The dishonour of wage cheques caused upset among the payees. The argument used by Narni was that the Bank had agreed to provide an overdraft facility upon a current account to support its business. The company went further in arguing that “the action of the wrongfully dishonouring cheques precipitated a failure of the business and its sale on behalf of a debenture holder. The appellant (Narni Pty Ltd) was then placed in liquidation and remained subject to a deed of company arrangement” (para 2 per Tadgell JA). For that reason, Narni sued the Bank to seek for compensable loss resulting from the breach.
- Question 2: breach of the implied term by the National Australia Bank
The Bank’s action of dishonouring cheques drawn by Narni gives rise to the fact of whether the Bank breached the contract entered into with its customer. The court found that the Bank had breached an implied term of the arrangement it had with Narni with respect to the overdraft facility. That is the term of the contractual relationship between the Bank and its customer that “the Bank will not cease to do business with the customer except upon reasonable notice” as was described by Atkins J. in Joachimson v Swiss Bank Corp [1921] 3 KB 110 per Lord Atkin at 127. This term arises when the borrower consistently is permitted by the Bank to draw cheques on an overdraft account and those cheques are honoured in excess of overdraft limit.
The conduct of the Bank relied upon as giving rise to the overdraft extension. Officially, the approved overdraft facility was $65,000 and no more. In fact, the account was used to finance the operation of the Carrum Nursing Home was overdrawn deeply in excess of the approved limit. These facts were clear to both parties and it is apparent that both parties permitted this state of affairs to exist. The court accepted that the arrangement between the Bank and the company did not oblige the Bank to honour cheques if there were not sufficient funds in the company’s account: Cuthbert v. Robarts Lubbock & Co [1909] 2 Ch 226 at 233 per Cozens Hardy, MR. However, the court decided that the conduct of the Bank was sufficient to constitute an arrangement between the Bank and the company that the Bank would permit the company to overdraw beyond the limit of $65,000. The court went further in stating that “the Bank received good value for the extra accommodation having received interest and other fees and the retention of a satisfied customer” (Byrne, J.). The conduct of the Bank by honouring cheques at a time when the account was well in excess of $100,000 impliedly extended the overdraft facility to “a limit of at least $100,00” and further agreed not to dishonour a cheque drawn “within the limit” without first giving adequate notice: para 26C, 26D.
According to the manager’s diary, he contacted Mrs McCarthy and required to constraint the Narni account within the approved limits on 4 January 1989, 27 January 1989, 1 February 1989 and 31 March 1989. However, the account remained substantially over the approved limit until the May cycle commenced and at the end of the May cycle, the account was $100,000 over this limit. It is noticed that there was no evidence of any specific warning of dishonour after that recorded by the manager on 31 March. Therefore, it was concluded that the Bank continued to permit the company to overdraw the cheques till the date of termination without any warning in writing. The practice of the Bank in 1989 shows that the silence by the Bank meant the cheques were being honoured and this action would be reflected in the periodic bank statements by debiting the overdraft service fees and applicable interests where the account was overdrawn. Moreover, in the document signed by the director of Narni on 6 November 1987 when the account was opened with the Bank, there was the term of the contract that in case of termination, the Bank would give immediate notice in writing. As a matter of law, it was an implied term of the arrangement that the Bank could not terminate or vary it without giving the customer reasonable notice so as to allow time for it to arrange its affairs to comply. In addition, any cheques which had been previously drawn and delivered need to be honoured under the pre-existing arrangement in place at the time they were drawn and delivered. In fact, the conduct of the Bank showed no evidence of written warning so as to make the real threat to Narni. The term “reasonable notice” was neglectful in this case.
The court regarded the parties as having conducted their business and arranged their affairs, at least from February 1989, on the footing that the approved overdraft of $65,000 was at best a nominal limit, and that the respondent would tolerate surges well in excess of it in each monthly cycle. The court found that the parties “operated and permitted the account to operate in a very flexible way” so that monthly surges far exceeded the authorised limit. On the question of demand, the court found that it was correct that “the overdraft was payable on the demand but that any rights to demand repayment should be exercised so as to not unduly prejudice the borrower’s interests” (Paget’s Law of Banking, 1996). This prejudice would be overcome if reasonable notice was given of any proposed termination. Finally, the court concluded that there was a term of arrangement between the Bank and Narni that “the Bank would not refuse to honour cheques drawn on the ground that the balance of the account exceeded the approved overdraft limit of $65,000” (cited by Tadgell JA at para 11). By not honouring the cheques, the court found that the Bank breached the arrangement that existed between it and Narni.
The consequence of the proposed dishonour likely caused the collapse of the business. The relevant loss alleged was the loss of the income pontential of the business conducted by Narni at the Carrum Nursing Home. By dishonouring cheques for staff wages, there was a threat of strike if wages were not paid. The sisters were unable to give any assurance to the meetings that funds were available to ensure the viability of the two nursing homes. Visa Credit had to step in to protect its security claimed over the business. On 17 August 1989, the business was sold to Bogear Pty Ltd for $1.05m plus stock and valuation not to exceed $5,000. The proceeds of sale were applied in reduction of the Visa Credit debt. It was regard as significant for Narni and the appellant sought in the Court of Appeal to uphold the implication of a contractual term in the form expressed by the court.
- Question 3: Raise of an estoppel claim.
Narni Pty Ltd relied on the estoppel claim to force a compensation to cover the loss incurred. The factual basis for the estoppel claim was essentially the same to the overdraft extension claim. Estoppel is essentially a rule of evidence whereby a person is barred from denying the truth of a fact that has already been settled. Where a court finds that a party has done something warranting a form of estoppel, that party is said to be "estopped" from making certain related arguments or claiming certain related rights. There are many types of estoppel under the English, Australian and American law. The estoppel claim used by Narni was Estoppel by representation of fact (English law) which involves one party relying on something the other party has done or said (Wilken and Villiers, 2003). A representation can be made by words or conduct. Although the representation must be clear and unambiguous, a representation can be inferred from silence where there is a duty to speak or from negligence where a duty of care has arisen.
Narni relied upon the conduct of the Bank in continuously honouring the Narni cheques despite of the fact that those cheques were in deep excess of the approved limit of $65,000. The Bank was obviously aware of this fact but they continued to do so for a given period. This course of conduct led Narni to believe that the Bank would not dishonour any cheques presented by the company without first having given reasonable notice. Thus, believing the representation, Narni acted to its detriment in reliance on the representation. It was said that Narni had conducted its business in reliance upon this pratice with the belief that the Bank would not be unconscionable to depart from the pratice. The argument used by Narni was that because of the Bak’s conduct, Narni was misled that they were able to overdraw cheques in excess of the limit. However, at the time when the Bank ceased to do business with the company, Narni was in surprise as they were not informed clearly about the decision of account termination. The conclusion by the court was that, these states of affairs were clear to both parties and the breach of the arrangement between the Bank and its customer estopps the Bank from denying the cheques repayment on the ground that the balance of the account exceeded the approved overdraft limit of $65,000.
Conclusion
It was apparent that the National Australia Bank breached the implied term of the arrangement between it and Narni Pty Ltd by dishonouring a numbers of cheques without having given reasonable notice. The conduct led to the failure of Narni’s business and the business was forced to be liquidated by the debenture holder. The case was brought by Narni for seeking adequate compensation from the defendant bank. However, it was held by the court that Narni, upon the receipt of the proceeds if the sale of the business, has suffered no further compensable loss, and the action by Narni was in truth seeking double compensation which was unsuccessful thereafter.
REFERENCES
Bunbury Foods Pty Ltd v. National Bank of Australasia Limited (1984) 153 CLR 491
Cumming v. Shand (1860) 157 ER 1114
Cuthbert v. Robarts Lubbock & Co [1909] 2 Ch 226
Joachimson v Swiss Bank Corp [1921] 3 KB 110
Kpohraror v. Woolwich Building Society [1996] 4 All ER 119
Waltons Stores (Interstate) Ltd v. Maher (1988) 164 CLR 387
Wilken and Villiers. 2003. The Law of Waiver, Variation and Estoppel, 2nd ed, Oxford: 2003
William and Glynn's Bank Limited v. Barnes [1981] Com LR 205
Williams and Glyn's Bank Ltd v Barnes ([1981] Com LR 205