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United Dominion Trust LTD V Kirkwood

Law of Contract (Presbyterian University College)

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UNITED DOMINION TRUST LTD. V KIRKWOOD [1966] 1 All ER 968

Categories: BANKING AND FINANCE

Court: COURT OF APPEAL

Lord(s): LORD DENNING MR, HARMAN AND DIPLOCK LJJ

Hearing Date(s): 6, 7, 8, 9 DECEMBER 1965, 24 FEBRUARY 1966

Bank – Business of banking – Characteristics of banking – Accepting money from customers –

Collecting and honouring cheques – Current accounts kept for customers – Reputation of
carrying on business of banking – Factor of reputation in determining whether a concern was
bona fide carrying on the business of banking – Money-lenders Act 1900(63 & 64 Vict c 5), s 6
(d).

Moneylender – Definition of moneylender – Exception of person carrying on the business of

banking – Effect of longstanding reputation as banker – Burden of proof – Money-lenders Act
1900(63 & 64 Vict c 5), s 6 (d).

The defendant was the indorser of five bills of exchange for £1,000 each drawn by the plaintiff
(UDT) in 1961 on L Ltd a motor trading company. The bills of exchange were the sole security
for a number of loans made by UDT to L Ltd by way of “stocking finance”, to enable L Ltd to
carry a stock of motor cars for sale, and they were accepted by L Ltd payable on demand. In
1963 L Ltd went into liquidation, the bills were dishonoured on presentation, and the defendant
received due notice of dishonour. UDT was not licensed to carry on business as moneylenders,
and conceded that, as it had for many years made loans to customers, unless it came within the
first limb of exception (d) to s 6a of the Money-lenders Act 1900, viz, that it was “bona fide
carrying on the business of banking”, it could not recover on the bills.

UDT was incorporated, under a former name, in 1922. From the beginning UDT described itself
as “bankers”, but the business that UDT conducted was hire-purchase finance. UDT developed a

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large business in which it accepted money on deposit and paid interest on it; the money was
received against deposit receipts, usually in sums ranging between £5,000 and £1,000,000 and
for definite periods of three, six or nine months. UDT also made loans of all kinds. These aspects
of UDT’s business were not, so the Court of Appeal found, banking business. UDT itself was not
a party to the modern type of hire-purchase contract, for which UDT used a subsidiary company.
This business included the discounting of promissory notes given to traders. The “stocking
finance” transaction consisted in the borrower drawing a bill of exchange in favour of UDT for
the amount of the proposed loan, receiving a cheque book, drawing cheques in the borrower’s
favour and paying the cheques into the borrower’s own bank account with a bank. The price on
sale on hire-purchase would be provided by such a cheque, terms being arranged with UDT’s
subsidiary for the hire-purchase transaction; UDT debited the cheque on its being cleared and

Page 969 of [1966] 1 All ER 968

shortly thereafter credited the amount to the account of the trader, having presumably debited
UDT’s subsidiary. Such accounts were, so the Court of Appeal found, not accounts in the course
of a banking business. There was evidence also that cheques were sometimes paid into some
traders’ current accounts and that, if a trader drew cheques drawn on UDT in favour of third
parties as payees, UDT would pay the cheques up to the amount to which the trader’s current
account was in credit, and was willing to collect on the trader’s behalf cheques drawn by third
parties in favour of the trader, debiting or crediting his current account accordingly. There was
not evidence to what extent this was done, save that so far as the evidence went, the extent was
small. UDT was, on the evidence of representatives of large joint stock banks, treated as bankers
for statutory purposes in UDT’s relationships with the banks. UDT was granted by the
Commissioners of Inland Revenue certain statutory facilities applicable only to banks carrying
on a bona fide banking business in the United Kingdom. UDT had not sought recognition from
the Board of Trade by certificate under the Companies Act 1948, Sch 8, para 23b.

Held – (i) in view of UDT’s admission that for many years past it had made loans to customers,
the opening words of s 6 of the Money-lenders Act 1900, were satisfied, and accordingly the
burden of proof that UDT was within the exception created by para (d) as “bona fide carrying on
the business of banking” was on UDT (see p 972, letters c and f, p 981, letter f, and cf p 985,
letter c, post).

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North Central Wagon Finance Co Ltd v Brailsford ([1962] 1 All ER 502) applied.

(ii) (per Lord Denning MR and Diplock LJ) characteristics usually found in a bankers’ business
at the present day were (a) to accept money from and to collect cheques for customers and to
place the cheques to the customers’ credit in a running account; (b) to honour cheques or orders
drawn on the bankers by their customers when presented for payment and to debit their
customers in the running account accordingly, and (c) to keep customers’ running accounts in
which credits and debits were entered (see p 975, letter h, and p 986, letter i, to p 987, letter a,
post; cf p 981, letter i, post).

Dictum of Atkin LJ in Joachimson v Swiss Bank Corpn ([1921] All ER Rep at p 100) and Bank
of Chettinad Ltd of Colombo v Income Tax Comr, Colombo ([1948] AC 378) considered

(iii) although UDT had not established that its business was, by reason of the course of its
business as distinct from its reputation, a real business of banking (see p 979, letter f, and p 983,
letter g, post; cf p 990, letters e and h, and p 991, letter g, post), yet (Harman LJ dissenting) UDT
had discharged the onus of proving that it was within para (d) of s 6 of the Act of 1900, for the
following reasons—

(a) because (per Lord Denning MR) of the long period of years in which UDT had been accepted
as having the status of bankers by the banking community and by government departments (see
p 980, letters d and h, and p 981, letter a, post), and

(b) because (per Diplock LJ) having regard to the evidence of reputation it was sufficiently
established, as between the parties to this case only, that more than a negligible number of
current accounts were in fact operated in a way in which on the evidence UDT would be willing
to operate them, viz, by paying cheques drawn by the trader in favour of third parties as payees
and by collecting cheques drawn by third parties in favour of the trader, such operation of current
accounts being business of banking (see p 990, letter h, p 990, letter i, to p 991, letter a, p 991,
letter h, and p 992, letters d and e, post).

Per Lord Denning MR: if any concern should wish to be regarded by

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the courts as bankers, it ought to ask the Board of Trade for a certificate that it should be treated
as bankers (see p 981, letter b, post).

Decision of Mocatta J ([1965] 2 All ER 992) affirmed on different grounds.

Notes

As to the nature of the business of banking, see 2 Halsbury’s Laws (3rd Edn) 150, 151, para 277,
in particular note (f). For cases on the subject, see 3 Digest (Repl) 175, 176, 279–288, *223–225.

As to what constitutes the business of moneylending, see 27 Halsbury’s Laws (3rd Edn) 18, 19,
para 27; and as to the exclusion from the statutory definition of moneylender of a person who
bona fide carries on the business of banking, see ibid, p 21, para 31.

For the Money-lenders Act 1900, s 6, see 16 Halsbury’s Statutes (2nd Edn) 375.

Cases referred to in judgments

Acceptance Co Ltd v Cutner (1964), unreported.

Bank of Chettinad Ltd of Colombo v Income Tax Comr, Colombo [1948] AC 378, [1948] LJR
1925, 28 Digest (Repl) 76, *215.

Bottomgate Industries Co-operative Society, Re (1891) 65 LT 712, 56 JP 216, 3 Digest (Repl)

167, 247.

Bridge v Campbell Discount Co Ltd [1962] 1 All ER 385, [1962] AC 600, [1962] 2 WLR 439, 4
Digest (Cont Vol A) 648, 39a.

Chow Yoong Hong v Choong Fah Rubber Manufactory [1961] 3 All ER 1163, [1962] AC 209,
[1962] 2 WLR 43, 35 Digest (Repl) 230, 329.

Continental Guarantee Corpn Ltd v Mercado (1924) unreported.

Davidson v Sinclair (1878) 3 App Cas 765.

Davies v Kennedy (1868) 3 Ir Eq 31, 17 WR 305, 3 Digest (Repl) 142, *1.

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District Savings Bank Ltd, Re, Ex p Coe (1861) 3 De G F & J 335, 31 LJ Bcy 8, 5 LT 566, 3
Digest (Repl) 142, 104.

Edgelow v MacElwee [1918] 1 KB 205, 87 LJKB 738, 118 LT 177, 35 Digest (Repl) 232, 333.

Gibson v Doeg (1857) 2 H & N 615, 27 LJEx 37, 30 LTOS 156, 21 JP 808, 157 ER 253, 17
Digest (Repl) 9, 66.

Joachimson v Swiss Bank Corpn [1921] All ER Rep 92, [1921] 3 KB 110, 90 LJKB 973, 125 LT
338, 3 Digest (Repl) 193, 376.

Koh Hor Khoon, Bankrupt (Official Assignee of the Property of) v Ek Liong Hin Ltd [1960] 1
All ER 440, [1960] AC 178, [1960] 2 WLR 250, 35 Digest (Repl) 231, *219.

Lewis v Rucker (1761) 2 Burr 1167, 97 ER 769, 29 Digest (Repl) 148, 867.

Litchfield v Dreyfus [1906] 1 KB 584, 75 LJKB 447, 35 Digest (Repl) 232, 330.

Lombard Banking Ltd v Central Garage & Engineering Co Ltd [1962] 2 All ER 949, [1963] 1
QB 220, [1962] 3 WLR 1199, Digest (Cont Vol A) 68, 1750a.

Nash v Layton [1911] 2 Ch 71, 80 LJCh 636, 104 LT 834, 18 Digest (Repl) 206, 1798.

North Central Wagon Finance Co Ltd v Brailsford [1962] 1 All ER 502, [1962] 1 WLR 1288,
Digest (Cont Vol A) 70, 86a.

Premor Ltd v Shaw Brothers [1964] 2 All ER 583, [1964] 1 WLR 978, 3rd Digest Supp.

Public Works Comrs v Angus & Co, Dalton v Angus & Co [1881–85] All ER Rep 1, (1881) 6
App Cas 740, 50 LJQB 689, 44 LT 844, 46 JP 132, 19 Digest (Repl) 6, 4.

R v Industrial Disputes Tribunal, Ex p East Anglian Trustee Savings Bank [1954] 2 All ER 730,
[1954] 1 WLR 1093, Digest (Cont Vol A) 476, 73a.

R v Sussex Justices (1862), 2 B & S 664, 121 ER 1218.

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Shields Estate, Re, Bank of Ireland (Governor & Co), Petitioners [1901] 1 IR 172, 35 ILT 3, 3
Digest (Repl) 176, *225.

State Savings Bank of Victoria Comrs v Permewan Wright & Co Ltd (1915), 19 CLR 457, VLR
81, 3 Digest (Repl) 176, *223.

Thansport and General Credit Corpn v Morgan [1939] 2 All ER 17, [1939] Ch 531, 108 LJCh
179, 160 LT 380, 35 Digest (Repl) 233, 336.

Appeal

This was an appeal by the defendant, L W Kirkwood, from the judgment of Mocatta J dated 15
June 1965, and reported [1965] 2 All ER 992, whereby it was adjudged that the defendant should
pay to the plaintiffs £5,507 10s 1d and costs as indorser of five bills of exchange which were
dishonoured.

Peter Foster QC and P A Ferns for the defendant.

Desmond Ackner QC and J M Rankin for the plaintiffs.

Cur adv vult

24 February 1966. The following judgments were delivered.

LORD DENNING MR. Lonsdale Motors Ltd is a private company which ran a garage business
in Carlisle. The defendant, Mr Kirkwood, was the managing director. He and his wife held all the
shares.

The plaintiff, United Dominions Trust Ltd is a large public company which describes itself as
“bankers” carrying on business at United Dominions House, Eastcheap in the City of London. It
is an important financial house. It lends big sums of money to various people. It has a high
standing and includes the Bank of England amongst its shareholders. I will call it “U.D. T”. It
also owns all the shares in a wholly-owned subsidiary called United Dominions Trust
(Commercial) Ltd which does a lot of financing of hire-purchase transactions. I will call it
“Commercial“. These two companies have branches in several towns in this country where a

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single branch manager acts on behalf of both companies from one single address. In Carlisle they
have such a branch.

In 1961, Lonsdale Motors Ltd desired to buy cars to put in their showroom for sale, but they had
not got the money for the purpose. So they went to the branch manager at Carlisle and borrowed
it from UDT. As security for repayment, they gave bills of exchange in favour of UDT. The
loans were called “stocking loans“. Lonsdale Motors Ltd also disposed of cars to customers who
wanted hire-purchase terms. They went again to the branch manager. He agreed to buy the cars
on behalf of Commercial and then Commercial let them out on hire purchase terms to the
customer. Lonsdale Motors Ltd invoiced the cars to Commercial and got cash for them.

This case arises out of stocking loans for £5,000. UDT lent £5,000 to Lonsdale Motors Ltd and
in return Lonsdale Motors Ltd accepted five bills of exchange, each for £1,000 drawn on them by
UDT. The defendant indorsed them. The bills were not met on presentation. UDT gave notice of
dishonour to the defendant. Lonsdale Motors Ltd went into liquidation. UDT now sue the
defendant as indorsee. He has no defence whatever except that he has raised the Money-lenders
Act 1900. He says that UDT are unregistered moneylenders and, therefore, cannot recover. UDT
say that they are not moneylenders, but bankers. That is the only alternative. UDT are either
moneylenders or bankers. There is no middle course. If they are bankers, they can recover the
£5,000 from the defendant. If they are moneylenders, they can recover nothing. In order to
determine this issue, I think it convenient to consider first the law.

Burden of Proof

Section 6 of the Money-lenders Act 1900, says that

“The expression ‘moneylender’ in this Act shall include every person whose business is that of
moneylending … but shall not include … (d) any person bona fide carrying on the business of
banking … ”

Page 972 of [1966] 1 All ER 968

The structure of the section clearly suggests that every person whose business is that of
moneylending is to be regarded as a moneylender unless he can bring himself within one of the
specified exceptions. It was so construed by Fletcher Moulton LJ in Nash v Layton ([1911] 2

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Ch 71 at p 79), who said that a judge would have to direct the jury that “they must find he is a
moneylender unless he came within one of the specified exceptions“. Similarly, McCardie J in
Edgelow v MacElwee ([1918] 1 KB 205 at p 206), said that if it appears that a

“business of moneylending is carried on, then the requirements of the definition in s. 6 of the Act
of 1900 are fulfilled and the question arises whether this falls within the exceptions indicated in
that section.”

Likewise Cairns J, in North Central Wagon Finance Co Ltd v Brailsford ([1962] 1 All ER 502 at
p 508), said that it was for the plaintiffs “to show that they fell within the exception in s 6(d) …
and they have not established this“. I am of the same opinion as those learned judges and hold
that once the opening words of s 6 are satisfied, the burden is on the person to bring himself
within the exception on which he relies. The facts are within the knowledge of the lender and not
the borrower, and he should prove them. He who affirms must prove.

In the present case the UDT sued as holders of five bills of exchange, each for £1,000. Once they
produced those bills of exchange, the legal burden passed to the defendant to prove that the UDT
were unregistered moneylenders. In order to discharge that burden, the defendant had to prove
that the business of UDT was that of moneylending. For this purpose the defendant proposed to
deliver the usual interrogatories in the form settled by Nash v Layton. But the UDT’s solicitor
avoided these interrogatories by making in a letter the admission that

“our clients have for many years past made and do make numerous loans of money to customers.
Such loans are made by our clients at varying rates of interest in the course of their business.”

That admission was sufficient proof that the UDT carried on the business of moneylending. The
burden then passed to the plaintiffs to prove that they came within exception (d), ie, that they
bona fide carried on the business of banking; and, as I read the judge’s judgment, they accepted
that burden. He says ([1965] 2 All ER 992 at p 995, letter e) that it was “admitted for the
plaintiffs that, unless they came within the first limb of exception (d), … they must fail in this
action“. In order to discharge the burden, the plaintiffs opened the case to the judge and called
witnesses. The question is: did their evidence discharge the burden of proof?

The Privilege of Bankers

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Bankers are a privileged class. They are exempt from the vexatious restrictions which are
imposed on other moneylenders. They are an exclusive circle to which entry is limited. It is
important that we should know what these privileges are; for we shall see that Parliament, when
granting them, has never defined who is a banker.

(i) Bankers are not compellable to produce their books in court, but may send copies. No
definition is given of “banker” save that it means any persons or company ”carrying on the
business of bankers”, see the Bankers’ Books Evidence Act 1879, and s 432 of the Companies
Act 1948.

(ii) Bankers are given special protection from liability when paying a crossed cheque to a banker;
or receiving payment of a crossed cheque for a customer; or paying a cheque that is not
endorsed. No difinition is given of banker save that it includes a body of persons, whether
incorporated or not, who carry on the business of banking; see s 2, s 79, s 80, s 82 of the Bills of
Exchange Act 1882, and the Cheques Act 1957.

Page 973 of [1966] 1 All ER 968

(iii) Bankers are given special exemption from stamp duty when giving drafts or orders for
payment from one banker to another. No definition is given of a “banker” save that it means “any
person carrying on the business of banking in the United Kingdom”; see the Stamp Act 1891,
s 29 and Sch 1, “Bill of Exchange”, exemption (2).

(iv) Bankers are given special exemption from registration under the Money-lenders Acts and
from all the stringent regulations affecting moneylenders and their contracts. No definition is
given of a banker save that it is “any person bona fide carrying on the business of banking”; see
the Money-lenders Acts 1900 and 1927. Parliament seems to think that it is possible for a
moneylender readily to know whether he is carrying on a banking business or not, because if a
moneylender publishes an advertisement implying that he is carrying on a banking business, he
is guilty of a criminal offence; see s 4 of the Money-lenders Act 1927. Yet Parliament does not
attempt to define what a banking business is.

(v) Trustees may, pending investment, pay any trust money into a “bank”; see s 11 of the Trustee
Act 1925, but the Act does not tell us what is a “bank“.

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(vi) A bank can advance money to a farmer and take a charge on all his stock and assets. No
definition is given of a bank save that it means any firm, incorporate company, or society
carrying on banking business and approved by the Ministry; see s 5(1), (7) of the Agricultural
Credits Act 1928.

(vii) The Bank of England can request information from bankers and make recommendations to
them. “Banker” is defined as meaning “any such person carrying on a banking undertaking as
may be declared by the Treasury to be a banker”; see s 4 of the Bank of England Act 1946.

(viii) A “company carrying on the business of bankers” which furnishes an annual return under
the Companies Act 1948, is exempt from old banking statutes, but no definition is given of the
“business of bankers”; see s 432 of the Companies Act 1948.

(ix) A banking or discount company has a special privilege in making up its balance sheet and
profit and loss account. It need not disclose a lot of matters which other concerns have to
disclose; see the Companies Act 1948, Sch 8, para 23. In that paragraph the expression “banking
or discount company” means any company which satisfies the Board of Trade that it ought to be
treated as a banking company or a discount company. Thus, the Board of Trade are made the
arbiters of the question without anything to guide them. They would welcome such guidance, for
in the Report of The Company Law Committee under the chairmanship of Lord Jenkinsc it is
said:

“The board have informed us that the exercise of this power has caused them much difficulty and
have asked us whether it would be possible to define ‘bank’ or ‘banking business’ in terms that
would make it unnecessary to vest this power in the Board. We do not think it would be possible.
Our impression is that the Board have carried out this duty very well … ”

see para 405 on p 157 of the report.

(x) Where an ordinary person borrows money from a “bank carrying on a bona fide banking
business” and pays interest in full on it to the bank without deducting tax, he can claim
repayment of the tax on it on a form known as R 62; see s 200(1) of the Income Tax Act 1952.
Here again there is no definition of what is a banking business.

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(xi) When a banker issues cheque forms to his customer, he may enter into an agreement with the
Revenue whereby he need not put a stamp on the form but only a printed indication of payment
of stamp duty: and then pay a composition fee to the Revenue. Here again there is no definition
of what is meant by a “banker”; see s 39 of the Finance Act 1956.

(xii) A banking company has a special privilege too, in that it can issue an advertisement inviting
the public to deposit money with it, and can refer in

Page 974 of [1966] 1 All ER 968

that advertisement to the fact that it is a banker and is carrying on a banking business: but most
other people are forbidden to issue any advertisement inviting deposits and are liable to a penalty
if they imply that they are carrying on a banking business; see the Protection of Depositors Act
1963, s 2, s 25(2), and the Protection of Depositors (Exempted Advertisements) Regulations
1963 (SI 1963, No 1398), reg 9, made thereunder. Again, there is no definition of a banking
company. We are thrown back to the Companies Act 1948, Sch 8, para 23. It is any company
which satisfies the Board of Trade that it ought to be treated as a banking company.

UDT enjoys many of those twelve privileges, but not all of them. It has not claimed the
privileges in paragraphs (ix) or (xii). It has never sought to satisfy the Board of Trade that it
ought to be treated as a banking company. It says that it does not want those privileges; but I
must say that if it had satisfied the Board of Trade that it was bankers, it would have been of
great help. The Board of Trade is a department to which Parliament has specifically entrusted the
task of saying whether a company is to be treated as a banking company or not. Lord
Jenkins’ Committee paid tribute to the excellent way the Board of Trade have carried out their
duty; but the Board of Trade has not pronounced on the position of UDT.

So one sees that Parliament has conferred many privileges on “banks” and “bankers”, but it has
never defined what is a “bank” and who is a “banker“. It has said many times that a banker is a
person who carries on “the business of banking”, but it has never told us what is the business of
banking. It has imposed penalties on persons who describe themselves as a “bank” or “bankers”
when they are not, but it has never told us how to decide whether or not they are bankers.

The Characteristics of Banking

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Seeing that there is no statutory definition of banking, one must do the best one can to find out
the usual characteristics which go to make up the business of banking. In the eighteenth century
before cheques came into common use, the principal characteristics were that the banker
accepted the money of others on the terms that the persons who depositd it could have it back
again from the banker when they asked for it, sometimes on demand, at other times on notice,
according to the stipulation made at the time of deposit; and meanwhile the banker was at liberty
to make use of the money by lending it out at interest or investing it on mortgage or otherwise.
Thus, Dr Johnson in 1755 in his dictionary defined a “bank” as a “place where money is laid up
to be called for occasionally” and a “banker” as “one that traffics in money, one that keeps or
manages a bank“. Those characteristics continued for a long time to dominate thought on the
subject. Thus, in 1914 Isaacs J in the High Court of Australia said that

“the essential characteristics of the business of banking may be described as the collection of
money by receiving deposits on loan, repayable when and as expressly or impliedly agreed upon,
and the utilisation of the money so collected by lending it again in such sums as are required,”

see State Savings Bank of Victoria Comrs v Permewan Wright & Co Ltd ((1915), 19 CLR 457 at
471). You notice that those characteristics do not mention the use of cheques, or the keeping of
current accounts. Accordingly, you find in the courts cases in which a company was held to carry
on the business of banking even though it issued no cheques and kept no current accounts but
only issued deposit receipts, repayable on notice (see Re Shields Estate, Bank of Ireland
(Governor & Co) Petitioners); or only kept deposit accounts from which the depositors could
withdraw their money on demand or on notice, this being on production of a passbook, not by
cheque—see Re Bottomgate Industrial Co-operative Society;

Page 975 of [1966] 1 All ER 968

State Savings Bank of Victoria Comrs v Permewan. If that were still the law, it would mean that
the building societies were all bankers.

The march of time has taken us far beyond those cases of fifty years ago. Money is now paid and
received by cheque to such an extent that no person can be considered a banker unless he handles
cheques as freely as cash. A customer nowadays who wishes to pay money into his bank takes
with him his cash and the cheques, crossed and uncrossed, payable to him. Whereas in the old

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days it was a characteristic of a banker that he should receive money for deposit, it is nowadays a
characteristic that he should receive cheques for collection on behalf of his customer. How
otherwise is the customer to pay his money into the bank? It is the only practicable means,
particularly in the case of crossed cheques. Next, when a customer wishes to withdraw the
money which he has deposited or to pay his creditors with it, he does it in most cases by drawing
a cheque on the bank. Occasionally he does it by a draft on the bank or a written order. Whereas
in the old days he might withdraw it on production of a passbook and no cheque, it is nowadays a
characteristic of a bank that the customer should be able to withdraw it by cheque, draft or order.
This view has gradually gained acceptance; see Re District Savings Bank Ltd Ex p Coe ((1861),
3 De G F & J 335 at p 338) by Turner LJ Re Shields Estates ([1901] 1 IR at p 195) by Lord
Ashbourne.

In 1924 Atkin LJ gave a modern picture of a characteristic banking account in Joachimson v

Swiss Bank Corpn ([1921] All ER Rep 92 at p 100; [1921] 3 KB 110 at p 127):

“The bank undertakes to receive money and to collect bills for its customer’s account. The
proceeds so received are not to be held in trust for the customer, but the bank borrows the
proceeds and undertakes to repay them. The promise to repay is to repay at the branch of the
bank where the account is kept, and during banking hours. It includes a promise to repay any part
of the amount due against the written order of the customer addressed to the bank at the branch
… bankers never do make a payment to a customer in respect of a current account except upon
demand.”

This was followed in 1948 by the Bank of Chettinad Ltd of Colombo v Income Tax Comr,
Colombo, where the Privy Council accepted the Ceylon description of a “banking company” as

“a company which carries on as its principal business the accepting of deposits of money on
current account or otherwise, subject to withdrawal by cheque, draft or order.”

And now the Shorter Oxford Dictionary gives the meaning of a “bank” in modern use as:

“An establishment for the custody of money received from, or on behalf of, its customers. Its
essential duty is to pay their drafts on it: its profits arise from the use of money left unemployed
by them.”

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There are, therefore, two characteristics usually found in bankers today: (i) they accept money
from, and collect cheques for, their customers and place them to their credit; (ii) they honour
cheques or orders drawn on them by their customers when presented for payment and debit their
customers accordingly. These two characteristics carry with them also a third, namely, (iii) they
keep current accounts, or something of that nature, in their books in which the credits and debits
are entered.

Those three characteristics are much the same as those stated in Paget’s Law of Banking (6th
Edn) (1961), p 8:

“No-one and nobody, corporate or otherwise, can be a ‘banker’ who does not (i) take current
accounts; (ii) pay cheques drawn on himself; (iii) collect cheques for his customers.”

Page 976 of [1966] 1 All ER 968

The Facts of this Case

Turning now to the facts of this case, we have to inquire into the nature of the business of UDT
to see if it has the usual characteristics of banking. UDT gave to the judge below ([1965] 2 All
ER at p 997) a history of its business. It was one of the pioneers of hire-purchase finance in this
country. It came over from the United States in 1919 as the agents of the Continental Guarantee
Corporation which described itself as a banking business. But in 1922 it became incorporated in
this country under the name of Continental Guarantee Corporation Ltd a name which was three
years later changed to United Dominions Trust Ltd From the beginning the English company
described itself as bankers, just as the American corporation had done. But the business which
UDT conducted was hire-purchase finance. Mr Garrett, a director since 1923, gave in evidence
the stages in the development of the business.

UDT’s business of Hire-Purchase Finance

In the early days UDT conducted its business in this way. It got into touch with a dealer who
wished to sell goods to a customer, but the customer could not pay the whole price cash down.
He desired credit. UDT provided the answer. The dealer let the goods to his customer on hire-
purchase terms. The customer accepted bills of exchange for the instalments payable under the
hire-purchase agreement to the dealer—a separate bill of exchange for each instalment. The

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dealer discounted these bills with UDT and endorsed the bills to UDT. The dealer also assigned
to UDT the benefit of the hire-purchase agreement. Thus UDT became entitled to the instalments
from the customer and could sue him on the bills for these instalments; see Continental
Guarantee Corpn Ltd v Mercado. UDT could also sue the dealer as indorsee. UDT had also the
security of the goods. When sued on the bills the customer might, however, have the same
defence as if he were sued for the instalments on the hire-purchase agreement; see Acceptance
Co Ltd v Cutner. I do not regard that business as banking business. It was simply hire-purchase
finance.

It was cumbrous, however, to have a separate bill of exchange for each instalment. So after a few
years the system was modified. Instead of numerous bills of exchange, the customer gave to the
dealer a promissory note for all the instalments to become due under the hire-purchase
agreement. Under this promissory note the instalments were payable at the office of UDT. The
dealer endorsed the promissory note in blank and discounted it with UDT. He also assigned to
UDT the benefit of the hire-purchase agreement. Thus UDT could sue the customer and the
dealer on the promissory note, and it also had the security of the goods. The system is still used
by UDT on a considerable scale. UDT supply the dealer with printed forms. The dealer fills them
in and gets the purchaser to sign them. The system does not involve the lending of money at all.
UDT simply discount the promissory note. The discounting of bills is a well known form of
finance and is quite distinct from moneylending; see Chow Yoong Hong v Choong Fah Rubber
Manufactory. It is also quite distinct from banking. I do not regard this sytem as banking. It again
is only hire-purchase finance.

The modern system was introduced some years later by rivals of UDT. It is this. The dealer
invoices the goods to the finance house. The finance house pays the dealer the cash price. The
finance house then lets the goods to the customer on hire-purchase terms. In this system the
finance house holds neither bills nor promissory note. It can sue the customer for the instalments
due under the hire-purchase agreement, but it cannot sue the dealer unless it takes a recourse
agreement from him. This system, once introduced, soon became popular. It was held not to be
moneylending; see Transport and General Credit Corpn v Morgan ([1939] 2 All ER 17 at p 27;
[1939] Ch 531 at p 549); Bridge v Campbell Discount Co Ltd ([1962] 1 All ER 385 at p 398;
[1962] AC 600 at p 627). UDT did not think

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Page 977 of [1966] 1 All ER 968

that it was able itself to undertake transactions of this kind, because it regarded itself as bankers.
So it used a wholly-owned subsidiary for the purpose. This subsidiary was called United
Dominions Trust (Commercial) Commercial undertakes the modern system on a large scale. It
buys goods from the dealers and lets them out to the customer on hire-purchase. It does a great
deal more business on this system than does UDT on its system of discounting promissory notes.
Again it is not banking. It is hire-purchase finance.

Many finance houses also make “stocking loans” to dealers. UDT does so. It lends money to a
dealer so as to enable the dealer to buy new cars to put in his showroom. The method first
adopted by UDT was this. The manufacturer let the cars to the dealer on hire-purchase terms and
took from him a bill of exchange which the manufacturer then discounted with UDlT. That
method has lapsed. Nowadays UDT makes a simple loan to the dealer and takes from him a bill
of exchange payable to UDT. Most other finance houses who do hire-purchase business make
these stocking loans, taking a bill of exchange payable to their order; see, for instance, Lombard
Banking Ltd v Central Garage & Engineering Co Ltd.

The making of stocking loans does not make the finance house a “moenylender” within the Acts
provided that the loans are made in the course of the hire-purchase business and for the purposes
of it, for the loans then come within the second part of s 6(2)(d) of the Act of 1900; see Official
Assignee of the Property of Koh Hor Khoon, Bankrupt v Ek Liong Hin Ltd. If the loans are,
however, not linked with any hire-purchase transactions, but are a separate and independent
business, the finance house (unless it is a banker) becomes a moneylender within the Acts; see
Premor Ltd v Shaw Brothers. The finance house must then either be registered under the Money-
lenders Acts or obtain from the Board of Trade exemption from registration, as a well known
finance house, the North Central Wagon Finance Co has done; see North Central Wagon Finance
Co Ltd v Brailsford. I need hardly say that the lending of money for stocking loans or for any
other purpose does not make the finance house a banker.

So much for the business of UDT in hire-purchase finance. It does not make UDT bankers. A
finance house cannot claim to be a banker simply because it conducts hire-purchase finance,
even though it does it by means of discounting bills or promissory notes.

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UDT’s Business of Accepting Deposits

In the course of time UDT has developed a large business in which it accepts sums of money on
“deposit” and pays interest on it. They are loans made to UDT chiefly by big institutions in the
City or by trustees, and repayable at a fixed time, three, six or nine months, with interest. The
lenders are given deposit receipts and get their money back, with interest, at the end of the
agreed term: but it may be renewed for a further term. Those deposits are not the sort of deposit
accounts which are characteristic of bankers. They are not repayable on notice, in whole or in
part. They are short term investments. Bankers may on occasion accept deposits of this kind, but
they do not become bankers on that account.

UDT’s Business of Loans

UDT makes loans of all kinds. Apart from stocking loans it makes industrial loans, loans against
invoices which traders have issued for goods, bridging finance, loans for house purchase or
improvements, engineering finance, and so forth. These loans do not make it a banker. Quite the
contrary. They make it a moneylender, unless for some other reason it can show that it is a
banker.

Page 978 of [1966] 1 All ER 968

UDT’s Current Accounts

UDT keeps what it calls current accounts. These were described by Mr Garrett, a director who
had been with UDT for over forty years. When he gave his evidence-in-chief he stated that UDT
had current accounts, in number 1,450; of which 1,360 were accounts of traders who had been
doing hire-purchase finance with them, and ninety were non-traders; but he gave no evidence of
the nature of those accounts. In cross-examination he said that the ninety non-traders included
the subsidiary companies of UDT and himself. Those ninety were not relied on to show that
UDT was a banker. He said that the 1,360 traders were people who came to them usually for the
financing of their hire-purchase business. He did not produce any of these traders’ accounts, but
the defendant had a copy of the account of Lonsdale Motors Ltd. Mr Garrett said that there were
very many like them. It is fair, therefore, to examine this account and see whether it is a current
account which is characteristic of a banker.

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Lonsdale Motors Ltd were garage proprietors in Carlisle. Their ordinary bankers were
Westminster Bank Ltd Carlisle, where they had an ordinary current account. Their account with
UDT falls into two groups. I will give examples: (i) Stocking loans. Lonsdale Motors Ltd wanted
a loan of £2,000 to enable them to buy cars to put in their showroom; in short, as their stock-in-
trade. They went to the branch manager of UDT at Carlisle and asked for the loan. He agreed to
it and got them to accept a bill of exchange in favour of UDT for £2,000. The branch manager
then handed them a cheque book. It contained twenty-four forms of the kind usually issued by
bankers headed “United Dominions Trust, Ltd. Bankers” and with a printed indication “Stamp
duty paid“. The branch manager told them that, in return for the bill of exchange, they coud draw
a cheque in the book in their own favour for £2,000. Thereupon Lonsdale Motors Ltd drew a
cheque on one of the cheque forms for £2,000 payable to Lonsdale Motors Ltd and signed by
Lonsdale Motors Ltd. They paid that cheque into their own bank, Westminster Bank, Carlisle,
who presented it through the London Clearing House to UDT and it was paid. UDT debited
Lonsdale Motors Ltd in the “current account” with £2,000. A few days later the bill of exchange
arrived in London. Thereupon UDT entered a credit in the account in favour of Lonsdale Motors
Ltd for £2,000. It had in fact received no money from Lonsdale Motors Ltd with which to make
the credit. It had received only the bill of exchange. Nothing else appeared in the so-called
“current account” relating to this transaction. No interest. No charges. Simply a debit of £2,000
followed a few days later with a credit of £2,000. The same process was gone through with all
the stocking loans—and they were many—in the account. Lonsdale Motors Ltd had of course to
pay interest on the loan, but that was not debited in the current account. It was paid by Lonsdale
Motors Ltd by their own cheque on the Westminster Bank, Carlisle.

(ii) Price of Goods on Hire-Purchase: Lonsdale Motors Ltd wanted to sell a second-hand car to a
customer on hire-purchase. They went to the branch manager of UDT at Carlisle, who was also
the branch manager of the subsidiary company, Commercial. Terms were arranged under which
Commercial were to buy the car from Lonsdale Motors Ltd for £270 and then let it on hire-
purchase to the customer. The branch manager told Lonsdale Motors Ltd that they could get
payment by drawing a cheque on UDT. So Lonsdale Motors Ltd filled in a cheque form for £270
payable to Lonsdale Motors and signed by Lonsdale Motors Ltd. They paid that cheque into their
own bank, Westminster Bank, Carlisle, who presented it through the London Clearing House,
and it was paid. Thereupon UDT debited Lonsdale Motors Ltd in the “current account” with

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£270. The next day, however, UDT credited Lonsdale Motors Ltd in the “current account” with
£270. UDT had received in fact no money with which to make the credit. We were not told how
UDT managed it, but presumably it debited Commercial in a separate account with £270 and
charged

Page 979 of [1966] 1 All ER 968

them interest thereon. All that appeared in the so-called “current account” was a debit of £270,
followed next day by a credit of £270. There are some items in which the credit appeared a day
or two before the debit, but that was presumably because the head office of Commercial
authorised the transaction a few days before Lonsdale Motors drew their cheque for the price.
The same process was gone through for all the cars bought on hire-purchase. All the items in the
“current account” were either stocking loans or the price of cars bought on hire-purchase. I do
not regard that account as a current account which is characteristic of a banker. The customer
never paid a penny into this account. The only person who paid money into the account was
UDT itself: and it did that in order to pay its customer specific sums of money. It might just as
well have paid the customer by a cheque drawn on an ordinary banker; and the customer never
paid in any cheques for collection. There is not a single instance in Lonsdale Motors Ltd’s
account in which UDT collected a cheque for Lonsdale Motors Ltd. Lonsdale Motors Ltd got
Westminster Bank Ltd to collect all their cheques for them. Their bankers were not UDT, but the
Westminster bank.

Apart from Lonsdale Motors Ltd’s account, there was little evidence of the nature of the
accounts. Mr Garrett was asked:

“Q.—Do the persons who have current accounts for trading purposes as a general rule pay
cheques into these accounts for clearance by you? A.—To a small extent that is so, yes. Q.—You
mean anybody who has not another current account? A.—I am afraid I cannot answer that
precisely. Q.—You say ‘To a small extent’. Is it possible to get any idea of the figures from these
1,360 traders’ accounts of the number of cheques you collect for them? A.—I am sorry; I could
not give you a figure on that. Q.—You do agree that it is small? A.—I would say so, yes.”

Such accounts do not seem to me to be the sort of current accounts which are characteristic of a
banking business.

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Long Acceptance as Bankers

Thus far the evidence adduced by UDT would not suffice to show that it has the usual
characteristics of bankers; but it must be remembered that a recital of usual characteristics is not
equivalent to a definition. The usual characteristics are not the sole characteristics. There are
other characteristics which go to make a banker. In particular stability, soundness and probity.
Parliament would not dream of granting the special privileges of a banker to a ramshackle
concern which had no reserves or whose methods were dubious. Like many other beings, a
banker is easier to recognise than to define. In case of doubt, it is I think permissible to look at
the reputation of the firm amongst ordinary intelligent commercial men. If they recognise it as
carrying on the business of banking, that should turn the scale. Here it is that UDT comes out
well. It has for many years been accepted in the most responsible quarters as being a banker.
There was impressive evidence from four of the big five banks that they regarded UDT as a
bank; and that UDT was generally regarded in the City of London as a bank. These bankers
accorded to UDT all the privileges of being a banker. They paid crossed cheques presented by
UDT. They gave it clearance house facilities. They answered references regarding customers,
and such like. The Inland Revenue have treated UDT as a banker. They have allowed them the
use of R 62 forms for repayment of tax: and also to print on their cheques the statement “Duty
paid“. Chartered accountants advising trustees have treated UDT as a banker and have deposited
money with them on that footing.

This reputation was a major factor with the witnesses. One of them, Mr B L Cripps of Barclays,
was asked:

“Q.—Suppose that U.D.T. had no current accounts at all but apart from that did everything that it
does now, would you still regard it as a bank?

Page 980 of [1966] 1 All ER 968

A—I think I would, because it does take deposits. It is so very difficult to describe what is a
bank. I think that is it true to say that no statute has ever said precisely what a bank is, and I think
that the matter of reputation has to come into it when one decides what is and what is not a bank.
Reputation is, I think, a most important point.”

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Now, just as M Jourdain for forty years spoke prose without knowing it, so I think that Mr
Cripps then spoke law without knowing it. Reputation may exclude a person from being a
banker: so also it may make him one. Our commercial law has been founded on the opinion of
merchants. Lord Mansfield CJ himself used to have his own special jurymen of the City of
London who sat regularly with him. He took their opinion as to what was the practice, and laid
down the law accordingly; see, for instance, Lewis v Rucker ((1761), 2 Burr 1167 at pp 1168,
1169, 1172), and Campbell, Lives of The Chief Justices, ii p 407. I would follow his example. In
such a matter as this, when Parliament has given no guidance, we cannot do better than look at
the reputation of the concern amongst intelligent men of commerce.

This reputation has, moreover, formed the basis of practice which we should not disturb. When
merchants have established a course of business which is running smoothly and well with no
inconvenience or injustice, it is not for the judges to put a spoke in the wheel and bring it to a
halt. Even if someone is able to point to a flaw, the courts should not seize on it so as to
invalidate past transactions or produce confusion. So you will find it said from the time of Lord
Coke, that the law so favours the public good that it will in some cases permit a common error to
pass for right; see the 4th Institute, p 240. Communis error facit jus, that is to say, when business
has been regulated on the faith of it and the position of parties altered in consequence (Lord
Blackburn on several occasions so said); see R v Sussex Justices ((1862), 2 B & S 664 at p 680);
Davidson v Sinclair ((1878), 3 App Cas 765 at p 788); Public Works Comrs v Angus & Co,
Dalton v Angus & Co ([1881–85] All ER Rep 1 at p 18; (1881), 6 App Cas 740 at p 812). This
applies with especial force to commercial practice. When it has grown up and become
established, the courts will overlook suggested defects and support it rather than throw it down.
Thus it will enforce commercial credits rather than hold them bad for want of consideration. It is
a maxim of English law to give effect to everything which appears to have been established for a
considerable course of time and to presume that what has been done was done of right, and not in
wrong; see Gibson v Doeg ((1857), 2 H & N 615 at p 623). This maxim is of particular force
here where innumerable transactions have been effected on the faith of UDT being bankers.
UDT has itself made loans of millions of pounds which are recoverable if its claim to be bankers
is correct: but irrecoverable if it is not. Are we to throw all these over? It has described itself on
all its documents and cheques as “bankers” and continues so to do; but if it is not a banker, it is
guilty of a criminal offence for each document it so issues. Is it to be suggested that UDT should

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be prosecuted now? Thousands of its customers have claimed repayment of tax on form R 62 on
the basis that it was a banker and the Revenue have paid. Has all this been unlawful? Are all its
transactions to be thrown into confusion by the suggestion now made for the first time that it is
an unregistered moneylender? Rather than come to any such conclusion, we should presume that
UDT has done whatever is necessary to constitute it a banker.

Conclusion

The ultimate question is: is UDT to be classed as a banker and accorded the privileges attaching
to that status, or is it to be classed as an unregistered moneylender and treated as an outlaw
unable to recover the debts due to it? UDT is not the sort of person against whom the Money-
lenders Acts were directed.

Page 981 of [1966] 1 All ER 968

It is not rapacious, extortionate or unmerciful. It is sensible, moderate and reasonable. It conducts

its business in as honourable a manner as any banker or discount house: and its activities include
many activities similar to theirs. In view of the long period of time in which UDT has been
accepted as a banker, I would hold it to be such and not a moneylender.

One final word. It is very desirable that the public should be able to distinguish between bankers
and moneylenders. UDT has only succeeded in this case because of their reputation and standing
in the City of London as bankers. If any other concern should wish to be regarded by the courts
as bankers, they ought to ask the Board of Trade for a certificate that they should be treated as
bankers. The Board of Trade carry out this statutory task well. Lord Jenkins’ committee said so.
And we have, I hope, given to the Board of Trade the guidance which they sought on the law. In
the absence of such a certificate a person who carries on the business of lending money may
hereafter find himself classed as a moneylender and not as a banker. Thus, in the shape of these
certificates we shall have a register of bankers; and people will know where they stand.

I would dismiss this appeal.

HARMAN LJ. The only point on this appeal, and indeed the only one in the court below, can be
shortly stated in the form of question and answer: Q—When is a moneylender not a
moneylender? A—When he is a banker.

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Now a moneylender is described in the Money-lenders Act 1900, as including “every person
whose business is that of moneylending” and that is admittedly the principal business of United
Dominions Trust Ltd, the plaintiffs. That, as Farwell J observed many years ago (Litchfield v
Dreyfus ([1906] 1 KB 584 at p 590)) is a perfectly respectable trade, but the legislature has
thought fit to enact that he who carries it on must be registered as such. Section 6 of the Act of
1900 which defines moneylenders makes certain exceptions. Relevant here is s 6(d)—“any
person bona fide carrying on the business of banking“. The defendant’s only defence to the
plaintiff’s (“U.D.T.’s”) claim, by the time when the action came to trial on the bills here sued on,
was that UDT was a moneylender and, therefore, having regard to s 6 of the Money-lenders Act
1927, could not enforce its rights—not a point which fills me with admiration. UDT on its part,
in order to avoid the wide disclosure which discovery on this point would entail, admitted that
unless it could bring itself within the exception as being a banker, the defence must succeed. It
seems to me, therefore, contrary to the view of the learned judge below, that the burden was on
UDT to prove that it did bona fide carry on the business of banking and this in fact it set out to
do and proved it to the satisfaction of the judge. It relied on two matters: first, the course of its
business, and, secondly, its reputation. On the question of onus; see North Central Wagon
Finance Co Ltd v Brailsford ([1962] 1 All ER at pp 507, 508).

It is notoriously difficult to define the business of banking and no statute has attempted it.
Perhaps the best is that stated in the Privy Council case of Bank of Chettinad Ltd of Colombo v
Income Tax Comr, Colombo ([1948] AC at p 383). The definition there stated as applying in
Ceylon is said in the judgment of the Board to conflict in no way with the meaning attached to
the word “banking” in England in 1932, which I think has not changed today. The definition is

“a company which carries on as its principal business the accepting of deposits of money on
current account or otherwise subject to withdrawal by cheque, draft or order.”

All the witnesses called on UDT’s behalf agreed that the keeping of what they called “current
accounts” was an essential part of a banker’s business. This involved, according to all the
banking witnesses, the collection of customers’ cheques. By a cross notice of appeal UDT sought
to establish that current account keeping was not essential, and this I suppose was based on the
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Page 982 of [1966] 1 All ER 968

decision of State Savings Bank of Victoria Comrs v Permewan Wright & Co Ltd, where I see in
the headnote the following:

“The essential characteristics of the business of banking are the collection of money by receiving
deposits upon loan repayable when and as expressly or impliedly agree upon, and the utilisation
of the money so collected by lending it again in such sums as are required. In order to bring a
banker within the provisions of the Bills of Exchange Act, 1909 and the Instruments Act, 1890, it
is not necessary that he should as part of his business collect cheques for his customers and pay
their cheques.”

I think that the collection of cheques is in English practice, at any rate in recent times, an
additional requirement. This would suggest that the maintenance of deposit accounts is enough,
and so it may perhaps be if by deposit accounts is meant the keeping of accounts in which money
is deposited by the customer subject to withdrawal on the agreed notice, whether seven days or
longer. This is in fact a form of current account. Now it is to be observed that UDT keeps no
such accounts. Large sums of money are deposited with UDT, but this is money for repayment at
stated times, three months, six months, and so on, and not on notice at all. All the depositor gets
is a deposit receipt. There is no pass book, nor cheque book, nor any account showing interest
credited and sums withdrawn. These are merely in my view moneys invested on short term
loans. If this sort of transaction constituted a banker, the building societies would be bankers,
which admittedly they are not.

There being then no deposit accounts in the relevant sense of that term, there remain only what
UDT styled “current accounts”, of which there were some 1,450, all of them except about ninety
being what were called “traders’ accounts“. We were only shown one of these accounts, that
with Lonsdale Motors Ltd themselves, but this was said to be a characteristic trader’s account.
No example or even description of the ninety so-called private accounts was furnished to us,
though the great majority would appear to be kept with subsidiaries.

I turn then to examine Lonsdale Motors Ltd’s so-called current account. This turns out to be as
unlike the ordinary man’s idea of a current account as it is possible to conceive. The first entry
after 4s for a cheque book is a debit of £2,000 on 11 November 1960. This we are told was a

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mere loan transaction and was one of the so-called stocking loans, that is to say, loans made to a
motor trader to enable him to buy cars to put in his showroom. This loan, we are told, had been
negotiated by the local manager at Carlisle and the cheque was drawn with his assent. The
account, therefore, starts in debit and this is not at all characteristic of a current account. In recent
years, however, the big banks have started a system of personal loan accounts which do start in
debit, but not in a debit secured by bills drawn on the customer, as was the case here. Next came
two credits, £105 and £260, described as “credit notes“. These, we are told, are credits to the
dealer resulting from transactions with UDT’s wholly owned subsidiary (hereafter called
“Commercial”) and represent the purchase price of cars bought by Commercial from the
defendants with a view to a hiring by that company to a member of the public. We were not told
what arrangement was made between Commercial and the UDT which resulted in these credits
being given. Next on 18 November comes a credit note for £2,000 against two of the bills sued
on, that being the arrangement already agreed when Lonsdale Motors Ltd were allowed to
withdraw the like sum as they had already done. It is most unusual for a customer of a bank to
secure his overdraft by bills. The account proceeds on these lines and consists on the one side
entirely of moneys credited to Lonsdale Motors by UDT as stocking loans or by payment
through Commercial, being money owed by that company for the purchase of Lonsdale Motors
Ltd’s cars with a view to them being let out on hire-purchase. The

Page 983 of [1966] 1 All ER 968

drawings on the other side are entirely cheques drawn by Londale Motors Ltd to themselves.
There are no outside transactions at all. All of the cheques drawn by Lonsdale Motors Ltd are
cheques drawn to themselves which were lodged with their regular bankers for collection and all
the cheques and credit notes in favour of Lonsdale Motors Ltd emanated from UDT or
Commercial. Not a single cheque is collected for a customer; not a single bill is paid by a
customer through the bank; no interest is credited on the bills, although these carried interest and
with insignificant exceptions moneys paid in are drawn out by cheques of the same amount
within a day or so. There is not a single payment in by Lonsdale Motors Ltd as customers. The
last entries are a credit note of £340 lodged through Commercial on 31 July 1961, and withdrawn
the same day, leaving a balance overdrawn of £1 8s.

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Now it is true that it is not necessary, though it is usual, that a current account should be used for
the customer’s general purposes. He may keep an account for a special purpose and feed it from
a special source. Bankers have such accounts but they also have current accounts of a more
general kind and in particular they collect their customers’ cheques and pay moneys to outsiders
on their behalf. It seems to me that nowadays when payment by cheque has become the
recognised way of discharging day to day debts that the collection of cheques on a customer’s
behalf is as essential a part of the service provided by a banker as is receipt of cash from the
customer. This account was merely a vehicle for providing Lonsdale Motors with money either
by way of loan from the parent company or by way of payment for cars sold by them to
Commercial. It was said by Mr Garrett that this was typical of all the other traders’ accounts and
we must take it, therefore, for the purposes of this action that that is the only sort of account kept
with the exception of the ninety private accounts already mentioned. We were not told how these
accounts were operated, nor of what they consisted. Mr Garrett indeed said that traders or others
having current accounts could use them for ordinary purposes and that cheques could be
collected if desired, but not a single example was given to us and indeed Mr Garrett admitted that
transactions of that sort were very few.

When asked what advantage accrued to the trader from an account of this sort, Mr Garrett said
that is was speed. The trader with a current account at a branch could draw at once against
credits without waiting for authority from London. I am unable to understand why the branch
manager, who could authorise the cashing of a cheque without waiting for London authority,
could not equally pay the customer direct.

In my judgment, therefore, the documents produced and the evidence of Mr Garrett are not
sufficient to satisfy the onus of proof that UDT is bona fide carrying on the business of banking.
The expression “bona fide” does not in my judgment point to the honesty or otherwise of the
transactions, nor is it necessary to say that the business done was a facade or a cloak for the
moneylending activities. Neither point was taken in this court. Nevertheless it is proper to give a
meaning to the words and they mean, I think, that a real business of banking is being carried on.
In my judgment business carried on by taking term deposits and running “current” accounts of
the sort I have described does not amount to a real business of banking.

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UDT relied also on its reputation and called impressive evidence to show that it was regarded by
the big five bankes, by the Board of Trade and by the Inland Revenue Commissioners as being a
banker. It had a clearing house number and various bankers’ privileges, for instance, that of
compounding for the stamp duty on its cheques. I confess to having been impressed by this
evidence: it was said in a dissenting judgment in Davies v Kennedy, that a banker is one who is
considered in commercial circles to be one, but on the whole I have come to the conclusion that
reputation alone is not enough. There must be some performance behind it. The other bankers,
seeing UDT’s cheques in circulation

Page 984 of [1966] 1 All ER 968

through the clearing office, did not have any call to enquire into the nature of the business being
done as we have had to do and I reluctantly conclude that on the evidence at present before us,
this defence succeeds and that the appeal ought to be allowed accordingly. I regret to find myself
unable to subscribe to the views expressed by Lord Denning MR on this topic. His judgment
seems to me to prove that UDT is not a banker.

There remains, however, the fact that UDT is apparently reputed in commercial and financial
circles as being a banker. It has for many years enjoyed that reputation and its accompanying
privileges and has styled itself bankers. If it is not so, it has been committing a criminal offence
and the very large amounts owing to it are all irrecoverable in law. I cannot conceal from myself
the serious consequences of my decision on a concern of the highest repute and undoubted
probity. It has seemed to me that UDT might well be in a position by the introduction of more
adequate evidence to prove its case, and this course is open to it in another action. At one time I
was minded to give them a further opportunity in this action by ordering a new trial. The
defendants’ case is wholly without merit and it may be that this provision of the Money-lenders
Act 1900, may be unsuited to modern conditions of trade. On reflection I think that this course is
not open to us in the absence of any reference to it in the notice of appeal or at the hearing.

DIPLOCK LJ. The plaintiff, whom I call “U. D. T.”, lends money on a gigantic scale. Its
reputation in the City is of the highest. No one suggests that the rates of interest that it charges
are excessive or its terms oppressive. I am quite prepared to accept that in an expanding
economy, it performs a useful function in extending credit to traders and to others. But size,

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respectability and economic usefulness have nothing to do with the question which we have to
decide on this appeal. At the turn of the century when currency was stable, thrift a virtue and
when accepted economic doctrines and business methods were very different from those of
today, Parliament enacted by the Money-lenders Act 1900, that moneylenders, however large or
small, however respectable or disreputable, however, benevolent or extortionate, must comply
with certan conditions or suffer the disability of being unable to recover from their debtors the
moneys that they had lent. Though circumstances have changed, Parliament has not changed the
law. Even if we regard it, as I do, as out of date, it is our duty to apply it. It is not within our
power to amend it or to exempt UDT from its provisions. Such an exempting power the Act of
1900 itself confided to the Board of Trade and not to the courts.

UDT, although it could have done so, has not sought exemption from the Board of Tade. It
asserts that it is bona fide carrying on the business of banking and is, therefore, not a
“moneylender” within the meaning of the Act of 1900. It has been lending money in the course
of its business for many years. It has been treated as if it were a banker by government
departments and by commercial men, including those who indisputably are themselves bankers.
To hold that all these have been mistaken throughout the years, is not a decision which a court
should reach lightly.

But this in my view is not an issue on which communis error jus facere potest. Evidence that a
company is generally regarded by commercial men and bankers as being itself a banker is some
evidence that it is carrying on the business of banking. If supported by even slight evidence of
some banking transactions which it carries out, it may be sufficient proof that in law it is a
banker. If there is actual evidence, however, of the business which it does carry on and relies on
as constituting the business of banking and the court is driven to the conclusion that this, at any
rate, is not banking business, the court cannot abdicate its duty so to decide because commercial
men and bankers, however numerous or influential, have thought it to be a banker on whatever
information may have been available to them. Bankers earn their living by using other people’s
money—by lending

Page 985 of [1966] 1 All ER 968

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it at interest with or without security, by investing it, by discounting bills of exchange and in
many other ways. In so far as they lend money in the course of their business, bankers carry on
the business of moneylending, and would be “moneylenders” within the meaning of the Money-
lenders Act 1900, were it not for the provisions of para (d) of s 6 of the Act of 1900.

UDT concedes that it makes numerous loans to borrowers in the course of its business and the
evidence discloses that this constitutes the major part of its business. The bills of exchange, on
which in this action it sues the defendant as indorsee, were drawn by UDT and accepted by
Lonsdale Motors Ltd as consideration for a loan by UDT to enable Lonsdale Motors Ltd to buy
motor vehicles for re-sale. UDT makes many such loans, known as “stocking loans”, to motor
dealers. UDT is indisputably a “moneylender” unless bona fide carrying on the business of
banking, and for that reason excluded from the definition of “moneylenders” in the Act of 1900.

The first question is: where does the onus of proof lie? In the first instance it lies on the
defendant who asserts that the plaintiff is a moneylender. Once it is proved, however, or, as in
this case, conceded that UDT habitually lends money in the course of his business, in my view
the onus shifts and it is for the plaintiff to prove that he falls within one or other of the categories
specified in para (a) to para (e) of s 6 of the Money-lenders Act 1900. UDT claims to fall within
the category specified in para (d) as being a “person bona fide carrying on the business of
banking“.

It has been contended that because s 6 does not expressly take the form of a general definition of
moneylender followed by specific exceptions or provisos, but containes one main description of
persons who are included in the expression “moneylender” and five separate descriptions of
persons who are not included in that expression, the onus throughout lies on the defendant to
prove not only that UDT falls within the main description of persons included in the expression,
but also that he does not fall within any of the separate descriptions of persons who are not so
included. For my part I do not think that there is any significance in this particular phraseology.
The categories of persons stated not to be included in the expression “moneylender” do not
embrace all persons who are not moneylenders, they do not purport to deal with the butcher, the
baker, the candlestick-maker. What is common to each of the categories of persons specified in
paras (a) to (e) of the section is that but for their express exclusion they would have fallen within
the main description as persons included within the expression “moneylender“. This is simply an

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alternative way of drafting a general definition subject to exceptions. Onus of proof in English
law follows common sense, not magic, and I have no doubt that it lies on UDT to prove that it is
bona fide carrying on the business of banking.

The second question is: what are the essential characteristics of the business of banking? Apart
from exemption from the requirements of the Moneylenders Acts, the statute law recognises a
number of immunities and privileges peculiar to bankers. Under the Bills of Exchange Act 1882,
“cheques” are defined as bills of exchange drawn on a banker payable on demand, and by s 70(2)
and s 80 special liabilities are imposed on one banker who pays a crossed cheque otherwise than
to another banker and special immunities on one banker who pays a crossed cheque to another
banker. Bankers are entitled to exemption from stamp duty on drafts used for clearing accounts
between bankers under exemption (2) to head “Bill of Exchange” in Sch 1 to the Stamp Act
1891. Under s 39 of the Finance Act 1956, bankers can make arrangements with the Inland
Revenue for composition of stamp duty on their cheques. Under s 200 of the Income Tax Act
1952, bankers may issue certificates entitling customers to obtain repayment of income tax on
interest paid gross on loans and overdrafts. It is thus surprising that there is no recent
authoritative decision of the English courts on what constitutes the business of banking.

Page 986 of [1966] 1 All ER 968

It was pointed out by the Privy Council in Bank of Chettinad Ltd of Colombo v Income Tax
Comr, Colombo that the words “banking” and “banker” may bear different shades of meaning at
different periods of history. Definitions and dicta in cases before the First World War, before
cheques became the common method of payment, must I think be approached with caution and
so must cases decided in other countries. In 1901 in the Irish case of Re Shields Estate, Bank of
Ireland (Governor & Co), Petitioners ([1901] 1 IR at p 182), Holmes J said:

“The real business of the banker is to obtain deposits of money which he may use for his own
profit by lending it out again.”

This was cited with approval in a dictum of Lord Goddard CJ in R v Industrial Disputes
Tribunal, Ex p East Anglian Trustee Savings Bank ([1954] 2 All ER 730 at p 732), a case in
which he also cited the definition given by A L Smith J in Re Bottomgate Industrial Co-operative
Society ((1891), 65 LT at p 714), of the business of the banker as

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“receiving money on deposit, allowing the same to be drawn against as and when the depositor
desires and paying interest on the amounts standing on deposit.”

Holmes J in Re Shields ([1901] 1 IR at p 182) and Isaacs J in the Australian case of State
Savings Bank of Victoria Comrs v Permewan Wright & Co Ltd ((1915), 19 CLR at p 471),
already cited by Lord Denning MR, in my view adopted definitions of banking which it may be
are too wide for the present day. In the Bank of Chettinad case, the Privy Council accepted as in
no way conflicting with the meaning attached to the word “bank” in England in 1932 the
definition in the Ceylon Companies Ordinance 1938, of a banking company as one which

“carries on as its principal business the accepting of deposits of money on current account or
otherwise, subject to withdrawal by cheque, draft or order.”

None of these decisions, save those of Holmes J and Isaacs J, refers to the ways in which a
banker makes a profit out of his business. What makes a person a banker is not what be does
with the money of which he obtains the use, as for instance by lending it at interest (as
mentioned by Holmes J and Isaacs J), by investing it, by discounting bills, etc, but the terms on
which he obtains from other persons, his banking customers, loans of money which he can use as
he thinks fit. What I think is common to all modern definitions and essential to the carrying on of
the business of banking is that the banker should accept from his customers loans of money on
“deposit”, that is to say, loans for an indefinite period on running account, repayable as to the
whole or any part thereof on demand by the customer either without notice or on an agreed
period of notice. Some verbal confusion and perhaps some misunderstanding of the less recent
judgments may arise from the fact that an account kept by a banker of his customer’s loans made
without interest and repayable on demand, is nowadays generally called a “current account”,
while the account kept of his customer’s loans made at interest and repayable only on notice is
generally known as a “deposit account“. Accounts of both these types, however possess the
essential characteristics of running accounts of “deposits” of money by the customer.

Accordingly it is, in my view, essential to the business of banking that a banker should accept
money from his customers on a running account into which sums of money are from time to time
paid by the customer and from time to time withdrawn by him by cheque, draft or order. I am
inclined to agree with Lord Denning MR and the author of the current edition of Paget on

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Banking (6th Edn) that to constitute the business of banking today the banker must also
undertake to pay cheques drawn on himself (the banker) by his customers in

Page 987 of [1966] 1 All ER 968

favour of third parties up to the amount standing to their credit in their “current accounts” and to
collect cheques for his customers and credit the proceeds to their current accounts. This view of
the essential characteristics of the business of banking today is supported by the evidence of the
witnesses who were unquestionably bankers who gave expert evidence in the present case. For
reasons which will appear, however, I do not find it necessary to decide whether it is still
possible to carry on the business of banking without undertaking the payment of cheques drawn
on the customer’s account (which in itself also entails a right in the customer to withdraw
moneys from the account on demand without prior notice) and/or the collection of cheques for
the customers (which in itself also entails the acceptance by the banker of payment of moneys
into the account by his customer). The real question in this case is whether on the evidence UDT
has proved that it accepts to any significant extent “deposits” of money from customers on
running account at all.

What it does with the money which it obtains from persons dealing with it is in my view
immaterial to the question whether it is bona fide carrying on the business of banking. In the
main it lends it out at interest. This is what makes it a moneylender unless it can prove that it is
carrying on the business of banking. It does not assist in proving that it is carrying on the
business of banking.

The third question is whether the evidence in this case is sufficient to satisfy the onus which lies
on UDT of proving that it was at the material time in 1961 a “person bona fide carrying on the
business of banking“. It is to be observed that in contrast to the second limb of para (d) of s 6 of
the Money-lenders Act 1900, that for a person to fall within this description, banking need not be
the primary object of the business carried on by him. He may carry on a composite business of
which the accepting of deposits of money from customers on running account may be only a
minor part. As the evidence shows, this is the case today with many “merchant bankers” and
with some discount houses who also carry on a banking business. I would also accept that his
motives for carrying on the business of banking are immaterial. His motive in doing so may be

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no more than to secure exemption from the Money-lenders Acts for other and more profitable
parts of his business. The requirement that his carrying on of the business of banking must be
bona fide does, however, I think, involve two requirements. The first is that the banking
transactions which he carries out in the course of his business must not be negligible in size and
number when compared with the rest of his business. The second is that the transactions relied
on as constituting the accepting of deposits of money from customers on running account must
be genuinely of this legal nature and not a mere disguise for transactions of a different legal
nature. The court must look to the true nature of the transactions, not merely to their form.

All the evidence at the trial was called by UDT. The defendant called none. The only evidence as
to the banking business actually carried on by UDT was given by Mr Garrett. In examination-in-
chief he did little more than describe the history of UDT and its main business activities, viz,
lending money and discounting bills of exchange and promissory notes, and prove that UDT
issue cheque books and was treated in the City as if it was a banker. It was only under cross-
examination that it emerged what were the kinds of transactions which UDT relied on as
constituting the carrying on by it of the business of banking. His evidence on this, the crucial
point in the case, was vague and uninformative. The remainder of UDT’s evidence, apart from
expert opinion as to what is considered in the commercial world as constituting the business of
banking today, did little more than confirm that UDT is accepted as being “bankers” by the “big
five”, whose own status as bankers is beyond doubt, and by government departments.

It emerged in the cross-examination of Mr Garrett that the transactions on which UDT relied as
constituting the bona fide carrying on of the business of banking were those recorded in the so-
called “current accounts” kept in

Page 988 of [1966] 1 All ER 968

their books in the names of individual traders, and loans to UDT mainly by large institutions in
the City in respect of which it issued “deposit receipts” and which were loosely referred to as
“deposit accounts“. The “deposit accounts” can be dealt with shortly. They were not shown to
exist as accounts at all, and the relevant transactions in my view did not amount to “deposits” of
money at all but to short term loans. The essential characteristic of a contract of “deposit” of
money is that it is for an indefinite period withdrawable in whole or in part by the depositor on

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demand or by notice of agreed length. What UDT calls “deposit accounts” are short term loans
of money of agreed duration of three months, six months or nine months at agreed rates of
interest dependent on the duration of the loan. They are not withdrawable on notice, but are
repayable without notice by either side at the end of the agreed period and can only be renewed
by fresh agreement. The “deposit receipts” issued by UDT in respect of these loans are not
accounts in the ordinary sense at all, but would appear to be “debentures“.

The lenders of these short term loans are generally large institutions, the amounts of individual
loans ranging from £5,000 to £1,000,000. They provide the principal source of the money which
UDT uses in itself making “stocking loans” and other loans to traders, and in discounting
promissory notes given by hirers under hire-purchase agreements to traders who conduct their
own hirepurchase transactions. It is mainly, though not exclusively, with these traders that UDT
maintains the “current accounts” which are principally relied on as the bona fide carrying on of
the business of banking.

There are 1,450 “current accounts”, of which 1,360 are with traders who conduct other business
with UDT or its wholly-owned subsidiary, UDT (Commercial) Ltd (hereinafter referred to as
“Commercial”). This subsidiary is an ordinary hire-purchase finance company but it employs no
staff of its own. “The parent company manages Commercial.” The remaining ninety so-called
current accounts are with subsidiaries of UDT or with persons employed by the group of
companies and possibly with some others. These were not investigated at the trial. It was not
suggested that those with subsidiaries were banking accounts, although the subsidiaries draw
cheques on UDT, and it was conceded before us that the accounts with non-traders other than the
subsidiaries of the group, even if they do possess the characteristics of banking accounts, are too
few in number to amount in themselves to the bona fide carrying on of the business of banking.
Unless the running by UDT of what have been called the “traders’ accounts” in the way in which
they are operated constitutes the bona fide carrying on of the business of banking, this appeal
must in my view succeed.

Only one current account was produced in evidence, that of Lonsdale Motors Ltd itself; but the
way in which it was operated was admitted to be typical of most “traders’ accounts“. The
“current account” of Lonsdale Motors Ltd kept in the books of UDT was opened in connexion
with a “stocking loan” of £2,000, negotiated by Lonsdale Motors Ltd with the Carlisle branch

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manager of UDT. Lonsdale Motors Ltd handed to the manager a bill of exchange payable to
UDT and accepted by Lonsdale Motors. In exchange they were handed a cheque book containing
crossed cheque forms drawn on UDT purportedly acting as bankers. A cheque to themselves as
payees for £2,000 was drawn on UDT by Lonsdale Motors Ltd in favour of themselves and paid
into their own banking account with their ordinary bankers, Westminster Bank at Carlisle. The
first entry in the current account with UDT is a debit entry of £2,000 in respect of the payment
by UDT of the amount of this “cheque” to Westminster Bank as collecting bank, and this was
followed in a day or two after by a credit entry of £2,000 under the rubric “CN” or credit note.
This, it would seem, was made on the receipt by UDT at its head office from its branch office at
Carlisle of the bill of exchange for £2,000 given to the branch manager on his agreeing to grant
the stocking loan. The subsequent payment of the bill of exchange and interest thereon by
Lonsdale Motors Ltd

Page 989 of [1966] 1 All ER 968

was not reflected in the current account. The only entries in that account relating to the loan were
the debit and credit entries of £2,000 already referred to which cancelled one another out. A
number of similar “stocking loans” were dealt with in the same way in the current account. Bills
of exchange were accepted by Lonsdale Motors Ltd and cheques for the same amount drawn on
the account. It is on bills of exchange given in respect of the last £5,000 of “stocking loans” that
the present action is brought. There was, when the writ was issued, no debit balance in the
“current account” in respect of any of these loans owing to the system of entries relating to such
loans described above. If these were the only transactions between UDT and traders, I should
regard the use of the cheque forms in connexion with them and the entries in the so-called
“current account” as a mere facade for disguising loans and not as genuine banking transactions
or accounts at all.

There are, however, other entries in the Lonsdale Motors Ltd current account. Of all of these, the
explanation is the following. Lonsdale Motors Ltd conducted its ordinary hire-purchase
transactions as retailers of motor vehicles through Commercial. Commercial bought the vehicles
from Lonsdale Motors Ltd and hired them to Lonsdale Motors Ltd’s customers. As soon as such
transactions were accepted at Carlisle by the branch manager of UDT acting on behalf of
Commercial under the arrangement by which the parent company manages Commercial,

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Lonsdale Motors Ltd drew a cheque on UDT payable to themselves for the sale price and paid it
into their banking account with Westminster Bank at Carlisle. When this was paid by UDT to the
Westminster Bank as collecting bankers for Lonsdale Motors Ltd the payment was debited to
Lonsdale Motors Ltd’s current account with UDT and at about the same time, though generally a
little later, a credit of the same amount was entered under the rubric “CN” presumably
representing a transfer in the books of UDT from some account between Commercial and U. D.
T of the agreed purchase price of the car. The latter entry was made when the documents relating
to the hirepurchase transaction reached the group’s head office from Carlisle. Whether the debit
entry was dated before the corresponding credit entry or vice versa depended on whether
Lonsdale Motors Ltd’s cheque was cleared before or after those documents were dealt with by
UDT’s bookkeepers at the head office. While in general the credit and debit entry in respect of
each hire-purchase transaction financed by Commercial correspond precisely and are made
within a day or two of one another, there are a few instances, of which no explanation was
forthcoming, where they do not; although even here the totals of the relevant credit and debit
entries respectively taken over a short period are the same. The account thus throughout presents
the feature of being temporarily out of balance for a few days at a time, sometimes on the credit
side but generally on the debit side, while a debit entry for a cheque payable to themselves drawn
by Lonsdale Motors Ltd has not yet been matched by a credit item for either a bill of exchange
for a “stocking loan” or the transfer from Commercial of the purchase price of a car. No interest
was charged for these transient overdrafts, nor were any banking charges made.

It will be seen that this so-called “current account” with UDT, as it was in fact operated, did no
more than record payments by UDT to the banking account of Lonsdale Motors Ltd with
Westminster Bank in Lancaster of (i) money lent by UDT itself to Lonsdale Motors Ltd for
stocking loans, and (ii) money payable to Lonsdale Motors by UDT’s wholly owned and
managed subsidiary, Commercial, for the purchase price of cars sold by Lonsdale Motors Ltd to
Commercial, with corresponding credit entries when bills of exchange, accepted by Lonsdale
Motors Ltd in respect of the stocking loans or invoices for the cars, reached UDT’s head office.
Each of such payments was effected by Lonsdale Motors Ltd drawing a bill of exchange on UDT
(in the form of a crossed cheque) payable to themselves which they handed to

Page 990 of [1966] 1 All ER 968

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their bankers, Westminster Bank, for collection and Westminster Bank demanded and received
on behalf of Lonsdale Motors Ltd payment from UDT

No doubt one can achieve by bona fide banking transactions a result that could be achieved by
other means, but in my view, on their true analysis, none of the transactions which Lonsdale
Motors Ltd’s current account with UDT purports to record involves any acceptance by UDT of
deposits of money from Lonsdale Motors Ltd or any withdrawal by Lonsdale Motors Ltd of
money deposited. As respects the credits for “stocking loans”, if they are to be regarded as
anything more than the counterpart of a debit to some other undisclosed account with Lonsdale
Motors Ltd in UDT’s books, perhaps of “bills receivable”, these credits were of moneys
provided by UDT itself and the corresponding debit entries represented not a withdrawal of
money deposited by Lonsdale Motors Ltd with UDT but loans from UDT to Lonsdale Motors
Ltd. As respects the credits and debits for the purchase price of vehicles sold by Lonsdale Motors
Ltd to Commercial, the debits represent payments made by UDT as managers for Commercial
and the corresponding credits are mere bookkeeping entries which are presumably the
counterparts of debits to some undisclosed account with Commercial in UDT’s books. It is not
suggested that they represent cheques or drafts of Commercial collected by UDT as Lonsdale
Motors Ltd’s banker. The choice whether these credit entries for loans or for the purchase price
of cars should be made before or after the corresponding payment was debited to Lonsdale
Motors Ltd was that of UDT itself. It generally chose to make them afterwards, leaving the
account temporarily in debit balance. Throughout the whole period of the account there was
never a single penny in it representing moneys deposited by Lonsdale Motors Ltd either in the
form of cash or in the form of cheques drawn by third parties to be collected on their behalf,
which UDT could use for its own profit by lending it out again or in any other way. The account
was merely the way in which UDT chose to record its transactions with Lonsdale Motors Ltd as
lender of money to Lonsdale Motors Ltd and as paying agent for Commercial. It does not, in my
judgment, record any genuine banking transactions at all.

The evidence was that this account, the only one produced, was typical of all traders’ accounts
kept by Lonsdale Motors Ltd. It was said that there were variants. Not all traders with “current
accounts” received “stocking loans“. Some traders instead of selling cars to Commercial entered
into hire-purchase contracts direct with their customers and discounted the hirer’s promissory

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notes with UDT. In the case of these traders, the sum for which each note was discounted was
credited to the trader’s account and the corresponding sum debited whenm he drew on UDT a
cheque payable to himself. These credits did not represent moneys deposited with UDT by the
trader. They represented moneys paid by UDT itself in consideration for the transfer of the
promissory note. These differences are unimportant. They do not give the accounts the essential
characteristics of recording banking transactions.

Mr Garrett, however, stated that where a “current account” had been opened in the name of a
trader and cheque book issued to him, if the trader drew any cheques drawn on UDT in favour of
third parties as payees, UDT would pay such cheques up to the amount to which his current
account was in credit and was willing to collect on behalf of the trader payment of cheques
drawn by third parties in favour of the trader, and that any moneys so paid or collected would be
debited or credited to the trader’s current account. There was no evidence that UDT ever
communicated an offer to do so to Lonsdale Motors Ltd or to any other trader; but, in the
absence of evidence, I am prepared to assume that contractual obligations to pay and to collect
cheques for traders are to be implied from UDT’s providing the trader with crossed cheque forms
for drawing on UDT on the face of which UDT described itself as “bankers“.

I do not doubt that if it were proved that traders’ accounts were in fact operated in the way in
which Mr Garrett said UDT was willing to operate them, they

Page 991 of [1966] 1 All ER 968

would satisfy the essential characteristics of banking accounts, since the moneys collected on
third parties’ cheques and credited to the trader’s account would be moneys deposited with UDT
by the trader, its customer, and the moneys paid out to third parties on the trader’s cheques
drawn on UDT would be withdrawals by cheque. UDT would to that extent be carrying on the
business of banking; but I do not think that the mere fact that UDT offered to pay and collect
cheques for traders, or even that it undertook a contractual liability to to do so, would constitute
the carrying on of the business of banking unless traders availed themselves of the services so
offered. It proves no more than that UDT is willing to carry on the business of banking or is
holding itself out as carrying on that business; but that, in my view, is not enough to bring UDT
within para (d) of s 6 of the Money-lenders Act 1900. The main definition of moneylenders in

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that section points to the distinction between a person who carries on a business and one who
“advertises or announces himself or holds himself out as carrying on the business“. Both are
moneylenders; but the exception in para (d) is drafted differently. To come within it a person
must be actually carrying on the business of banking. It is not sufficient that he holds himself out
as willing to do so.

If, as I think, these are the only transactions disclosed by the evidence on which UDT can rely as
being genuinely of the legal nature of banking business, the case turns on whether UDT has
proved that the collection by UDT of cheques payable to traders with “current accounts” and the
payment by UDT of cheques in favour of third parties drawn by such traders on their “current
accounts”, are more than negligible in size and number compared with the rest of their business.
They need not constitute a large part of UDT’s business, but they must constitute more than a
negligible part and it is for UDT to prove that they do.

Mr Garrett was unable to give any idea of the number of traders who in fact engaged in
transactions of these kinds with UDT or of the extent to which any trader did so. Under cross-
examination all that emerged from his evidence was that not more than twenty per cent of traders
have “current accounts” at all, that of those with current accounts “not very many” use them for
payment of cheques drawn in favour of third parties or collection of cheques drawn by third
parties, and that even of those that do, the extent to which they do so is “small, I imagine. I do
not know about minute“. Once one eliminates the kinds of transactions recorded in the “current
account” of Lonsdale Motors Ltd as not being in the legal nature of banking transactions at all,
the evidence of Mr Garrett in my judgment leaves a complete lacuna whether or not the banking
transactions which UDT carry out constitute more than a negligible part of its business.

Is that lacuna capable of being filled by evidence of the reputation which UDT enjoys in banking
and commercial circles of being itself a “banker”? After anxious reflection I think that it is, but
for reasons which differ from those which have commended themselves to Lord Denning MR for
which, with great respect, I cannot find sufficient authority in the cases which he cites. Most
transactions of the relevant kind would come to the knowledge of bankers, for the cheques would
pass through the clearing house or would be specially presented and would involve ancillary
transactions between such bankers and UDT. Evidence given by bankers that they have regarded
UDT as carrying on the business of banking would thus be based on transactions undertaken by

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UDT which would be within the general knowledge of the persons giving evidence. Unless the
grounds of the witness’ belief were probed in cross-examination and shown to be mistaken, such
evidence in an ordinary case might be sufficient in itself to establish a prima facie case that UDT
was bona fide carrying on the business of banking.

Although I accept that evidence by bankers of UDT’s reputation is capable of filling the lacuna,
this leaves unresolved the question whether the evidence

Page 992 of [1966] 1 All ER 968

of reputation given in this case was sufficient to do so. There is a special feature which
distinguishes this from an ordinary case. It is apparent from Mr Garrett’s evidence that the
majority of cheques drawn by traders on UDT which pass through the clearing house are cheques
which on the face of them appear to represent banking transactions but, when the full facts are
investigated, do nothing of the sort. If it were established that UDT’s reputation as being
“bankers” was founded on the use of cheques of this kind, viz, drawn by traders on UDT in
favour of themselves for loans or for the price of cars, the evidence of reputation would in my
view fail to fill the lacuna.

At the trial the evidence of the “banker” witnesses was not proved with a view to establishing
this. This court, I think, ought to assume that the grounds of these witnesses’ belief that UDT
carried on the business of banking were not mistaken unless the proper inference from all the
facts is that their belief must have been founded on the false premise that all cheques drawn on
UDT by traders in favour of themselves represented genuine banking transactions. I must confess
that not only during the hearing but also while I have been writing and re-writing this reserved
judgment, my mind has fluctuated whether I ought to draw this inference or not. In the end—and
still with considerable doubt—I have come to the conclusion that I should not do so. The
cheques on UDT which do not represent genuine banking transactions all have he characteristic
either that they are drawn in favour of the drawer himself or are drawn by a subsidiary of UDT.
If all but a negligible number of cheques drawn on UDT and passing through the clearing house
were of one or other of these kinds and no appreciable number of cheques on UDT, drawn by
drawers other than subsidiaries, were drawn in favour of third parties and no more than a
negligible number of cheques on other bankers were presented by UDT for collection, this would

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be so unusual a way of conducting the business of banking that, I think, this court is entitled to
infer that UDT would not have acquired so widespread and unqualified a reputation among
bankers and responsible government officials as bona fide carrying on the business of banking.

For these reasons I agree with Lord Denning MR that this appeal should be dismissed. My
decision is based entirely on the state in which the evidence was left at the conclusion of this
trial. As between UDT and the defendant, the status of UDT as bankers becomes res judicata—
but between these two parties only. It does not follow that if, in some other case, the evidence
were more complete or more closely probed, the result would be the same; but it would at least
be more satisfactory.

Appeal dismissed.

Solicitors: Beachcroft & Co agents for Hough, Halton & Soal, Carlisle (for the defendant);
Edwin Coe & Calder Woods (for the plaintiff).

F Guttman Esq Barrister.

Scholl Mfg Co Ltd v Clifton (Slim-Line) Ltd

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