.1.

2 Duties of the Paying Banker

- Duty to pay the customer’s cheques upon presentment provided there are sufficient funds in
the customer’s accounts or overdraft facilities have been agreed. A bank acts as its
customer’s agent not only when it collects cheques but also when it pays. In carrying out the
customer’s instructions the bank acts under the customer’s mandate.

- Duty of care.

- Redmond v Allied Irish Bank Plc. (1987); a bank owes its customer a duty to take
reasonable care and skill in interpreting, ascertaining and acting in accordance with the
instructions of the customer.

- Lipkin Gorman v Karpnale Ltd. [1989]; duty of care extends beyond exercising care in
construing customer’s mandate.

- Selangor United Rubber Estates v Craddock & Ors. No.3 (1968); Karak Rubber Co. Ltd.
v Burden (1972); duty to make inquiries before paying if sufficient grounds to suspect some
fraud.

- If bank knowingly assists in a fraudulent act the paying bank will be liable as a constructive
trustee.

- Malayan Testing Laboratory Sdn Bhd. v Standard Chartered Bank Malaysia Bhd [2009]
10 CLJ 234; the High Court at George Town ruled that honouring of tampered cheques by
banks amounted to negligence.

- It was held that the Standard Chartered Bank Malaysia Bhd to pay more than RM1.2 million
in damages for negligently facilitating an accounts clerk to credit RM860,942.40 from the
current account of Malayan Testing Laboratory Sdn Bhd’s (MTL) into her personal accounts
and to overdraw the company’s account. The Court found that the transactions in this case
were so “out of the ordinary” with regard to the facts and its surrounding circumstances that
they ought to have raised doubts in the mind of the banker and caused the bank to make an
in-depth enquiry.