BANKING WHETHER COMMONWEALTH LIABLE FOR MONEY FRAUDULENTLY WITHDRAWN FROM COMMONWEALTH SAVINGS BANK BY EMPLOYEE OF DEPOSITOR: VALIDITY OF REGULATION PROTECTING BANK WHERE IN ORDINARY COURSE OF BUSINESS IT PAID OUT MONEY ON FORGED RECEIPT: CONSTRUCTION OF REGULATIONS: REASONABLENESS: FRAUD OR DISHONESTY OF BANK OFFICER
COMMONWEALTH SAVINGS BANK REGULATIONS regs 27, 33(6), 37(3): COMMONWEALTH BANK ACT 1911 s 63: ACTS INTERPRETATION ACT 1901 s 46
The Secretary, Department of the Treasury, has asked me to advise in connexion with the matter referred to in the following letter to him from the Secretary, Commonwealth Bank:
We have received a claim from Mr. F. W. Coss, Solicitor for the above depositors, alleging that a sum of £200 withdrawn from the above account on the 1st June 1938 was withdrawn without their authority and requesting us to refund the amount. Mr. H., one of the depositors, is a Solicitor practising in Sydney, and in an interview with the Bank stated that the receipt for the amount withdrawn had been forged by a clerk in his office in whom he had implicit trust and who had full access to his safe and records at all times. Upon examination of the receipt we are satisfied that if the document is a forgery the Bank’s officers have not been negligent in accepting this signature thereto but that there was negligence on the part of the Solicitor-depositor in allowing free access to the pass book. We understand that no criminal proceedings have been instituted against the suspected forger.
We have referred the Solicitor to Commonwealth Savings Bank regulations 33(6) and 37(3) made under the Commonwealth Bank Act by virtue of which we claim the Bank holds a good discharge. These regulations provide as follows:
33(6). Should any irregularity in the pass-book come under the notice of a depositor, officer or Savings Bank officer, it shall be reported at once to the Savings Bank. A depositor shall be responsible for the control and safe custody of the passbook issued to him. The Savings Bank shall not be responsible for the consequences of any neglect on the part of a depositor to properly control the pass-book.
37(3). The officers of the Savings Bank shall diligently endeavour to prevent fraud, and to identify every depositor transacting business with the Savings Bank; but should any person presenting a depositor’s passbook, and producing a withdrawal form purporting to bear the signature of the depositor, or stating himself to be the depositor named therein, unlawfully obtain any deposit or sum of money from the Savings Bank during the hours of business the Savings Bank shall not be responsible for the loss so sustained by such depositor or be liable to make good such loss.
The Solicitor has now informed us that he has taken Counsel’s opinion in connection with such regulations and has been advised that they are ultra vires the Commonwealth Bank Act and intends to issue a summons for the recovery of the amount.
On the 27th February 19141 the then Attorney-General expressed an opinion that the provisions of regulation 27 of the Commonwealth Bank Regulations then in force, which contain a paragraph similar in effect to paragraph 3 of the existing regulation 37, were within the powers conferred upon the Governor-General by s. 63 of the Commonwealth Bank Act to make regulations prescribing things which are necessary or convenient to be prescribed for carrying out or giving effect to the Act.
In view of the lapse of time since such opinion was given and subsequent amendments to the Act and regulations, it is desired that the Solicitor-General’s opinion be obtained as to whether regulations 33 and 37 of the Commonwealth Savings Bank Regulations–Statutory Rules No. 77 of 1928–are intra vires. A copy of the opinion of the 27th February 1914 is attached for the information of the Solicitor-General.
As a matter of information we would also direct the attention of the Solicitor-General to the following cases in which regulations protecting Savings Banks in cases of forgery were discussed:
Brimson v. Suttor (1882) 3 L.R. (N.S.W.)
Levy v. Commissioners of Savings Bank (1906) V.L.R. 2992
Michail v. Savings Bank of South Australia (1930) S.A. SR. 60.
Section 63 of the Commonwealth Bank Act 1911–1932 empowers the Governor-General, in the usual terms, to make regulations prescribing all matters which are required or permitted to be prescribed or which are necessary or convenient to be prescribed for carrying out or giving effect to that Act. In pursuance of this power Regulations have been made relating to the business of the Commonwealth Savings Bank and included therein are the provisions quoted in the foregoing letter. I am asked to advise whether those provisions are within the power to make Regulations conferred by the Act.
Similar provisions were considered by Sir William Irvine, when Attorney-General, in an Opinion dated 27th February, 1914. He took the view that they were within the regulation making power.
In Brimson v. Suttor a regulation which was, for all material purposes, the same in effect as regulation 37(3) of the Commonwealth Savings Bank Regulations was attacked on the ground that it was unreasonable. The Court held, however, that the regulation was reasonable and intra vires, and protected the bank where, in its ordinary course of business, it had paid out money on a forged receipt.
In Levy, v. The Commissioners of Savings Banks, the Supreme Court of Victoria held that the bank was protected by rules in similar terms against liability where a son appropriated his father’s pass book and by forging orders unlawfully obtained sums of money from the bank. In this case the validity of the rules was not challenged. The question before the Court concerned their interpretation.
In Michail v. Savings Bank of South Australia, the main question before the Court concerned the interpretation of the rules, but Richards, J., pointed out that the power to make rules was not unlimited, and that the Act could not be construed so as to authorize the making of a rule protecting the Bank from liability where the paying clerk knew the withdrawal order to be forged. His Honour said (at p. 65):
There is nothing in the Act which could reasonably be construed as giving power to make a rule of such extraordinary effect as to give protection in such circumstances, and if rule 5 read literally appears to go that far, it should, I think, be read ut res magis valeat quam pereat.
It might be contended that regulation 37(3) of the Commonwealth Savings Bank Regulations purports to protect the bank against loss notwithstanding negligence or dishonesty on the part of an officer of the bank, but I think that this contention could be refuted on the ground that the opening words of the sub-regulation indicate a contrary intention. If not, I think a Court would probably apply the rule of interpretation applied by Richards, J., in Michail v. The Savings Bank of South Australia.
The adoption of an interpretation of the regulation which would render it valid could also be supported by reference to section 46 of the Acts Interpretation Act 1901–1937, which provides (inter alia) that a regulation shall be read and construed subject to the Act under which it is made, and so as not to exceed the power of the authority making the regulation, to the intent that where any such regulation would, but for the section, have been construed as being in excess of the power conferred on that authority, it shall nevertheless be valid to the extent to which it is not in excess of that power.
For the reasons indicated above, I am of opinion that regulations 33 and 37 of the Savings Bank Regulations, if challenged, would be held to be valid; but I think I should direct attention to the following remarks by Manning, J., in his judgment in the case of Brimson v. Suttor (3 N.S.W. L.R. at p. 5):
Beyond question it would have been better if the Act itself had contained provisions protecting the bank in case of fraud, instead of leaving it to the regulations; and I would throw out the suggestion that the Government should initiate express legislation on this point.
In order to avoid any attack on the validity of the regulations, I suggest that, when next the Act is being amended, the opportunity should be taken to incorporate the substance of the regulations in the Act.
[Vol. 32, p. 96]
(1) Opinion [Vol. 12, p.170] not published.
(2) (1906) 12 ALR 140.