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Wednesday, 18 September 1985
Page: 723


Senator GARETH EVANS(6.50) —I move:

That the Bills be now read a second time.

I seek leave to incorporate the second reading speeches in Hansard.

Leave granted.

The speeches read as follows-

CHEQUES BILL

The purpose of the Bill I introduce today is to provide a separate law on cheques. The Government foreshadowed its intention to introduce this legislation when it released a draft Cheques Bill for public comment in February 1984.

The law on cheques is presently governed substantially by the Bills of Exchange Act 1909 which also regulates the law relating to other negotiable instruments such as bills of exchange and promissory notes.

Essentially, the Bill will revise the provisions of the Bills of Exchange Act applicable to cheques, effectively confining the operation of the Act to bills of exchange other than cheques. The Bill will also clarify the law on cheques in certain areas of existing uncertainty and make a number of substantive changes to that law. However, the new legislation will not alter the fundamental legal character of cheques. In conjunction with the present Bill, I will be introducing a Bill to amend the Bills of Exchange Act making certain changes to the Act that are largely consequential upon the introduction of the Cheques Bill.

Background

The Bills of Exchange Act is modelled on the United Kingdom Bills of Exchange Act of 1882. The only amendment of the Australian Bills of Exchange Act of any substance-made by the Bills of Exchange Amendment Act 1971-reduced the need for endorsement of order cheques lodged by payees with their banks for collection. Thus, the present law on cheques in Australia effectively dates back over 100 years.

Some of the more important changes the Bill will make to the law on cheques are based on recommendations of a committee, chaired by the late Mr Justice Manning of the New South Wales, Supreme Court, which reviewed the Bills of Exchange Act. The Manning Committee was appointed by the then Government in 1962 to examine, among other things, the provisions of the Act and to recommend any amendments to the Act it considered desirable. The most important recommendation of the Committee, which reported in 1964, was that there should be separate legislation dealing with cheques. This recommendation was based on the following factors:

Since the enactment of the Bills of Exchange Act, the use of cheques had increased enormously compared with other bills of exchange

considerable confusion and uncertainty had developed in relation to the law on cheques because that law and the law on other bills had become intertwined under the Bills of exchange Act

the law on cheques had assumed great importance to a large number of people, whereas the law relating to other bills of exchange was of significance to comparatively few people.

The Bill represents reform of a very technical area of the law. Possibly for this reason, previous governments did not accord its enactment a sufficiently high priority. It gives me considerable pleasure, therefore, to introduce this Bill today after many years of relative inactivity on the part of previous governments.

Public Consultation

Prior to the public exposure of the draft Bill from February to May 1984, discussions on the legislation were held over several years with the Australian Bankers Association, the Australian Merchant Bankers Association, the Commercial Law Association and the Law Council of Australia. In the pre-exposure period, comments were also sought from the States and the Northern Territory, as well as the Australian Association of Permanent Building Societies and the Australian Association of Credit Union Leagues, as well as the relevant trade union organisations.

The purpose of calling for comment was to give the public, including the general business community-the people who write and receive most cheques-the opportunity to participate in this important reform of the law. The public exposure period also gave the legal and banking professions, which had already been consulted, the chance to make further comments. A number of changes have been made to the exposure draft of the Bill in the light of submissions received and I will mention some of the more important changes shortly.

Implications of the Bill for the Domestic Payment System

It has been suggested at various times in the course of preparation of the Bill that it should perhaps be deferred until there has been a broader consideration of the payment system and its legislative framework. The proponents of this view have, essentially, two concerns.

The first concern is that any legislation that deals with an aspect of the payment system (such as the Cheques Bill) should regulate the rights and obligations of users and providers of electronic funds transfer systems. The second concern is that the formulation of the Bill should take account of any government decision on the access of non-bank financial institutions to the cheque clearing system.

Electronic Funds Transfer Systems

On 25 June 1984, the Treasurer announced the establishment of an inter-departmental working group to consider the consumer protection aspects of the development of electronic funds transfer systems in Australia and to advise whether supervisory arrangements (including legislation) are necessary. The Government considers that it would be premature to make any decision regarding legislation on EFTS until receipt of the Working Group's recommendations.

In any case, even if legislation on EFTS is recommended in the future, it can be expected to be considered separately from the cheques legislation. This Bill is concerned with the cheque as a negotiable instrument, whereas EFTS is, of course, a system for moving money by means of electronics. Two fundamentally different means of achieving a transfer of funds are therefore involved.

Access to the Cheque Processing System by Non-bank Financial Institutions

The Treasurer's Press release of 25 June 1984 also advised of the establishment of the Australian Payments System Council. One of the important matters referred by the Treasurer to the Council was the question of access by non-bank financial institutions to the cheque clearing system.

In the course of its deliberations, the Council examined existing commercial arrangements between certain banks and non-bank financial institutions whereby customers of non-bank financial institutions are able to issue cheques drawn on banks with whom the non-bank financial institutions have accounts. Several problems were identified with these arrangements in the context of the operation of the present law. I am pleased to be able to tell honourable senators that the Bill has been amended in several important respects to meet these problems. The Council has submitted its report to my colleague, the Treasurer, and consideration is currently being given to the need for further changes to be made to the Bill to confer certain protections and impose certain obligations on non-bank financial institutions along the lines of those applicable under the Bill to banks.

I stress that the provisions in the Bill which affect non-bank financial institutions in no way pre-empt any future decision that may be taken by the Government on the question of access by non-bank financial institutions to the cheque clearing system. Future decisions on the access question will be taken by the Government when the consideration of this matter has been finalised.

Vesting and Access of Paid Cheques

Clause 68 of the Bill makes provision with respect to how paid cheques are to be dealt with. The basic thrust of the clause is that, when a cheque is paid by the drawee bank, the drawee bank has the right to possession of the cheque. This approach basically follows that taken in the Bills of Exchange Act. However, this right that the drawee bank has will not disturb the common law principle that the ownership in a paid cheque vests in the drawer of the cheque. This common law rule is preserved by virtue of sub-clause 4 (2) of the Bill.

It has been proposed that the ownership of paid cheques should vest in the drawee bank. On the other hand, it has also been suggested by interest groups (notably local government associations) that cheques issued by such groups should be exempt from this requirement on the basis that those groups need to have access to their own cheques for audit purposes.

The Government has considered a submission from the Treasurer on certain recommendations of the Costigan Royal Commission relating, among other things, to banking controls, including those relating to the retention of banking records.

In response to this, a working group of officials was established from interested Departments and agencies under the chairmanship of a Treasury officer to consult, as necessary, with State authorities and the industry and to advise the Treasurer as to what action may be practical and appropriate with respect to those recommendations. The working group, which reported to my colleague, the Treasurer, in July this year, considered the question of the vesting and acces of paid cheques. The Government will be in a position to make a decision on the paid cheques issue when it has fully examined the working group's recommendations. The Government considers, therefore, that it would be premature to deal in the Bill with the question of access to, and vesting of, paid cheques other than by preserving the legal status that paid cheques currently enjoy. Again, I stress that the present provisions in no way pre-empt the Government's future consideration of this issue.

Changes Resulting from Exposure of Draft Bill

A number of changes have been made to the draft Bill following its exposure for public comment in February last year. Some of the more important of these changes are summarized as follows:

the insertion of sub-clause 6 (2) which ensures that certain rights and obligations under the Bill cannot be altered by agreement.

the deletion of certain provisions contained in the exposure draft of the Bill requiring a notice of dishonour to a drawer or indorser of a cheque before the drawer or indorser could be regarded as being liable on the cheque.

a general revision of the provisions in the Bill dealing with material alterations.

These, and other amendments to the Bill, reflect the Government's willingness to seek and, where appropriate, to accept suggestions for changes from interested bodies in the course of the finalization of the Bill. A comprehensive list of these changes is contained in an attachment to the Explanatory Memorandum on the Bill.

The Banker-Customer Relationship

The Bill does not deal in detail with the relationship between banker and customer. Although the release of the exposure draft of the Bill prompted some calls for comprehensive coverage of this subject in the Bill, it has been decided that codification of the common law is not at this point justified in this area. The Bill does, however, deal with the banker-customer relationship in certain limited respects. For example, the Bill imposes a duty on banks to present cheques promptly and to pay or dishonour cheques promptly. Banks will be liable to the holders of cheques for breach of this duty.

Content of Bill

Some of the more important features of the Bill which I will now outline represent, in my view, significant advances in the law on cheques.

Definition of `Bank'

The Bill departs from the approach of the Bills of Exchange Act in its definition of `bank' in sub-clause 3(1). In the Act, the defined term is `banker' and it includes any incorporated or unincorporated body which carries on the business of banking. Because the term `business of banking' is undefined, there is, in the Australian context, some uncertainty surrounding the proper interpretation of the word `banker'. This led to the possibility (recognized by some writers) that various corporations authorized under the Banking Act 1959 to carry on the business of banking would not be bankers for the purposes of the Bills of Exchange Act. Conversely, a person could be a banker for the purposes of that Act while carrying on business in contravention of the Banking Act.

The Bill seeks to overcome this problem by defining the term `bank' and limiting it to the Reserve Bank, banks within the meaning of the Banking Act, State banks and persons who carry on the business of banking outside Australia.

Alteration of Rights, Duties and Liabilities of Persons in Relation to Cheques

One of the most important provisions of the Bill is clause 6 which provides that, subject to certain specified exceptions, nothing in the Bill will prevent two or more persons from altering by agreement their rights, duties and liabilities in relation to one another under the Bill. An agreement between two parties cannot, of course, affect the rights, duties and liabilities of a third party.

But there are important exceptions to this general principle. The provisions of the Bill that may not be altered by agreement will ensure, in particular, that the crucial legal features of the concept of a cheque may not be altered.

Transferability of Cheques

One of the underlying philosophies of the Bill, which is reflected in clause 39, is that every cheque should be capable of being transferred by negotiation until it is discharged. This provision will have effect notwithstanding:

(a) any agreement between the parties to the cheque;

(b) anything on the face of the cheque, for example, words indicating an intention that the cheque not be transferred such as `pay X only'; and

(c) the crossing of the cheque.

Clause 39 changes the existing law in this area as section 13 of the Bills of Exchange Act makes it clear that a bill of exchange (which includes a cheque) may be made non-transferable.

The inclusion of this clause is considered desirable for the following reasons:

the holder of a cheque has always had the right to negotiate or transfer his cheque instead of paying it to the credit of his own account

crossed cheques are the medium used for making many types of payment

some people without such accounts find it convenient to cash cheques, for example, with shopkeepers or people who provide similar services.

The provision also gives effect to a recommendation of the Manning Committee.

Crossing of Cheques

The crossing of cheques will be simplified and standardized by clauses 53 to 57 of the Bill. Nothing on the face of a cheque will be effective as a crossing except:

(a) 2 parallel transverse lines; or

(b) 2 parallel transverse lines with the words `not negotiable' placed either completely or substantially between the lines.

Although crossings other than those just referred to will not be effective as crossings, this does not mean that a bank will be able to totally disregard a non-permissible crossing if the words of the crossing, either alone or in conjunction with other circumstances known to the bank, are sufficient to put the bank on inquiry. For example, the words `Account Payee Only' will not make a cheque non-transferable but a court might well hold that a collecting bank (not `drawee' bank as was inadvertently referred to in the Second Reading Speech of the Attorney-General) was negligent in not considering the implications of those words in paying a cheque to someone other than the original payee.

Truncation of Cheques

Probably the most significant feature of the Bill is the presentment provisions which will enable the `truncation' of cheques. Under sub-clause 62 (2), a bank will be able to present a cheque for payment by physically presenting the cheque or by employing any other means to effect presentment. There is no restriction on the `other means' that may be used for presentment. Thus, the demand could be made, for example, by exhibition of a facsimile copy of the cheque, transmission of a copy of the cheque or transmission of particulars of the cheque by electronic means. It is clearly desirable for the means that may be used to effect presentment to be left completely open in view of the advances in banking practice in recent times.

Although the collecting bank will be able to choose any means to effect presentment of a cheque, the means chosen by the bank will be one of a number of factors to be taken into account in determining whether it has fulfilled its duty under clause 66 to present the cheque `as soon as is reasonably practicable'.

Sub-clause 62 (3) of the Bill provides that, where the cheque is not delivered to the drawee bank, the demand for payment of the cheque will have to identify the cheque with reasonable certainty and be in a form that is intelligible to, or readily decipherable by, the drawee bank.

It will also be possible for a bank to designate, by notice published in the Gazette, a place for the purpose of presenting cheques or for the giving or receiving of further particulars to facilitate the payment of cheques.

The changes in the area of presentment of cheques have been made specifically to take account of developments in technology by en- abling cheques to be presented for payment by transmission of particulars without physical movement of the cheque itself. This method of `presentment by particulars' will speed up transactions and enable the faster clearance of cheques. Needless to say, this will provide benefits not only to banks but also to the general cheque-issuing public.

Dishonour of Cheques

The most significant aspect of the provisions in the Bill dealing with dishonour is that the drawee bank must pay or dishonour a cheque promptly. Sub-clause 67 (1) of the Bill imposes a duty on the drawee bank to either pay or dishonour a cheque presented to it `as soon as is reasonably practicable'. If it fails to do so, the bank may not dishonour the cheque and is liable to pay the amount of the cheque to the holder.

It has been decided not to impose an arbitrary standard time limit for the payment or dishonour of cheques, firstly, because such a limit may not always be appropriate in the future given technological developments in communication and, secondly, because arbitrary time limits could be too onerous in certain cases.

Material Alteration

The provisions in the Bill relating to the material alteration of cheques represent an important change of approach from the corresponding provisions of the Bills of Exchange Act.

Section 69 of the Act provides, among other things, that where a bill of exchange is materially altered without the assent of all parties liable on the bill, the bill is `avoided'. The section also specifies the instances where alterations will be regarded as `material'.

The problem with enumerating the circumstances in which an alteration of a cheque is to be regarded as material is that it is virtually impossible to provide an exhaustive list of these circumstances. Any such enumeration could, therefore, result in anomalies as it may be that, in a particular case, an alteration (such as that to the date of a cheque) should not be regarded as material.

Basically, an alteration will be material, under sub-clause 3 (8) of the Bill, if it has the effect of altering the rights, duties or liabilities of the drawer, indorser or drawee bank in respect of the cheque. This test is well supported by authority and it is considered that a general guiding principle in determining material alterations is preferrable to the enumeration of a miscellany of separate instances. The new test should also overcome difficulties that the present law produces and that have been evidenced by recent judicial decisions.

Standard of Care for Application of Protective Provisions to Paying Banks

At present, the Bills of Exchange Act, with one exception, requires a paying bank to act in `good faith and in the ordinary course of business' if it is to have the benefit of the protective provisions contained in the Act. The exception is section 86 which requires a bank to act in `good faith and without negligence' in the payment of crossed cheques.

The latter standard has been adopted in all the protective provisions contained in the Bill that apply to paying banks because the existing law has the effect that a drawee bank may act negligently so long as it is in the ordinary course of business to do so. It is clearly in accordance with the modern concept of `duty of care' that banks be required to act without negligence in all cases.

Other Significant Features of the Bill

There are several other features of the Bill which deserve brief mention:

sub-clause 3 (5) of the Bill will extend by three months the period during which the cheque operates as a valid mandate to the drawee bank. A cheque will now not become stale until fifteen months after the date upon which it is drawn

where a cheque inconsistently describes the sum ordered to be paid (because the words and figures used express different amounts) the cheque will be deemed to be an order to pay the smaller of the two sums mentioned. This is provided in clause 15. Previously, where the two differed, effect was given to the words expressing the sum to be paid and the figures were ignored

clause 16 of the Bill will clarify the status of post-dated cheques to ensure their validity as cheques where they meet all other necessary criteria. Under the Bills of Exchange Act, it was unclear whether a post-dated cheque was in fact a valid cheque

under clause 17 of the Bill, it will not be possible for the drawer to limit his liability on a cheque. In this respect, the Bill equates the drawer of a cheque with the acceptor of a bill of exchange and ensures the drawer's primary liability on the cheque

clause 5 will provide that, with certain specified exceptions, the provisions of the Bill apply to `bank cheques' and `bank drafts'

clause 98 will give legal effect to the established practice of affixing a signature on a cheque by stamp or by mechanical means

clause 91 of the Bill will provide that where a cheque is fraudulently altered so as to increase the amount of the cheque, the alteration is the only material alteration made fraudulently and the drawee bank pays the cheque in good faith and without negligence, the bank will be able to debit the drawer's account for the original amount of the cheque.

Financial Impact Statement

The Cheques Bill is concerned with the law relating to cheques. It will not provide for any additional powers and controls to be vested in any public official. The Bill will, therefore, have no impact on Government revenues.

I commend the Cheques Bill to the Senate.

BILLS OF EXCHANGE AMENDMENT BILL 1985

The purpose of the Bill I introduce today, in conjunction with the Cheques Bill 1985, is to amend the Bills of Exchange Act 1909.

The Bills of Exchange Act substantially governs the law in Australia relating to bills of exchange, including cheques and promissory notes. Upon enactment of the Cheques Bill, the law relating to cheques will be governed by that Bill. The Cheques Bill and the Bill to amend the Act will have the combined effect of confining the application of the Act to bills of exchange other than cheques.

This Bill to amend the Bills of Exchange Act will also revise certain provisions of the Act to either mirror similar provisions in the Cheques Bill or give effect to recommendations of the 1964 Manning Committee Report on the Act.

Content Of Bill

The more significant provisions of the Bill are as follows:

Act not to apply to cheques

The Bill will insert a provision into the Act to provide, in effect, that the Bills of Exchange Act will not apply to cheques drawn on or after the date of commencement of the Cheques Bill. However, the Bill will also provide that cheques drawn before that date will continue to be governed by the Act.

Clarification of Certain Expressions in Section 14 of the Act

To be a valid bill of exchange, a bill must, among other things, be expressed to be payable for a sum certain in money. The provisions of the Bills of Exchange Act which relate to what constitutes a `sum payable' and a `sum certain' by a bill of exchange will be expanded and clarified to accord with current commercial practice and to bring the provisions into line with the Cheques Bill. Thus, a bill of exchange will be valid even though it is expressed to be payable for an amount plus bank charges.

The possibility of an injustice being caused under the present provisions of the Act to a drawer of a bill of exchange who makes an error when writing in the sum payable will be removed by the insertion of a new provision which provides that, where more than one sum is expressed to be payable in a bill, the lesser or least of the amounts so specified will be taken to be the operative amount. This provision will mirror a provision in the Cheques Bill and give effect to a recommendation of the Manning Committee.

Extension of Time in Relation to Noting of Bills

In the case of certain bills of exchange, evidence may be required to indicate that notice of dishonour has been given in relation to the bill. This evidence is provided by noting or protesting the bill.

As the noting or protesting of a bill involves compliance with certain formalities and there are, as the Manning Committee noted, occasions when considerable technical difficulties have been experienced in complying with the relevant requirements, the time allowed for noting a bill will be extended from 24 to 48 hours after its dishonour. Moreover, a bill which has been returned by post dishonoured will be able to be protested not later than the next business day after the day of its return. These changes will introduce more flexibility in the noting and protesting of bills of exchange and, again, will give effect to a recommendation of the Manning Committee.

Expansion of Provisions Dealing with Replacement of Lost or Destroyed Bills

The provisions in the Bills of Exchange Act dealing with the replacement of lost or destroyed bills will be revised to bring them into line with the provisions in the Cheques Bill dealing with the replacement of lost or destroyed cheques. These changes will also give effect to a recommendation of the Manning Committee.

The current provisions in the Act authorise the person who was the holder of a bill which has been lost or destroyed before it is overdue to apply to the drawer to give him another bill of the same tenor. The holder may be required to give security to the drawer as an indemnity in case a lost bill is found. This provision was criticised by the Manning Committee on the basis that it did not give equivalent rights against the acceptor or any indorser of the bill. This defect has been rectified by a new provision to be inserted into the Act by the present Bill.

The new section will make detailed provision with respect to the method by which a request for a replacement bill may be made. Under the new provisions, the request must:

(i) be in the form of a notice in writing;

(ii) be served either personally or by post on the drawer;

(iii) clearly identify the original bill; and

(iv) contain sufficient information to enable the drawer to draw a new bill.

The new provision will also specify certain time limits within which a drawer will be required to provide a replacement bill. Similar time limits will apply to an acceptor or an indorser of a bill in relation to the acceptance or indorsement of the replacement bill.

Financial Impact Statement

The Bill will not provide for any additional powers and controls to be vested in any public official and will, therefore, have no impact on Government revenues. I commend the Bills of Exchange Amendment Bill to the Senate.

Debate (on motion by Senator Kilgariff) adjourned.