Cheques are becoming increasing obsolete. Plastic (card) transactions and electronic fund transfers (EFTs) offer a safe, reliable and most importantly, instant method of money transfer. Unlike cheques, there is no risk of the transactions ‘bouncing back’ or becoming ‘stale’.

Consumers want to be able to source products from all around the world via the Internet. For obvious reasons, many e-traders do not accept cheques as a method of payment. Cheques, however, are not yet entirely extinct, and many government organisations and businesses continue to issue them.

The question is then, what is the drawer’s liability when issuing a cheque and in what circumstances can they refuse to honor it?

Liability of a Drawer Upon the Issue of a Cheque

Under sections 58 and 71(a) of the Cheques Act 1986 (Cth), a drawer of a cheque is not liable unless and until it is presented for payment. However, a cheque once presented for payment must be paid. Similarly, sections 70 and 71(b) of the Act set out that a drawer of a dishonored cheque continues to be liable, regardless of whether or not he or is she is aware of this fact.

In such circumstances, the drawer will be required to compensate the holder for:

  • The sum ordered to be paid under the cheque; and
  • Any interest that has become payable on the cheque.

The Consequence of Delaying in Presenting a Cheque for Payment

The general liability of a drawer is not absolute. A drawer will not be liable unless the cheque has been presented for payment within a ‘reasonable time’. What amounts to a reasonable time is determined on a case-by-case basis.

Under section 60(3) of the Act, the below factors determine what is a reasonable period:

  • It is reasonable to expect that cheques will be presented for payment promptly;
  • Industries such as trade and finance typically accept cheques;
  • The nature of the cheque, including the date of issue and the cheque’s value;
  • Whether any circumstances beyond the holder’s control caused delay; and
  • Whether the holder’s default, misconduct or negligence caused the delay.

Do you need to know more about the rights, obligations or liabilities that arise upon the issue of a cheque? Get in touch on 1300 544 755.

Vanja Simic

Next Steps

If you would like further information on any of the topics mentioned in this article, please get in touch using the form on this page.