on behalf of the claimants, who were the joint liquidators of ILG Travel Ltd. An unknown third party stole the cheque, altered the payee’s name to “Joseph Smitherman” and paid it into an account held in that name with the defendant, Lloyds Bank plc. The cheque was cleared before the fraud was discovered and the claimants sued the collecting bank for its conversion. The facts of Jones were in all material respects identical, save that the claim was brought against the paying bank in respect of a banker’s draft. Applications were made for the summary disposal of both cases. In Smith Blofeld J. struck out the claim against the collecting bank ([2000] 1 W.L.R. 1225), but in Jones Judge Hallgarten Q.C. awarded the claimants the face value of the draft. A unanimous Court of Appeal (Pill, Potter and Stuart-Smith L.JJ.) held that the claimants in both cases were only entitled to nominal damages.

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Case and Comment
Copyright
Copyright © Cambridge Law Journal and Contributors 2001

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