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We have all heard Federal Treasurer Jim Chalmer’s recent announcement that Australia is set to be a cheque-less society by the year 2030, but until then – what are your rights if you lose money due to cheque fraud and what obligation does a bank have to pay the money back, if at all?

We have recently had to consider this issue for a client and are now sharing this article to help others who may find themselves in this situation.

Cheque Forgery – what is it?

By way of context, cheque forgery occurs when a fake, forged or stolen cheque is used to pay for goods or services. Cheque forgery remains common in Australia. Some basic ways to protect yourself from cheque forge involve keeping all cheque books in a safe and secure location, protecting your identity documents which contain your signature, checking your statements regularly, and never sending digital images of your cheques etc.

Who Bears the Liability?

At the date of writing this article, there is little regulation bearing on this particular issue and the Commonwealth Cheques Act 1986 is of little assistance. Instead, the rights and obligations of persons involved in these matters can be found in the common law.

The liability of a bank in cases of cheque fraud was confirmed in the New South Wales Court of Appeal decision of National Australia Bank Limited v Hokit P/L and Ors [1996] 39 NSWLR 377 (Hokit). Clarke JA in Hokit summarised the overarching principle as follows at 397:

“[I]t is well settled that where a bank pays out money to a person who forges a customer’s authority or signature the loss, prima facie, falls upon the bank”.

However, the liability of a bank is by no means unqualified. A bank customer also has important duties to do the following:

  • Take usual and reasonable precautions in drawing a cheque to prevent a fraudulent alteration of it which may occasion loss to the banker; and
  • Inform the bank of any forgery as soon as the customer becomes aware of it.

In the event that you are a victim of cheque forgery, we recommend that you immediately notify the bank and make a formal complaint. If your complaint is not resolved promptly internally you may seek legal advice to further your case. This is something we can assist with at DMA. If a resolution is not possible, the matter may be referred to the Australian Financial Complaints Authority to be independently considered and mediated.

Key Takeaways

Considering the above, we recommend bank customers take care to ensure that their cheque books and identity documents are secured and to advise their bank as soon as possible if they notice any fraudulent activity.

If you find yourself needing assistance in relation to a banking dispute, please don’t hesitate to get in touch with our Dispute Resolution lawyers today who can provide you with confidential advice and representation if required.