Shreeji Investments Limited v Zambia National Commercial Bank PLC (Appeal 143 of 2009) [2015] ZMSC 4 (20 January 2015)

(14) SCZ Judgment No. 2/2015 IN THE SUPREME COURT OF ZAMBIA APPEAL NO.143/2009 HOLDEN AT LUSAKA (Civil Jurisdiction) BETWEEN: SHREEJI INVESTMENTS LIMITED APPELLANT AND ZAMBIA NATIONAL COMMERCIAL BANK PLC RESPONDENT CORAM: Chibesakunda Ag CJ, Lisimba and Kaoma Ag JJS On 6th May, 2014 and 21st January, 2015 For the Appellant: Mr. Eric S. Silwamba SC - Eric Silwamba, Jalasi and Linyama Legal Practitioners Mr. S. Lukanga – Mweemba Chashi and Partners For the Respondent:Mrs. S. Wamulume – ln-House Counsel JUDGMENT KAOMA Ag JS delivered the Judgment of the Court. Cases referred to: 1. 2. 3. 4. 5. 6. 7. Indo Zambia Bank v Lusaka Chemist (2003) Z. R. 32 Grindlays Bank Inter (Z) Ltd v Nahar Investments Ltd (1990/92) Z. R. Lloyd v Grace, Smith & Co (1912) AC 716 London Joint Stock Bank Ltd v Mcmillan and anr (1918-1919) ALL ER Uxbridge Permanent Benefit Building Society v Pickard (1939) 2 KB Barclays Bank of Zambia Ltd v Sky FM Ltd and anr (2006) Z. R. 51 Likman Gorman (a firm) v Karpnale and anr (1992) 4 ALL ER 331 J2 8. Selangor United Rubber Co. Ltd v Cradock (a bankrupt) (No. 3) (1968) 2 ALL ER 1073 Karak Rubber co Ltd v Burden and ors (No. 2)(1972) 1 ALL ER 1210 Nkhata and ors v Attorney General (1966) Z. R. 124 9. 10. 11. Machobane v The People (1972) Z. R. 101 12. Income Tax Special Purposes Cmrs v Pemsel (1891) AC 531 (15) 13. Morrison v London County and Westminister Bank (1914) 3 KB 356 14. 15. 16. 17. 18. 19. 20. Bank of Zambia v The Attorney General (1974) Z. R. 24 Pickard v Sears (1837) 6 AD.& EL. 469 London and River Plate v Bank of Liverpool (1897) 1 QB 10 Lewes Sanitary Steam Laundry Co v Barclays & Co (1906) 95 LT 444 Kitwe City Council v Ng’uni (2005) Z. R. 57 The Attorney General v Achiume (1983) Z. R. 1 The Minister of Home affairs and anr v Habasonda (2007) Z. R 207. Statutes and other works referred to: 1. Stamp Act 1853, s. 19 2. Bills of Exchange Act 1882, s. 60 3. Cheques Act, Cap 424, s. 2 4. Bowstead & Reynolds on Agency, 19th ed, by Peter G. Watts, Sweet & Maxwell, London, 2010 5. Paget’s Law of Banking, 6th ed, by Maurice H. Megrah, London, 1961 6. Halsbury’s Laws of England, 4th Edition, Vol. 3(1) paras 172-175 The brief facts not in dispute in this appeal are that at the time of the transactions in question, the appellant was a customer of the respondent bank. It maintained two bank accounts with the latter’s Northmead branch in Lusaka. It employed as its assistant accountant, in the finance department, one Brian Mtonga, who amongst the duties which he discharged was depositing money, collecting bank statements and cashing cheques. Mtonga had worked for the appellant for five years. Between April, 2006 and November, 2007, the respondent paid out to Mtonga, from the appellant’s J3 accounts, a total of K1,259,262,601.50 (unrebased), on 109 forged cheques. Only 17 (16) out of the 109 transactions done had confirmation letters given to the appellant by the bank upon request. Mr. Dewan, the appellant’s Managing Director, did not have sight of or examine the bank statements or the accompanying cancelled cheques which were collected from the bank by his employees. He delegated that duty to Mtonga and his accounts department. Consequently the forgeries were not discovered by the appellant until 17 months later. Immediately upon learning of the forgeries the appellant notified the bank and later demanded that it restores the total amount paid on the forged cheques with interest. After investigating the matter, the bank refused to refund the money. The appellant thereupon commenced this action against the bank to recover such sum. It claimed that the monies were paid out by the bank on forged cheques and confirmation letters without its actual or ostensible authority or J4 mandate, and that the bank had no authority to honour cheques with forged signatures. The bank denied that any payments it made were fraudulent and pleaded that all monies were paid out in accordance with instructions issued by the appellant, namely, (17) that the cheques be paid out upon receipt of a confirmation letter from either of the appellant’s directors; that the cheques were paid out to the appellant’s agent, Brian Mtonga, having been introduced so by the appellant; and that the cheques were honoured upon receipt of the confirmation letters and verification of the signature on the cheques with the specimen signatures provided by the directors. The bank also pleaded special defences, stating, that if the endorsements on the cheques were forged, then the cheques were paid in good faith, in the ordinary course of business and that such forgeries could not have been detected by the bank which applied the ordinary standard of verification expected of a bank. Alternatively, the bank pleaded that the appellant was estopped from setting up the forgery as it was committed for J5 over one year six months, during which period monthly bank statements with corresponding returned cheques for the respective periods in question, were availed and sent to the appellant, but the directors did not inform the bank of any anomalies on the bank accounts or that the cheques were forged; that the appellant noticed the amounts paid from the counterfoils (18) but did not notify the bank of any forgery; and that during the periods in question, the appellant audited its accounts and remitted tax to the tax collector, activities which alerted them of the forgeries, but did not inform the bank of the same. The learned trial judge gave judgment for the bank. She found that the signatures on the cheques and confirmation letters accompanying the cheques were forgeries. She then considered whether the bank should be held liable for moneys paid out under the forged cheques. In doing so, she referred to the protection given to a banker under s. 19 of the Stamp Act (not Stamp Duty Act) and, s. 60 of the Bills of Exchange Act 1882 and she referred to the principles enunciated in the cases of Indo-Zambia Bank v Lusaka Chemist Ltd1, Grindlays Bank J6 International (Z) Ltd v Nahar Investments Ltd2, and Lloyd v Grace, Smith & Co3 and concluded that the forgery was committed by the appellant’s authorised agent and from the long relationship between the parties; the bank was entitled to repose trust and confidence in the appellant who was a good customer. She also found that the transactions went undetected for 17 months during which period statements and cheques were sent (19) back to the appellant, who did not notice any anomalies; that no negligence was pleaded or proved; and that the forgeries were so good that even Mr. Dewan had difficulties distinguishing between his own signature and the forgeries. She further found that the appellant’s fraudulent employee had perpetrated “a near perfect fraud”such that it could not be detected by the bank which applied the ordinary standard of verification expected of a bank; and that the handwriting expert conceded that an ordinary person without specialised training could not have detected the forgeries. J7 She then commented that had the appellant been prudent in checking the statements and reconciling the counterfoils of the cheques with due diligence, and proper accounting system in its finance department, it could have discovered and prevented the fraud much earlier and that in the circumstances the appellant was precluded from setting up forgery. Ultimately, the learned judge held that the appellant had not proved that the bank acted in bad faith and outside the ordinary course of business in paying out on the forged cheques. She concluded that it was not incumbent on the bank to show (20) that the endorsements on the cheques and confirmation letters were made by or under the authority of the person whose endorsements it purported to be; and that the bank was deemed to have paid the cheques in due course, although such endorsement had been forged. The appellant now appeals on seven grounds. At the hearing of the appeal both parties relied on their filed heads of argument, which were augmented, briefly with oral submissions. Counsel for the appellant also recapped their J8 arguments in the court below that as long as it was established that Brian Mtonga had no authority to issue and sign cheques, the bank had no authority to honour the cheques with forged signatures. The first ground of appeal argued by counsel for the appellant is that the learned judge misdirected herself by omitting to consider and review the appellant’s submissions and authorities cited and applying the law and authorities to the facts and distinguishing the law and authorities to those cited in the respondent’s submissions. The second ground is that the learned judge erred by holding that from the evidence and authorities cited the appellant had not proved that the respondent acted in (21) bad faith and outside the ordinary course of its business in paying out on forged cheque. The third ground is that the judge erred by deciding that Mtonga was the appellant’s authorised agent and proceeding to deliver judgment on that basis in the absence of documentary evidence. In arguing the appeal, learned counsel for the appellant consolidated these three grounds. J9 It was argued, in brief, that the court below erred when it held that the respondent did not act outside its duty. That the question that begs an answer is what was the ordinary course of duty of the bank in this particular case? That the ordinary course of duty was to ensure that the right documents were produced every time a withdrawal was made. It was argued that a total of 109 forged cheques were presented at the bank for encashment, but there were only 17 available confirmation letters, indicative of the fact that the bank attempted to work in accordance with the instruction 17 out of 109 times, hence did not operate within the scope and ordinary course of duty in 92 transactions. It was also argued that the court relied on s. 60 of the Bills of Exchange Act 1882 and misdirected itself when it relied on authorities that refer to circumstances where a banker is (22) insulated from liability in cases where payments are made on forged instruments in the ordinary course of duty, when such authorities are distinguishable and do not apply here as the respondent did not comply with instructions in 92 transactions. J10 It was further submitted that the court erred when it found the bank not liable to pay because of the forgery occasioned by Mtonga; and the authority cited by the court does not apply since the circumstances are materially different, and the bank was aware of the express authority given to Mtonga; and no introduction letter was produced to confirm that when the bank dealt with Mtonga, they did so within the confines of the authority, so the forgery was occasioned by the bank’s actions. It was argued, based on the cases of London Joint Stock Bank Ltd v Mcmillan and another4, Uxbridge Permanent Benefit Building Society v Pickard5, and Barclays Bank of Zambia v Sky FM Ltd and another6, that the appellant cannot be held liable for money paid out due to the forgery; and since there was no written introduction to the bank, of Mtonga as the appellant’s official agent, the transactions of paying him were out of the ordinary course and ought to have caused doubts in the bank (23) and put it on inquiry, particularly that Mtonga was payee on all the forged cheques save for one that was in the appellant’s name. J11 The cases of Likman Gorman (a firm) v Karpnale Ltd and another7, Selangor United Rubber Estates Ltd v Cradock (a bankrupt) (No. 3)8 and Karak Rubber Co. Ltd v Burden and Others (No. 2)9 were also cited for the principle that the bank should not have continued to pay Mtonga without making more inquiries. It was also the submission of counsel for the appellant that the findings of fact by the trial judge are perverse as at no point in the proceedings did the bank show proof of a written introduction of Mtonga. A number of cases were cited in support of this argument, but we propose to only refer to Nkhata and others v Attorney General10 as to when an appellate court can reverse or interfere with findings of fact made by a trial judge. In response to ground 1, counsel for the respondent submitted that the ground is unsubstantiated and lacks merit; and that the learned trial judge made findings of fact based on what the parties submitted and the evidence of the witnesses and she reviewed the evidence and applied the law to those facts. J12 (24) As to grounds 2 and 3, counsel argued that the two grounds beg the question whether in paying out the cheques, there was something out of the ordinary course that ought to have aroused doubts in the bank’s mind and caused them to make an inquiry. She argued that the facts show that all the disputed cheques were paid in good faith and in the ordinary course of business; and that the appellant appointed Mtonga as an agent with authority to bank and cash cheques on its behalf. That despite there being no letter on record introducing Mtonga as its agent; the appellant does not deny that it allowed him to act on its behalf as testified by Mr. Dewan who was comfortable with the agent’s authority, so the cheques were paid in good faith and to the appellant’s authorised agent. Counsel also relied on Grindlays Bank International (Z) Ltd2, Lloyd v Grace, Smith & Co3 and London Joint Stock Bank4. She also quoted Bowstead and Reynolds on Agency, 17th edition, paragraph 10-030 to show that the learned judge was on firm ground to hold that Mtonga was the appellant’s authorised agent. J13 It is further counsel’s submission that all payments were made after receipt and verification of the confirmation letters (25) which had signatures of the authorised signatories. That whilst not all of the confirmation letters were produced in court, the defence witnesses, who attended to the agent, confirmed that at all times confirmation letters were produced to the bank and it was on the strength of these that the cheques were paid out. Counsel also argued that the court had occasion to view the demeanour of the witnesses and found them truthful. To support this argument, she cited Machobane v The People11 where it was held, inter alia, that demeanour is an item of evidence observed by the court from which inferences or conclusions are drawn. She contended that the court viewed the 17 letters availed between 14th November, 2006 and 30th August, 2007 and inferred that all the required confirmation letters had been produced by the agent and the agent was not paid without their production. Counsel further argued that the cashing of the 109 cheques took place over a period of 17 months during which J14 period bank statements were sent to the appellant, but at no time did the appellant raise issue with the said bank statements. She again cited London Joint Stock Bank4 and, Income Tax Special Purposes Cmrs v Pemsel12 to support the argument that there having been (26) no indication that the confirmation letters presented with the 109 cheques were forged, there was nothing out of the ordinary to cause the bank to make more inquiries or to query their veracity and that the signatures on the confirmation letters and cheques were in conformity with the mandate customer signatures. She submitted that Likman Gorman7and Selangor United Rubber Estates8 cannot be relied on as there was no knowledge on the part of the bank that could have alerted them to make an inquiry beyond that which was expected of them, that is, cashing the cheques on the strength of the confirmation letters. She also argued that the disputed cheques were as the court said “a near perfect fraud” such that detection by an untrained eye was impossible, a fact even the handwriting expert accepted. She cited Indo-Zambia Bank1, s. 2 of the J15 Cheques Act, Cap 424, which she argued is in tandem with s. 60 of the Bills of Exchange Act, 1882, and Morrison v London County & Westminister Bank13. The fourth ground of appeal argued by counsel for the appellant is that the learned judge erred by deciding that had the appellant been prudent in checking the statements and (27) reconciling the counterfoils of the cheques with due diligence and proper accounting system in the finance department, it could have discovered and prevented the fraud much earlier. The fifth ground is that the judge erred by precluding the appellant from setting up forgery purely on the basis of the fraud having been perpetrated for a period of 17 months and Mtonga having had access to 109 cheque leaves without detection. The gist of the two grounds, which were also argued as one, is that the trial court erred when it upheld the respondent’s arguments of estoppel. It was submitted that estoppel only applies where a person relying on it is not worthy of blame. That in this case, the bank made payment without confirmation letters in 92 instances out of 109, showing that they deviated from the J16 normal terms of the contract and the deviation precluded them from setting up estoppel as a defence. To sustain this argument counsel cited the case of Bank of Zambia v Attorney General14. It was argued that the appellant had no knowledge of the forgery and the moment it was brought to the attention of the signatories, the bank was informed. (28) In contrast, counsel for the respondent submitted that the appellant is estopped from denying the forgery. She cited Pickard v Sears15 referred to in London Joint Stock Bank4, Paget’s Law of Banking, 6th edition at p. 439 and London and River Plate v Bank of Liverpool16 cited with approval in the Indo- Zambia Ltd1 case. As to what conduct on the appellant’s part would evoke the principle of estoppel, she cited the Bank of Zambia14 case and argued that the forgery was committed by the appellant’s agent for over 17 months during which time he helped himself to 109 cheques without detection, when the appellant, but for its negligence had the opportunity to detect the fraud; and that it was that conduct that caused the payment of money to Mtonga which has prejudiced the bank from recovering the J17 money should an order be made to reimburse the appellant’s account. Counsel reiterated that the appellant had bank statements, but did not detect the fraud of a colossal sum of money; that in the 17 months in issue no reconciliation of the books of accounts took place or any external audit to verify the company’s financial standing nor was any tax paid which would have prompted an audit of the company books; and that the appellant was required (29) within 30 days of collecting the statements to notify the bank of any errors or queries in the statements, but did not do so. Counsel for the respondent further submitted that the appellant by its conduct induced the bank to continue accepting cheques from Mtonga believing the same to have been genuinely issued. She sought to distinguish the Bank of Zambia14 case on the ground that in that case money was paid out to an unknown person and involved only one cheque and the period was shorter. Lewes Sanitary Steam Laundry Co Ltd v Barclays and Co Ltd17 was also relied on. J18 The sixth ground of appeal argued by the appellant is that the learned judge erred by deciding that it was not incumbent on the respondent to show that the endorsements on the cheques and confirmation letters were made by or under the authority of the person whose endorsement had been forged or made without authority. The last ground of appeal is that the judge erred by holding that the forgeries were so good that even Mr. Dewan had difficulties distinguishing between his own signature and the (30) forgeries after having made a finding that the cheques and confirmation letters were forgeries. The two grounds were also argued together and counsel simply relied on paragraphs 172-175 of Halsbury’s Laws of England, 4th Edition, Reissue, Volume 3(1), and Kitwe City Council v Nguni18 as to the role of counsel’s submissions. It was argued that this was a fit and proper case for the court to adjudicate on all the issues in controversy and to review the J19 pertinent judicial precedents. We were urged to sustain the appeal. In response to ground 6, counsel for the respondent submitted that the holding of the judge was in line with s. 60 of the Bills of Exchange Act, 1882. She again referred to Indo- Zambia Bank Ltd1, London Joint Stock Bank4, and Likman Gorman7 to support the argument that the duty to make inquiries only arises if there is a reason for the banker to be suspicious. As to ground 7, she argued that the court noted that Mr. Dewan failed to identify his own signature when he was asked to distinguish a false signature from a real one, so, the court’s decision based on the facts cannot be faulted. She cited the case of The Attorney General v Achiume19 and urged that there being (31) no perverse findings by the judge, she was on firm ground. She urged us to dismiss the appeal. We have carefully considered the evidence on record and the submissions of counsel on both sides and the various authorities cited, for which we are grateful. We do not propose J20 to discuss all of the authorities cited in the submissions, but that does not mean that we have not given them due weight and consideration. Although in arguing the appeal, counsel for the appellant combined the first three grounds of appeal, in substance, the arguments advanced relate only to grounds 2 and 3, leaving ground 1 unsubstantiated. However, counsel for the appellant is right that in Kitwe City Council v Nguni18, we held that the learned trial judge was not bound to consider counsel’s submissions as these were meant only to assist the trial court in shaping up its judgment. But, in the later case of The Minister of Home affairs and another v Habasonda20, we made it very clear that every judgment must reveal a review of the evidence, where applicable, a summary of the arguments and submissions, if made, findings of fact, the reasoning of the court on the facts and the application of the law and authorities, if any, to the facts (emphasis ours). (32) J21 In this case, although the learned trial judge did not refer specifically to the authorities cited in the appellant’s submissions, she did consider the evidence; she made findings of fact, and she applied the law and authorities relevant to the facts before her. Therefore, ground 1 lacks merit and we dismiss it. We turn now to grounds 2, 3 and 6 which we shall consider together as they are all interrelated. Maybe an initial statement of the general principles governing the question of liability as between a bank and its customer when forged cheques are involved will aid the discussion of the contentious points raised in this appeal. It is settled law that a bank in receiving ordinary deposits becomes the debtor of the depositor and its implied contract with him/her is to discharge this indebtedness by honouring such cheques as he/she may draw upon it. Hence, when a cheque is duly signed and its appearance and statement of contents present no reasonable ground for suspicion and the signatures of the account holder tallies with the specimen recorded with the (33) J22 bank and there are sufficient funds in the account, a banker is duty bound to honour it (per Lord Shaw in London Joint Stock Bank4). Counsel for the appellant placed reliance on the statement of Lord Shaw in the London Joint Stock Bank4 case to the effect that a cheque with a signature of a customer forged is not the customer’s mandate or order to pay, it does not fall within the relation of banker and customer if the bank honours such a document not proceeding from its customer, it cannot make the customer answerable for the signature and issue of a document which he did not sign or issue; and that the banker paying accordingly has paid without authority and cannot charge the payment against a person who was a stranger to the transaction. Counsel also relied on a passage quoted from Uxbridge Permanent Benefit Building Society5 to the effect that the transaction involved a forgery, which could not be within the authority of the principal, and that there can be no ostensible authority to commit a crime and in cases where the servant is carrying out an enterprise for his own purpose and benefit, the J23 principal is not liable. However, that passage does not reflect the (34) decision of the court. It concerned arguments made at the bar with which we shall not concern ourselves. Indeed, in Bank of Zambia v The Attorney General14, we stated that at one time it was said that a banker was bound to know his customer's signature and that it was negligence to pay on a forged instrument, but this basis of a bank's liability has long since been shown to be false; that it is now established that the real basis of the bank's liability is that money has been paid away without the authority of the customer. We confirmed this in Barclays Bank of Zambia v Sky FM Limited and another6. What this means is that a bank pays a forged cheque at its peril; and in such event, payment will be considered to have been made from the bank's own funds so that it has no right to charge the customer's account with the amount paid contrary to his legitimate order. However, s. 19 of the Stamp Act 1853, referred to by the learned judge, provides that any draft or order drawn upon a J24 banker for a sum of money payable to order on demand, which shall, when presented for payment, purport to be endorsed by the person to whom the same shall be drawn payable, shall be (35) sufficient authority to such banker to pay the amount of such draft or order to the bearer; and it shall not be incumbent on such banker to prove that such endorsement, or any subsequent endorsement, was made by or under the direction or authority of the person to whom the draft or order was or is made payable either by the drawer or any endorser thereof. In addition s. 60 of the Bills of Exchange Act 1882, referred to by counsel for the appellant and also applied by the learned judge, provides that when a bill payable to order on demand is drawn on a banker, and the banker pays the bill in good faith and in the ordinary course of business, it is not incumbent on the banker to show that the endorsement of the payee or any later endorsement was made by or under the authority of the person whose endorsement it purports to be, and the banker is deemed to have paid the bill in due course, even if such endorsement has been forged or made without authority. J25 Similarly, s. 2(1) of the Cheques Act, cited by counsel for the respondent, provides that where a banker in good faith and in the ordinary course of business pays a cheque drawn on him which is not endorsed or is irregularly endorsed, he does not, in (36) so doing, incur any liability by reason only of the absence of, or irregularity in, endorsement, and he is deemed to have paid it in due course. In this case, counsel for the appellant contended that the respondent acted in bad faith and, outside the ordinary course of duty, in paying out the money on the forged cheques since only 17 transactions out of 109 were backed by confirmation letters and the court relied on authorities whose facts were materially different from the case at the bar. On the other hand, the respondent bank argued that whilst not all the confirmation letters were produced, the letters were always availed to the bank and the cheques were paid out on the strength of those letters. In this connection the record shows that 103 forged cheques and 18 confirmation letters in Mtonga’s name were produced by the appellant at the trial; but that some 109 J26 cheques and confirmation letters were shown to the tellers who handled the appellant's banking account during the period of the forgeries. The reason given by the bank for not availing the rest of the confirmation letters is that they could not be found. (37) Truly, the evidence of Mr. Mwanalushi and Mr. Chabuka that confirmation letters were produced by Mtonga every time a cheque was presented for payment was never impugned by the appellant and the learned judge found as a fact that the letters were produced. It cannot be said, in view of such evidence, that the unavailability of 92 of the confirmation letters for production at the trial precluded a finding by the learned judge that the bank acted within the ordinary course of duty when it paid out the forged cheques to Mtonga. We agree with the appellant that the facts in Grindlays Bank International (Z) Ltd2 and the other cases applied by the learned judge are not on all fours with this case. Neither are the facts in London Joint Stock Bank4 and Uxbridge Permanent Benefit Building Society5 relied on by counsel for the appellant. Nevertheless, we find the argument by the appellant that the J27 bank made payment without confirmation letters in 92 instances out of 109 because only 17 of the confirmation letters were available for production unsupported by the evidence. There is nothing before us to prove that the bank failed to comply or adhere to specific instructions of the appellant. (38) It was also argued for the appellant that the bank acted in bad faith because there was no written authority or written introduction of Mtonga. In our view, as properly found by the learned judge, although there was no written authority or introduction of Mtonga to the respondent, the appellant did not dispute that Mtonga was introduced to the bank as the employee responsible for making deposits, withdrawals and collecting bank statements. Moreover, Mr. Dewan, the company’s Managing Director conceded that he was comfortable with that arrangement and, certainly, Mtonga performed that job. The learned authors of Bowstead and Reynolds on Agency, 19th Edition, 2010 at paragraph 8-013 state, that where a person, by words or conduct, represents or permits it to be represented that another person has authority to act on his J28 behalf, he is bound by the acts of that other person with respect to anyone dealing with him as an agent on the faith of any such representation, to the same extent as if such other person had the authority that he was represented to have, even though he had no such actual authority. (39) The learned authors further state at paragraph 8-063 that an act of an agent within the scope of his apparent authority does not cease to bind his principal merely because the agent was acting fraudulently and in furtherance of his own interests. In this case, we are convinced that Mtonga was clothed with actual and ostensible authority to transact business on the appellant’s accounts in the name of the company. The learned judge correctly found, even if there was no written authority or introduction, that Mtonga was the appellant’s authorised agent, and properly applied the principles enunciated in Grindlays Bank International (Z) Limited2 and Lloyd v Grade, Smith and CO3 even if the circumstances were different. It is also clear to us that the actual and ostensible authority of Mtonga was of a kind which in the ordinary course J29 of an everyday transaction was going to lead third persons, on the faith of that authority, to change their position. The appellant did not stop to be bound merely because there was no written authority or introduction of Mtonga or because Mtonga acted fraudulently. We come to the argument that the respondent should not have continued to pay Mtonga without making further inquiries. (40) There is a notion that a bank engaged in the business of depositing and paying out money on cheques is able to discover forgeries and to safeguard its customers’ money and that the bank holds out to the public that its employees and agents are skilled in all matters connected with, and relating to, its ability to detect and prevent forgery. Of course, we agree with the appellant that on the basis of Likman Gorman (a firm)7, Selangor United Rubber Estates Ltd8 and Karak Rubber Co. Ltd9, a banker must not continue to pay cheques without inquiry if a reasonable and honest banker with knowledge of the relevant facts would have considered that there was a serious or real possibility that the monies were being misappropriated. J30 But, as the learned trial judge rightly observed, in the past, a bank was expected to make inquiries in each case to ascertain the authenticity of endorsements made on a cheque, but in time it became necessary to extend protection to a banker to enable him carry on business without being inundated with actions by customers claiming to have been defrauded. (41) Thus, in the Indo Zambia Bank Limited1 case we said what is required of banks is not expert knowledge on detection of forgery, but a degree of knowledge ordinarily required for the discharge of their duties. That the need for a microscopic examination would only arise if there are circumstances which ought to put the bank on inquiry with regard to the authenticity of the cheques; though it would be negligent for any bank to honour a cheque if the circumstances are such that they ought to be put on inquiry. Consequently, the question is whether there was anything out of the ordinary to have aroused doubt in the minds of the bank employees to put them on their inquiry. As the learned J31 judge found Mtonga had over a period of 17 months perpetrated “a near perfect fraud” which could not be detected by the bank which applied the ordinary standard of verification expected of a bank; and the handwriting expert conceded that an ordinary person without specialised training could not have detected the forgeries. Moreover, during the respective periods in question, statements were sent back to the appellant but the latter did not notice any anomalies. In the final analysis the quality of the (42) forgeries was a question of fact for the judge to determine from the evidence before her, and apparently she was certain that the bank paid out in good faith and in the ordinary course of duty. Furthermore, as the cashing of the cheques was within the ostensible authority of Mtonga and all endorsements on the cheques appeared genuine to the bank officers, there was nothing out of the ordinary to put the bank on inquiry. We agree with counsel for the respondent that the learned judge had the advantage of seeing the witnesses and the opportunity to assess their demeanour and credibility, which J32 advantage we do not have, so we cannot lightly interfere with her findings of fact, without it been shown that she had fallen into error. In our firm view, the learned judge properly determined the issues which were in dispute and correctly made findings of fact based on the evidence before her. Therefore, we do not find any merit in the appellant’s argument that the findings of fact were perverse and must be reversed. Accordingly, we uphold the learned judge’s finding that the respondent did apply the ordinary standard of verification expected of a bank and that the appellant had not proved that (43) the respondent acted in bad faith and outside the ordinary course of its business in paying out on forged cheques. This also resolves ground 6 of this appeal which questioned the learned judge’s conclusion that it was not incumbent on the respondent to show that the endorsements on the cheques and confirmation letters were made by or under the authority of the person whose endorsements they purported to be and that the respondent was deemed to have paid the cheques in due course. J33 As we have already saids. 19 of the Stamp Act 1853 and S. 60 of the Bills of Exchange Act, 1882, and indeed, s. 2(1) of the Cheques Act, which we have quoted above, provide protection when the banker pays a forged cheque in good faith and in the ordinary course of business. In such case, it is not incumbent on the banker to show that the endorsement of the payee or any later endorsement was made by or under the authority of the person whose endorsement it purports to be. Therefore, grounds 2, 3 and 6 have no merit and equally fail. We now turn to grounds 4, 5 and 7 which we shall also consider together. As we already said grounds 4 and 5 alleged that the trial court erred when it upheld the respondent’s (44) arguments of estoppel whilst ground 7 questioned the finding that the forgeries were so good that even Mr. Dewan had difficulties distinguishing his own signature from the fake ones. There is no doubt that a bank is under a duty to its customer to use care in examining cheques presented, in order to detect forgeries, and to render its accounts to prevent the commission of frauds upon its customer. So, if a bank, in the exercise of proper care, could have discovered the forgery of a J34 customer's cheque, it cannot throw the loss caused by paying them upon the customer merely because the latter was negligent in failing to examine his statement of account, or returned cheques. The bank does not pay because previous forgeries were not reported to it, but it pays because on its own negligent inspection it supposed the cheques were genuine. However, while no amount of care on the part of the bank will excuse it from liability, it may justify the payment of a forged cheque on principles of estoppel, or on the basis of negligent or misleading conduct of the customer which directly or proximately caused the bank to pay (Bank of Zambia v Attorney General9). But the bank must show due diligence before it can assert such (45) defence. This is so because the whole doctrine of estoppel is a creation of equity and is governed by equitable principles. He who comes to equity must come with clean hands. We agree that in the Bank of Zambia9 case, we held that even gross carelessness by the customer in the care of its cheque forms and stamp is too remote to found a defence of estoppel on the basis of conduct inducing the bank to pay, and J35 that there is no obligation on a customer to examine the paid cheques returned to him by his bank in order to discover whether there has been a forgery. However, in this particular case, for a period of 17 months the appellant’s authorised agent had access to 109 cheques and made withdrawals from the company accounts and returned cheques and bank statements were availed to the company, but no issue was raised by the appellant! Admittedly, Mr. Dewan, who was in charge of the overall activities of the company, did not see or scrutinise any of the monthly bank statements that were collected by Mtonga, though he should have done so. He relied on reports from Mtonga, the same dishonest employee, even when there was someone senior to Mtonga in the accounts (46) department. In addition, no annual returns were prepared by the company and no tax was paid to the relevant authorities which could have alerted the company of the fraud. It is well settled that when the agent who is entrusted with the duty of examination is a dishonest employee who by forgery has obtained funds of his employer from the bank, and J36 whose consequent adverse interest causes him to hide from his employer the facts which would naturally have been disclosed in the course of a proper verification, the employer, though not imputed with knowledge of the fraud of his disloyal agent, is, as principal, chargeable with such information as an honest employee, unaware of the wrongdoing, would have acquired from the inspection of the cancelled cheques and bank statements. In our view, the customer has the duty of properly supervising the conduct of his trusted employee, for apart from its own diligence, a bank's only protection against forgeries by an agent to whom the business of the bank account has been entrusted is verification of statements by the customer, who in such case is clearly responsible for the acts and omissions of his agent in the course of duties with which he had entrusted him. (47) In this case, Mr. Dewan, in fact, conceded that the accounts department was negligent and that it took long to discover the fraud because everyone working under Mtonga was involved and the information was manipulated by Mtonga. J37 It is clear to us that there was no proper supervision of the appellant’s accounts department thus permitting the continuance of the forgeries, which otherwise would have been detected. We agree on the evidence, that all of the forged cheques were made to the order of the same payee, except for one which was in the appellant’s name. But these cheques were for different amounts and did not raise any suspicion that ought to have put the bank on inquiry. Furthermore, although Mtonga was not authorised to sign cheques, he had authority to cash cheques on the company’s behalf, and there was no evidence of any ceiling on the amounts he was allowed to cash or evidence that the bank had no mandate to honour cheques drawn in Mtonga’s name. Mr. Dewan testified that the cheques are bad forgeries, but the handwriting expert agreed that an ordinary person without specialised training could not have detected the forgeries. And apart from Mr. Mwanalushi’s evidence that signatures in A were (48) J38 similar to those in B, though the ones in B were not consistent, no other witness said by the exercise of proper care and skill the bank's employees could and should have discovered the forgeries. Further still, the learned judge made observations of fact based on the demeanour of Mr. Dewan when she said even he had difficulties distinguishing between his own signature and the forgeries at the trial. As we have already said, in the final analysis the quality of the forgeries was a question of fact for the judge to determine from the evidence before her. We are convinced that the undisputed facts in this case clearly establish that the appellant was negligent, not only in failing to exercise ordinary care and prudence in supervising Mtonga who was entrusted with the appellant’s banking business, but in failing to examine and verify the bank's monthly statements and returned cheques relative to the company’s books of account for such a long, long period of time. For the reasons already given, we are not persuaded by the appellant’s argument that the bank made payment without J39 confirmation letters in 92 instances out of 109, or that the bank deviated from the normal terms of the contract. (49) Neither are we persuaded that the respondent failed to exercise due diligence or that the alleged deviation precluded it from setting up estoppel as a defence. The learned judge was right to comment, as she did, that had the appellant been prudent in checking the statements and reconciling the counterfoils of the cheques with due diligence, and proper accounting system in its finance department, it could have discovered and prevented the fraud much earlier and that the appellant was precluded from setting up forgery. Without a doubt, the present case is distinguishable from the Bank of Zambia9 case and Barclays Bank of Zambia v Sky FM Limited4 because in this case, money was paid out with the ostensible authority of the agent for a period of 17 months and it was the negligent or misleading conduct of the appellant which directly or proximately caused the bank to pay and to continue paying Mtonga. Therefore, grounds 4, 5 and 7 must equally fail. J40 In view of all we have said, the appeal is dismissed with costs to the respondent to be taxed in default of agreement. (50) _________________________ L. P. CHIBESAKUNDA AG. CHIEF JUSTICE _________________________ M. LISIMBA AG. SUPREME COURT JUDGE ___________________________ R. M. C. KAOMA J41 AG. SUPREME COURT JUDGE