Orbit Mining and Trading Co v. Westminster Bank

Facts

• Orbit Mining's cheques were collected by Westminster Bank for a customer whose entitlement was questionable
• The circumstances were not overtly suspicious at the time of collection
• Orbit Mining sued for conversion; the bank claimed S.131 protection

Issue

1. What standard of care satisfies "without negligence" for purposes of S.131 protection?

Held

• The test is objective: would a reasonable, careful banker acting in the ordinary course of banking business have made further inquiry given the circumstances? Negligence is measured against the practice of prudent bankers, not against perfection. Where circumstances are not suspicious, the bank need not investigate. But where red flags exist, failure to inquire constitutes negligence.

Ratio Decidendi

The "without negligence" standard in S.131 is objective. The benchmark is the reasonable, careful banker in ordinary banking practice. Suspicious circumstances demand inquiry; absence of suspicion does not require investigation.