Bank must pay damages for 'bouncing' cheque

LAW REPORT 4 January 1996

Kpoharor v Woolwich Building Society; Court of Appeal (Lord Justice Evans, Lord Justice Waite and Sir John May); 30 November 1995

A person whose cheque was wrongly "bounced" by his bank was entitled to claim substantial damages for loss of business reputation without first having to prove actual damage, whether or not he was, or was known by the bank to be, a trader.

The Court of Appeal affirmed the assessment by Master Tennant, on 16 February 1994, of the damages payable by the defendant, Woolwich Building Society, in respect of its admitted liability for wrongful dishonour of a cheque drawn by the plaintiff, Udele Edirin Kpoharor.

The master awarded the plaintiff pounds 5,550 with interest as general damages for injury to his credit. Both the plaintiff's appeal, against the master's refusal to award him a much greater sum in special damages for resulting loss of profit, and the defendant's cross-appeal, against the award of anything other than nominal damages for loss of credit, were dismissed.

Daphne Loebl (Anthony Gold Lerman & Muirhead) for the plaintiff; Katherine McQuail (Woolwich Building Society) for the defendant.

Lord Justice Evans said the plaintiff was a Nigerian who had described himself as a self-employed "exporter/ importer" when opening his current account. On 9 September 1991 he drew a cheque for pounds 4,550 in favour of Phils (Wholesale) Ltd. The current balance was then about pounds 4,800. The cheque was presented for payment on 10 September at the payee's bankers with a request for special clearance. The defendant refused payment on the ground "Cheque reported lost". The defendant acknowledged the error later that day and gave the plaintiff a corporate cheque, which he took next morning to the payee, who then released a consignment of cosmetic goods which the plaintiff required for shipment to Nigeria.

The plaintiff claimed general damages for loss of business reputation and credit. He also claimed special damages amounting to pounds 57,185 in respect of a claim against him by the Nigerian company to whom the goods were to have been shipped, the loss due to selling the goods elsewhere at a loss, and various other losses of profit.

The defendant did not dispute the claim for loss of credit or business reputation, but said the amount should be nominal unless special facts were proved which had been made known to them when the contract was made. The plaintiff relied on a line of authority which held that actual damage need not be alleged or proved by "a trader". The defendant said it was unaware of this, and that for this reason alone the rule relied upon did not apply.

The rule as stated in Rolin v Steward (1854) 14 CB 595 at 607 made it necessary to consider in every case whether or not the plaintiff was a trader. But it was clear that history had changed the social factors which moulded the rule in the 19th century. It was not only tradesmen of whom it could be said that the refusal to meet his cheque was "so obviously injurious to his credit" that he should "recover, without allegation of special damage, reasonable compensation for the injury done to his credit" (see Wilson v United Counties Bank Ltd [1920] AC 102, per Lord Birkenhead LC).

The credit rating of individuals was as important for their personal transactions, including mortgages and hire purchase as well as banking facilities, as it was for those who were engaged in trade, and it was notorious that central registers were now kept.

What was in effect a presumption of some damage now arose in every case; and in his Lordship's judgment the authorities did not, as a matter of law, prevent such a presumption of fact extending beyond the category of trader.

As for the special damages claim, the damages arising from the loss or late performance of his contract to sell and deliver the goods to Nigeria could not reasonably be supposed to have been in the contemplation of both parties when the contract was made, and such damages were accordingly too remote to be claimed under this head.

Lord Justice Waite and Sir John May agreed.

Paul Magrath, Barrister