Some 60 years have passed since the House of Lords’ decision in London Joint Stock Bank Ltd. v. Macmillan 1 gave effect to the old doctrine of Young v. Grote 2, handed down 100 years previously but questioned at the turn of the century3. In Macmillan, a clerk, who had induced his employer to sign a partially filled-in cheque, utilized blank spaces in order to raise the amount from £2 to £120. He then converted the cheque. The House of Lords held that the employer’s bank was entitled to debit his account with £120 as his carelessness had facilitated the fraud. The employer was, therefore, precluded from denying that the cheque had been properly completed by the clerk.

Macmillan thus recognized, in the spirit of Young v. Grote, that the customer owes his bank a duty of care as regards the drawing of cheques. The customer must not issue them in a manner that facilitates fraud. Lord Finlay explained the doctrine on the basis that a cheque constituted a mandate issued by the customer to the bank. The customer had to be careful that his instruction could not have a misleading effect4.

Traditionally, the Macmillan doctrine has been given a somewhat restrictive interpretation. It was thought that the customer did not owe the bank a general duty of care to organize his business in a manner aimed at combatting possible frauds. His duty of care was limited to the actual drawing of the cheque. Thus, in Lewes Sanitary Steam Laundry Co. Ltd. v. Barclay & Co.5, a company was held not to be in breach of its duty of care where it entrusted the custody of its cheque book to a person known to have had convictions for forgery. While this decision preceded Macmillan, this view derives support from National Bank of New Zealand v. Walpole & Patterson Ltd.6, where the New Zealand Court of Appeal allowed a commercial company to contest the bank’s right to debit it with cheques forged by an employee over a number of years7.

This narrow construction of the Macmillan doctrine has been challenged by the Court of Appeal of Hong Kong in Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd.8 The plaintiffs maintained a current account with three different banks in Hong Kong. An employee, L, committed a series of frauds. Initially, he tricked one of the plaintiffs’ directors into signing cheques, which L converted. Subsequently, L resorted to the cruder method of simply forging the director’s signature on cheques. During the entire period of six years in which L perpetrated the frauds, the plaintiffs failed to make any security checks.