The appellant paid on a cheque purporting to have been drawn by the Ministry of Health but which, as was conceded, was forged. The appellant argued that the respondent was negligent in its care of its cheque forms and stamps and in failing to discover that money had been paid on a forged cheque and for either of those reasons was estopped from denying the genuineness of the cheque. The appellant argued also that there was no negligence on the part of the bank in paying on the forged cheque.
(i) The basis of a bank's liability where it has paid on a forged instrument is not negligence but because money has been paid away without the authority of the customer.
(ii) The absence of negligence on the part of a bank can at best only be relevant if a prima facie case of estoppel or adoption has been made out against the customer and the latter seeks to rely on negligence by the bank to meet such defence.
(iii) It is necessary to distinguish between conduct of a customer which induces his bank to pay on a forged instrument and conduct which prejudices the opportunity of the bank to recover the money so paid. In each case the conduct must be shown to be the proximate cause of the particular loss in respect of which estoppel is being set up.
(iv) Even gross carelessness by the customer in the care of its cheque forms and stamps is too remote to found a defence of estoppel on the basis of conduct inducing the bank to pay.
(v) There is no obligation on a customer to examine the paid cheques returned to him by his bank in order to discover whether there have been any forgeries.