Misc Application No. 77 of 2022
National Oil (T) Ltd (1st Plaintiff), an oil distribution company, held an account with EXIM Bank (T) Ltd (2nd Plaintiff). In April 2005 the 1st Plaintiff drew cheque No. 815213 for Tshs.175,809,754/= on EXIM Bank in favour of the Commissioner for Customs and Excise, to settle a tax obligation. The cheque was presented for clearance, processed through the Bank of Tanzania clearing house, and debited from the 1st Plaintiff's account. The Defendant, Standard Chartered Bank (T) Ltd, was the collecting bank shown on the clearance stamps. In July 2005 the Commissioner for Customs and Excise wrote demanding payment of the assessed tax, revealing that the proceeds had never reached the intended payee. Investigations suggested that a cheque bearing the identical number, bank code and amount, but purportedly drawn by a company called "Sky Oil Investments" in favour of "MGS International (T) Ltd", had been deposited with and cleared by the Defendant and credited to MGS International's account with the Defendant. The 1st Plaintiff's dispatch officer, who delivered the cheque to TRA, was later suspected and criminally charged (along with a TRA official) with forgery and conspiracy to defraud in relation to a forged TRA receipt. The Defendant denied ever receiving or endorsing the Plaintiffs' cheque, asserting it had processed an entirely separate cheque from Sky Oil Investments in favour of its own customer, MGS International. The Plaintiffs sued jointly for refund of the sum, general damages for conversion, interest and costs.
(i) Whether the 1st Plaintiff drew cheque No. 815213 for Tshs.175,809,754/= in favour of the Commissioner for Customs and Excise; (ii) who received the proceeds of the cheque; (iii) whether the account of MGS International (T) Ltd was credited with the proceeds; (iv) whether the Defendant stamped/endorsed the cheque for clearance; (v) whether the cheque allegedly drawn by Sky Oil Investments in favour of MGS International actually existed; (vi) whether the Defendant wrongfully converted the proceeds of the cheque drawn in favour of the Commissioner; (vii) whether the 1st Plaintiff handled the drawn and signed cheque negligently; and (viii) to what reliefs the parties were entitled.
For the Plaintiffs, Mr Lutema argued that the evidence of PW2 (EXIM Bank Manager) established that every cheque carries three unique identifying numbers (cheque number, bank code, and customer account number) which appeared identically on both the Plaintiffs' cheque (Exh.P1/P2) and the deposit slip relied on by the Defendant (Exh.D5), proving it was the same instrument fraudulently altered and diverted to MGS International. He contended the Defendant facilitated or was negligent in permitting the conversion by failing to run the cheque through the MICR security process, by accepting it without proper endorsement by its corporate customer, and by failing to retain a copy of the cheque supposedly deposited by Sky Oil — a lapse in prudent banking practice that shifted the burden of proof onto the Defendant. He submitted the Defendant and MGS International were complicit in a scheme of fraudulent conversion, evidenced by a similar pending case involving MGS. He denied any negligence by the 1st Plaintiff, attributing the loss to breach of trust by TRA/staff and the Defendant's own want of care.
For the Defendant, Mr Duncan argued that the cheque it processed was a genuinely different instrument drawn by Sky Oil Investments in favour of its bona fide customer MGS International, relying on the testimony of DW3, DW4 and DW5 and documentary exhibits (D5, D6), and highlighting discrepancies in stamps, teller codes and endorsement practices between Exh.P1 and Exh.D5. He submitted the Plaintiffs lacked any ownership or possessory interest in the cheque necessary to sue in conversion, since ownership would vest in the payee (the Commissioner) or, if forged, the drawer, relying on Commercial Banking Company of Sydney Ltd v Hanoi and Penmount Estates Ltd v National Provincial Bank as applied in Intercom Services Ltd v Standard Chartered Bank. He further argued the Defendant acted in good faith and without negligence, entitling it to statutory protection under section 85 of the Bills of Exchange Act, and that the true cause of loss was the gross negligence and possible complicity of the 1st Plaintiff's staff (PW4), who was facing criminal charges for forgery and conspiracy to defraud, invoking the maxim that no one may benefit from his own wrong.
The Court found in favour of the Plaintiffs on all issues except the seventh. It held: (i) the 1st Plaintiff did draw cheque No. 815213 for Tshs.175,809,754/= in favour of the Commissioner for Customs and Excise; (ii) and (iii) the proceeds were in fact received by and credited to MGS International (T) Ltd, since the identifying numbers on the cheque deposited via Exh.D5 matched those on the Plaintiffs' cheque, and Sky Oil had no account with EXIM Bank and thus could not have drawn a genuine cheque on it; (iv) the Defendant did stamp the Plaintiffs' cheque for clearance, the burden having shifted to the Defendant under section 115 of the Evidence Act to prove the existence of a separate Sky Oil cheque, a burden it failed to discharge by not producing a copy of that cheque or calling the relevant MICR/clearance staff; (v) the alleged Sky Oil cheque was found not to exist, as no independent evidence supported it; (vi) the Defendant wrongfully converted the cheque and its proceeds — applying principles of conversion and section 85 of the Bills of Exchange Act (paralleling section 4 of the English Cheques Act 1957 and Thackwell v Barclays Bank), the Court held the Defendant failed to show it acted in good faith and without negligence, given its failure to detect obvious irregularities (missing endorsement by MGS, inconsistent stamps, failure to use the MICR security process, failure to retain records), and that the Plaintiffs, as persons with an immediate right to reversionary possession of the cheque, were entitled to sue in conversion; (vii) the 1st Plaintiff was not negligent in handling the cheque — any negligence or fraud by its staff or TRA officials was not the proximate cause of the loss, applying the maxims that no wrongdoer may profit from his own wrong but a void transaction is not validated by lapse of time, and noting contributory negligence is no defence to an intentional tort (Quinn v Leathem). Judgment was entered for the Plaintiffs: refund of Tshs.175,809,754/=, general damages of Tshs.10,000,000/= for conversion, interest at 21% per annum from 16 May 2005 to judgment, court interest of 7% from judgment to payment, and costs.
The judgment reaffirms and applies the tort of conversion in the banking context, particularly the standard of 'good faith and without negligence' required of a collecting bank under section 85 of the Bills of Exchange Act (Cap 215) to obtain statutory protection against liability to the true owner of a cheque, drawing on comparative authority including the English Cheques Act 1957, Thackwell v Barclays Bank Plc, and Intercom Services Ltd v Standard Chartered Bank. It illustrates the evidentiary burden-shifting principle under section 115 of the Evidence Act where facts are peculiarly within a party's knowledge (here, the Defendant's alleged receipt of a different cheque), and underscores the importance of banking practices such as retaining copies/microfilms of processed cheques and using MICR verification, absence of which can constitute negligence and adverse inference. The case also clarifies who qualifies as an 'owner' entitled to sue in conversion where a cheque is fraudulently diverted, and confirms that contributory or antecedent negligence by a plaintiff does not bar recovery for an intentional tort such as fraudulent conversion, provided such negligence is not the proximate cause of the loss.
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