MANU/UKWQ/0034/1984

Equivalent Citation: [1986]1All ER676

ENGLAND AND WALES HIGH COURT (QUEEN'S BENCH DIVISION)
Decided On: 26.11.1984
Appellants: Thackwell
Vs.
Respondent: Barclays Bank plc
Hon'ble Judges/Coram:
Hutchison, J.
Counsels:
For Appellant/Petitioner/Plaintiff: Alan Newman and Levene Phillips & Co.
For Respondents/Defendant: John Peppitt QC, John Jarvis and Durrant Piesse
Citing Reference:

Discussed

Mentioned

8
JUDGMENT

Hutchison
On 24 March 1980 the New Bond Street branch of Barclay's Bank, the Defendants in this action,
collected and credited to the account of their customer, Riva Electronics (UK) Ltd. (Riva), a
cheque for 44,227. The cheque was drawn on the account of Alan Jones (Plant Sales) & Co
Ltd. and was signed on behalf of that company by an authorised signatory, its director Alan
Jones. The company's account was at the same branch of the Defendant bank. The payee of the
cheque was Mr. Thackwell, the Plaintiff in this action, who himself maintained an account at
another branch of the Defendant bank in Dolgellau, North Wales. Mr. Thackwell's account was in
Dolgellau because of an active interest which he had in a company called Clogau St. Davids
Gold Mines Ltd. (Clogau) which, as its name suggests, owned a gold mine at Clogau St. Davids.
Clogau also had an account at the New Bond Street branch of the Defendant bank, the
authorised signatories on which were a Mr. Piacun, a Mr. Sawford and Mr. Thackwell himself.
Mr. Piacun and Mr. Thackwell were directors of Clogau and Mr. Sawford was the secretary. The
cheque was credited to Riva's account (as it happens, a day early, because the fact that it was
postdated was overlooked) at the request of Mr. Sawford who, on 24 March 1980, handed it to
the assistant manager of the New Bond Street branch of the bank, Mr. Wadlow, with a request
to credit it to Riva's account. The cheque bore on the back what purported to be a signature of
Mr. Thackwell, the payee. It is common ground, and the evidence establishes, that the
'signature' had been written, immediately before he handed the cheque to Mr. Wadlow, by Mr.
Sawford. It was, accordingly, a forgery. In this action Mr. Thackwell claims against the bank in
negligence and conversion and seeks to recover the value of the cheque.
[His Lordship then considered the evidence and found the following facts. In 1977 Mr. Thackwell
purchased the entire equity share capital in Clogau, which owned as part of its equipment an
Atlas Copco compressor and a Willfree gold concentrate table. In 1979 Mr. Thackwell was short
of finance for the continued exploitation of Clogau's mine and persuaded Mr. Piacun and Mr.
Sawford that Riva should participate in the venture. In particular, Mr. Thackwell wished to

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recover some of the money he had laid out in purchasing machinery for Clogau. It was arranged
that machinery owned by Mr. Thackwell would be included in a refinancing arrangement to
produce some 45,000. Accordingly, Mr. Thackwell sold to Alan Jones (Plant Sales) & Co Ltd.
two items of machinery, a gold concentrate table and an Atlas Copco shovel, for 44,227,
exclusive of value added tax. Riva then purchased from Alan Jones (Plant Sales) & Co Ltd. some
80,000 worth of equipment including the two items of machinery purchased from Mr.
Thackwell. The finance for the purchase was provided by Lombard North Central Ltd. (Lombard)
under a hire-purchase agreement. On 24 March 1980 Lombard paid a cheque for 80,989.90 to
Alan Jones (Plant Sales) & Co Ltd. On the same day Mr. Alan Jones went to the New Bond
Street branch of the Defendants where he met Mr. Sawford and Mr. Wadlow. In evidence Mr.
Wadlow's account of the meeting, which his Lordship accepted, was that between 11 am and
11.30 am he was in his office when he was told that Mr. Sawford and Mr. Alan Jones were
outside and he stepped out to inquire what they wanted of him. They asked him if they might
make use of a room in the bank and he allowed them to use the manager's office, which was
empty, leaving them there and returning to his own office. The next thing he knew was that,
just as he was about to leave for lunch, Mr. Sawford put his head round the door of his office
and asked if he could have a quick word. He came in and said that he had two cheques to pay
in, including a cheque for 44,227 from Alan Jones (Plant Sales) & Co Ltd. made payable to Mr.
Thackwell. Mr. Sawford asked for that cheque to be paid into Riva's account. Mr. Wadlow said
that that caused him no surprise whatever because he was aware that some refinancing of
equipment was to take place and he had been told at some stage, he believed by Mr. Thackwell
over the telephone, that money would be arriving which was to go into Riva's account and that
there might be a status inquiry in connection with the refinancing deal. He completed paying-in
slips for both cheques and, because he observed that they were postdated (an expedient to
which Mr. Alan Jones had resorted to allow time for the Lombard cheque to be cleared), he
placed them on the desk with the securities department where short bills were generally held.
Mr. Wadlow said that his recollection was that he looked at the reverse of each cheque quickly
merely in order to confirm that each bore an endorsement. He did not know Mr. Thackwell's
signature, having seen it only on the original mandate some considerable time before, and it did
not occur to him to make any check or to doubt the genuineness of the signature. He did, of
course, know Mr. Sawford's signature and his writing well. The other cheque was made payable
to Mr. Sawford and was indorsed with Mr. Sawford's own signature. In cross-examination Mr.
Wadlow agreed that, looking at the back of the two cheques in the witness box, it appeared
obvious that they had been written by the same person; but he did not notice that at the time
because he merely glanced at the endorsements as a matter of course, in order to check that
there were endorsements on the cheques. In fact Mr. Sawford had forged Mr. Thackwell's
endorsement on the back of the cheque so that it could be paid into Riva's account. His
Lordship further found that the gold concentrate table was worth about 1,500 and that the
Atlas Copco shovel had never existed. His Lordship concluded that Mr. Thackwell was from the
outset a party to a scheme whereby, as part of the refinancing deal, the gold concentrate table
should be invoiced at an altogether excessive price and a non-existent Atlas Copco shovel
should be invoiced for a large sum of money so as to raise finance which he was well aware
would not have been forthcoming but for those flagrant misrepresentations. His Lordship also
found that Mr. Thackwell knew that Mr. Jones had received the money from Lombard about the
end of March 1980. His Lordship continued:]
Not until 22 December 1980 did Mr. Thackwell communicate any claim to the bank in relation to
the cheque.
Mr. Sawford in due course returned from America and subsequently he and Mr. Thackwell were
charged with and tried for offences arising out of this transaction. Mr. Sawford was convicted
but Mr. Thackwell was acquitted.
A receiver was appointed of Riva on 27 October 1980. Riva's accounts had been heavily
overdrawn for many months prior to 24 March 1980, and the effect of the receipt on that day of
the 44,227 cheque was to reduce the debit balance to some 16,000. Over subsequent
months it crept up again so that, for example, by 23 June it exceeded 60,000. The evidence of
Mr. Barnes, a senior head office inspector called as an expert on behalf of the bank, was that,
had Mr. Thackwell at any time prior to the appointment of the receiver notified the bank of his

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assertion that the cheque had been wrongly credited to Riva's account and bore a forged
endorsement, the matter would have been immediately investigated and, on its appearing that
there was likely to be substance in that allegation, the bank would have given notice to Riva
severely limiting its overdraft facilities. This evidence, which was not and could not be seriously
challenged, is relied on by the bank as evidence of their having acted to their detriment in
connection with their suggested defence of estoppel, to which I shall come in due course.
In the present case
the latter capacity
Exchange Act 1882.
regarded as turning
concentrated on the

the bank were, of course, both the collecting and the paying bank, and in
the bank relied on the defence afforded by Section 60 of the Bills of
However, both counsel agreed that for practical purposes the case could be
on the liability of the bank as collecting bank and that attention should be
defence Under Section 4 of the Cheques Act 1957.

On behalf of the Defendants, counsel conceded that, subject to various defences on which he
relied and which I shall consider separately, the Plaintiff had made out a case in conversion.
This concession was plainly right because, even assuming that Mr. Thackwell's intention had
been that one way or another the proceeds of the cheque should find their way into Riva's
possession, he had certainly given no authority to the bank to collect for Riva's account a
cheque of which he was the payee and which bore a forged endorsement the making of which
he had not authorised. [His Lordship then considered and dismissed a defence that the
Plaintiff's claim failed because he had not established that any damage flowed from the
conversion because Mr. Thackwell had intended to lend the money to Riva. His Lordship
continued:]
I come then to consider the defence Under Section 4 of the Cheques Act 1957. The onus is on
the bank to establish that they received payment of the cheque in good faith and without
negligence. As to good faith, counsel for the Defendants conceded that, if Mr. Sawford's account
of what happened in the bank on 24 March 1980 was correct, then the bank did not act in good
faith and the defence Under Section 4 failed. Counsel for the Plaintiff, on the other hand,
conceded that, if Mr. Sawford's evidence was rejected, then there would be no lack of good
faith on the part of the bank. Since I have rejected Mr. Sawford's evidence, I need say no more
about the question of good faith and I turn to consider negligence.
What standard ought I to apply in considering whether the bank have established that they
received payment of the cheque without negligence? Counsel for the Defendants began by
referring me to Holden The Law and Practice of Banking (3rd edn, 1980) vol 1, paras 6-94 to 6100. There the author suggests that the courts have evolved two different tests or standards for
determining whether a collecting banker's conduct is negligent, which he categorises as (a) the
ordinary practice of bankers' test and (b) the protection against fraud test. Authority for the
former is to be found in Taxation Comrs. v. English Scottish and Australian Bank Ltd. in a
passage in the speech of Lord Dunedin on which counsel for the Plaintiff strongly relied. Lord
Dunedin says the test of negligence "is whether the transaction of paying in any given cheque, coupled with the
circumstances antecedent and present, was so out of the ordinary course that it
ought to have aroused doubts in the bankers' mind, and caused them to make
inquiry."
In support of the alternative suggested standard there is cited Lloyds Bank Ltd. v. E.B. Savory
& Co., where in a very well-known passage in his speech Lord Warrington says:
"The standard by which the absence, or otherwise, of negligence is to be
determined must in my opinion be ascertained by reference to the practice of
reasonable men carrying on the business of bankers, and endeavouring to do so in
such a manner as may be calculated to protect themselves and others against
fraud."
Counsel for the Plaintiff relied strongly on the summary of the law in Paget's Law of Banking

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(9th edn, 1982) pp 329-334. There the authors do not recognise two distinct lines of authority
as to the appropriate test of negligence but treat as different aspects of the same test both the
ordinary course of business and the protection against fraud approach. They go on to cite
extensively from the judgment of Diplock LJ. in Marfani & Co Ltd. v. Midland Bank Ltd., an
authority which both counsel in the present case referred to and from which I respectfully adopt
what I have found to be the most helpful definition of the correct approach to the consideration
of the question of negligence by a collecting banker. There Diplock LJ. says:
"The only respect in which this substituted statutory duty differs from a common
law cause of action in negligence is that, since it takes the form of a qualified
immunity from a strict liability at common law, the onus of showing that he did take
such reasonable care lies on the Defendant banker. Granted good faith in the
banker (the other condition of the immunity) the usual matter with respect to which
the banker must take reasonable care is to satisfy himself that his own customer's
title to the cheque delivered to him for collection is not defective, i.e., that no other
person is the true owner of it. Where the customer is in possession of the cheque at
the time of delivery for collection, and appears on the face of it to be the "holder",
i.e., the payee or indorsee or the bearer, the banker is, in my view, entitled to
assume that the customer is the owner of the cheque unless there are facts which
are known, or ought to be known, to the banker which would cause a reasonable
banker to suspect that the customer is not the true owner. What facts ought to be
known to the banker, i.e., what inquiries he should make, and what facts are
sufficient to cause him reasonably to suspect that the customer is not the true
owner, must depend on current banking practice, and change as that practice
changes. Cases decided thirty years ago, when the use by the general public of
banking facilities was much less widespread, may not be a reliable guide to what
the duty of a careful banker, in relation to inquiries and as to facts which should
give rise to suspicion, is today."
I approach the problem of whether the bank have established that they acted without
negligence with these principles in mind.
Counsel for the Defendants began, rightly in my view, by emphasising the dangers of hindsight.
He pointed out that Mr. Sawford and Mr. Thackwell were, and were known by Mr. Wadlow to be,
co-directors of Clogau; that Mr. Wadlow knew that for reasons of convenience Clogau's business
was being handled by Riva from Heddon Street, and that Mr. Thackwell was dealing with
practical matters in Wales while Mr. Sawford had charge of financial and administrative
matters; that he knew that there was some financing arrangement in the air in which Riva was
or was likely to be concerned and that the sums of money involved might be quite large; and
he knew that there was regular contact between Mr. Thackwell and Mr. Sawford in relation to
the payment of wages, which were often covered by transfers to Clogau's account from that of
Riva. Thus, submitted counsel for the Defendants, Mr. Wadlow was entitled to expect that there
would be some financial adjustment passing to Riva from Mr. Thackwell and/or Clogau, the
demarcation line between the latter two being a very fine one. Counsel for the Defendants also
relied on Mr. Wadlow's assertion (although in the event I accept counsel for the Plaintiff's
contention that this evidence was whittled away till it virtually ceased to exist) that by some
means or other he had been acquainted by Mr. Thackwell with the likelihood that money would
be arriving to be credited to Riva's account.
Against this background, the principal plank of the argument of counsel for the Defendants was
the evidence of Mr. Barnes. He was a senior head office inspector whose experience and
integrity counsel for the Plaintiff sought in no way to challenge. His considered view was that
the postdating of the cheques would not be sufficient to put a reasonably careful banker on
inquiry, and that, even assuming no prior intimation from Mr. Thackwell of the likely arrival of
the cheque, he considered in the light of Mr. Wadlow's evidence that the latter was not
negligent. Essentially his reasons were those relied on by counsel for the Defendants which I
have already summarised; though he placed particular reliance on the high opinion that the
bank at that time entertained of Mr. Sawford, his integrity and his ability, saying that he was a
man who would very reasonably be trusted in the ordinary course of business. He thought that,

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had he been in Mr. Wadlow's position, it was unlikely that in the act of making out the paying-in
slips for the two credits, one to the account of Riva and the other to the account of Clogau, he
would have had both cheques face down on the desk in front of him at the same time; and he
further said that, even if he had had them in that position, it would not have appeared to him
that the writing was identical, and that there was nothing to put Mr. Wadlow on inquiry as to
people he trusted. Against this, one must remember that Mr. Wadlow's own evidence, as I have
already remarked, was that, looking at the two cheques in the witness box, it appeared obvious
to him that the endorsements were written by the same pen and in the same hand.
Mr. Barnes's was the only expert evidence in the case. However, there is a letter written, in
response to inquiries addressed to Lloyds Bank, by Mr. C.J. Scott, an inspector. The facts he
was asked to assume are stated in the letter and those facts included the assertion that Mr.
Wadlow had received prior intimation that moneys were to be paid into Riva's account. On the
basis of the facts he was asked to assume, Mr. Scott expressed the view that the bank had not
been negligent; but he added that, had Mr. Wadlow received no prior advice from Mr.
Thackwell, then he thought it was possible that some inquiry should have been made, for the
cheque was substantially in excess of credits seen on the account, which was itself under
pressure. The precise status of this letter in the case is not altogether clear, but not unnaturally
counsel for the Plaintiff sought to rely on the somewhat tentative view there expressed by Mr.
Scott in support of his contention that the bank failed to discharge the onus of showing that
they had received payment of the cheque without negligence. It is to those submissions that I
now turn.
Counsel for the Plaintiff submits that, however one looks at the events leading up to the
collection of these two cheques, the circumstances were so unusual as to make it incumbent on
the bank to make further inquiries. I shall not mention all the points he made in support of this
submission but only those which appeared to me to be the most telling.
Counsel for the Plaintiff drew attention to the bank's rules. Under the heading 'Payment of
Cheques' in para 2C one finds the injunction, hardly surprising, against paying postdated or
out-of-date cheques. Perhaps more significantly, under the heading 'Cheques Paid In for
Collection', there appears as Rule 3 the following: 'Any third party cheques for a substantial
amount should be scrutinised by the Manager's Assistant.' This rule envisages the cashier
referring such a cheque to higher authority; but of course Mr. Wadlow, the assistant manager,
was himself in a position superior of that of manager's assistant and may be taken therefore to
be at least in the position of the person to whom such a referral might in the ordinary way have
been made. There can be no doubt that the 44,000 cheque was for a substantial amount, both
in absolute terms and by reference to the sort of figures coming into Riva's account, and
accordingly the bank's rules required that Mr. Wadlow should scrutinise it. On his own evidence
he did not do so but merely went through the routine of glancing at the face and the reverse of
the cheque to ascertain that it was apparently in order and bore an endorsement. This, says
counsel for the Plaintiff, was a plain breach of the bank's rules, and scrutiny would have led Mr.
Wadlow to question the authenticity of the endorsement, particularly if he had noticed what he
so readily accepted in the witness box, its striking similarity to the endorsement on the other
cheque.
Then counsel for the Plaintiff draws attention to the events in the bank that morning
immediately prior to the presentation of the two cheques for collection. It is surely unusual, he
submits, to permit two customers on their own to make use of the manager's office for, as Mr.
Wadlow would have it, two hours. Even allowing, as I have found, that it was more like 20
minutes, the fact is that the circumstances in which he came to allow Mr. Sawford and Mr. Alan
Jones this facility were quite different from those which, according to his evidence, would have
led Mr. Wadlow to permit other customers to make use of the manager's office. More
importantly, counsel for the Plaintiff points out that what happened at the end of that meeting
was that one of the two emerged holding two cheques drawn by the other, both postdated, but
one drawn in favour of Mr. Thackwell who was not present but whose endorsement it purported
to bear. Counsel for the Plaintiff submits that, had he devoted a moment's reflection to this
rather strange state of affairs, it would have occurred to Mr. Wadlow that, for the endorsement
to be genuine, the cheque must have previously passed from the drawer, Alan Jones, to the

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payee, Mr. Thackwell, and then somehow found its way either back into the possession of Alan
Jones by whom it was given to Mr. Sawford, or directly into Mr. Sawford's possession. Counsel
for the Plaintiff places particular reliance on a passage in Mr. Wadlow's evidence, where in
cross-examination he said that the cheques obviously had some connection with the meeting
which had taken place in the manager's office but that he did not inquire as to the gist of that
meeting, having already been advised that funds were coming into Riva's account. He added
that it did, when the cheques were shown to him, occur to him that they were the product of
the meeting in the manager's office and that Mr. Thackwell was not there. It did not however
occur to him that they had been drawn in the manager's office and he made no inquiry.
Counsel for the Plaintiff submits, relying on the bank's rules requiring scrutiny of a cheque such
as this, and on the bizarre circumstances just described, that Mr. Wadlow ought to have paused
for thought and looked very carefully at the cheque, and that had he done so he would at the
very least have asked some questions of Mr. Sawford. Mr. Sawford, of course, had it in his
power to give the true explanation as to how the endorsement purporting to be that of Mr.
Thackwell came to be on the cheque and, had he given it, plainly Mr. Wadlow would not have
accepted the cheque for collection for the credit of Riva's account, at least without first speaking
to Mr. Thackwell. Alternatively, had Mr. Wadlow noticed the similarity of the handwriting, he
ought, submits counsel for the Plaintiff, even in the face of a lying explanation from Mr.
Sawford, to have taken the precaution of obtaining Mr. Thackwell's confirmation as to the
genuineness of the endorsement and as to his intentions with regard to the cheque. Finally, of
the points I propose to mention, there is counsel for the Plaintiff's submission that Mr. Wadlow's
evidence that he had received a telephone call from Mr. Thackwell intimating the likely arrival of
a sum of money for Riva's account should be rejected. I have already indicated my acceptance
of this submission because it is correct, as counsel for the Plaintiff contended, that Mr. Wadlow's
evidence was really whittled away to nothing. The highest he put the matter in his evidence-inchief was to say that, while he had no recollection or note of the conversation, he was positive
that in some way or another he had been informed by Mr. Thackwell that some money was
coming, and that he took this to mean for the credit of Riva's account or Clogau's account. This
evidence, which at best falls short of an intimation that the money was specifically for the credit
of Riva's account, was much qualified in the course of cross-examination: there is no record of
the telephone call, and the evidence adduced as to the conversations that Mr. Wadlow had with
the Plaintiff's solicitors suggests that his recollection in this regard is quite unreliable. It is for
these reasons that I have reached the conclusion that I ought to accept Mr. Thackwell's denial
of ever having spoken to Mr. Wadlow on the telephone or intimated that these funds were to be
expected.
The conclusion I have reached, despite the evidence of Mr. Barnes, is that the circumstances in
which these cheques were presented for collection were so unusual and out of the ordinary
course of business that they ought to have put Mr. Wadlow on inquiry and that he ought, as a
result, to have made further inquiries of Mr. Sawford and/or Mr. Thackwell.
I am unable to accept a further submission made by counsel for the Defendants to the effect
that, had Mr. Sawford been asked for an explanation, he would have given a convincing but
nevertheless untrue account of how the indorsement came to be made which Mr. Wadlow could
properly have accepted. First, though it may well be that this is what he would have done, I do
not consider that the bank have established on the balance of probabilities that it is. Second, as
I have already indicated, I consider that Mr. Wadlow should not in the circumstances have been
prepared to accept any such explanation from Mr. Sawford without taking the precaution of
checking with Mr. Thackwell. Finally, and in the circumstances I can deal with the point quite
briefly, I would hold that as a matter of law it is no answer for a bank who have been guilty of
negligence in the collection of a cheque to prove that, even had the question the omission to
ask which constitutes such negligence been asked, a reassuring answer would have been given.
In support of the opposite view, counsel for the Defendants cites the well-known passages in
the judgments of the Court of Appeal, particularly that of Diplock LJ., in Marfani & Co Ltd. v.
Midland Bank Ltd. However, on a careful consideration of the judgments in that case, he felt
compelled to concede that the statements on which he relied were obiter, and there are
authorities pointing strongly the other way (see in particular Selangor United Rubber Estates v.
Cradock (a bankrupt) (No. 3) and Lloyds Bank Ltd. v. E.B. Savory & Co. per Greer LJ. in the

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Court of Appeal; per Lord Wright in the House of Lords.

I come then to the argument which occupied the greater part of counsels' submissions and on
which counsel for the Defendants principally replied, namely the defence of ex turpi causa non
oritur actio. Most of the arguments on this topic were addressed to what the legal position
would be were I to find that Mr. Thackwell neither was a party to nor had any knowledge of the
fraudulent nature of the refinancing scheme, whereas there was a large measure of agreement
between counsel as to what the result would be if, as I have already held to be the case, Mr.
Thackwell was a party to that scheme. I need not, therefore, lengthen this judgment by
referring to all the authorities which were cited. I shall say enough simply to indicate how it
came about that, at the end of his most helpful and cogent argument on this topic, counsel for
the Plaintiff said that he was driven to concede that, if beforehand Mr. Thackwell knew that
there was a fraudulent scheme, he could not recover.
At the beginning of his response to counsel for the Defendants' argument, counsel for the
Plaintiff provided a written submission on the Plaintiff's behalf in which he sought exhaustively
to define the circumstances in which this defence is available. His submission was as follows:
"1. The defence is only available where the Plaintiff has to rely on his or another
person's criminal fraudulent or illegal activity to found his claim or where the court,
in finding for the Plaintiff, will be indirectly assisting or encouraging the Plaintiff in
his criminal fraudulent or illegal activity.
2. As a matter of policy, the court will look to the immediate transaction before it
and not to the criminality, fraudulence or illegality of preceding transactions which
may have led to the transaction in issue."
His submissions, however, concentrated very much more on para 2 and the first part of para 1
of his formulation (logically enough since he was inviting me to find on the facts that Mr.
Thackwell was unaware of there being a fraudulent scheme), and only at the end of those
submissions did he deal with the words following the word 'or' in para 1, namely: 'or where the
court, in finding for the Plaintiff, will be indirectly assisting or encouraging the Plaintiff in his
criminal fraudulent or illegal activity.'
Counsel for the Plaintiff began by emphasising that this action was concerned with the
conversion of a cheque drawn by Alan Jones (Plant Sales) & Co Ltd., not by Lombard, in favour
of Mr. Thackwell. He pointed out that, as is clear from the amended statement of claim, it was
not incumbent on the Plaintiff in order to make out that claim to prove the circumstances which
led to the refinancing agreement or the advance by Lombard of money to Alan Jones (Plant
Sales) & Co Ltd. All that the Plaintiff had to do, submitted counsel, was to prove that he was the
owner of the cheque and that the bank converted it. Counsel submitted that he could do that
without reliance on any illegal contract or dealing and that it mattered not that the underlying
transaction was illegal.
Counsel for the Plaintiff began by citing three old cases: Tenant v. Elliott, Farmer v. Russell and
Sharp v. Taylor. On its facts, perhaps the most striking of those cases is that of Farmer v.
Russell, in which it was held that the maxim would not prevent a Plaintiff recovering part of the
proceeds of a scheme for the distribution of counterfeit halfpennies among sailors in
Portsmouth, provided only that the Defendants, carriers who held part of the proceeds and had
failed to account to the Plaintiff for it, were unaware of the fraudulent nature of the scheme.
The court there followed Tenant v. Elliott, a case to do with an illegal policy of insurance.
However, it is Sharp v. Taylor which provides the greatest assistance to counsel for the Plaintiff,
illustrating clearly as it does the distinction between enforcing an illegal contract and asserting a
title to money which has arisen from such a contract. In that case, one of two partners to an
illegal venture sought to exclude the other from his share in the proceeds of that venture. It
was held that, even assuming that American and English law rendered the venture illegal, such
a fraud would not prevent the Plaintiff from maintaining a suit against the Defendant for an
account and payment of his share of the realised profits of the speculation. In that case Lord
Cottenham LC said:

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"As between these two, can this supposed evasion of the law be set up as a defence
by one against the otherwise clear title of the other? In this particular suit, can the
one tenant in common dispute the title common to both? Can one of two partners
possess himself of the property of the firm, and be permitted to retain it, if he can
shew that, in realising it, some provision in some Act of Parliament has been
violated or neglected? Can one of the two partners, in any import trade, defeat the
other, by shewing that there was some irregularity in passing the goods through the
custom house? The answer to this, as to the former case, will be, that the
transaction alleged to be illegal is completed and closed, and will not be in any
manner affected by what the Court is asked to do, as between the parties."
These three cases were fully considered in the Court of Appeal in Sykes v. Beadon by Jessell
MR. He did not doubt the authority of Tenant v. Elliott or Farmer v. Russell or the correctness of
the decision in Sharp v. Taylor; but as to the passage which I have cited from the judgment of
Lord Cottenham LC in that case he said:
"I must say, speaking with some hesitation, as I always do, when differing from any
judgment of Lord Cottenham's, that that reasoning, to my mind, is inconclusive and
unsatisfactory. The notion that because a transaction which is illegal is closed, that
therefore a Court of Equity is to interfere in dividing the proceeds of the illegal
transaction, is not only opposed to principle, but to authority - to authority in the
well-known case of the highwaymen where a robbery had been committed, and one
highwayman unsuccessfully sued the other for a division of the proceeds of the
robbery. So in the case he puts of one of two partners engaged in merchant trade.
As I read it, he meant the trade of smuggling goods. If two persons go partners as
smugglers, can one maintain a bill against the other to have an account of the
smuggling transaction? I should say certainly not. It is not sufficient to say that the
transaction is concluded as a reason for the interference of the Court. If that were
the reason, it would be lending the aid of the Court to assert the rights of the
parties in carrying out and completing an illegal contract. If the partnership is for
the purpose of smuggling, that is an illegal contract, and the Court cannot maintain
it, and the Court will not lend its aid to all of it. That reasoning, then, of Lord
Cottenham's is not sufficient; and I should have answered the question - not as
Lord Cottenham does, in the affirmative - but in the negative. I do not say that this
observation at all affects the authority of Sharp v. Taylor as it stands; but I think it
does affect very much the dicta which I have read from the judgment; and that is
the reason I have read them. It is no part of the duty of a Court of Justice to aid
either in carrying out an illegal contract, or in dividing the proceeds arising from an
illegal contract, between the parties to that illegal contract. In my opinion, no action
can be maintained for the one purpose more than the other. I gave an illustration
which occurred in my own practice in early life. One of the partners in a gaminghouse sued the other partner for an account of profits. It did not come on for
hearing, because the Plaintiff thought better of it; but I am satisfied that if it had
come on the bill could not have been maintained. Still the assertion of the bill was,
that the gaming-house had been closed, and the Plaintiff asked for an account of
that footing. Then Lord Cottenham goes on in Sharp v. Taylor to say, "Do the
authorities negative this view of the case? The difference between enforcing illegal
contracts and asserting title to money which has arisen from them, is distinctly
taken in Tenant v. Elliott and Farmer v. Russell, and recognised and approved by Sir
William Grant in Thomson v. Thomson." Yes; but not in that way. I have already
explained what those cases were. Those were not cases in which one of the two
parties to the illegal contract sought to recover from the other a share of the
proceeds of the illegal contract. Then he goes on to distinguish Sharp v. Taylor in a
way which probably distinguishes it from cases which would be open to exception
on the grounds of criminality. Those are all the authorities to which I think it is
necessary to refer. I think the principle is clear that you cannot directly enforce an
illegal contract, and you cannot ask the Court to assist you in carrying it out. You
cannot enforce it indirectly; that is, by claiming damages or compensation for the
breach of it, or contribution from the persons making the profit realized from it. It

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does not follow that you cannot, in some cases, recover money paid over to third
persons in pursuance of the contract; and it does not follow that you cannot, in
other cases, obtain, even from the parties to the contract, moneys which they have
become possessed of by representations that the contract was legal, and which
belonged to the persons who seek to recover them; but I am bound to say I think
there is no pretence for saying that an illegal contract will in any way be enforced or
aided by a Court of Law or Equity; and therefore I feel bound to allow this
demurrer, which I do, with costs."
Of the cases cited by counsel for the Plaintiff I need mention only one more, namely the
decision of the Privy Council in Sajan Singh v. Sardara Ali. There it was held that,
notwithstanding that a contract for the sale of a lorry was unlawful, nevertheless when in
pursuance of the contract the lorry was sold and delivered to the Plaintiff the property in it
passed to him, he derived a right to immediate possession of the lorry and accordingly was
entitled to sue the Defendant in detinue. It was also held that, having actual possession of the
lorry at the time the Defendant seized it, the Plaintiff as the possessor had a right to sue in
trespass. Not surprisingly, counsel for the Plaintiff relied on this case as a modern illustration of
the distinction between enforcing or assisting in the carrying out of an illegal contract and
assisting the Plaintiff to recover from a third party the proceeds of an illegal contract to which,
as between himself and the third party, the Plaintiff is entitled. Founding himself on this line of
authority, counsel for the Plaintiff submitted that, even assuming, contrary to what was his
primary submission, that Mr. Thackwell was aware of the fraudulent nature of the refinancing
transaction, it is altogether irrelevant to look at that transaction when considering his
entitlement as the owner of the cheque to maintain a claim in conversion against the bank and
that all one needs to look at is the transaction between Alan Jones and Thackwell.
Counsel for the Defendants does not seek to meet these submissions head on. He contends that
there are, running through the cases on this topic, two distinct but related lines of authority.
The first is exemplified by the cases cited by counsel for the Plaintiff, and he contends that, if
exposed only to the test laid down by those cases, the Plaintiff's claim once the statement of
claim was amended became unexceptionable. However, counsel for the Defendants contended
that the other line of authority, which he described as laying down 'the conscience test', was
fatal to the Plaintiff's claim. That test, he suggested, involved the court looking at the quality of
the illegality relied on by the Defendant and all the surrounding circumstances, without fine
distinctions, and seeking to answer two questions: first, whether there had been illegality of
which the court should take notice and, second, whether in all the circumstances it would be an
affront to the public conscience if by affording him the relief sought the court was seen to be
indirectly assisting or encouraging the Plaintiff in his criminal act.
Counsel for the Defendants begins by conceding that, as originally developed, the rule had a
contractual basis and he draws attention to what he submits is the classic definition in the
judgment of Lindley LJ. in Scott v. Brown Doering McNab & Co., where Lindley LJ. says:
"Ex turpi causa non oritur actio. This old and well-known legal maxim is founded in
good sense, and expresses a clear and well-recognised legal principle, which is not
confined to indictable offences. No Court ought to enforce an illegal contract or
allow itself to be made the instrument of enforcing obligations alleged to arise out
of a contract or transaction which is illegal, if the illegality is duly brought to the
notice of the Court, and if the person invoking the aid of the Court is himself
implicated in the illegality. It matters not whether the Defendant has pleaded the
illegality or whether he has not. If the evidence adduced by the Plaintiff proves the
illegality the Court ought not to assist it. If authority is wanted for this proposition,
it will be found in the well-known judgment of Lord Mansfield in Holman v.
Johnson."
Counsel for the Defendants, citing the well-known passage from the speech of Lord Wilberforce
in Anns v. Merton London Borough, argues by analogy that the first stage of the inquiry is to
look at the proximity of the illegal conduct relied on to the claim maintained by the Plaintiff, and
that the court has next to consider whether there are other considerations which as a matter of

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public policy ought to affect the Plaintiff's right to recover. He submits that there is an
abundance of modern authority which demonstrates that, approaching the matter essentially in
this way, the courts will deny recovery to the Plaintiff even where he does not have to rely on
an illegal transaction to found his cause of action, because the attitude of the courts has been
to preclude a Plaintiff from benefiting from the proceeds of a serious crime, whether or not he
was implicated in it.
In Burns v. Edman Crichton J. dismissed claims made by a widow and children under the Fatal
Accidents Acts 1846 to 1959 because the prospective dependency was based on an income
derived from the criminal activities of the deceased, whose only means of livelihood were his
activities as a burglar. It is to be observed, as counsel for the Plaintiff in that case pointed out,
that claimants pursuing claims under the Fatal Accidents Acts were suing as innocent third
parties on their own behalf and not as personal representatives of the deceased; and further
that, though the judge had found that the wife was aware of the source of the weekly sums that
the husband gave her, the same could not have been said of the infant children.
Notwithstanding these considerations, Crichton J. acceded to the argument of counsel for the
Defendant that in effect each dependant was asserting that he or she had been deprived of his
share of other people's goods brought to him by the deceased as a result of the latter's
dishonest conduct and that, in so far as that deprivation was an injury inflicted by the
Defendant, it was mala causa or turpis causa and not maintainable under the Fatal Accidents
Acts.
Murphy v. Culhane was an appeal by a Defendant against summary judgment for damages to
be assessed on a claim by the deceased's widow, the deceased having been unlawfully killed by
the Defendant, who had been convicted of manslaughter. The defence was that the assault
occurred during and as part of a criminal affray which was initiated by the deceased, who
received more than he bargained for. In the course of his judgment Lord Denning MR said:
". . . suppose that a burglar breaks into a house and the householder finding him
there, picks up a gun and shoots him, using more force maybe than is reasonably
necessary. The householder may be guilty of manslaughter and liable to be brought
before the criminal courts. But I doubt very much whether the burglar's widow
could have an action for damages. The householder might well have a defence
either on ground of ex turpi causa non oritur actio or volenti non fit injuria. So in
the present case it is open to Mr. Culhane [the Defendant] to raise both those
defences. Such defences would go to the whole claim."
The widow, of course, was innocent of any crime and it is clear from the report that at least one
child claimed under the Fatal Accidents Acts. Here again, submits counsel for the Defendants,
the Court of Appeal (admittedly only in an interlocutory appeal where the question was whether
the matter was arguable) was looking at the criminality of the conduct without regard to
whether the claimants had in any way participated in or were totally innocent of it.
Turning to cases in which the Plaintiff has succeeded notwithstanding illegality, counsel for the
Defendants submits that the same principle emerges. He draws attention, as a recent example,
to Shelley v. Paddock. The Plaintiff had laid out money on the purchase of some property in
Spain from the Defendants. They were fraudulent: there was no property and they disappeared
with her money. The provisions of the contract as to payment, which were carried out, involved
breaches of the Exchange Control Act 1947. The Plaintiff was unaware that this was so and
acted innocently throughout. In due course she sued the Defendants in England and the judge
held that public policy did not prevent the court from assisting her to obtain compensation. The
Court of Appeal agreed and dismissed the Defendants' appeal. It is plain from the judgments
that the unfairness of permitting the Defendants to remain in possession of their ill-gotten gains
was regarded as a highly material consideration and that fairness required that the Plaintiff
should be permitted to recover notwithstanding the illegality of the contract. Counsel for the
Defendants submits, rightly in my view, that neither this nor any of the other cases in which
Plaintiffs, whether personally innocent or not, have been held entitled to recover create any
difficulty when one recognises them for what they are, namely an exercise in the application of
public policy according to the court's conscience. To the same effect he submits is the decision

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of Talbot J. in Geismar v. Sun Alliance and London Insurance Ltd.

Counsel for the Plaintiff, in response to these arguments, sought to interpret the cases on which
counsel for the Defendants relies (and I have not referred to all of them) rather more narrowly.
Each of them, he submitted, when closely examined was a case in which the Plaintiff had to
prove the illegal activity in order to succeed. Thus, to take Burns v. Edman as an example, the
widow had to prove the illegal activity of her husband in order to found her cause of action,
because proof that he had a regular income (and therefore proof of the source of that income)
were essential to the maintenance of her claim under the Fatal Accidents Acts. It seems to me
that, while this may be true in the case of Burns v. Edman, it does not hold good for Murphy v.
Culhane or Geismar v. Sun Alliance and London Insurance Ltd.
In the end counsel for the Plaintiff's argument involved drawing a sharp distinction between
those cases in which the claiming Plaintiff was and those in which he was not implicated in the
underlying illegal transaction. He conceded, in my view inevitably and rightly, that, if the
correct view was that Mr. Thackwell was a party to the fraudulent refinancing transaction in the
sense that he knew beforehand that it was a fraud, then he could not recover because public
policy would prevent his doing so, just as it would prevent a burglar from whom the stolen
goods were snatched by a third party just as the burglar left the victim's house from
maintaining an action in conversion against the third party. It was for that reason that counsel
for the Plaintiff included the second half of the first part of his formulation of the principle,
namely that the defence was available where the court, in finding for the Plaintiff, would be
indirectly assisting or encouraging the Plaintiff in his criminal, fraudulent or illegal activity.
I have, of course, already held that Mr. Thackwell was a party to the fraudulent refinancing
transaction, in the sense that he knew from the outset that it was a fraud and willingly
participated in it. Accordingly, it follows on the basis of counsel's concession that he cannot
maintain this action against the bank in conversion. However, in case that conclusion of fact is
open to challenge, I should state that, even had I found that Mr. Thackwell was innocent and
that Mr. Sawford alone was the perpetrator of the fraudulent refinancing transaction, I should
have denied Mr. Thackwell recovery. This is because I accept the correctness of the arguments
advanced by counsel for the Defendants and, adopting his approach, it seems to me first that it
would indeed be difficult to find a case in which the criminal conduct relied on was more
proximate, because, as counsel for the Defendants submits, the cheque alleged to have been
converted constituted in reality the very proceeds of the fraudulent conduct. I say this
notwithstanding that I recognise that it was not Lombard's cheque but the cheque drawn by
Alan Jones once he had received Lombard's cheque. If one then considers the second of the
suggested tests, everything points in my judgment to a denial, on grounds of public policy, of
the right to recover. The underlying crime was a serious one and there is nothing inherently
unfair in a result which deprives Mr. Thackwell of the proceeds of this cheque. On the contrary,
by permitting Mr. Thackwell to recover the proceeds of this cheque from the bank I should, as it
seems to me, be indirectly assisting in the commission of a crime.
It remains only for me to mention the final argument that was relied on by the Defendants,
namely estoppel. In the circumstances I can deal with it quite shortly.
The suggestion is that, even if the Plaintiff were to succeed in overcoming every other obstacle
in his path, his failure for so many months to inform the bank that the cheque entrusted to Mr.
Sawford had not appeared as a credit item in his bank statement constituted a breach of duty
owed by him to the bank, was accordingly some sort of implied representation by him on which
the bank were entitled to rely, that they did rely on it to their detriment by failing to initiate the
steps which Mr. Barnes said that they would have taken had they been acquainted with the
allegation that the endorsement was a forgery and that meanwhile they suffered detriment in
that Riva's overdraft greatly increased.
I have already referred to the fact that it was in a sense fortuitous that Mr. Thackwell was a
customer of the bank; in many cases, perhaps most, the Plaintiff maintaining an action in
conversion against the collecting bank does not himself have an account with the bank, whether
at that or another branch. Plainly it is only the fact that he was a customer that permits this

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argument to be advanced, for it is to the bank in its role as his banker rather than its role of
collecting banker that it is suggested that he should have made some communication. Equally
clearly, the suggested duty is considerably wider than that recognised in most textbooks as
existing between a customer and his banker. However, in support of the proposition that there
is a general duty of care owed by the customer to his banker, rather than merely a duty not to
be negligent in the drawing of his cheques and so facilitate forgery, counsel for the Defendants
relies on the recently reported case in the Court of Appeal in Hong Kong of Tai Ring Cotton Mill
Ltd. v. Liu Chong Hing Bank Ltd. That decision is not, of course, binding on me, but counsel for
the Defendants invited me to express my views as to the correctness of it and, assuming that I
acceded to his invitation to follow it, to uphold his plea of estoppel. For reasons which I shall
very shortly explain, I do not feel that it is necessary for me to express any views on the
correctness or otherwise of that decision; and I hope that it is neither inappropriate nor
pusillanimous of me to say that I am glad to have been able to reach this conclusion knowing as
I do that that case is the subject of pending appeal to the Privy Council.
The difficulty that I feel about the defence of estoppel is that, assuming everything else in
favour of counsel for the Defendants, it seems to me quite impossible sensibly to formulate any
implied representation which Mr. Thackwell can be said to have made to the bank by his failure
to tell the bank that there had not appeared in his bank statements a credit entry representing
the value of this cheque. Where a customer receives a statement containing an entry debiting
his account with a particular sum, it is not difficult to formulate an implied representation by
him, based on prolonged failure to dispute the entry, that the debit was correctly made with his
authority; but I cannot understand how any such implied representation can be based on the
absence from the customer's account of a credit item. This difficulty is all the more acute in a
case such as the present one where the customer has not himself purported to pay in a cheque
to the credit of his account but has simply entrusted the cheque to a third party. It is to be
remembered that Mr. Thackwell's evidence was that he did not believe that Mr. Sawford had
paid the cheque in.
Even apart from this, as it seems to me, fundamental difficulty, I consider that the conclusions
at which I have already arrived, both of fact and law, make it unnecessary for me to prolong
this judgment by dealing in any more detail with the Defendants' argument based on estoppel,
involving as it would do an extensive consideration of this branch of the law of banking, which is
likely shortly to be authoritatively determined by the Privy Council.
In the result, on the basis of the findings that I have already made, there must be judgment for
the Defendants.

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