Banking 1.0 Introduction To Banking Law: The History: Tasha Lim Yi Chien Leb140116

TASHA LIM YI CHIEN LEB140116
BANKING
1.0 Introduction to Banking Law: The History
The operation of the commercial banks are regulated by several legal statutes.
Overall, the banking law statutes can be divided into two:
Regulatory Laws
 Are laws that regulate the banking system in Malaysia. Bank Negara Malaysia plays he important role
as the Regulator who ensures that all the financial institutions in Malaysia adhere to all the stipulated
laws. (The Godfather technically)
 Examples: FSA 2013, IFSA 2013, AMLA 2001, CBA 2009 and etc. (way more)
Transactional Laws
Are substantive laws that provide legal principles for the operational mechanism of transactions. A
banking law that is transactional is Bills of Exchange Act 1949 (BEA)
+Common Law
 Applicable for queries or issues that arise regarding banking matters and banking operations, unless
there exists another stipulation that was made or will be made in any of the written laws.
 Referring to S5(1) and S5(2) of CLA 1956, it is undisputed that English cases by the HoL, CoA and HC
of England until 7th April 1956 regarding banking law issues do bind the courts in Malaysia.
 S101(2) BEA also states that the application of English common law rules include merchant laws, bills
of exchange, promissory notes and cheques, to the extent there is no conflict with express provisions
in the Act.
1.1 The History of Banking in MY

- At the end of the 19th century, with the development in tin mining and extensive trades in Malay
states, only trade banks were established.
- 1st commercial bank was Bank of India, London and China - a branch of a foreign bank in 1859.
- 1st domestic bank: Kwong Yik Bank (1903) by Mr Wong Ah Fook.
- 1st supervisory board: The Board of Commissioners of Currency (1867) - the sole body issuing legal
currency in MY.
- In 1899, 1st statute on banking business: Negotiable instruments Enactment for the Federated of
Malay States was approved. The Enactment was the predecessor to the BEA 1949.
“Evolution of Banking Laws” - Dato Ranita by Mohd Hussein, Adviser (Former) of BNM
- World Bank Mission arrives at Malaya in Jan1945 at the requested of the FMS, Colony of SG and UK.
- Mission assigned was to access existing resources for future development, evaluate how these
resources could effectively contribute the economic and social development of Malaya, and
recommend practical steps to further extend such development.
- Had submitted a report about the monetary and financial institution aspects.
- Had recommended changes to the monetary system to enable management of the money & credit
situation; with the object to create an encouraging situation for further development of the domestic
industry.
- Opined that a Central Bank should be established to function as an instrument of management.
- After the report, the gov appointed people to advise on a suitable central bank mechanism.
- Both Mr Watson and Sir Caine submitted the ‘Watson-Caine Report’ that stated legislation should be
introduced to licence banks, to stipulate several general rules for operation of banking activities
(protect depositors), to prepare the publishing of audited balanced accounts and normal statistic
banking returns to be made to the Central Bank and to provide supervisory baking powers.
- Prepared a draft Ordinance
- Gov then set up a central bank and Central Bank of Malaya Ordinance 1958 was promulgated.
- Later known as Central Bank of Malaysia Act 1958 (repealed) and now, Central Bank Act 2009
1.3 Central Bank Act 2009 (CBA): The Role of Bank Negara (BN) as Regulator
According to s5(1)-(4) of the CBA, the principal objects and functions of the bank are:
(1) To promote monetary stability and financial stability conductive to sustainable growth of MY economy
(2) Primary functions of the Bank
(3) The Bank (BN) shall have all the power necessary, incidental or ancillary to give effect to its objects and
carry out its functions
(4) When giving effect to objects and carrying out functions, shall have regard to the national interest.
1.4 Banking and Financial Institutions Act (BAFIA)- repealed by FSA 2013
- During the early years, commercial banks and finance companies (aka loan companies) were
regulated by the Companies Ordinance 1940 which was insufficient and the need existed for a
specific statute to cover several aspects of supervisory and commercial bank regulation by the
Central Bank (CB).
- Gov intro Bank Ordinance 1958 at the same with CBO 1958.
- BO was amended and revised and redrafted to be Banking Act 1973.
- The Preamble to the Banking and Financial Institutions Act 1989 (BAFIA):
“An Act to provide new laws for the licensing and regulation of institutions carrying on banking,
finance company, merchant banking, discount house and money-broking businesses, for the
regulation of the institutions carrying on certain other financial businesses, and for matters
incidental thereto or connected therewith.”
- Financial institutions that are exempted from BAFIA are Islamic Banks. These banks are controlled
by the Islamic Banking Act 1983 and the banks are more widely known as Islamic Banking System
(Sistem Perbankan Islam - SPI).
- In recent years, BN had encouraged SPI windows to become stand alone Islamic Banks.
1.5 Financial Services Act 2013 (FSA)/Islamic Financial Services Act 2013 (IFSA)
The following banking acts have been repealed and replaced with the new acts on 30th June 2013.
(1)The Banking and Financial Institutions Act,1989 (Act 372)
(2)The Islamic banking Act, 1983 (Act 276)
(3)The Exchange Control Act, 1953
(4)Payment Systems Act 2003
The following features were highlighted by BN in its Press Release. Key features of the new legislation
include:
 Greater clarity and transparency in the implementation and administration of the law. This includes
clearly defined regulatory objectives and accountability of Bank Negara Malaysia in pursuing its
principal object to safeguard financial stability, transparent triggers for the exercise of Bank Negara
Malaysia's powers and functions under the law, and transparent assessment criteria for authorizing
institutions to carry on regulated financial business, and for shareholder suitability;
 A clear focus on Shariah compliance and governance in the Islamic financial sector. In particular, the
IFSA provides a comprehensive legal framework that is fully consistent with Shariah in all aspects of
regulation and supervision, from licensing to the winding-up of an institution;
 Provisions for differentiated regulatory requirements that reflect the nature of financial
intermediation activities and their risks to the overall financial system;
 Provisions to regulate financial holding companies and non-regulated entities to take account of
systemic risks that can emerge from the interaction between regulated and unregulated institutions,
activities and markets. The Minister of Finance may subject an institution that engages in financial
intermediation activities to ongoing regulation and supervision by Bank Negara Malaysia if it poses or
is likely to pose a risk to overall financial stability;
 Strengthened business conduct and consumer protection requirements to promote consumer
confidence in the use of financial services and products;
 Strengthened provisions for effective and early enforcement and supervisory intervention
2.0 The Relationship between a Banker and a Customer

2.1 Defining a “Bank”
The definition is important because
i. A bank cannot conduct transactions without a valid license (s10 FSA) and only licensed institutions
can use the term “Bank” (s139 FSA)
ii. Only a “bank” is afforded statutory protection stipulated by the BEA 1949. A bank that makes
payment on a client’s cheque has the right to receive protection pursuant to s60, 79, 80, 81A and
82 of BEA.
iii. Licensed institutions of FSA/IFSA are exempted from the application of the Moneylenders Act for
granting of loans
iv. From the procedural aspect, s7 Bankers Book Evidence Act stipulates that banks need not produce
original documents during court trials - only a copy is needed
v. A bank has the right of set off and retention in accordance with the law.
This can be examined from 4 angles:

A) common law
B) Statute
C) Definition by text book authors
D) The court’s interpretation
2.1.1 Common Law

When cheque usage was being introduced, the traditional opinion was that nobody could be defined as
a banker unless it paid cheques issued upon itself.
Re Shields Estate (1901) Ir. R. 173

Held:
 A company that solely issued deposit receipts payable by notice was a bank.
 The crucial matter being the receipt of monetary deposit from the customer and its reinvestment.
 “The business of banking, from the banker’s point of view, is to traffic with money of others for
the purpose of making profit.”
 Hence, Sheilds was a banker although they kept no current accounts.
(Company did not issue cheques nor had any current accounts)
Bank of Chettinad Ltd of Colombo v Commissioners of Income Tax, Colombo [1948] AC 37

Defined bank 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.”
Woods v Martins Bank Ltd [1958] 3 AER 166

The nature of banking business is a matter of fact. Here, giving advice constituted ‘banking business’
because the bank held out as being in a position to [give financial] advise [to] its customers on their
investments.
United Dominions Trust Ltd v Kirkwood [1966] 2 QB 431 (“UDT”)

UDT was a financial institution that referred to itself as a “Bank”. UDT owned all the shares in a subsidiary
company that granted loans for hire purchase transactions. D was a car company manager that received a
loan from UDT. D endorsed a Bill of Exchange as security for the aforesaid loan. The Bill of Exchange was
dishonoured and the D’s company went into liquidation. D alleged that UDT was a moneylender,
unregistered pursuant to the Moneylenders Act and therefore the transaction contravened the law and
was unenforceable.
UDT asserted that it was a bank and accordingly not subject to the Moneylenders Act. The lower court
decided in favour of UDT and the Defendant appealed to the Court of Appeal.
Held:
Lord Denning:
An institution conducting the business of banking (during that period), had the following characteristics:
(a) the acceptance of money from and collection of cheques on behalf of customers and placing
them to the credit of the customer;
(b) honouring cheques presented or orders drawn on them by their customers; and
(c) they must keep current accounts or something of that nature in their books in which the credits
and debits are entered.
- The evidence tendered in this case indicated that UDT did not possess the characteristics of a bank,
as formulated by the Court of Appeal. It was evident from the facts that the current account was
operated solely for hire purchase transactions.
- Although UDT did not possess the normal characteristics of a bank, the Court of Appeal examined
another issue; whether UDT could be regarded as a bank because of its reputation as a bank.
- According to Lord Denning, from the aspect of reputation, UDT succeeded being regarded as a bank
because four other leading banks in London regarded UDT as a bank. The banks granted UDT all the
privileges of a banker. The Inland Revenue Department regarded UDT as a banker and accredited
accountants also regarded UDT as a banker.
- Lord Denning stated at page 456, “UDT has only succeeded in this case because of its reputation and
standing in the city of London as a banker”.
- Lord Diplock gave a concurring judgment, but did not emphasize the question of reputation.
Lord Harman:
Reputation alone is insufficient.
Even if a bank has satisfied Denning’s three characteristics, it would not be regarded as a bank if its
banking business was negligible in size or if its current accounts were opened as a mere cloak for lending
transactions
(Ellinger: Harman’s decision makes sense too because we should be concerned with the characteristics of
the banking business that an institution undertakes and not based on the reputation.
Lord Diplock:
Negligible number of cheques on other bankers were presented by UDT for collection. This shows that it
carries on a marginal banking business and coupled with its reputation, it is a bank.
(Ellinger: Considering the advancement of banking transactions, the definition of bank and banking should
be updated in order to avoid an overly restrictive requirement that focuses on the precise mechanism that
money is paid in and out of accounts)
UDT had reputation but this added on with marginal banking business/border line banking business was
sufficient to place UDT within the definition of bank.
Re Roe Legal Charge [1982] 12 Lloyds Law Rep 380

Finance company has opened current accounts for some customers, collected cheques on their behalf,
provided other banking services and sent periodic statements to its customers. However, there were
four differences between the company and a regular bank.
Held:
- Immaterial that the items cleared by the company was very limited and is negligible compared to
a clearing bank.
- Immaterial that it did not carry out all facets of a banking business.
- Only relevant consideration was (w) the company’s banking business was real in terms of its entire
business.
2.1.2 Statutory Definitions

S2 of BAFIA’s definition is similar to UDT except for the one in paragraph (iii)
S2 of FSA:
- “Bank” has the same meaning as defined in s2(1) of CBA [Bank means BN]
- “Banking business” means
(a) the business of -
i. Accepting deposits on current account, deposit account, savings account or other similar account;
ii. Paying or collecting cheques drawn by or paid in by customers; and
iii. Provision of finance; and
(b) such other business as prescribed under s3.
S3 of FSA: Granting of license is Finance Minister’s discretion, by BN’s recommendation.
(Necessity of obtaining licence under s8-s13 of FSA)
2.1.3 Book Authors

Paget’s Law of Banking
‘Accept money on current accounts, pay cheques drawn upon such account on demand and collect
cheques for customers; that if such minimum services are afforded to all and sundry without restriction
of any kind, the business is a banking business...’
Halsbury’s Law of England

‘An individual, partnership or corporation, whose sole of predominating business is banking, that is, the
receipt of money on current or deposit account and the payment of cheques drawn by and the
collection of cheques paid by a customer.’
2.1.4 Local Cases

Bank of China v Lee Kee Pin [1961] 1 MLJ 40 HC
BOC brought a claim against D for recovery of an amount of overdraft due. The D argued that the
recovering of the debt was part of banking business and since BOC had lost its license to transact in
banking businesses, it was could not do so. The lapse since the license was 3 months and furthermore,
bringing an action under the name and title of BOC was also prohibited as per s5 (of BO 1958).
Held:
Bringing an action to recover debts due to it does not amount to ‘banking business’ under BO.
But the mischief sought to be prevented by the BO was to prevent a person/company from carrying on
its banking business without having the requisite paid up capital.
A person/firm does not cease to carry on business merely (b) “the shutters may have been put up” but
continues until the sums due are collected and all debts paid.
Hence, it does not prohibit BOC from pursing the debt due to them in the course of winding-up the
business.
Principle:
Taking proceedings/recovering debts does not amount to carrying on banking business contrary to s3
Koh Kim Chai v Asia Comm Banking Corp Ltd [1981] 1 MLJ 357
R was a bank carrying banking business in Singapore. A charged his land in MY to the bank for overdraft
facilities which were granted. A defaulted and R sought to sell the land. A alleged that by enforcing the
charge, the bank was carrying on a banking business without a license.
(B) it was a foreign bank.
Held:
Mere taking of charge property was not carrying banking business. Bank’s claim was allowed as the
loan was made in SG and the charge was executed there.
Principle:
Foreign bank acquiring and accepting charges of land in MY could not be said to be conducting a
banking business in MY.
Vernes Asia Ltd v Trendale Investment Pte Ltd & Anor [1988] 1 MLJ 357
P, a deposit-taking company incorporated in HJ but had no office in SG and D1 is the property developer.
P made a loan to D1 for D1 to purchase certain property. The loan was secured by a mortgage over the
property. D1 defaulted in payment. Meanwhile, D1 had let the property to D1 without P’s knowledge. P
brought an action to claim the sum owed with interest and claimed vacant possession of the premises
from D2. D1 contended that P was an illegal moneylender and that it was unlawfully carrying on the
business of banking in SG.
Held:
 ‘Banking business’ in s2 of SG’s Banking Act must be read conjunctively.
 The making of advances to customers alone did not amount to the conduct of banking business.
 The mere fact that the loan was secured by a SG registered mortgage over a SG property does not
mean that they had carried banking business in SG.
 Thus, P was not conducting a banking business.
Principle:
A company can only be said to be conducting a banking business if it performs all of the functions
stated in the definition of ‘banking business’ in s2.
Sabah Development Bank Bhd v SKBS [1991] 3 CLJ 2941

P was set up by Sabah State Gov to provide loans to private and state enterprises. P sought to obtain
summary judgment against the D. D argued that P was not a bank under the BA and had unlawfully
carried out on banking business.
Held:
 Even though a corporation or a company so described and registered under the Companies Act
1965 may have obtained consent from or is authorised by the Minister of Finance under s9 of
1973 act, such organisation is not a bank within s2 of the 1973 act.
 To determine (w) or not the facilities come under banking business, must see for what purpose
the facilities were advanced.
 SDB was involved in letters of credit or trust receipts, transactions which involved foreign
exchange which must be cleared with BN. As such, it would appear that SDB is a scheduled
institution as it carries out scheduled business of development finance business.
 In the absence of any evidence that BN/other regulatory authorities disapproving SDB’s activities,
it is presumed that SDB conducts its business in accordance with the laws and regulations of MY
and therefore, has not breached the BA 1973.
 Thus, SDB has not breached the law as it did not conduct banking business by lending to the D as
it did not take current accounts, pay cheques drawn on itself and collect cheques from its
customers. [Hence, can claim from D]
Principle:
The term ‘bank’ granted by the Minister doesn’t really matter. What matters is the purpose of the
facility.
Bank Industri (M) Bhd v Technopro Corp (M) Bhd & Ors [1998] 6 MLJ 754
P, a limited company registered under CA 1965 and a non-commerical bank administering funds
received from foreign institutions - granted a fixed loan favility from World Bank and an import trade
financing facility from the Islamic Development Bank to D1. D2 contended that the loans granted were
illegal because although P was exempted under s2e of Moneylenders Ordinance 1951 and Minister had
agreed, the P did not take any action to ensure the gazetting of the exemption. Hence, no proper
exemption of being labelled a moneylender. Plus, loans were not licensed under BAFIA.
Held:
The development finance business was one of the ‘scheduled businesses’ found in the 3rd schedule.
Thus, it falls under the definition of development finance business in s2.
Principle:
Again, to look at its purpose. Not really the label I think :P
Banque Nationale De Paris v Wuan Swee May & Anor [2000] 3 MLJ 587
P is a bank doing business in SG (branch in SG and no office in MY). Provided D, a MY citizen an offshore
foreign currency loan facility to trade in MY shares. D defaulted and contended that P was transacting
banking business in MY without a valid license.
Held:
A bank’s single transaction of soliciting business and offering facilities in foreign currency to purchase
shares in MY, although being a ‘banking business’ does not mean that it is carrying on a ‘banking
business’ in MY.
2.2 Definition of a Bank’s Customer

The definition is important because the law of banking is based on the existence of a relationship
between the bank and its customer.
If a person is a bank’s customer, several legal implications will emerge:
1. The bank has statutory protection under s85 of BEA if an individual is a bank’s customer. Pursuant to
this section, a bank that collects a cheque from its customer in good faith and without any
negligence has statutory defence against the true owner.
2. Banks have a duty to comply with the customer’s mandate for collection of cheques or payment of
customer’s instruments as well as payments directed by the customer.
3. Banks have several additional duties to its customer. The most important is the duty of secrecy.
Occasionally, the bank may have a fiduciary duty of care as a trustee to the beneficiary of a trust.
2.2.1 Statutory Definition

Prior to this, tak ada. But now, the FSA 2013 defines ‘customer’ to include a participant or user. Then
you refer back to s2 to define those two words. But this is only useful in the context of payment
systems and usage of credit cards. Hence, a narrow scope.
United States’ statutory definition is in s.4-104(1)(e) Uniform Commercial Code

Banker’s customer is defined as “any person having an account with a bank or for whom a bank has
agreed to collect items and includes a bank carrying an account with another bank.”
In a bigger picture, what makes a customer?

Since there is on exhaustive and precise statutory definition of a bank’s customer, reference is still
made to common law and case judgements.
2.2.2 Common Law Definition + Court’s Interpretation

 Common law interpretation, the most important element is intention.
 The relationship will only exist if they intended to form that relation.
 Traditionally, the act of opening a bank account indicates that an individual is the bank’s customer.
Robinson v Midland Bank (1925) 41 TLR 402 COA

A cheque was credited to a current account opened by a dishonest solicitor’s clerk who later forged the
signature of the account holder, ‘C. Robinson’ and absconded with the money.
Held:
The bank is not liable as the relationship of banker and customer does not come into existence unless
both parties intend to enter into it. As such, the bank is not liable for funds passing through the account
that did not belong to him as there was no intention.
Principle:
No relationship unless both have the intention to have one.
Great Western Railway Co v London and County Banking Co Ltd [1901] AC 414 HOL
N
A rate collector habitually cashed cheques at the D’s bank where his employer maintained its account.
Cause you can cash cheques over the counter and he was a dispatch person for an authority. The bank
had allowed him for 20 years to just check it in. On each occasion, the rate collector would retain part
of the amount and ask the balance to be credited to his employer’s account. On the 20th year, the rate
collector cashed a cheque that was fraudulently obtained and ran away! The employer sued the bank
for conversion.
Held:
The rate collector was not a customer although he regularly cashed the cheques because he
maintained no account with the bank. Duration is not the issue as there must be an account - deposit
or current. Hence, there was no opening of account, no intention on both parts to create a contractual
relation and thus, not a customer.
Principle:
Habitual act does not render a person a customer
Commissioners of Taxation v English, Scottish & Australian Bank [1920] AC 683

Y There was a Mr Stewart Thallon. His employee posed as him (fraudster) and opened an account. He
cashed the cheques in and took the proceedings with him. The real Mr Stewart Thallon then sued the
bank.
Held:
The person who is a customer, in the context of the statute, is the imposter. Both imposter and bank
had intention to form contractual relationship. So, the contract is with the imposter.
*Interesting Case:
1. This provides statutory protection to the banker.
2. Because the whole thing happened in a span of 3 days
Day 1: Bank in
Day 2: Open account
Day 3: Took proceedings
3. So, still a customer even though it was a short period - time is irrelevant/duration is immaterial
Principle:
Duration of an account being kept open is irrelevant.
Marfani & Co. Ltd v Midland Bank Ltd. [1968] 1 WLR 956
N
A fraudster open an account with D bank in the name of ‘Eliaszade’, a client of the fraudster’s employer.
He then paid a cheque drawn on his employer and payable to ‘Eliaszade’ into that account.
Held:
The bank’s customer was the fraudster and not the genuine ‘Eliaszade’ who had never intended to
create a banker-customer relationship with the D bank.
N
Stoney Stanton Supplies (Coventry) Ltd v Midlands Bank [1966] 2 Lloyds Rep 373
A forged the signature of Stoney Ltd’s director in order to open an account in the company’s name. A
later siphoned off with the money from the company’s bank account. P claimed against bank for failure
to exercise reasonable care when it made payment to the cheque drawn.
Held:
There was no banker-customer relationship between Stoney and the bank. Bank did not owe the
company any contractual duty of care in relation to the monies fraudulently withdrawn.
Principle:
Mere opening of account in another’s name without their authority does not establish a B-C
relationship unless there is a meeting of minds.
Oriental Bank of Malaya v Rubber Industry Replanting Board [1957] MLJ 153
D issued an ‘Account Payee’ cheque favouring Kok Ann Rubber Estate. The cheque then fell into the
hands of Mr Lee, who opened an account under Kok Ann Rubber Estate by producing a forged
registration certificate. He deposited the cheque into his account, withdrew the proceeds and
disappeared. [So, the signature was forged, document presented to bank and thus managed to open
the account whereby he took the cheques and chequed them!]
Held:
Had cited the case of Comissioner. A was liable as it was negligent in checking the authenticity of the
document presented by Mr Lee. Mr Lee was a customer. A had accepted money and undertook to
honour the cheque up to the credit of Mr Lee by opening an account.
**The s82 of that time is our today’s s85.

**Fraudster is still a customer of the bank.
Ladbroke Co. V Todd (1914) 19 Com Cas 256

Y A thief stole a cheque that he paid into an account opened with the D bank in the name of the
instrument’s ostensible payee before disappearing with the money. Drawer of the cheque sued for its
conversion. Bank relied on s82 of BEA to absolve its liability.
Held:
The thief was a customer of the bank when the bank agreed to open the account. It is not necessary
that ‘he should have drawn any money or even that he should be in a position to draw money.’
Principle:
A person becomes a customer of a bank when he goes to bank with money, or a cheque and wants to
have an account opened in his name, and the accepts the money or cheque and is prepared to open an
account in the name of that person, after that he is entitled to be called a customer of the bank.
Barclays Bank Ltd v Okenarhe [1966] 2 Llyods Rep 87

Y The bank cashed a cheque for a person introduced by a customer but who had no account at the bank.
Held:
Once a deposit account had been formed, P became a customer of the bank.
Tate v Wilts and Dorset Bank (1899) 1 Legal Decisions Affecting Bankers 286
A man asked the D to cash a cheque for him in which the bank only agreed to do so after ascertaining
that the cheque would be paid. The man said he would open an account with the cheque.
Held:
The man was not a customer at that moment but he was going to be a customer if that cheque was
collected.
Y Woods v Martin Bank Ltd [1959] QB 55

- Beginning of May, P had approached J, manager of a branch of a bank to be his financial adviser and
agreed that the bank would be only too pleased to take care of the P’s financial affairs. May 9, P was
induced to invest 5k in preference shares of B.R.Ltd due to the advice previously given by J, but
implicitly repeated on that day, that B.R.Ltd who were customers of the bank, was financially sound.
P that authorised in letter dictated by J for the proceeds of certain investments to be paid. The
balance was to be put in P’s suspense account.
- 3 weeks later, bank opened a current account for P. Relying on further advice, P invested a further
6.8k to the same Ltd and made a loan of 3k to company in the form of an unregistered bill of sale.
- Feb, 2 years later, P signed a guarantee of the overdraft of F.A.Ltd with the bank, advice of J.
- Unknown to the P, B.R.Ltd had with the bank a considerable overdraft, over which the district head
office at all times was pressing J to procure a reduction.
- P lost a significant amount of money due to this for both B.R.Ltd and F.A.Ltd, and even called to pay
more.
- P’s claim based on fraud failed (b) J honestly believed in advice given.
Held:
Although P had no account with D when P acted on the advice of J, the B-C relationship came into
existence when J had accepted P’s instruction to open an account in his name.
Even if the P was not a customer until later, the Ds would still have them, under a duty to exercise
ordinary skill and care in advising him in relation the 5k transaction, a fiduciary relationship existed.
None of the advice was reasonable careful or skilful. P would never have done the investment if it was
not for the advise - Hence, negligence proven. Failure to observe contractual duty.
Principle:
There are cases whereby one becomes a customer prior to the opening of an account (but this is rare)
Rowlandson v National Westminister Bank Ltd [1978] 1 WLR 798

N A grandmother, who was well known in town had a few grandchildren and had approached the D
Y bank. She held no account but wrote a cheque and wanted to presented it to the children who were all
minors. She told the banker that ‘this is my gift to my grandchildren’. Banker then opened an account
for them (in trust accounts) and named the 3 uncles as guardians. The said uncles were given the
authority to operate the trust account and one of them had transferred the money into his own
account.
Issue:
Are the grandchildren customers to the bank?
Held:
There was a tacit (implied/indicated) approval of the guardians acting on behalf of the grandchildren so
yes, they are customers. Bank had committed a breach of fiduciary duty to the grandchildren by
permitting a guardian to behave in that way.
Principle:
When it comes to trust accounts, there is an tacit/implied consent.
Kehar Singh v Standard Chartered Bank

KS entered bank with his wife and wanted to by a bank draft for his son. He was not a customer of SCB.
He approached a counter and put his money on the counter. The clerk was still busy clearing an earlier
customer’s transaction. KS was talking to his wife when they saw a RM10 note flying on the floor and
bent down to pick it up. Just then, an imposter came in and took the money. Neither party had realized
what was going on.
Issue:
Does SCB owe a duty of care to KS?
Held:
It was a divided judgment. Although KS was only a walk-in customer of the bank, he is a customer and
the bank owes him a duty of care. The customer’s loss was held to be apportioned equally as his loss
was due to the negligence of both bank and himself.
>> The money was deemed to be in the possession of bank when the cashier opened the trough to
allow KS to place money in it, thus bank had to be responsible for that act.
Conclusion
1. B-C Relationship comes into existence when bank agrees to open an acc in customer’s name.
2. The bank agrees to act as the customer agent in banking transactions and to exercise the same
degree of care and skill in this regard as can be expected of a reasonable banker.
3. A bank acquires certain defences vis-a-vis 3rd parties in situations where the bank’s operations on
behalf of its customer, such as the honouring and collecting of cheques, would otherwise expose the
bank to claims, such as for the conversion of a cheque.
3.0 Types of Relationship between Bank and Customer

The relationship b/n banker and customer is contractual. If there exists an express contract, both
parties must refer to the said contract.
Bank Pertanian MY v Mohd Gazzali Mohd Ismail [1997] 3 CLJ Supp 299
The employer granted a housing loan to D who charged the land as security to the P. The Charge
Annexure provides that the events of default included default in repayment of instalments or upon D’s
resignation from employment of P. D later resigned in July 1983 and P issued a letter of demand on Oct
1983. P issued statutory notice of default nearly 8 years later. D argued that the action was time barred.
P averred that the 12 years limitation should start at the time P left the employment.
Held:
Time started only when P made the demand and repayment was refused.
Principle:
Where there is a relationship b/n banker and customer and where there are express contractual terms
agreed upon, these express terms, being the intention of the parties, apply.
Standard Chartered Bank v Tiong Ngit Ting [1998] 5 MLJ 220

The R claimed RM10k in respect of a purported fixed deposit account with the A based on a letter
stating “we have credited your account with RM10k”. A denied the claim and averred that the amount
must have been withdrawn as the register did not show the deposit.
Held:
For fixed deposits, there must be terms which bind the depositor and the bank. The letter did not
contain important particulars such as interest rates and period of the deposit. It is not a fixed deposit
receipt but only a pay-in slip which a banker is not obliged to honor. In cases of fixed deposit, the
maturity date must be stipulated. Or else, it cannot be a fixed deposit account but a current account.
Principle:
The relationship of a bank and customer is most easily understood when one reflects on the nature of
the agmt between them.
> A special contractual characteristic between the banker and customer is the formation of a
relationship with implied contractual terms. EG. Duty of secrecy.
3.1 Debtor and Creditor Relationship

This exists in 2 situations:
i. The customer (creditor) opens an account at the bank (debtor).
ii. The customer(debtor) borrows money from bank (creditor).
3.1.1 Common Law

Foley v Hill (1848) 2 HL Cas 28
The A in 1829 opened a bank account with R who were bankers, with an understanding that it would
earn interest at an annual rate of 3%. Further deposits were added in in 1830 and in 1831, interest was
still added. In 1838, A brought proceedings against R seeking recovery of both principle and interest.
Held: Lord Cottenham:
“The money placed in the custody of a banker is to all intents and purposes, the money of the banker
to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the
principal if he puts it in jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or
deal with as the property of his principal; but he is of course, answerable for the amount, because he
has contracted, having received that money, to repay to the principal, when demanded, a sum
equivalent to that paid into his hands”.
Principle:
- Money in the bank IS money of the banker - he can do whatever he wants with it
- Bank is answerable to pay back the principal because of ctt between the two
- When creditor wants the money, you must precedent with a demand
Ellinger: Demand is necessary. Otherwise, the banker would have to look out the customer for
repayment. Limitation period would start to run against the customer from the date of any unmet
demand, not the date of deposit.
Joachimson v Swiss Bank Corporation (1921) 3 KB 110 COA

There was a partnership between an English and a German national with the Defendant bank. Upon
the WWI, the account had a balance of 2k but Joachimson was prohibited from operating the account
because he is an alien enemy. Bank operated in England and he was German, so the account was frozen.
After the way, the English partner sought to wind up the partnership and brought an action to claim for
the repayment of the amount.
Held:
- As the action had not preceded a formal demand for repayment, the COA dismissed the action as
premature.
- The bank undertakes to receive money and to collect bills for its customer’s account. The proceeds
so received are not to be held on 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.
- 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, and as such written orders may be outstanding in the ordinary
course of business for 2/3 days, it is a term of the ctt that the bank will not cease to do business with
the customer except upon reasonable notice.
Principle:
1) Where money is standing to the credit of a customer on current account with a banker, in the
absence of a special agreement a demand by the customer is a necessary ingredient in the cause of
action against the banker for money lent.
2) A Bank customer has no right of action against his banker in respect of money deposited until after a
demand has been made
3) Banks should allow the customer to deposit cash and cheques and withdraw his money by cheque,
draft or order.
6 principles derived by Ellinger:

1. Demand is only necessary for current/savings account. For fixed deposit, amount is payable on the
maturity date. If there are no instructions, banks will pay the amount to the customer’s current
account. Where the money is retained, it must pay interest as if the account holder had renewed the
deposit.
2. Requirement for demand at the branch is overridden - nowadays can withdraw via ATM of other
branches or banks or electronic sale. Demand by writing is dispensed with - internet.
3. For current accccount, the customer’s credit balance is repayable without a demand if the bank is
wound up.
4. Limitation period runs from the time customer makes demand and is refused
5. There are other services to customers which do not involve debtor-creditor relationship - eg.
Valuables left in bank’s custody is one of bailee. B-C relationship is a sui generis incorporating
elements of a number of specific contracts.
6. Joachimson tends to suggest that relationship is based on implied terms but nowadays, banks
require customers to sign ctt which contain express terms.
Damayati Kantilal Doshi v Indian Bank [1999] 4 SLR 1

A is the widow of the late Kantilal P Doshi, who was a customer of R’s Singapore branch (IBS). Due to a
family dispute, A sought the assistance from IBS to provide information of various fixed deposits in
different branches placed by her late husband with the R. R could not give an exhaustive update of all
the fixed deposit accounts. A brought an action seeking an order against the IBS to account and pay for
all deposits owing from R. A alleged that there was wrongful retention of money.
Held:
- A had no cause of action until there was a demand at the branch for payment of the fixed deposit.
The branches were treated as separate entities.
- Banking industry has developed and instantaneous transfer of funds can be made
- It is thus doubtful (w) there is still a need for a demand to be made at the branch
- Since most of the husband’s deposits were made through IBS, there was an implied term that
instructions with reference to the fixed deposits placed by the husband would be given at IBS
instead of the various branches of India. There was a breach of this obligation.
- A could not claim for wrongful retention as the fixed deposits have not matured.
- It is sellted that the relationship is of D-C and (w) customer is entitled to payment on demand for
fixed deposits depends essentially on terms of the ctt.
- For current accounts, there is an implied term that the bank would pay on demand.
- Since evidence shows that the fixed deposits were payable on the maturity date, R was not obliged
to pay prior to maturity.
3.2 Relationship of Agent-Principal

This relationship may exist in three situations:
i. The customer gives the bank a mandate to perform an act in relation to his account or instructs the
bank to allow a third party to perform his mandate.
ii. The bank collects the amount stated on the cheque for its customer.
iii. The transactions of drawing and payment of cheques.
Westminister Bank Ltd v Hilton [1926] 43 TLR 124

There were 2 cheques with 2 different numbers. Wanted to countermand the cheques but gave wrong
number. Hence, wrong cheque countermanded. When Banker follows your mandate, you are the Principal
and the bank becomes the agent.
Principle:
When it comes to drawing and payment of cheques, the relationship between the banker and customer is
of Principal and Agent. The cheque is an order of the principal addressed to the agent to pay out the
principal’s money in the agent’s hands.
The general rule is that a banker is bound to honour his customer's cheque so long as he has funds in his
hands if the account is in credit, or up to the agreed limit of any overdraft. He may determine the contract
at any time on giving notice to the customer. But he cannot refuse to honour cheques drawn before the
notice of determination is received.
3.3 Fiduciary Relationship between Banker and Customer

When the court decides that the bank owes a fiduciary duty to its customer. The bank must ensure that
there is no conflict of interest with its customer.
Woods v Martins Bank Ltd & Anor [1959] 1 QB 55

The bank advised Woods to invest in a company named BR Ltd. BR Ltd was also the bank’s client that had
received an overdraft.
Held:
The court found that there existed a fiduciary relationship between the customer and the bank because:
1) The bank held itself out as having the capacity to give advice and agreed to become Wood’s advisor.
2) Woods believed and relied on the bank’s advice.
3) A conflict of interest existed because the bank gave the overdraft to BR Ltd and simultaneously
advised Wood to invest in the aforesaid company.
Llyods Bank v Bundy [1975] QB 326

A father secured the debts of his son's business on his farm which had been in the family for generations.
The father and son had both banked at the branch for many years and relied on advice given. The son's
company also banked at the same branch and the bank manager was aware of the dire financial position
of the company. The bank had allowed the son to run up an overdraft exceeding security given thus far
and was fearful that the company would go under leaving them with an unsecured debt. The bank
manager and the son called at the farm with the forms already filled in. The father was told of the amount
of the charge which was 11k and exceeded the value of the farm and he was also required to give a
guarantee. The father agreed to sign in order to help his son. He was not given the opportunity to think it
over or to obtain legal advice.
Held:
There was a relationship of trust and confidence between the father and the bank manager giving rise to a
presumption of undue influence under class 2 b. The charge and guarantee were therefore set aside.
Important:
Such a duty does not actually exist when a customer agrees to guarantee the debts of a 3rd party. But the
case was unusual and there was undue influence:
1. Customer was of long-standing; heavy reliance on the bank’s advice.
2. The bank benefited from the dealing; yet gave nothing in return; failure to make full disclosure of the
son’s financial problem; did not ask him to seek independent legal advice
3. The relationship and the desire to help his son out negated his bargaining power
Principle:
3rd party charges could be displaced (but this is because of FOC. Similar like Rama Chandran. Exceptional)
**the normal relationship between a banker and customer is not one of trust and confidence but a
business relationship whereby the bank is looking out for its own interest (See Natwest v Morgan)
However, the bank manager in giving evidence admitted that the father relied implicitly and solely on the
advice given by him and the father stated that he had trusted the bank and had a long relationship with
the bank and generally acted on advice given.
National Westminister Bank Plc v Morgan [1985] AC 686

The family home was subject to a mortgage for the purchase price (with Abbey National) and a second
charge securing a loan of the husband's business. The couple were unable to meet the payments and got
into arrears. Abbey obtained a possession order. Natwest offered a rescue package to help the couple save
the home whereby they would pay off the existing mortgages and give a bridging loan which was to last 5
weeks for the purposes of aiding the husbands business.
The manager called at the couples' home in order to explain the effect of the charge and to obtain the
signatures of both parties. He was at the house for 20 minutes and spent 5 minutes alone with the wife.
The husband was reluctant to leave them alone and was said to be hanging around close by at all times.
The manager told the wife the charge was to pay off the existing debt and to provide a bridging loan for a
period of 5 weeks which was what the bank had intended to provide, however, the actual document did
not limited the amount or time. Mrs Morgan had told the manager that she did not want to be exposed to
any extra risks of her husband’s business as she had no faith in his ability as a businessman. The manager
assured her that the risks were limited in the way he had described. At no time did the manager advise
her to get independent legal advice. She signed the charge. The bank later called in the charge. In her
defence the wife stated that the bank manager had exercised undue influence over her in procuring her
signature.
Held:
The normal relationship between a customer and banker was not one so as to give rise to a relationship of
trust and confidence. Lloyds Bank v Bundy was confined to its facts but not expressly overruled. The wife
had not established a relationship of trust and confidence and therefore no presumption of undue
influence could arise.
Why was there no undue influence? Despite the reassurance that the charge was limited/no independent
legal advise:
1. The bank did not derive any benefit from the transaction - the aim was to help the customer in
retaining their house - no victimization
2. The wife knew what she was getting into - the general nature of the charge
3. Despite the failure of explainig the wide-ranging nature of the charge, the bank did not intend to utilize
it in this manner
Hence, a presumption of UI would x necessarily arise merely from the confidential relationship b/n parties
(Lloyds was so unusual that they wanted to bury it)
Cornish v Midland Bank Plc [1985] 3 All ER 513

The plaintiff agreed to guarantee her husband's loan application, by signing a second mortgage on her
house. The bank clerk, employed by the defendant, advised the plaintiff of the implications of signing the
mortgage. However, the clerk inadequately explained the document and failed to highlight that signing
meant the plaintiff was liable for informed all her husband's past, present and future borrowings. Shortly
after the mortgage was signed the marriage broke up. Despite being aware of the marriage breakdown the
defendant made further loans to the husband. When the mortgage was redeemed the plaintiff was left
with very little money from the sale of the house.
Issue:
Was a duty of care owed?
Held:
A duty of care was owed as the bank clerk had taken it upon himself to advise the plaintiff, it was
reasonably foreseeable that she would rely on the advice and he should have made sure it was complete
and correct.
Commercial Bank of Australia v Amadio [1983] 151 CLR 447 HC 3:1

The Amadios, whose son carried on business as a builder, guaranteed the son's indebtedness to
the Commercial Bank of Australia. To this end, they executed certain documents the effect of which was to
provide the bank with a mortgage over a building which they owned (their only property). When the son's
business failed, the bank sought to enforce the guarantee. In their defence, the Amadios asserted that the
guarantee was unenforceable because it was unconscionable. They were held to be at a "special
disadvantage" as an equitable doctrine in Equity (law). With unconscionable conduct having no definition
at a legislative level (other than conduct lacking in goodfaith) it is largely up to the presiding judicial
member to determine as to whether compliance is efficient on a statutory basis.
Held:
In all circumstances, it was unconscionable for the bank to rely on the guarantee. Notable circumstances
taken into account by the court includes:
1. The Amadios had a limited understanding of English (foreigners).
2. The Amadios did x have the benefit of independent advice, and such advice was x provided/suggested
by the bank.
3. When the mortgage was executed the bank was aware of the Amadios' son's financial situation and
knew the Amadios were not so appraised.
4. The bank did not advise the Amadios that there was no limit on theirliability under the guarantee - the
Amadios believed the liability was limited to $50,000.
Hence, they signed the ctt w/out fully understanding the contents and did not fully comprehend the
consequences.
Courts in Australia are empowered to set aside a transaction between a stronger and weaker party where:
1. Weaker party was under a special disability/special disadvantage such as drunkenness, old age,
infirmity, lack of English/explanation which was necessary under the circumstances
2. There was a lack of reasonable equality between parties
3. The stronger party had control/constructive knowledge of the disability
This was later applied in local case

Saad Marwi v Chan Hawn Hua & Anor [2001] 3 CLJ 98
A leased some land from R, upon which his livelihood was dependant on. R purchased some lands held by
A. Deposit of 10% was by way of set-off against the rental. It was not disclosed.
Held:
There was unequal bargaining power.
1. A was in no position to dictate the term - his livelihood was at A’s mercy; agmt in English (x proficient)
2. R was in a position of advantage
3. No separate legal advice to R
[Not a banking case but Gopal Sri Ram J had referred to Amadio]
3.4 Relationship of Constructive Trust and Beneficiary

In the constructive trustee and beneficiary relationship, the bank is liable as a constructive trustee if it has
express notice about a person’s breach of trust and the bank is involved in the said breach. The trust exists
without any formality as long as these is a fiduciary relationship between the constructive trustee and the
beneficiary’s property.
[Author’s Note: This is fking confusing. Just take it as a story. It’s technically the development of it]
Barnes v Addy (1874) LR 9 Ch App 244

Henry Barnes appointed William Crush, John Lugar and John Addy to be testators and executors of his will.
His money would be invested and then used as a £100 annuity for his widow, Ann, and his three
daughters and son. John Addy, the sole remaining trustee, appointed another trustee, with an indemnity.
Addy’s solicitors, including Mr William Duffield, had advised against appointing a sole trustee, but drew up
the deeds of appointment and indemnity, introduced him to a stockbroker, and the broker transferred
the trustee money. This trustee misapplied the trust property and becamebankrupt. The children sued
Addy and the solicitors.
Held:
This case formulated two types of liability as a constructive trustee:
Knowing Receipt (Unconscionable Receipt) Knowing Assistance (Dishonest Assistance)
Knowingly receiving or operating trust Knowingly assisting a dishonest trustee
moneys/funds
Mental State
does not require the aforesaid mental state dishonesty, morally reprehensible behaviour or lack of
but at least a lack of probity must be probity; to the extent the bank is said to be privy to the
present. dishonesty. (A few cases have examine the aspect of
negligence – however some academics have disagreed).
Bank’s liability
only liable to account for the sum received the bank’s liabity extends to all losses to the trust funds
or handled for the breach of trust. These due to the trustee’s dishonesty, irrespective whether the
are situations where the remedy of trust funds fall into the bank’s hands or not.
“Tracing” or Detection is available.
3rd category: Inconsistent Dealing

Anyone who has received lawfully and not for his own benefit subject to a Trust but who has subsequently
with the requisite level of knowledge, either misappropriated it or dealt with it in some manner
inconsistent with the trust.
*Also not a banking case
How does this apply to banking?

Bank : Duly notified that it is a trust account; acts as a conduit pipe and allows a cheque to be drawn
whereby monies are credited into trustee’s account - bank liable as DA
If trustee’s account has an overdraft; monies transferred used to reduce overdraft; bank liable KR.
If bank debits balance of account containing trust monies to set off another acc at the bank: ID.
Knowing Receipt:
Imperial Bank of Canada v Begley [1936] All ER 367
P gave a power of attorney to her neighbour to invest her money as she had no experience in the business.
Her neighbour later transferred her money into his account to discharge his overdraft with the D bank. D
argued that P had given her neighbour express authority to do so
PC:
The bank is liable as a constructive trustee when it received moneys from its customer for the bank’s
personal benefit with knowledge that the monies were derived by the customer from a breach of trust.
= If bank knows breaching trust of some other, then it is liable
Knowing Assistance:
Rowlandson v National Westminister Bank [1978] 1 WLR 798.
In this case, Mrs M bequeathed £500 to four grandchildren. She issued four undated cheques and
deposited it into the bank. She informed the bank that the cheques were for the benefit of her
grandchildren. Consequently, the bank opened a trust account for her grandchildren and credited the
cheques into the said account. The trust account was in the name of several trustees. Several months after
Mrs M’s demise, one of the trustees, being “A” wrote a cheque from his personal account and altered the
account number to the said trust account number. Thereafter monies were transferred from trust account
to A’s personal account based solely on A’s signature. The moneys were used to pay a share broker for
some company shares.
The late Mrs M’s grandchildren commenced action against the bank on the ground of breach of trust.
Held:
Only by receipt of cheque by the bank, there does not exist any trust responsibility by the bank; but after
the trust account was opened by the bank, the bank has a fiduciary relationship with Mrs M’s
grandchildren and are liable in this case for knowingly assisting “A”, in a fraudulent and dishonest scheme.
As a reasonable banker, the bank ought to have prevented withdrawal from the trust account by A.
Baden Delvaux v Societe’ Generale[1983] BCLC 325

Mr George Baden, Jacques Delvaus and Ernest Lecuit were liquidators of the Luxembourg Mutual
Investment Fund. They claimed that Societe Generale owed it $4,009,697.91, which it held for its customer,
the Bahamas Commonwealth Bank Ltd in a trust account. On 10 May 1973, it followed BCB's instructions,
in arrangement with Algemene Bank, Amsterdam, transferred the money to Banco Nacional de Panama,
to a non-trust account in BCB's name. This, claimed Baden, made Societe Generale a constructive trustee,
and so had a duty to account. Alternatively, Societe Generale was claimed to owe a duty of care, and to be
liable in damages for the loss suffered.
Held:
Societe Generale was not liable because it had no knowledge at the time of the fraud in which it assisted.
The relevant knowledge had to be knowledge of the facts. Recklessly refraining to make enquiries that a
reasonable banker would have made would be enough. But otherwise a banker had a primary obligation
to comply with instructions, save in exceptional circumstances, in which it came under a duty of enquiry.
“Knowing Assistance” consists of several elements: (the old one)

1. The existence of a trust.
2. Dishonesty and intention to commit fraud by the trustee.
3. Assistance rendered by the third party (bank) to the dishonesty and fraudulent intent of the trustee.
4. The third party’s level of knowledge.
5 level of knowledge of “knowing assistance” by a constructive trustee

i. actual knowledge or notice of the trust and awareness of the breach;
ii. knowledge that he would have obtained but for wilfully shutting his eyes to the obvious;
iii. knowledge which he would have obtained but for wilfully failing to make such inquiries as an honest
and reasonable man would;
iv. knowledge of circumstances which would indicate that there has been a breach to an honest and
reasonable man; and
v. knowledge of circumstances which would put an honest and reasonable man on inquiry.
If you examine these elements – the real issue is whether the knowledge is constructive or actual?
Elements (i) - (iii) are subjective queries whereby an individual is fully aware of his acts or omission; this is
actual notice.
Elements (iv) and (v) are objective queries (constructive notice) and raised anxiety when applied in
commercial cases.
But this all changed. [And the distinction is irrelevant now because of Royal Brunei]
[Harsh Test]
Constuctive Knowledge
Selangor United Rubber Estate v Cradock, [1968] 2 All ER 1073
P was a company dealing in rubber, but ceased operations after selling off its business. The D planned to
acquire the company at minimum cost so he got a loan from anor company to finance his purchase of
shares in the P company, via District Bank where the company also had an account.
P brought an action against against DB alleging that the bank negligently failed to make proper enquiries
and disregarding the prohibition of a company purchasing its own shares.
P claimed that by making payments under those circumstances, the bank gave knowing assistance to D.
Held:
Bank was liable as a constructive trustee. Bank was aware of the surrounding circumstances that would
have suggested to a reasonable banker that the D was defrauding the P.
Thomas J:
The touchstone was (w) the 3rd party had knowledge of circumstances which would indicate to ‘an honest,
reasonable man’ that the breach in question was being committed or would put him on inquiry’
Principle:
Where a bank has constructive notice of the improper application of the customer’s funds, the bank is
under a duty to make reasonable enquiries before carrying out the instruction. Failing to do so, and equity
will impose liability of constructive trustee.
Similarly, this was proven in

Karak Rubber Co Ltd v Burden [1972] 1 All ER 1210
A cheque was drawn from Karak’s account with the bank (Barclay) in favour of a person to effect a take
over of Karak.
Held:
The cheque tendered to the bank was so unusual; the sum involved was so large. A reasonable banker in
the interest of his customer, would have made further enquiries.
Judge Brightman:
To render a 3rd party liable as a constructive trustee, not necessary to show actual knowledge or the
knowledge of a dishonest and fraudulent act on his part; constructive knowledge is sufficient.
Then because of this, it caused a stir because it meant that: banks could be held liable in constructive trust
as an accessory to fraud by merely being negligent.
[Less Harsh]
Actual Knowledge
Belmont Finance Corp Ltd v Williams Furniture Ltd [1979] 1 All ER 118 COA
Belmont Finance Corp was wholly owned by City Industrial Finance, Mr James the chairman of both.
Belmont’s directors paid £500,000 under a scheme to help Maximum Co, owned and controlled by Mr
Grosscurth, to buy shares in Belmont from City. This was a breach of fiduciary duty and breach of the
prohibition on financial assistance. City received £489,000 ultimately. Belmont later claimed City was
liable to account as a constructive trustee
Held:
- City Industrial Finance was liable to account. Buckley LJ noted Barnes v Addy to mean that a stranger
who receives some of the trust or assists with knowledge of facts in a dishonest design will be liable.
- So if the directors of a company in breach of their fiduciary duties misapply the funds of their
company so that they come into the hands of some stranger to the trust who receives them with
knowledge (actual or constructive) of the breach, he cannot conscientiously retain those funds
against the company unless he had some better equity. He becomes a constructive trustee for the
company of the misapplied funds.
- Goff LJ concurred.
What Belmont has to show is that the payment of the £500,000 was a misfeasance, which for
this purpose is equivalent to breach of trust, that City received all or part of this money, and
that it did so knowing, or in circumstances in which it ought to know, that it was a breach of
trust....’ ‘...'The long arm of equity’ is long enough to catch this sort of transaction.
Principle:
3rd party can only be liable as constructive trustee if he is being dishonest/fraudulent. Constructive
knowledge is not sufficient. Otherwise, an undesirable degree of uncertainty to the law would be
introduced.
EFFECT: Selangor United Rubber Estate was overruled
Lipkin Gorman v Karpanale[1987] 1 WLR 987

C was a compulsive gambler as well as being a partner in the plaintiff firm of solicitors. He had full
authority to draw on the solicitors' client account which was kept with the defendant bank. The partners
did not know of C's gambling vice, and without their knowledge he had withdrawn more than 200,000 to
fund his losses.
C, acting within his authority, procured a bank draft for £3735 which he then indorsed and exchanged for
gambling chips at the defendant gambling club. The draft was subsequently honoured. C was later
convicted on a number of counts of theft, and the solicitors brought actions against the gambling club and
the bank.
Part of the case against the bank was that the branch manager knew of C's compulsion. Indeed, following
a meeting with C, the manager recorded that he did not believe C's assertion that the gambling was a
"controlled activity". The manager informed the firm of solicitors neither of C's gambling nor of the large
sums that C had withdrawn from the firms account. The manager made no inquiries as to the propriety of
C's withdrawals.
Court at First Instance Held:
1. The bank was liable as constructive trustee of the amounts stolen between the date on which the
manager had recorded that he did not believe C and the date when the solicitors should have
discovered C weakness for themselves. This appeared to be on the basis of Selangor, but as Parker LJ
said,
...it is to be noted that the distinction between liability as a constructive trustee and liability for
breach of contract is frequently blurred or unconsidered.
Reversed by COA:
1. Importantly, two members of the Court of Appeal (May and Parker L. JJ.) held that in the present
circumstances a bank could not be held liable to its customer as constructive trustee of the moneys
in the customer's account unless the bank could be shown to be in breach of the contractual duty of
care owed to the customer. While this finding by no means eliminates all problems with
the Selangor style case, it does support Ellinger's tentative suggestions that the touchstone which
explains these cases is banking practice.
2. The bank was said to be negligent in failing to notify the solicitors of C's habit. Unfortunately, the
evidence and the pleadings on this point were unsatisfactory. The Court found that the manager
had learned of C's vices through C's operation of his personal account rather than through the
account of the solicitors. The bank's duty is to keep such information secret, not to use it to notify
other account holders: Tournier v National Provincial and Union Bank of England [1924] 1 K. B. 461.
Had the information come to light through C's operation of the firm's account, the outcome would,
of course, have been different. Although the difference is clear in theory, in practice the result will
depend upon small differences in the evidence.
3. The more interesting question was whether the bank was negligent in failing to make inquiries
before honouring the cheque drawn by C on the firm's account. All members of the Court agreed
that there was some limit on the bank's entitlement to treat a mandate as absolute. Counsel for the
bank argued that the limit should be drawn when the relevant transaction was patently dishonest.
4. The Court imposed a slightly higher obligation on the bank. May L. J. thought that (at p. 1356)
...it is ...only when the circumstances are such that any reasonable cashier would hesitate to pay a
cheque at once and refer it to his or her superior, and when any reasonable superior would hesitate to
authorise payment without inquiry, that a cheque should not be paid immediately on presentation and
such inquiry made.
5. Parker L. J. thought that the plaintiff must establish (at p. 1378)
...that there was a serious or real possibility that C was drawing on the client account and using the
funds so obtained for his own and not the solicitors' or beneficiaries' purposes.
6. On the facts, the Court found that there was no negligence. That finding in itself should provide some
comfort to bankers, for short of actual knowledge of the frauds, it is hard to imagine what the manager
might have known that would have tipped the scales. Parker L. J. notes that not only did the manager
know of C's gambling, but that the manager would not have tolerated C's retention as a customer but
for C's association with the plaintiff. However, this is not enough to lead a reasonable bank manager to
believe that there was any possibility that C might be "looting" the client account.
7. The overall result of the case is probably comforting to bankers. True it is that a bank must exercise
care in following the mandate of its customer, but the standard required is not high.
[Constructive Knowledge moving to Actual Knowledge]
Royal Brunei Airlines v Tan Kok Ming [1995] 3 MLJ 74 has revised the elements of “knowing assistance”.
Now it is ‘Dishonest Assistance’ The judge in the aforesaid case said “Baden’s scale of knowledge is best
forgotten”.
Royal Brunei Airlines appointed Borneo Leisure Travel Sdn Bhd to be its agent for booking passenger
flights and cargo transport around Sabah and Sarawak. Mr Tan was Borneo Leisure Travel’s managing
director and main shareholder. It was receiving money for Royal Brunei, which was agreed to be held on
trust in a separate account until passed over. But Borneo Leisure Travel, with Mr Tan’s knowledge and
assistance, paid money into its current account and used it for its own business. Borneo Leisure travel
failed to pay on time, the contract was terminated, and it went insolvent. Royal Brunei claimed the money
back from Mr Tan.
Trial judge held that Mr Tan was liable as a constructive trustee to Royal Brunei. The Court of Appeal of
Brunei Darussalam held that the company was not guilty of fraud or dishonesty, and so Mr Tan could not
be either. The case was appealed to the Privy Council.
Privy Council:
Giving the advice of the Privy Council, Lord Nicholls held it was the dishonest assistant’s state of mind
which matters. Knowledge depends on a ‘gradually darkening spectrum’. Therefore, the test for being
liable in assisting breach of trust must depend on dishonesty, which is objective. It is irrelevant what the
primary trustee’s state of mind is, if the assistant is himself dishonest.
“Whatever may be the position in some criminal or other contexts (see, for instance, R v
Ghosh [1982] QB 1053), in the context of the accessory liability principle acting dishonestly, or
with a lack of probity, which is synonymous, means simply not acting as an honest person
would in the circumstances. This is an objective standard. At first sight this may seem surprising.
Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence.
Honesty, indeed, does have a strong subjective element in that it is a description of a type of
conduct assessed in the light of what a person actually knew at the time, as distinct from what
a reasonable person would have known or appreciated. Further, honesty and its counterpart
dishonesty are mostly concerned with advertent conduct, not inadvertent conduct.
Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with
conscious impropriety. However, these subjective characteristics of honesty do not mean that
individuals are free to set their own standards of honesty in particular circumstances. The
standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale,
with higher or lower values according to the moral standards of each individual. If a person
knowingly appropriates another's property, he will not escape a finding of dishonesty simply
because he sees nothing wrong in such behaviour.”
This case further stated that ‘Baden’s scale of knowledge is best forgotten’
And this case was applied in Banque Nationale de Paris v Hew Keong Chan Gary [2001] 1 SLR 300.
Twinsectra Ltd v Yardley [2002] 2 A.C. 164 [Combined Test]

T granted Y a loan of 1 million. The application was processed by Y’s solicitor, L who used the services
of another solicitor, S. T disbursed the loan to S against his undertaking that the proceeds would be
used solely for the acquisition of property by Y and that the funds will be retained by S until then. S
breached his undertakings by paying the proceeds to L who knew of the undertaking given by S. L did
not take steps to ensure that the funds were used for Y ti acquire property . Y used the money for
other purposes.
HOL:
- L is not liable as constructive trustee. Although L was aware of the terms of the trust, he did not
appreciate that by paying the funds away without acquiring that the funds would be utilized for
the required purpose, he would act dishonestly by standards of reasonable person.
- L was not consciously dishonest as required to render him liable as an accessory.
- Lord Hutton:
Dishonesty is judged by both the society and the D’s standards (objective+subjective test)
- It is not necessary for the D to know the details of the trust or identity of the beneficiary but it is
sufficient if he knows that the money is not at the wrongdoer’s free disposal.
Barlow Clowes International Ltd v Eurotrust International Ltd [2006] 1 All ER 333 [Objective]
Barlow operated a fraudulent offshore investment scheme. D company dealth with a number of
payments from Barlow to offshore companies. Some of the monies from the impugned transaction
passed through the D’s accounts. When Barlow was liquidated, its liquidator alleged that the D
company had acted dishonestly in assisting the defrauding of the investors. Appeal concerned the
liability of one of the creditors, Mr. Henwood.
PC:
Mr Henwood’s deliberate failure to inquire was dishonest by ordinary standards.
Applied Royal Brunei.
Lord Hoffmann:
If by ordinary standards a D’s mental state would be characterised as dishonest, it is irrelevant to
judge the D on a different standard.
It is not necessary that the accessory knows about the existence of the trust or the facts giving rise to
the trust. All is needed is for the D to entertain a clear suspicion that the wrongdoers were not
entitled to make free with the funds. (Royal Brunei didn’t deal with this part)
Ellinger: There is a conflict between the tests applied in Twinsectra (combined) and Barlow
(Objective)
Abou Rahman v Abacha [2007] 1 All ER (Comm) 827 [Objective]

D is a Nigerian bank which had the proceeds of a fraudulent scheme paid into its account with HSBC,
which was transferred to a corporate company owned by the accomplices of the fraud. Issue on
appeal was (w) the trial judge was correct in finding that the bank was not dishonest.
Held:
There were many circumstances which suggested that the bank manager had suspicion that the
client indulged in money-laundering. There was a difference between ‘failing to spot a possible
money-launderer’ and ‘having good grounds for suspecting there was money-laundering and then
pretended that they did not know’.
Arden LJ:
Refused to attribute dishonesty based on suspicion
Pill LJ: If bank manager’s conduct had fallen below the normally acceptable conduct, then it would
have amounted to dishonest assistance.
But COA was reluctant to interfere with trial judge’s decision.
Conclusion
1. The old concept looks at the dishonesty of the real trustee and the bank was deemed to have
constructive knowledge of this.
2. The new concept looks at dishonesty on behalf of the bank.
3. This shows that the strict rule to hold a bank as a constructive trustee is relaxed and has
become less harsh.
4. The old rule though harsh, provided protection to beneficiaries as banks would have to be more
thorough in their business to avoid liability.
5. The new rule on the other hand, makes the trustee personally liable for a breach of
trust/breach of fiduciary duty.
Read the article behind for the case of CIMB Bank Bhd v Maybank Trustees Bhd [2014] MLJU 117 by Weng
& Co.
4.0 Bank’s Duty to a Customer

A bank owes several duties to the customer. The more important duties are:
(a) Duty to honour cheques
(b) Duty of secrecy
(c) Duty to comply with Garnishee orders and Mareva Injunctions [Later In Notes]
4.1 Duty to Honour Cheques

Burnett v Westminister Bank
Bank’s duty to pay a cheque or to refuse its honour is owed to the customer alone
The bank has a duty to honour customer’s cheques presented to it, but subject to the condition that the
customer must have sufficient funds to his credit or the said cheque is within the agreed overdraft limit. In
addition, there is no bar for payment of the cheque, for example a court order such as a garnishee
order/mareva injunction or the customer passes away/becomes insane. Plus, it must be done during
banking hours (now easier because 24 hours due to machines).
UMBC v Liew Yang [1975] 1 MLJ 148

D had a balance of around $600 in his account. He then drew a cheque for a sum of 19k which the bank
dishonoured. His account was later credited with the sum. The bank later sought payment for this sum
which it considers as a loan.
Held:
Since D in the present case drew the cheque of 19k in excess of the true amount which ought to be
standing to the credit of his account, the D was in fact requesting the P for a loan, and in honouring that
cheque, the P was in fact giving a loan of money to the D. Therefore, D has no defence to claim.
Principle:
Where cheques were honoured although monies in the account were not sufficient, this was to be
regarded as a bank loan.
If the above station situations do not exist then the customer is entitled to commence legal action against
the bank:
1. In a situation where the bank failed to honour the cheque without reasonable ground, the customer
can commence action based on breach of contract.
2. In a case where the bank gives a reason to 3rd party as to why the cheque was dishonoured, the
customer can commence action based on the tort of libel if the said reason was unfounded.
Question:
Can Both the Claims (breach of ctt and tort) be combined into One?
Chartered Bank v Yong Chan [1974] 1 MLJ 157
R had drawn a cheque on the partnership acc with the A bank. One of the partners wrote to the bank
asking the bank to stop withdrawals unless authorized by all 3 partners. Subsequently, the R issued a
cheque which was returned dishonoured with the answer ‘signature of all partners required’.
Held: (RAS)
“A wrongful dishonour of a cheque gives rise to two possible causes of action, one for breach of ctt and
the other in tort, and in a proper case the practice has been to combine the two claims in one action; rules
of pleadings determine how those claims may be so combined.”
(So the answer is YES)
Types of Action
Paying bank : Action of wrongful dishonour both in ctt and tort
Collecting bank: Action on tort
4.1.1 What is the Quantum of Damages for breach of ctt?

From the legal aspect, quantum of damages for breach of ctt depends on (w):
The customer is a businessman (trader); Substantial, reasonable amount of damages
Lies without proof of special damages
The customer is a non-businessman (non-trader) Nominal damages
Have to prove loss pleaded as special damages
Examples of Non-Traders (insignificant so I start off with this)
Evans v London Provincial Bank
Customer was wife of naval officer. When her cheque was wrongfully dishonoured by the bank, she
brought an action for breach of ctt. Court held that there was no loss suffered and awarded one shilling.
Gibbons v Westminister Bank [1939] 2 KB 882

Bank dishonoured cheque drawn by tenant in favour of landlord. The court held that a customer had to
prove loss in order to recover substantial damages and such loss is pleaded as special damage.
Definition of Trader as per Holden’s book.

 A trader is a terminology that covers all merchants that buy and sell goods, and also agents as well as
business brokers.
 The presumption of law is that if the cheque is dishonoured based on a wrongful ground, then this
will threaten his business credit (macam reputation); therefore he need no prove actual damage.
 In this situation, the trader is entitled to receive substantial damages, but an amount that is
appropriate and reasonable.
 Kinda like strict liability - so long as you’re a trader, you get these benefits - even if there is no actual
loss
Rolin v Steward [1854] 14 CB 595

P was a trader. He sued bank for wrongfully dishonouring the cheques drawn although there was
sufficient funds and assets in the account. The cheque was honoured the following day. There was no
evidence of special damage.
Held:
Customers are entitled to substantial but reasonable damages. Judge may take into consideration the
natural and necessary consequences that must result to the customers as a reflection of the bank’s breach
of contractual duty to honour the cheque.
There is an irrebuttable presumption in favour of a trader that he would had in fact suffered actual
damage to an extent, though he was unable to prove as such. Hence, a trader need not prove actual
damage.
Principle:
When the customer is a trader, the action lies without proof of actual damage.
Ng Cheng Kiat v Overseas Union Bank [1984] 2 MLJ 140

P had a balance of $4.95 in his account. The bank then closed his account without informing him. P later
paid $3.2k into his account and drew 2 cheques. When the first cheque was presented, it was
dishonoured with the words “Account Closed”. The P was also asked to call the Bank so that refund ofthe
deposit of $3.2k could be made to him. The 2nd cheque was presented and dishonoured the 2nd day.
Held:
 With regard to the 2nd cheque, bank had no duty to honour as P was informed about the amount
that was mistakenly accepted.
 Damages awarded for breach of ctt and also fro the libellous words ‘account closed’ in relation to the
1st charge.
 The amount of the damages for breach of ctt depends on (w) or not the customer is a trader.
 The P is entitled to recover substantial but reasonable damages for injury to his commercial credit,
without the necessity of alleging and proving any actual damage.
Great One Coconut Products Industries (M) S/B v Malayan Banking Bhd [1985] 2 MLJ 469
P company had been paying its suppliers using bank drafts. It bought 5 bank drafts from the D bank and
issued them in favour of its suppliers. The bank drafts were unable to be cleared on 2 May due to
telegraphic breakdown in the D bank’s branch in Kepong but bearers were asked to come on 4 May 1981.
On 4 May, the bank drafts were dishonoured. All the drafts were however, cleared on 6 May.
As a result of the wrongful dishonour, P company brought an action against the bank for breach off ctt
and libel.
Held:
 The factors to be taken into consideration in order to award substantial but reasonable damages in
favour of P for breach of ctt:-
i. Position and standing of P as a trader
ii. The nature of the trade of the P
iii. The conduct of the bank in dishonouring drafts - were they apologetic?
iv. (w) there was an injury to the P’s credit as a trader
 Since P company always pays its suppliers using bank drafts, after the bank drafts were dishonoured,
the suppliers demanded cash payments. The credit of P company was gravely injured.
 Substantial but reasonable damages of 15k was awarded.
Chua Neoh Kow v Malayan Banking Bhd [1986] 2 MLJ 396

P (trader) drew a cheque but the Bank refused to honour it when presented for payment although he had
adequate funds in the account to meet it on the ground that the “drawer’s seal (was) not according to the
specimen.”
Held:
Bank had wrongfully dishonoured the cheque. Although P was a trader, he still needed to prove special
damages in order to claim substantial damages.
Baker v Australia & New Zealand Bank Limited [1958] NZLR 902
P brought an action in ctt and tort for the bank’s wrongful dishonour of 3 cheques that were stamped
with the words ‘present again’. The P was a substantial shareholder and a director of the company.
Held:
The company is a trader, but not the P (follow Solomon’s case - it’s about the veil separating corporate
company and the shareholders). Since she was a non-trader, she had to prove special damage, thus
entitled only to nominal damages.
In modern days, such distinction is eroded. Professional men, such as solicitors and accountants are in a
position akin to businessmen. Even members of the public such as civil servants and employees have
credit ratings with credit card issuers. Thus, a bounced cheque can do as much harm to their reputation as
to a tradesman’s.
Kpohraror v Woolwich Building Society [1996] 4 All ER 119 COA

Customer was self-employed exporter/importer with annual income below 5k. He drew a cheque in
favour of the supplier. The cheque was initially dishonoured as it had been reported lost. When the
mistake was discovered, before the close of the very day of dishonour, the payee was informed that there
was adequate funds in the account. In the cross-appeal, the customer claimed for special damages on the
ground of the loss of future orders and loss caused by the delay in the shipment.
COA held:
 A non-trader could recover substantial rather than nominal damages or loss of credit or business
reputation resulting from a wrongfully dishonoured cheque.
 However, damages here were too remote as there was no evidence to indicate that a one-day delay
would cause substantial loss.
4.1.2 Action for tort of libel

The tort of libel exists if the reasons for wrongful dishonour of a cheque is defamatory. When a
customer’s cheque is dishonoured, the paying bank may endorse words on the cheque being ‘insufficient
funds’ or ‘accounts closed’. If the bank has made a mistake whilst endorsing the aforesaid words, then a
prima facie liability for the tort of libel exists.
This also exists against the collecting bank. This is because this action does not depend on any contractual
relationship, the drawer of the cheque can commence an action in the tort of libel against the collecting
bank for any defamatory remarks wrongfully endorsed on the cheque.
**Libel are written words which convey such meaning to mind, that tends to lower a person in the
estimation of right-minded members of society generally
Sim v Stretch [1936] 2 AER 1237

P’s housemaid re-entered service with D. D sent a telegram asking P to return ‘her possession and the
money you borrowed’. P alleged that the words ‘money you borrowed’ as defamatory.
Held:
The test is: (w) the words tend to lower the P in the estimation of right-thinking members of society
generally. The court held that these words were not.
Baker v Australia and New Zealand Bank Limited [1958] NZLR 902
(refer back to above for details)
 “Present again” imports the clear intimation that the maker of the cheque so answered has defauled
as to time for performance of the legal and ethical obligation to provide for payment by the bank on
presentation of the cheque issued for immediate payment.
 It conveys the meaning that the customer has insufficient credit in his acc to meet the cheque on
original presentation = conveys a defamatory meaning.
 The matters to be taken into considetaion in assessing damages are:
 The position and standing of the P
 The nature of the libel
 The mode and extent of the publication
 The absence of any retraction or apology
 The whole conduct of the D from the time when libel was published down to the very moment
of verdict
Flach v London & South Western Bank Ltd [1915] TLR 334
(w) the words “refer to drawer” were defamatory?
Held:
 “R2D” in their ordinary meaning amounted to a statement by the bank - ‘we are not paying, go back
to the drawer to ask why.’
 Evidence suggests that it means that acc has no money. If that is the case then the bank is justified in
doing so as there was no money.
Davidson v Barclays Bank Ltd [1940] 1 AER 316

P, a bookmaker, drew a cheque which was later dishonoured by the bank with the words ‘not sufficient’
marked on it. P had the day before sent a stop order to the bank from honouring another cheque. If the
bank had adhered to the order, there would be sufficient funds.
Held:
 ‘not sufficient’ was defamatory.
 Bank made no apology whatsoever to mitigate the situation.
 Since P was a bookmaker, D’s action had a serious effect as it conveys the message that the P could
not even meet a cheque worth 2 pounds.
Holden in his book submitted that it makes no difference (w) the answer is ‘R2D’, or ‘present again’ or ‘not
sufficient’. The legal defence for a paying bank or a collecting bank for the tort of ‘libel’ is justification.
Justification can be use dif the endorsement on the cheque is the actual reflection of the customer’s acc.
Tan Ah Sam v Chartered Bank [1971] MLJ 28

P, a businessman sued the D for wrongfully dishonoring certain cheques drawn by him; and alternatively,
for falsely and maliciously writing on the cheques ‘R2D’ which was published to the drawee. There was
insufficient funds in the acc. Before drawing the cheques, the P had paid a cheque into his acc but it was
rejected by the bank as it was not issued to him but to this partnership.
Held:
 The Ds as collecting bank must act in good faith and without negligence to afford themselves
protection under the law.
 A banker’s duty is based on the contractual relationship of creditor and debtor.
 One of the conditions to be satisfied before payment is that funds must be sufficient and available
unless there has been agreement, express or implied, otherwise entered into between the creditor
and the banker, that the creditor shall be allowed to draw on the cheque the moment he paid it in.
 Ds were justified in writing ‘R2D’ when compelled to dishonour the cheques as there was insufficient
funds. Hence, bank was not liable.
 **Justification was applied
Top-A Plastics v Bumiputra Commerce Bank Bhd [2006] 5 MLJ 260//[2008] 5 MLJ 34 COA
- P was a customer at D’s bank. D received 2 garnishee orders. D later froze all of P’s account without
informing them. A sum of RM98k was later transferred from the US but it was also frozen.
- P only knew of the frozen acc after being informed by their employee that 2 cheques drawn by P
were rejected upon presentation. 14 cheques were dishonoured during that period.
- Total sum frozen by the D was RM655k for a garnishee order of RM40k.
- D had also printed the words ‘R2D’ and ‘Frozen Account’ on the dishonoured cheques.
HC Held:
1. In an ‘unlimited’ GO, the wordings of the order clearly indicate that the garnishee is to attach ‘all
debts owing or accruing’ from the garnishee (D) to the customer to answer the judgment debt,
eventhough it is known that the amount of the judgment debt is less than the balance standing to
the customer’s credit. In such a situation, the bank (D) may and should refuse to pay any cheques
drawn by the customer.
2. The effect of a ‘limited’ GO is to attach only the amount of the judgment debt plus all other related
costs and expenses as ascertainable and stated in the order. The practise is for the GO of this nature
to attach debts up to a stated sum only, in which case the bank is free to part with any surplus he
may hold on the customer’s account.
3. The said amount which was paid in after the GOs were served is not subject to the GO.
4. It should be paid into a new temporary account so that the customer has benefit to utilise the
amount.
5. The GO here is ‘limited’. As a prudent banker, the D should have notified the P immediately of the
matter upon service of the GO.
6. The printed words were highly defamatory and the burden is on the D to establish its truth.
7. The refusal to meet the P cheques is so obviously injurious to the P’s credit and that the P should
recover substantial but reasonable compensation. The P need not even plead or prove damages.
8. The D has also afiled to apologize to the P for all ‘wrongs’ it has done to the P.
9. The D’s unprofessional conduct in the matter tantamount to a clear disregard of customer’s interest
in the banking industry.
COA Held:
Upheld HC’s decision. Award for exemplary damages misdirected and set aside.
Principle:
‘R2D’ were highly libellous and tantamount to mean that P had been locked up or gone into liquidation.
Charles Edward Victor v Malayan Banking Bhd [2008] 7 MLJ 609

P, a businessman had issued a post-dated cheque to an Association. The association had prematurely
presented to the D the cheque - printed ‘R2D’. D later deduct RM100 instead of RM10 as penalty, leaving
the account overdrawn by RM82.
P later drew a cheque for AIA and deposited rm250 to ensure that there would be sufficient funds. But
this amount was used to set off the outstanding.
The cheque was later dishonoured and printed ‘R2D’.
P was blacklisted by BNM, prevented from opening any accounts and his remaining account with anor
bank was closed.
Held:
The 1st cheque should be printed ‘post-dated’ and not ‘R2D’
The wrongful and unjustified ‘R2D’ remark on both cheques must have caused embarassment.
P failed in breach of ctt as he could not prove actual loss even though he was a trader
(odd case but libel succeeded)
4.2 Duty of Secrecy

It is actually one of the most vital parts.
The bank has a legal obligation to maiintain secrecy of its customer’s affairs. Generally, a bank obtains
financial information regarding its customers while being its payment or recipient agent for any debts
settled by a 3rd party. Therefore the bank is the sole financier or the largest financier for its customer. As a
result, if the duty of secrecy is breached, then the customer could receive damages.
4.2.1 Position according to Common Law

Tournier v National Provincial and Union Bank of England Ltd [1924] 1 KB 461
- A was heavily overdrawn with R bank and did not meet the branch manager’s repayment demands.
Branch manager noticed that a cheque was issued to the A by the another of its customer but it was
not deposited into the bank.
- Branch manager called up the A’s employers to ascertain the A’s private address.
- During the conversation, the manager disclosed that the A’s account was overdrawn and that he had
dealings with bookmakers.
- A’s employer refused to renew the A’s ctt upon expiration.
- A brought an action for breach of secrecy.
COA Held:
Bank had breached its duty of confidentiality and awarded damages to the A.
Bankes LJ:
1. Duty of confidentiality is not absolute but qualified. The qualifications can be classified under 4
heads:
i. Where disclosure is under compulsion by law (Eg. Evidence Act)
ii. Where there is a duty to the public to disclose (Eg. Danger to State)
iii. Where the interests of the bank require disclosure (Eg. Bank issue writ claiming payment)
iv. Where the disclosure is made by the express/implied consent of the customer (Eg. Authorises
reference to banker)
2. The duty does not cease the moment a customer closes his acc. It is not confined to the actual state
of the customer’s acc as well. It extends to information derived from the acc itself.
Scrutton LJ (restrictive):
1. The bank may disclose the customer’s account and affairs to an extent reasonable and proper for its
own protection, as in collecting or suing for an overdraft; or to an extent reasonable and proper for
carrying on the business of the acc, as in giving a reason for declining to honour cheques drawn or
bills accepted by the customer, when there are insufficient assets, or when ordered to answer
questions in the law courts; or to prevent frauds or crimes.
2. This duty does not apply to knowledge which the bank acquires before the relation of B-C was in
contemplation, or after it ceased; or to knowledge derived form other sources during the
continuance of the relation.
Atkin LJ:
1. Obligation of secrecy extend at least to all the transactions that go through the acc, and it extends
beyond the period when the acc is closed or ceases to be an active acc.
2. The obligation extends to info obtained from other sources than the customer’s actual acc. The
obligation does not extend to info obtained after he has ceased to be a customer.
 Exceptions
 Compulsion By Law
The bank can be ordered by court to disclose info regarding customer’s acc in a legal proceeding
Court applies its discretion ‘cautiously’ when making the said order and the bank cannot refuse to answer
questions concerning its relationship with a customer on the ground of privilege.
Parry-Jones v Law Society [1969] 1 Ch 1 *not banking but principle is imp.

LS served on a solicitor a written notice pursuant to the Solicitors’ Rules to produce for inspection his
books of account and any other necessary docs. Solicitor sought for an injunction to prevent the LS from
obtaining the confidential info.
Held:
 The contractual duty of confidentiality was overriden by the duty to obey the general law.
 Such a duty exists not only b/n solicitor and client but for example, b/n banker and customer, doctor
and patient, accountant and client.
 Such a duty of confidence is subject to, and overriden by the duty of any party to that ctt to comply
with the law of the land
 In the case of banker and customer, the duty of confidence is subject to the overriding duty of the
banker at common law to disclose and answer questions as to his customer’s affairs when he is
asked to give evidence on them in the witness box in a court of law.
Baker v Wilson [1980] 2 All ER 1181

Definition of bankers’ books include microfilms of a bank’s records and any permanent record made by
means furnished by modern technology.
*Ellinger: Banks nowadays keep their records on magnetic tapes and store their customers’ date on
computerised databasses.
Robertson v Canadian Imperial Bank of Commerce [1995] 1 All ER 824

A 3rd party had obtained a subpoena for the A’s banker to attend trial and to produce the A’s monthly
bank statement. A averred that there was an implied term that the bank would not divulge info without
his consent.
Held:
Both the bank and customer could not rely on the privilege to prevent disclosure when ordered by the
court.
There was no duty on the bank to inform the customer about the subpoena if it is unable to contact the
customer in the time available.
 Disclosure for ‘public interest’

For example, during war the bank has to disclose acc of the enemy of war. Acc to Paget, this is an
exclusion to the duty of banking secrecy that is difficult to define. The scope of ‘PI’ may change according
to time and circumstances. (now can consider anti-money laundering and financing of terrorism)
 The bank’s interest

There are cases where the bank initiates legal proceedings to recover monies owed by the customer to
the bank. Therefore the letter of demand and pleadings tendered to court contain the details of debt not
settled by the customer.
 Consent of the customer

The consent of a customer can be granted impliedly or expressly.
Sunderland v Barclays Bank (1983) 5 LDAB 163

D bank had dishonoured claimant’s cheques due to the acc having insufficient funds, but also due to the
bank’s knowledge that these cheques were drawn in respect of gambling debts. During a telephone
conversation between the banker and the claimant, the claimant’s husband interceded at her request and
was informed that most of his wife’s cheques were drawn in favour of bookmakers. Wife sued for breach
of confidentiality.
Held:
No breach of confidentiality. Disclosure justified in the bank’s own interest and also by the wife’s implied
consent to disclosure to her husband.
Unjustified nature of that complaint meant that the bank had an interest in defending its reputation by
informing the husband that it had valid reasons for refusing to honour her cheques.
4.2.2 Position According to Statute/Malaysia

Prior to FSA, it could be found in...
 BAFIA 1989: S97-S100 (repealed)
 Central Banks of MY Act: S16
 Banker’s Book (Evidence Act 1949): S7(1)
 FSA 2013: S132-S132. Schedule 11
The position in Tournier was first codified under the Banking and Financial Institutions Act 1989 (BAFIA).
Duty of secrecy is statutory. Now, it is clearly provided under the Financial Services Act 2013 (FSA).
However, such duty is still not absolute. The decision in Tournier was also affirmed in the case of Wong
Yeng Mun v CIMB Bank Berhad [2011] 1 CLJ 785.
S 133 (1) of FSA

No person who has access to any document or information relating to the affairs or account of any
customer of a financial institution, including—
(a) the financial institution; or
(b) any person who is or has been a director, officer or agent of the financial institution,
shall disclose to another person any document or information relating to the affairs or account of any
customer of the financial institution.
>>Information relating to affairs/account of customer—the wordings of this section can be read in line
with Atkin judgment in Tournier’s case: Not restricted to facts learnt from the state of the customer’s
account; encompasses information obtained from other sources than the actual account
Section 133(2)(c)
provides that Section 133(1) does not apply if at the time of disclosure, the information has already been
made lawfully available to the public from any source other than the financial institution.
Section 133(3)
No person who has any document or information which to his knowledge has been disclosed in
contravention of subsection(1) shall disclose the same to any other person.
(FSA covers a very wide scope of individuals who can be found liable for a breach of secrecy as compared
to s.97 of BAFIA because FSA even extend to 3rd party)
Section 133(4)
Any person who contravenes subsection (1) or(3) commits an offence and shall, on conviction, be liable to
imprisonment for a term not exceeding five years or to a fine not exceeding ten million ringgit or to both.
[makes a penal provision because the fine is heavy]
S134 provides for the exceptions which must be read together with Schedule 11
See also s256 for protection in relation to disclosures made to BNM
New legislations:
Data Protection Act 2012
Credit Reporting Agencies Act 2012
Can s97 of BAFIA be enforced outside the jurisdiction of MY courts?

AG of HK v Zauyah Wan Chik [1995] 2 MLJ 620
Applicants applied for orders as to (w) they or the bank would breach their duty of secrecy by giving
evidence in HK against its customers.
HC Held:
Protection given by s97(2) and 100 of BAFIA is only for disclosures made by bankers made in Malaysian
courts. Applicants would be in breach of BAFIA.
COA Held:
S97 of BAFIA does x have extra-territorial effect. The applicants would not face any criminal liability in MY.
Wako Merchant Bank (SG) Ltd v Lim Lean Heng & Ors [2000] 3 MLJ 401
P obtained a Mareva injunction to freeze a number of D’s accounts. Info of these accounts was obtained
by P’s private investigator. D argued that info obtained in breach of s97 was inadmissible.
HC Held:
Intention of Parliament was to protect the secrecy of the customer’s account by creating offences for the
prohibited disclosures but did not deal with question of admissibility. Under law of evidence, evidence
illegally obtained is inadmissible.
COA Held:
A breach of confidence is remedial in nature.
Hj Salleh Hj Janan v Financial Information Services SB [2005] 1 CLJ 241

FIS provided info to Affin Finance that P was a bankrupt but did not include info that the adjudicated
orders have been rescinded. P brought action for libel against FIS.
Held:
D x liable as what they did was to restatement info as per court orders which had been published in
public.
Can s97 be relied upon to bring civil action to claim damages?

Tan Eng Seong v Malayan Banking Berhad [1997] 2 CLJ Supp 552
P had an account with D. He instructed the bank to close the acc and transfer the balance in the acc to his
wife. D bank contended that he did not close the acc. D’s employee later noticed that there was an
outstanding of RM15 in P’s acc. The employee later contacted P’s company and told P’s brother-in-law
about the debt. P brought an action to claim damages under s97
Held:
Although the court found that there was a breach of this duty, the P’s claim for damages was rejected as
the punishment for s97 was penal in nature. However, the court considered common principle of implied
duty and held that P can succeed on the claim based on implied duty.
But in a new case..

Wong Yeng Mun v CIMB Bank Berhad [2010] MLJU 414
P opened accounts jointly under his name and his son of previous marriage with D bank. P wanted to keep
the statements of these accounts out of his wife’s knowledge so gave another address. D bank sent
statements to the said address ever since the accounts were opened. However, D later sent the
statements to another address other than the one stated by P. P’s wife read the statements - blew her top
and demanded that the monies in the account be shared with her. P suffered from anxiety, trauma,
depression , etc.
Held:
Court relied on the principles of Tourier and held that D had breached its duty of confidentiality when it
sent the statements to a different address without P’s consent.
Dr. Kala feels that we should follow Singapore.

Susilawati v American Express Bank Ltd [2009] 2 SLR (R) 737
The appellant, who was a customer of the respondent, executed a third party charge to secure her
son-in-law’s liabilities to the respondent. As a result of her son-in-law’s inability to discharge his liability
(amounted to 17.4m USD), the respondent deducted a sum of money from the account. The appellant
commenced an action against the bank for a breach of fiduciary duty.
COA of SG Held:
 There is simply no room, in Singapore, for the less sophisticated and more general common law rules
articluted in Tournier to have any further relevance save for the perspective of historical evolution
and context it provides.
 Tournier is now of historical importance. Section 47 of Singaporean’s Banking Act is now the more
exclusive and comprehensive regime governing banking secrecy than the principles in Tournier.
 Exceptions
Tan Lay Soon v Kam Mah Theatre S/B [1922] 2 MLJ 26
P (purchaser) purchased a land from D (vendor) who had charged a land to the bank. P sued for specific
performance and applied for an injunction to preserve the land and order the D to tender the amounts
due under the charge. D argued that such order, without D’s consent, contravened S97 of BAFIA.
Held:
There was an implied consent as D had given a letter to the P authorizing the proceeds of the sale to
discharge the charge
*Sunderland’s case also implied consent.
Banker’s Books Evidence Act

S3: a copy of any entry in a banker’s book shall in all legal proceedings be received as prima facie evidence
S6: a bank not party to legal proceedings can be compelled to produce its banking books or ori docs in
court if judge makes an order in special circumstances.
S7: on application of any part to a legal proceeding, the court or judge may order that such party be at
liberty to inspect and take copies of any entries in a banker’s book for any of the purposes of such
proceedings.
Goh Hooi Yin v Tim Teong Ghee [1977] 2 MLJ 26

P entered into an agmt for the purchase of property but D later claimed to have foreited P’s deposit. P
applied for discoerty and inspection of banker’s books for D4’s account.
Held:
Object of S7 of BBEA was to enable evidence to be procured without requiring the bankers to attend the
proceeding. It does not provide for a power of discovery and cannot be used to initiate legal proceedings.
There must be an existing proceeding.
5.0 Duty of Customer to Banker

Under the Common law, there are two duties that a customer owes to a banker:
(i) The Macmillan Duty - duty to issue a cheque with reasonable care
(ii) The Greenwood Duty - duty to notify the bank when it realizes that its cheques have been forged.
5.1 Macmillan Duty

The duty of the customer to his bank is to issue a cheque with reasonable care so that the bank is not
cheated nor to facilitate forgery. Therefore the customer must be careful whilst issuing the cheque.
GEDDIT?
The customer has an implied duty to exercise reasonable care in executing his written orders so as not to
mislead the bank nor facilitate forgery.
London Joint Stock Bank v Macmillan [1918] AC 777

The firm of M&A hired Mr K as a clerk. One of the duties was to prepare cheques to be signed for this
particular firm. On the day of question, clerk gave a 2 pound cheque to be signed, saying that it was for
petty cash (for daily expenses). After Partner A signed it, he committed forgery by adding before the
number 2, adding 1. After number 2, added 0. So, 2 cheque became 120. Wrote down that cheque
payable to ourselves. Cheque was cleared, ran off with the 120 pounds.
Firm brought action against bank. Claimed excess of 118 pounds.
HoL Held:
Bank is not liable for the extra debiting of the customer’s account. The firm itself was negligent by issuing
the cheque and the partner did not exercise reasonable and ordinary care while the cheque was being
drawn to prevent forgery.
Macmillan Principle:
When drawing a cheque, don’t leave spaces before and after numbers. You must do whatever necessary
as a customer, whatever is reasonable in ordinary care to prevent forgery. If you don’t do so, you have
breached the Macmillan duty to the banker.
*The Duty of Care does not include a duty to prevent forgery!*

Lewes Sanitary Steam Laundry Co v Barclays, Bevan & Co. (1906) 11 Com Cas 225
- A company’s secretary whom the chairman of the BOD knew to have been convicted for forgery was
made a joint signatory and was entrusted to keep the cheque book. The secretary later forged the
signature of one of the directors and absconded with the money.
- It was contended by the bank that director of the company was aware that the secretary had a
history in committing forgery before he became the secretary of the company and he should have
told the bank. Also, the company was negligent in failing to supervise its secretary and failing to
check its bank pass-books.
Held:
The customer does not owe a duty to conduct his business in a manner to prevent opportunities to others
to commit forgery on the cheques
E.A. Barbour Ltd v Ho Hong Bank Ltd (1920) SSLR 116 (Position in Singapore)
Plaintiff company gave its manager the authority to draw cheques on the company’s bank account. The
manager signed a cheque filled in by a clerk for $2520 which was written in a such way as to enable the
amount on the cheque to be easily altered. Spaces were deliberately left between the figures. The clerk
later altered the amount to $12,520. The plaintiff contended that the bank had no authority to make
payment on the cheque because it had been materially altered.
Held:
The plaintiff had failed to take reasonable care in writing out the cheque because it had left blank spaces
on the cheque which facilitated the alteration of the cheque.
*CONTRARY DECISION: Colonial Bank of Australasia Ltd v Marshall

Where it was decided by the Privy Council that the mere fact that the drawer of a cheque had left blank
spaces on the cheque which enabled the amount on the cheque to be increased without authority did not
by itself constitute a breach of the customer’s duty of care towards the bank.
[However, it must be noted that the decision in Colonial Bank has been largely ignored by English courts
as a PC decision does not bind English courts. The court in E.A. Barbour has also refused to follow Colonial
Bank. There are also opinions that the case might have been wrongly decided.]
5.2 Greenwood Duty

Greenwood v Martins Bank Ltd [1932] 1 KB 371
Wife was forging her husband’s cheque for quite a long time. The husband was aware of it. His account
was being debited during that period. For 8 months, even thought he had knowledge that wife was
committing forgery, he kept quiet. After that incident, after 8 months, she committed suicide. Took a gun
and shot herself. After the wife passed away, he brought action against banker, saying that bank had been
negligent in clearing all the cheques where his signature had been forged.
HOL:
 Customer’s duty to inform the bank when it realizes that his cheque has been forged (to immediately
inform the banker).
 The failure of the customer to notify the banker will operate as an estoppel or a bar on his right to
sue the banker >> estoppel by conduct of having knowledge and not informing the banker.
Proven Development S/B v Hong Kong and Shanghai Banking Corp [1998] 6 MLJ 150
One of the P’s directors gave oral instructions to the bank to debit its accounts for a sum of money. P sued
fo rthe sums debited. D contended that the oral instructions were ratified by the board of directors but
due to the lapse of time, the bank was unable to produce it.
Held:
Oral instructions capable of ratification. Company has a duty to inform the bank of the alleged
irregularities as soon as they find out about it. It took them 9 years to before bringing this suit. Company
was stopped from claiming against the bank for the loss. (applied the case below)
The case that had recognizes both the customer’s duty at common law
United Asian Bank Bhd v Tai Soon Heng Construction S/B [1993] 1 MLJ 182 SC
R was customer of A bank, opened account in A branch in KL. Accounts clerk committed forgery with a few
cheques that were honoured by A bank. Quite a large amount of money involved. The clerk was not an
authorised signatory in respect of the said account.
SC Held:
 Customer who alleges that the bank has honoured a forged cheque needs to only establish the
charge of forgery on the balance of probabilities
 To determine (w) the signature is forged or not is a question of fact after taking into account expert
opinion.
 Bank’s liability for honouring forged cheques is based on the tort of conversion, which is a strict
liability tort.
 At common law, a customer owes his banker only 2 duties: the first is to refrain fr drawing a
cheque… (Macmillan duty), the 2nd is to inform… as soon as the customer becomes aware of it
(Greenwood duty).
 However there does not exist at CL a further duty on the part of the customer to take precautions in
the general cause of his business to prevent forgeries on the part of his servants
 Neither does there exist in CL, in absence of contract to the contrary, no duty is imposed upon the
customer to inspect his periodical bank statements to ensure that his account is properly maintained
by the bank.
6.0 Operation of Customer’s Accounts

Examination of Pass-Books, Combination of Accounts, Rights of Set-off and Appropriation of Payments
6.1 Examination of Pass-Books

Does the customer have a duty to examine pass-books or bank statements?
From the common law angle, the customer does not have the duty to examine pass-books or his bank
statement.
Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1985] 3 WLR 317 PC
Company’s clerk forged signature of the company’s directors over 300 cheques amounting to HK$7million
for a period of three years, involving three banks. The company demanded for the money to be credited
back into their accounts and the bank contended that a customer owes a duty to take precautions and to
prevent forgeries and check his periodical bank statements and inform the bank about any discrepancies.
Held:
 Customers do not have a duty to prevent the forgery of his cheques or to check his periodic
statements as to check for any discrepancies.
 The only implied duties were the Macmillian and the Greenwood duties, in the absence of any
express term to the contrary.
Same with the case of

UAB v Tai Soon Heng S/B [1993] 1 MLJ 182
 At common law, a customer owes his banker only 2 duties: the first is to refrain fr drawing a
cheque… (Macmillan duty), the 2nd is to inform… as soon as the customer becomes aware of it
(Greenwood duty).
 However there does not exist at CL a further duty on the part of the customer to take precautions in
the general cause of his business to prevent forgeries on the part of his servants
 Neither does there exist in CL, in absence of contract to the contrary, no duty is imposed upon the
customer to inspect his periodical bank statements to ensure that his account is properly maintained
by the bank.
 If there does not exist any express provision between the customer and the bank then the customer
does not have any duty to examine or ensure if the bank correctly manages the statement of
account.
So in these cases, the court opined that if there does not exist any express provision between the
customer and the bank, then the customer does not have any duty to examine or ensure if the bank
correctly manages the statement of account.
Is the customer bound by the entries in the pass-book/statement of account?

This issue is important in view that it involves the right of the customer to question the validity of number
sin the account book or statement of account, as endorsed by the Bank. The bank’s stand that the account
book and statement of account is ‘as stated’ was rejected by English cases. Bank statements and
pass-book entries are not to be regarded ‘as the stated accounts’.
Chatterton v London & County Banking Co Ltd (1891) The Miller

A customer is not bound to check his pass books. Pass-books would not constituted an ‘account stated’
even if it was updated at regular intervals and returned to the customer accompanied by the paid effects
and even though the customer had ticked off all entries as it was ‘a hundred to one that never looked at
the pass-books’.
Kepitigalla Rubber Estates v Nat. Bank of India Ltd (1909) 2 KB 1010

Company’s secretary forged the signatures of the directors on the cheques and the bank made payments
on the cheques. Company claimed for the amount of the forged cheques. The bank argued that the
company was bound to know and examine entries in the pass-book and report any errors of it.
Held:
A customer has no duty to take precautions in the general course of carrying on his business to prevent
forgeries on the part of his servants. It is absurd to hold that the taking of a pass-book by a bank and its
return to the customer established a “settled account”. Court held in favour of the customer.
*The above two are kinda interlinked.

Hence, under common law, there is no duty to check pass-book or bank statement nor is the customer
bound by the pass-book or statement.
What is the situation if the bank imposes a duty on the bank’s customer to accept the account book and
statement of account ‘as stated’ by the bank?
1. An express clause which stipulates the customer has a duty to examine bank statements and inform
the bank if there are any errors/mistakes or irregularities in a stipulated duration.
2. The failure of the customer to provide a notification to the bank in the stipulated duration will be
deemed as verification by the customer of the account sum ‘as stated’.
3. This clause is known as the “conclusive evidence clause”/”verification clause”
4. Banks in Canada have for a long time, practised the use of an express clause that stipulated the
customer has a duty to examine bank statements and inform the bank if there are any
errors/mistakes/irregularities in a stipulated duration.
5. Cases in Canada and Hong Kong support the validity of a CEC.
 Canada’s position
Arrow Transfer Co Ltd v Royal Bank of Canada
Customer had agreed in a form executed when he opened his account to verify all account statements
sent to him and to notify the bank of any errors and inaccuracies within a given period. The account was
to constitute conclusive evidence of the entries’ correctness. Later, a clerk forged a number of cheques.
Held:
Court upheld the clause. The bank was protected by the agreement as the customer had failed to verify
the accounts and notify the bank about its discrepancies within the time stipulated.
 UK’s position
Bache & Co (London) Ltd v Banque Verues et Commerciale de Paris SA
Parties in this case were both bankers. There was a transaction of sale where a conclusive evidence clause
was included in a guarantee stating that the amount provided in the notice of default shall be the
conclusive evidence of the amount owed by the defendant. Later, the defendant failed to pay and a notice
of default was served on the defendant.
L. Denning:
The conclusive evidence clause was not against the public policy but public policy was in favour of
enhancing it, it was a trade practised to demand for a guarantee.
**NOTE: This case was decided this way because both parties were bankers and they dealt at arms length.
There was no inequality on the position of the parties!
So, although the aforesaid clause is not contrary to public policy, it can only effective if several steps are
taken.
Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd & Others [1985] 3 WLR
Counsel for the banks sought to rely on the contract whereby there was a clause that stated if the
company fails to rectify or give confirmation within a certain period, the statement will be deemed to be
correct.
Held:
These terms of business are contractual in effect, but in no case do they constitute what has come to be
called CEC. In order to uphold this term which excludes a right of the customer, it must fulfil a rigorous
test.
 “If banks wish to impose upon their customers an express obligation to examine their monthly
statements and to make those statements, in the absence of query, unchallengeable by the
customer after expiry of a time limit, the burden of the objection and of the sanction imposed must
be brought home to the customer”
 “The test is rigorous because the bankers would have their terms of business so construed as to
exclude the rights which the customer would enjoy if they were not excluded by express
agreement.”
 “Clear and unambiguous provision is needed if the banks are to introduce into the contract a binding
obligation upon the customer who does not query his bank statement to accept the statement as
accurately setting out the debit items in the accounts.”
The Rigorous Test
1) It must be brought home to the customer the burden of the obligation and the sanctions imposed
2) The provision must be clear and unambiguous
Prof Poh Chu Chai:

It is a term whereby the bank seeks to exclude its own liability for breach of contract. Such a term comes
within the purview of the Unfair Contract Terms Act. …. Such a term ought to be strictly construed and its
effects limited to wha has been expressly stated… If there is any ambiguity in the term, the doubt ought to
be resolved in favour of the customer.
*Note: In Malaysia we do not have an Unfair Contracts Terms Act*
 Singapore’s Position
Cosmat Singapore Pte Ltd v Bank of America [1992] 2 SLR 828
Plaintiff who was a customer of the Defendant bank discovered that 15 cheques which were products of
forgeries had been paid by the defendant bank. Plaintiff brought an action to recover the amount of the
forged cheques but the defendant relied on conclusive evidence clause under cl3 of the agreement.
-Counsel for the customer contended that it was an unfair term under the Unfair Contract Terms Act
Held:
the UCT Act was not applicable. The term was upheld. The court found that there was an equal bargaining
power- they entered into the agreement on their free will and there was no evidence that they were not
free to negotiate with the bank to vary the term.
>>Bank had succeeded in using CEC to exclude customer from claiming falsification of signatures on 15
cheques honoured by the bank.
**Criticized by Prof Poh Chu Chai- the reasoning of the court in holding that the UCT Act did not apply was
unconvincing as the term clearly falls under the purview of the act. Prof Poh also opined that if a bank
wishes to shift its responsibility for verifying a customer’s signature to himself, then it should say it in clear
terms rather than hide it in a clause which refers to something else. On the reasoning of the court that the
parties were free to negotiate, Prof Poh was of the opinion that it was “contrary to commercial reality’
where no bank in practice will ever allow a customer to vary its standard term contract.
Ri Jong Son v Development Bank of Singapore Ltd [1998] 3 SLR 64

A manager of a Korean Bank opened a joint bank account at the defendant bank with the director of a
Japanese company. There was a clause in the agreement providing that the bank will not be liable for any
loss as a result of forgery of signatures. Later, there was a remittance instruction made with a forged
signature instructing the bank to transfer a huge amount of money from the joint bank account to the
Japanese company’s account. Plaintiffs sought to recover the money and the defendant relied on the
exclusion clause.
Held:
The clause was upheld and the bank was exempted. The clause did not come under the purview of the
Unfair Contracts Terms as it did not seek to exclude or restrict the defendant’s liability for negligence.
Although the bank had acted in breach of mandate, it was protected by the clause.
*Criticized by Prof Poh Chu Chai at p896-898- “…The decision that a bank making payment on a forged
signature is not at fault clearly cannot be supported at law. Such a rule is contrary to the fundamental
principle of banking law established by a long line of authorities…”
What is the situation if the customer’s bank account entry is over-credited?

1. The aforesaid over-crediting in the pass/account book is prima facie evidence against the bank of the
total credit in the customer’s account.
2. If the aforesaid over-crediting does not involve negligence or fraud on the part of the customer, then
the customer can rely on the said entry.
3. The bank can correct the entry in the account book but this must be done within reasonable time.
*Examine also the argument of estoppel used by the customer in Lloyds, Zabstein and Jiwani.
Holland v Manchester and Liverpool District Banking Co (1909) 25 T.L.R. 386

Customer’s passbook showed a credit balance of 70 pounds instead of 60. In reliance of this entry, the
customer drew a cheque of 67, which was dishonoured when presented.
Held:
Bank was entitled to debit the customer’s account that was wrongly credited but it did not have the right
to dishonour the cheques drawn for sums within the balance until it gives notice to the customer.
British & North European Bank v Zabstein [1927] 2 KB 92

Customer did not discover the wrong credit entry made in his favour until it has been reversed.
Held:
Bank is always entitled to rectify the error within reasonable time. Customer can plead estoppel in
question only if he was misled, or had reason to be misled by the erroneous balance.
United Overseas Bank v Jiwani [1976] 1 WLR 964

Bank had erroneously credited its customer’s account twice with the amount of a single remittance. The
amount was substantial and the customer was not expecting any payment additional to the one he
genuinely received. Despite this, he drew on the balance accrued. Bank sought to reverse the undue credit
entry.
Held:
Customer ought to have known that the unduly high balance shown in his account was incorrect.
He was not expecting any other substantial payment and thus, was not entitled to shut his eyes to the
facts
6.2 Combination of Accounts and the Right of Set-off by Banks

A customer can maintain more than one account at the same branch of the bank or at different branches
of the same bank. At times, the accounts are similar or different types of accounts. For example, a
customer may open several current accounts or saving account, a current or a fixed deposit acc.
Two situations exist wherein the bank seeks to combine more than one acc or set-off the balance of one
account with the balance of anor acc.
1) A customer is unable to or unwilling to repay an overdraft incurred on one acc but the other is in
credit
A customer takes an overdraft from acc ‘A’ and his other acc, ‘B’ has a credit balance. If the bank can
set-off the overdraft in A with the total credit in B, then it can avoid expenses and time to initiate
legal proceedings to recover the debt.
2) A customer draws a cheque that exceeds the credit of one acc

The Bank seeks to combine accounts of customers issuing cheques that exceed the total credit in
one account but the shortfall sum can be covered by anor acc. In this manner, the customer’s
cheque is honoured although the credit in one acc is insufficient and the customer’s reputation
issuing the cheque is preserved.
Pertamina Energy Tradings v Credit Suisse

Applying Halesowen Presswork Assemblies, as far as the right of set-off is concerned, the bank can fall
back on its common law right qua banker to combine two or more accounts belonging to a customer for
the purposes of satisfying the indebtedness incurred by the custoer.
6.2.1 In what situations can the accounts be combined or set-off by banker

Garnett v McKewan (1872) LR 8 Ex 10
Customer has an acc with B branch which was frozen as it was overdrawn and the customer fad failed to
discharge its liability. He opened another account later with L Branch to facilitate collection of cheques
payable to him. Bank set-off the overdraft balance in B with credit balance in L.
Held:
The bank’s right to combine accounts is subject to (w) there exists any express/implied agmt that indicates
a contrary intention.
Greenwood Teale v William, Williams, Brown & Co

Senior partner of a firm of solicitors open 3 accounts: office, deposit, private. Clients money was paid to
credit of deposit acc which was later closed. Both firm and clients money were credited to office accounts.
As private acc was overdrawn, bank resolved to combine private and office accounts.
Held:
The right to combine is subjected to 3 exceptions:
The right could be abrogated by special agmt
Right is inapplicable where a special item of property is appropriated for a particular purpose
Private account cannot be combined with a trust account.
6.2.2 Different Types of Accounts: A loan account and Current account?

Bradford Old Bank Ltd v Sutcliffe [1918] 2 KB 833
The fact that one of the accounts was designated a loan account clearly showed that the accounts were to
be kept distinct by arrangement between customer and bank.
Re EJ Morel(1934) Ltd [1962] 1 Ch 21

A company in financial difficulties were maintaining 3 accounts (a frozen account representing liabilities
[-1839], a normal business account [+1544] and a wages account [-1623]). Bank’s combination was to
combine alland the preferential claim became 910 out of 1917. Liquidator’s method was to combine 2 and
3 first, preferential claim only 78.
Held:
In this case the accounts are of a different character and the banker is not free to combine them in the
general way.
Re Gross, ex p Kingston
An account opened by a customer as a ‘police account’ could not be combined with the customer’s
personal account.
National Westminister Bank Ltd v Halesowen Presswork Assemblies [1972] AC 785

If there has been an agmt to the contrary intention, accounts cannot be combined. However, in a material
change of circumstances, the bank’s right revives as the accounts are no longer active.
A loan facility must be distinguished from a current account.
6.3 Appropriation of Payment

The second exception to combining accounts (Greenwood) occurs in cases of ‘special appropriation’.
W.P. Greeenhalgh v Union Bank of Manchester [1924] 2 KB 153
Cotton brokers (claimants) sold some cotton to W.Sons. Cotton was resold to spinners who issued to
W.Sons a bill of exchange for the price. D bank credited the proceeds to W.Sons account where the funds
reduced an overdraft instead of crediting to the business account. The brokers then argued that the bill
belonged to them as there is a ctt with W/Sons to appropriate the bills to them.
Held:
If a person making a payment states definitely that such payment is for a particular purpose, and the
person to whom it is made does not dissent, then he must use it for that purpose.
The right to payment would be those of an assignee.
Barclays Bank Ltd v Quistclose Investments Ltd

A company facing financial difficulties obtained a loan to pay dividends through a special account. The
company went into liquidation and the bank sought to set off the balance in the special account against
the overdraft incurred in the general account. R (lender) objected,m arguing that the object of the loan
has failed and thus the account will be held by a resulting trustee for the R.
Held:
2 requirements must be fulfilled:
(1) Relevant loan monies can be utilized for a special purpose only
(2) Bank had knowledge of the appropriation
The bank knew of the special purpose as they had been informed.
If no instruction is given by the client, the bank can appropriate payment using the Clayton principle.
Amounts paid out were to be appropriated against the earliest credit entries in the account.
Barlow Clowes International v Vaugham [1992] 4 All ER 22

Disappplied Clayton as there was no evidence as to the order in which payments were made into and out
of a current account.
Re Haletts Estate Knatchbull v Hallet (1879) 13 Ch. Div. 696

A solicitor instructed his bankers to sell certain bonds on behalf of the client. He instructed the bank to
credit the proceeds into his personal account which he has been regularly drawing and paid cheques into.
The solicitor bankrupted and the client sought to claim the trust money. Trustee in bankruptcy argued
that the fiduciary funds had been exhausted under the Clayton Rule as they came in earlier.
Held:
As there was a fiduciary relationship, the solicitor was deemed to be utilizing his own funds for running
payment.
When funds are mixed, the cestui (Beneficiary) cannot claim in specie (in actual form) but is entitled to a
‘charge on the property purchased for the amount of trust money laid out in the purchase’.
7.0 Garnishee Orders

 A Garnishee Order (GO) is an order obtained by the judgment creditor to attach monies in the hand
of a 3rd party (bank) due to the existing debt of the judgment creditor.
 A GO is obtained by the judgment creditor to instruct the garnishee to settle any debts or accruing
debts due to the judgment creditor.
 It is an execution process.
 In Malaysia, Order 49 Rules of Court 2012 is referred to.
7.1 Order 49 Rules of Court 2012

R1(1) :The GO is obtained by the judgment creditor to instruct the garnishee to settle any debt or accruing
debts due to the judgment creditor.
R1(2) : An order in Form 97 shall in the 1st instance be an order to show cause
R1(3) :“Any debt due or accruing due” includes a current or deposit account with a bank or other financial
institution whether or not the deposit has matured and notwithstanding any registration as to the
mode of withdrawal”
R2 : An application for an order under rule 1 shall be made ex parte by a notice of application supported
by an affidavit in Form 98—
(a) identifying the judgment or order to be enforced and stating the amount remaining unpaid
under it at the time of the application; and
(b) stating that to the best of the information or belief of the deponent the garnishee (naming him)
is within the jurisdiction and is indebted to the judgment debtor and stating the sources of the
deponent’s information or the grounds for his belief.
R3(1) : Order under R1 to show cause shall at least 7 days before time appointed, serve on garnishee
personally and unless otherwise directed by Court, on judgment debtor
R3(2) : Such an order shall bind hands of garnishee
R4 : If there is no dispute, GO shall be absolute
R5 : If there is a dispute, Court may try the case
R6 : If there is a dispute by some other person than judgment debtor
R7 : Judgment creditor resident outside scheduled territories
R8 : Any payment made by garnishee in compliance with an order absolute shall be valid discharge
R9 : Matters pertaining to Money in Court
7.2 Types of Accounts that can be Garnished

 Current, Deposit, Joint and Trust
 Current and Deposits are confirmed as per O49R1(3).
 Joint and Trust - depends.
 Current
Joachimson v Swiss Bank Corporation
P sought for an order to claim for the remaining sums in the partnership’s current account in D bank. Bank
argued that a demand is necessary before the bank can be sued to recover for money in the current
account. Before customer made such demand, the debt was not “due or accruing due”.
Held:
A garnishee order nisi is sufficient t constitute a demand.
 Deposit
Deposit account stipulates several terms before the account sum can be withdrawn. Therefore, the
service of a garnishee order cannot be regarded as a demand.
Bagley v Winsome & National Provincial Bank Ltd [1952] 2 QB 236

A GO was served upon the bank in respect of the judgment debtor’s deposit account. There was an
agreement between the debtor and the bank whereby a) 14 days notice must be served to the bank and b)
money can only be withdrawn personally by producing the deposit book, Notice of withdrawal was given
and expired when garnishee order was served.
Held:
 Deposit account is not due and payable until the stipulated conditions are fulfilled.
 The account is not subject to garnishee summons because the judgment debtor did not fulfil the
second pre-condition.
But this case has now become of historical importance due to the fact that we now have O. 49 R 1 (3)
 Joint
Generally cannot but can apply tracing
Mac Donald v Tacquah Gold Mines Co (1884) 13 QBF 535
P obtained a GO for debts owing or accruing from the D. The account in question was a joint acc between
the judgment debtor and one Horton.
Issue:
(W) the debt is attachable under GO in respect of Fitzgerald’s share in the balance owing to the purchase
money
Held:
The debt can only be attached to the judgment debtor alone and not a joint account.
 Trust
Money in trust account does not belong to trustees but it is beneficially owned by the beneficiaries.
Generally, funds in trust account is not available to judgment debtor. But it is difficult to know that the
funds are not the customers unless the funds are clearly marked out as trust funds.
Hancock v Smith (1899) 41 Ch Div 459

P obtained GO to attach the D’s credit in a bank. D, who was a former stockbroker, averred that all the
moneys paid into that acc belong to his clients.
Held:
Money in trust account does not belong to judment debtor, thus judgment creditor cannot attach GO to
that acc.
An execution can only take effect on property which the debtor has a right to dispose of for his own
purposes.
Plunkett v Barclays Bank Ltd (1936) 2 KB 102

P was a solicitor who opened an acc with the bank to pay certain moneys for his clients. P’s wife obtained
a GO and served upon D bank for the cost of divorce proceedings that the P still owed. As a result of the
order, a cheque presented upon the acc by the payee of the P was marked ‘R2D’. P brought an action for
wrongfully dishonouring the cheque.
Held:
GO can be served on the D to attach the money in a trust account but it can never be made absolute.
**O49R6(1): 3rd party can contest by way of an interpleader for the sum to be garnished if he is entitled to
obtain the amount in the acount.
Saw Swan Kee v Sim Lim Finance [1985] 1 MLJ 22

(w) a GO nisi can be used to preclude the bank from setting off a debt due from the judgment debtor.
Held:
A GO cannot set off against the debt attached, a debt owing to him from judgment creditor, but he can
avail himself of a set off against the judgment debtor which exiisted when order nisi was made.
7.2 Effect of a GO on the Account

A GO will freeze amounts in an account. The amount to be frozen depends on (w) it is limited/unlimited.
Main Case
Top A Plastics S/B v Bumiputra Commerce Bank Bhd (formerly known as Bank of Commerce (M) Bhd)
[2006] 5 MLJ 620
1. Top A was a customer of the defendant bank. The D received 2 garnishee orders to show cause on
15th October 1999 and thereafter, the D had frozen all the P's accounts from 15th October to 22nd
October for 8 days (7 banking days), without informing the P.
2. P only came to know about it when employees had phoned the P complaining that 2 cheques issued
by P for payment was rejected.
3. On the same day, a sum of RM98k was directly paid into the already frozen current account and was
never allowed to be utilised by the P even though it was deposited after the account had been
frozen.
4. The total sum frozen was RM655k (RM443k + RM211k)
5. 12 cheques were also dishonoured by the D and printed 'FROZEN ACCOUNT' and 2 of them, 'REFER
TO DRAWER'.
HC Held:
 ‘unlimited’ – wordings of the order clearly indicate that the garnishee is to attach ‘all debts owing or
accruing’ from the garnishee to the customer to answer the judgment debt, even though it is
known that the amount of the judgment debt is less than the balance standing to the customer’s
credit. In such question, the Bank may and should refuse to pay any cheques drawn by the customer.
 ‘limited’ order- the effect of it is that garnishee order is to attach only the amount of the judgment
debt plus all other related costs and expenses as ascertainable and stated in the order. The practice
is for the garnishee order of this nature to attach debts up to a stated sum only, in which case the
bank is free to part with any surplus he may hold on the customers’ account.
 The said amount which was paid in after the GO was served is not subject to the GO.
 It should be paid into a new temporary account so that the customer has benefit to utilize the
amount.
So...
(1) Garnishee orders were 'limited' in nature.
(2) As a prudent banker, the D should have notified the P immediately of the matter upon service of GO,
and not wait till the 22nd. The P should have been informed. Alternatively, the D should have set aside
the total amount required to satisfy the GO in full into a suspense account and allow the P to continue
operating the existing accounts. Both had not been done and thus, the D had failed in it's duty to act
promptly as a banker to the P.
(3) The D had wrongly frozen the said amount of RM98k which was paid AFTER the GO was served. The
said amount is not subject to the GO and should be paid into a new temporary account.
(4) The words 'FROZEN ACCOUNT' and 'REFER TO DRAWER' are highly libellous and tantamount to mean
that the P had been wound up or had gone into liquidation. Thus, defamatory.
COA Held:
ITULAH HC! BETUL. But award for exemplary damages was misdirected and set aside.
TOP A had referred to Happenstall v Jackson and Barclays Bank Ltd (1930) 1 KB 585
judgment creditor served a garnishee order to the bank to attach any debt owing by the bank on the date
of the service of the order to the judgment debtor. Upon receiving the garnishee order, bank had opened
a new account for the customer in order to separate the accounts subject to the garnishee order and the
new credits in the judgment debtor’s account.
Held:
The GO only affected debts in existence at the date of the service thereof and the moneys subsequently
paid in could not be subjected to the order. Garnishee order nisi will not freeze amounts credited into a
customer’s account after date of the order and service on the bank.
The above two cases referred to limited. What about unlimited GO?
Rogers v Whitley (1892) AC 118
A had a balance of 6.8k in his deposit and current account. The R was served with a GO by a judment
creditor for a debt of 6k attaching “all debts owing or accruing due” from the garnishee to the judgment
debtor. Cheques were drawn by the A on the balance of 800 but were later dishonoured. A brought an
action for wrongful dishonouring of cheques.
Held:
Bank was justified in doing so because “all debts owing or accruing due” by him to the judgment debtor is
to make the garnishee the custodier for the court of the whole funds attached.
Can a cheque that has been deposited into an account but not yet sent for collection be garnished?
Fern v Bishop Burns
A GO was served on the bank for a sum of 800 being amount owed by judgment debtor. There was a
cheque for the amount of 4.7k that was paid into the bank but was not cleared. After the cheque was
cleared and the deduction of bank charges, the amount left was only 200, therefore, limiting the GO nisi.
Judment creditor appealed after the order was made absolute.
Held:
The debt owing by the garnishee must be owing at the time when the GO was served upon him. Judgment
made absolute only for the sum of 200.
But the more preferred authority is an Australian case:

Bank of New South Wales Ltd v Barlex Investments Pty Ltd (1964) 64 SRC
An order does not attach amounts based on uncleared cheques as they are only provisionally credited to
the customer’s account.
An uncleared cheque does not become a debt ‘due or accruing due’.
The proceeds of an uncleared cheque are therefore not attached by the 3rd party debt order until the
customer clears the cheque.
Ellinger: The amount of a cheque paid into a customer’s acc does not become a debt ‘due or accruing due’
to him form the bank until the instrument is cleared. The proceeds of uncleared cheques are not attached
by the GO unless the customer is able to draw against them.
What is the effect of a GO if the monies in a customer’s acc has already been assigned to a 3rd party?
Rekstin v Serero Sibirskol [1933] 1 KB 47
Rekstin who had an account with the bank terminated the account and instructed the bank to transfer the
balance in the bank to the trade delegation of the USSR. A few minutes later, a GO was served to the bank.
Bank claims that there was no debt between the bank and the judgment debtor as the account is already
closed.
Held:
The assignee has priority of the judgment debtor if the amount assigned had been completed before the
serving of the order.
7.3 Can a GO Absolute be set aside?

Behn Meyer & Co (M) S/B v Agropharm S/B & Ors [1988] 2 MLJ 636
Intervener applied to set aside the GO absolute because there had been an assignment of the debt from
judgment debtor to intervener
Held:
GO absolute cannot be set aside.
Once the court makes an order absolute, bank must transfer the payment of money to the judgment
creditor. There is no rule or principle (w) express or implied which allows a court to vary an absolute order.
Court has no jurisdiction in the instant case to set aside. Hence, order reinstated.
9.0 Closing of Account and Termination of Banker-Customer Relationship

And this can be done two ways: mutual agmt/terminated unilaterally.
9.1 Closing of Account

(a) Account closed by customer
 When the customer has a current account with a credit balance or a deposit account, he can close
the account and claim for the balance in the said account.
 If the current account is overdrawn, he can close the account by repaying the overdraft sum.
(b) Account close by banker

A banker that wants to close a customer’s account must provide the customer with reasonable notice.
Joachimson v Swiss Bank Corporation [1921] 3 KB 110

The duration of the notice must be sufficiently long to enable the customer to make alternative
preparations in view of surrounding circumstances.
Prosperity Ltd v Lloyds Bank Ltd (1923) 39 TLR 372

The notice of one month was not sufficient in view of the type of business conducted by the customer and
the customer’s need to make alternative arrangements.
Ng Cheng Kiat v Overseas Union Bank [1984] 2 MLJ 140

P had a balance of 4.95 in his account. The bank then closed his acc without informing him. P later paid
3.2k into his account and drew two cheques. When the 1st cheque was presented, it was dishonoured with
the words ‘account closed’. The P was also asked to call at the Bank so that refund of the deposit of 3.2k
could be made to him. The 2nd cheque was presented and dishonoured the 2nd day.
Held:
Bank liable as it should have given a written notice to customer to close his account.
9.2 The Deceased Customer

s75(b) Bills of Exchange Act 1949
The bank’s duty to pay a cheque issued by the customer or received by the customer ends when the bank
receives notice of the customer’s demise.
*Only controversial when there is a joint account. If one passes away, the spouse or co-owner thinks that
they can still withdraw money but legally, it is not so. In such situation, bank is waiting for the
administration of the estate.
9.3 Customer’s Insanity

A person that does not possess mental sanity cannot enter into a valid contract. According to the Mental
Disorders Act, 1952 the court will appoint a committee to manage the financial matters of an insane
person. When the bank receives the appointment letter of such a committee, the bank must discontinue
handling the customer’s account.
9.4 Customer’s Bankrupcy

When the bank receives notice that the customer has committed an act of bankruptcy, then the bank has
the authority to stop payment of a cheque or dishonour the customer’s cheques.
Examine sections 47 and 54 Bankrupcy Act 1967.

PART 2: NEGOTIABLE INSTRUMENTS: BILLS OF EXCHANGE AND CHEQUES

I am legitly lost on how to construct this but i hope this makes sense to you.
10.0 Bills of Exchange Act 1949

S3(1)
A BOE is an unconditional order in writing, addressed by one person to anor, signed b the person giving it,
requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time
a sum certain in money to, or to the order of, a specified person, or to bearer.
10.1 s24
S24 Forged or Unauthorized Signature

Subject to the provisions of this Act, where a signature on a bill is forged or placed thereon without the
authority of the person whose signature it purports to be, the forged or unauthorized signature is wholly
inoperative, and no right to retain the bill or to give a discharge therefore or to enforce payment thereof
against any party thereto can be acquired through or under that signature, unless the party against whom
it is sought to retain or enforce payment of the bill is precluded from setting up the forgery or want of
authority:
Provided that nothing in this section shall affect the ratification of an unauthorized signature not
amounting to a forgery.
Prof Poh Chu Chai at page 894.

A bank owes a fundamental obligation to a customer to ensure that it does not make payment on an
instrument in which its customer’s signature is forged.
1. Where a signature on a bill is forged without the authority, it is wholly inoperative
Syarikat Perkapalan Timor v UMBC [1982] 2 MLJ 93
P sued D for wrongful debiting of their account in respect of 5 cheques. P alleged that the cheque-book
containing these 5 disputed cheques had in fact never been issued to them and therefore, they could not
possibly have drawn the said cheques. There was evidence which showed that the rubber stamp on the
authority letter and the five disputed cheques were forged.
Held:
 There was no evidence of negligence or any other conduct on the part of the P firm or its servants or
agents to warrant a ruling that the P is estopped or precluded from setting up a forgery or want of
authority under s24
 Since the bank had issued a cheque-book meant for the P firm to an unauthorized person, and the
signatures on the cheques were forged to the detriment of the firm, the cheques were wholly
inoperative.
 The bank must be held fully liable for debiting any sum from the firm’s account.
*Burden is balance of probability
UAB v Tai Soon Heng Construction S/B [1993] 1 MLJ 182

R’s accounts clerk who was not an authorized signatory to cheques, forged several cheques of the R
drawn on the A bank. The cheques were honoured by the A and the R’s account was debited subsequently.
After the forgeries were discovered, the R brought an action against A, claiming a sum of money being the
total of the forged cheques which had been met by the A.
Held:
 A customer who alleges that his banker has honoured forged cheques drawn on his account need
only to establish the charge of forgery on a balance of probabilities.
 The Bank’s liability is founded on the tort of conversion, that it is strict liability. Hence the banker is
absolutely liable for the loss, even though he was unaware of the forgery or took reasonable care.
 The forged instrument is a nullity and the banker has no authority from his customer to act upon it.
2. ... Unless the party against whom it is sought to retain or enforce payment of the bill is precluded from
setting up forgery or want of authority
 Person who is aware that his signature has been forged on a cheque and yet does not inform his
banker of the forgery may have his bank account rightfully debited with the amount of the forged
cheque.
 It is because he had allowed the cheque to remain in circulation as if it was genuine and had
facilitated its transfer by the payee and subsequent indorsers and the banker had paid in ignorance
of the forgery.
Greenwood v Martins Banks Ltd

Husband had discovered that his wife had forged his signature as drawer to several cheques on his
account with D. However, he did not inform the bank immediately. He only did so when he found out that
his wife had been untruthful - she later committed suicide. He brought an action against the bank to
recover the amounts of the forged cheques which had been wrongfully debited to his account.
Held:
The husband was under a duty to inform the bank of the forgeries. By not doing so, he had represented to
the bank that the forged cheques were genuine. By his conduct in condoning the forgeries, he had also
deprived the bank of the opportunity to exercise its right of suing both himself and his wife in respect of
the tort committed by her, prior to her death.
3. The Proviso: Provided nothing in this section shall affect the ratification of an unauthorized signature
not amounting to forgery
Difference between forged signature and unauthorized signature
Forged Signature Unauthorized Signature
X dishonestly removes and completes a blank Z is authorized to operate B’s no.1 bank account
cheque which belongs to Y without Y’s knowledge. and to sign B’s name on cheques drawn on this
X signs Y’s name to the cheque as drawer. account. B also maintains a no.2 account but Z is
X subsequently presents the cheque for payment to not authorized to sign cheques for that account.
Y’s bankers and obtains cash Z inadvertently prepares a cheque drawn on B’s
no.2 account for a purpose for which a cheque on
the no.1 account would normally be issued, and
signs B’s name onto it
The cheque in this case is a forgery and therefore is Here, although B’s name has been signed without
a worthless instrument. It is not capable of authority, B can lawfully ratify the unauthorized
ratification by Y when she discovers the forgery. signature on the cheque.
Robinson v Midland Bank

An unauthorized signature will amount to a forgery if it is placed on a cheque for a fraudulent purpose.
Public Bank Bhd v Anuar Hong & Ong (2005) 1 CLJ 289
The respondent, a legal firm, maintained two current accounts with the appellant bank. (office and a
client’s account). A’s accounts clerk who forged the signature of one of the partners on thirty-four
cheques, was prosecuted and convicted for CBT and sentenced to a year’s imprisonment.
The Magistrate entered judgment in favour of respondent and the bank appealed to HC.
Held:
The respondent’s action against the appellant bank for wrongfully allowing the encashment of the forged
cheques must fail because:
i) The cheques were honoured by the bank in the ordinary course of business and in good faith.
ii) In failing to notify the bank of the forgery promptly, the respondent was itself in breach of its
contractual obligations under clause 18 of the current account rules and regulations. (requirement to
scrutinize the accounts)
iii) The plaintiff was negligent in failing to verify its monthly current statements, monitor its cheque books
and keep them in safe place and supervise its account clerk.
 Criticism towards Anuar Hong’s case

Lee Mei Pheng:
 The HC decision is wrongly decided without any reference at all to relevant case law not statutory
provision. (section 24)
 Referred to United Asian Bank Bhd v Tai Soon Heng Construction
 Bank customers do not have a legal duty to keep their cheque books under lock and key nor
supervise their staff or scrutinize their bank account statements and notify the bank of any
discrepancies or forgery promptly.
 The Pf cannot be said to be estopped from claiming from the Df bank just because the forgery was
committed by the Pf’s own employee.
Bankers are advised to verify signatures on cheques carefully and detect and prevent forgeries.
Principle Salute v RHB Bank [2010] 5 CLJ 819

UAB v Tai Soon Heng [1993] 1 MLJ 182
Public Bank v Anuar Hong [2005] 4 MLJ 184
All these showed that CEC can override s24
10.2 s73 + s85 + s95

S73(1) A cheque is a bill of exchange drawn on a banker payable on demand.
S73A Knowingly or negligently facilitating forgery
Notwithstanding s24, where a signature on a cheque is forged or place thereon without the authority of
the person whose signature it purports to be, and that person whose signature it purports to be
knowingly (Greenwood) or negligently (Macmillan) contributes to the forgery or the making of the
unauthorized signature, the signature shall operate and shall be deemed to be the signature of the person
it purports to be in favour of any person who in good faith pays the cheque or takes the cheque for value
S85 Protection of bankers collecting payment of cheques, or certain other instruments

In own words: A banker has statutory protection and will not be liable if in good faith and without
negligence received payment and will not be negligent for failure to concern himself with absence of
irregularity in indorsement of instrument
S95 Good faith means it was done honestly - regardless if negligent or not
Lee Mei Pheng:

 This provision is of limited help to bankers who pay out on forged cheques as it is practically
extremely difficult to prove that the forgery is contributed by the customer’s negligence or that the
customer knew about the forgery.
 Bankers are still advised to know their customers’ signatures and to verify customers’ signatures with
care and prudence.
Melawar Apex S/B c Malaysian Banking Bhd [2007] 8 CLJ 579

P maintained a current account with the D bank where the sole and only authorized signatory the account
was one Tunku Soraya, who provided a specimen signature to the D upon the opening of the account. P
contended that the D had paid out on 69 forged cheques purporting to be drawn by P. P further
contended that the signatures on the said cheques were not that of TS but Affandi bin Mamat(finance
manager), who was at the material time in charge of keeping and maintaining the account. D bank relied
upon the fact that notwithstanding that TS is the sole signatory, the4 cheque book was left with the
finance manager and if the allegation is true, TS did not check the accounts for 26 months and this
constitutes the negligence on part of P which contributes to forgery.
Held:
 For s73A, the burden of proof is a balance of probabilities and it is sufficient for the P to prove that
the signatures on the forged cheques were not that of TS.
 When an employee is authorized to prepare the cheques for signature of the employer, the
employer is not required to keep, over and above the general or close supervision over that
employee.
 Subsequently, the burden is passed to the bank to prove that the drawer had knowingly or
negligently contributed to the forgery or the making of the unauthorized signature.
 The Bank in this case had failed to prove that the customer had knowingly or negligently contributed
to the forgery
Leolaris (M) S/B v Malayan Banking Bhd

S73A only mitigates the damages payable by the D in view of the contributory negligence of the P but not
to absolve the D of a breach of its strict liability not to pay out on a forged cheque.
Prima Nova S/B v Affin Bank Bhd [2010] 9 CLJ 75

- P’s premises was burgled into. P’s employees were told not to touch anything until the police had
finished investigations - which had taken 5 days to complete, after which it was found out that the P’s
cheques were stolen. P immediately gave stop payment instructions to the bank but the bank had paid
out cheques amounting to almost RM600k.
- When P seek to recover the total sum, D bank pleaded that by clause 4.2 of the rules and regulations
governing the operation of current account, the Bank shall not be responsible for any loss or damage
occasioned by reason of any delay or omission in executing stop payment instruction by the P.
- S73A was also relied to defeat the P’s claim as P’s negligence had contributed to the forgery of the
signatures on the stolen cheque.
Held:
 By the words ‘notwithstanding s24’ in s73A, s73A had modified the strict liability imposed by s24 = it
had superceded s24.
 Thus, in order to succeed, the bank must prove on the balance of probabilities that
A) the signatures on the stolen cheques had been forged
B) The P had knowingly or negligently contributed to the forgery
C) The D honoured the stolen cheques in good faith
 Despite knowing that the cheque book had been touched or handled during the robbery, nothing
was done by the P to stop the payment of all cheques and check the status of the account until the
end of investigation. This shows that the P was negligent.
 The bank had compared the signatures on the stolen cheques and with the specimen signatures, and
found out that they were similar. This shows that the bank had honoured the cheque in good faith.
 S73A was applicable!
10.3 s60 Banker paying demand draft whereon indorsement is forged

When a bill payable to order on demand is drawn on a banker, and the banker on whom it is drawn pays
the bills in good faith and in the ordinary course of business, it is not incumbent on the banker to show
that the indorsement of the payee or any subsequent indorsement was made by or under the authority of
the person whose indorsement it purports to be, and the banker is deemed to have paid the bill in due
course, although such indorsement has been forged or made without authority.
 S60 protects a banker who pays a demand draft or cheque bearing forged or unauthorised
indorsement
 When there is an indorsement of cheque, the bank is protected as the bank does not know the
signature of the payee indorsed
 Unlike forged signatures under s24, a forged indorsement does not give the value to the cheque.
Syarikat Islamiyah v Bank Bumiputera [1982] 2 MLJ 93

P brought an action against the D for the wrongful debiting of four cheques. Bank relied on s60.
Held:
Object of s60 is to protect the paying banker against forged or unauthorized indorsements, not signatures
under s24.
Where a cheque is forged, there was no mandate to the bank.
Apa itu ‘indorsement’?

= An indorsement completed by delivery (s2)
= The act of placing a signature on the back of a negotiable instrument in order to assign it to an indorsee.
The signature itself.
11.0 Electronic Banking

We are currently looking at only two things: Credit Card and Internet Banking
Part 1: Credit Card

11.1 The Laws
11.1.1 Previously
1st Class
Payment Systems Act 2003 (PSA) which governs the payment systems and payment instruments -
repealed by FSA though
2nd Class
Payment Systems (Designated Payment Instruments) Order 2003 --- PSO
Payment Systems (Remittance System Approved under the Money Services Business Act 2011) (Exclusion)
Order 2011
3rd Class
Bank Negara’s Credit Card Guidelines
11.1.2 Current Position

s272 FSA
A) any rule/SL made under the repealed Acts remain in force unless amended/revoked; except those SL
set out in Schedule 16 which are deemed to have been revoked
**PSO is NOT in Schedule 16
B) Guidelines issued under the repealed acts remain in force unless amended/revoked.
Effect: No revocation/amendment made to Bank Negara’s Credit Card Guidelines
In essence, even through PSA is repealed, the laws that were made through it are still exist :)
And this is how you get the definition. Because FSA doesn’t clearly define it. You have to refer.
11.2 Definition
According to S272, you refer back to the old rules despite PSA being repealed.
Initially: S24 of PSA read with para 2(b) of PSO:
Credit card is considered as a ‘Designated Payment Instrument’
S24: BNM has the power to prescribe a payment instrument as a designated paymne tinstrument with 2
criteria: (a)widespread use, (b) to protect interest of the public, the integrity, efficiency and reliability of a
payment instrument.
Para 2(b):
A payment instrument which indicates a line of credit or financing granted by the issuer (bank) to the user
and where any amount of the credit utilized by the user (customer) has not been settled in full on or
before a specified date, the unsettled amount may be subject to interest, profit or other charges.
The Guideline (the 3rd class law)

BN’s Credit Card Guidelines issued under s70 of PSA remain the lawfully specified standard.
11.3 Where is the Position of FSA + Miscellaneous

How is a Designated Payment Instrument (DPI) issued?
S2 ‘DPI’ means a payment instrument prescribed under s31
S31 2 criteria before a paymnet instrument may be classified as DPI
(a) it is of widespread use as a means of making payment & may affect the payment systems in MY
(b) It is necessary to maintain the integrity, efficiency and reliability of the payment instrument.
*the difference between this and earlier s24 is this one doesn’t have ‘to protect interest of public’.
S34 Directions may be isseud to any participant of a designated payment system if necessary for the
integrity and proper management of the designated payment system or interest of the public.
How to apply to be an issuer?

S2 Issuer means any person who undertakes to be responsible for the payment obligation in respect of
a payment instrument - resulting from the user being issued with or using the payment instrument
S11 Matters to be considered by BNM under Part 1, Schedule 5 before approving an application
S278(2) An issuer of DPI who has obtained a written approval under s25(1) of repealed PSA 2003 is
deemed to have been approved under s11 of FSA
Definition of Credit Cardholder

There actually isn’t one. The Credit Card Guidelines (CCG) uses the terminology ‘user’ and ‘cardholder’
interchangeably throughout.
What is identity theft?

Simple. The appropriation of an individual’s personal info to impersonate the person in a legal sense.
2 instances:
1. Numbers and particulars in credit cards (more details in 2nd part)
2. Fraudster assumes the credit card holder’s identity and conducts transactions as if he was the credit
card holder
> Examples:
- Stealing your mail
- Looking through your garbage
- Stealing your wallet or purse
- Posing as your employer, bank or utility company needing to "update their records"
- Grabbing information off internet sites that are not secure
- Completing a "change of address'' form
- Once the thief has access to this information, they may open a new credit card account in your name
providing a "new" billing address. Given that the credit card bills will not go to your address, chances
are, you will not be aware of the new account. When the thief does not pay the bills, the credit card
company will report this to your credit file. The thief may also open up bank accounts in your name
and write bad cheques, apply for services in your name or request a "replacement" card to be sent to
a new address.
11.4 The Famous Case of Diana Chee and it’s relations to CCG
For this we look directly at the tutorial question.
‘Discuss the CC case of Diana Chee Bun Vun Hsai v Citibank Berhad [2009] 5 MLJ 643’
And to highlight the efficacy of the CCG issued by BNM
Facts
 Diana Chee Vun Hsai had two credit cards – one from Citibank Berhad, the other from HSBC Bank
Berhad. On 7 September 2008, HSBC called up her to alert her about her credit card being used.
When she checked her purse, she discovered both her credit cards were missing. She notified both
the credit card companies of the loss of her credit cards on the same day and lodged a police report
at Dang Wangi police station about it the following day. She understandably thought that was the
end of the matter. She was wrong.
 On 16 September 2008, Citibank told Diana Chee they were billing her for the unauthorized
transaction of RM 1,859.01 made on 6 September 2008.
 Diana Chee responded through her solicitors to inform Citibank that the limit of liability for a lost
credit card was RM 250.00 as provided in clauses 15.1, 15.2 and 15.3 of the Credit Card Guidelines.
 Citibank’s lawyers replied pointing out to her that the terms of her credit card the crux of which is as
follows:
 “Our client imposes a duty on the cardholder to notify the loss one (1) hour prior to the
unauthorized use and to provide proof of acting in good faith and exercising reasonable care
and diligence to prevent such loss or theft of unauthorized use of the card before our client
can exercise its discretion whether to resolve the liability or not. Such a clause is not in
contravention of the Bank Negara guidelines.”
 Diana Chee did not agree with the absurd reply and sued Citibank for several declarations, the main
ones being that
i. the Credit Card Guidelines issued by Bank Negara Malaysia pursuant to sections 25 and 70 the
Payment Systems Act 2003 have the force of law, and
ii. the term relied upon by Citibank to deduct the sum of RM 1,859.01 from her account was contrary
to the above Guidelines and hence was illegal, void and contrary to public policy
First Issue
 The relevant substantive law pertaining to this issue is the Payment Systems Act 2003 (PSA).
 Under section 70 of PSA, the Bank is empowered to issue guidelines … as the Bank may consider
desirable in respect of PSA, or any particular provision of PSA, or generally in respect of the conduct
of all or any of the operators of payment instruments or issuers of payment instruments.
 The court was of the opinion that since the Credit Card Guidelines were issued pursuant to section
70 of PSA, it was a form of subsidiary legislation.
 The Court elaborated that the Credit Card Guidelines came under the category of “other instrument”
stipulated in section 3 of the Interpretation Act 1948 and 1967 and is therefore a subsidiary
legislation having legislative effect and the force of law.
 Section 3 of the Interpretation Act 1948 and 1967 defines “subsidiary legislation” as “any
proclamation by law, rule, regulation, order, notification, by law or other instrument made under any
Act, Enactment, Ordinance or other lawful authority and having legislative effect.”
 The court further pointed out that the Credit Card Guidelines contained a penalty whereby pursuant
to Para 4.1, non-compliance with the Guidelines was an offence punishable under section 57 of PSA
by a hefty fine up to RM 500,000 and an extra RM 1,000 for every day the offence continued.
 Penalty for breach of the guidelines is provided under Cl 4.1 of the guideline and punishable under
S.57 of PSA.
“Any person who fails to comply with or contravenes any requirement or prohibition
imposed upon him by any provisions of this Act or any specification or requirement made, or
any order, directive or notice given, or any limit, term, condition or restriction imposed in the
exercised in the exercise of any power conferred under, pursuant to, or by virtue of any of the
provisions of this Act not specified in the Schedule, commits an offence under such provision,
and if no penalty is expressly provided for the offence in this Act, shall on conviction be liable
to a fine not exceeding five hundred thousand ringgit, and in the case of a continuing
offence, shall, in addition, be liable to a daily fine not exceeding one thousand ringgit for
every day during which the offence continues.”
 Besides, the Bank Negara Malaysia could revoke the credit card issuer’s approval if it failed to comply
with any of the Guidelines issued by the Bank Negara. (Section 26(1) of PSA)
S.26 – The Bank may revoke such approval if the issuer has contravened any of the provisions of the
Act.
 These penalties strengthen the view that the Credit Card Guidelines has the force of law.
 Lastly, the court cited the case of Affin Bank Bhd v Datuk Ahmad Zahid Hamidi [2005] 3 MLJ 361 at
372 whereby the court in that case held that the Bank Negara Malaysia Guidelines issued pursuant to
section 126 of the BAFIA do have the force of law.
Hence, yes, CCG is a piece of SL that has the force of law
Second Issue
The respondent’s “one hour prior to reporting of the loss of the card” clause was unreasonable, ridiculous
and contrary to clause 15.2 of the Credit Card Guidelines”.
15. Liability for lost of stolen credit cards

15.1 An issuer of credit cards shall provide effective and convenient means by which a cardholder can
notify any lost, stolen or unauthorized use of his credit card and shall provide procedures for
acknowledging receipt and verification of the notification for the lost, stolen or unauthorized use of
credit card.
15.2 The cardholder’s maximum liability for unauthorized transactions as a consequence of lost or stolen
credit card shall be confined to a limit specified by the issuer of credit cards, which shall not
exceed RM 250, provided the cardholder has not acted fraudulently or has not failed to inform the
issuer of the credit cards as soon as reasonable practicable after having found that his credit card is
lost or stolen.
15.3 Where the amount imposed on the cardholder for unauthorized transactions due to lost or stolen
credit cards is in excess of the maximum liability limit, the issuer of credit cards has to prove that
the cardholder has acted fraudulently or failed to inform the issuer of credit card as soon as
reasonably practicable after having found that his credit card is lost of stolen.
 In the instant case, there was no evidence to indicate that Diana Chee had acted fraudulently, or had
failed to inform the respondent as soon as was reasonably practicable. In fact, the applicant had
lodged a police report one day after discovering her credit card stolen.
 ‘The one hour prior to reporting of the loss card’ clause is not only unreasonable and ridiculous but it
is contrary to the provisions of cl 15.2 of the CCG.
 Onus or proving fraud or unreasonable delay to report loss of the card is upon the issuer of the credit
card - Cl. 15.3
 Since Diana Chee had complied with the said terms of reporting and confirming the loss of the credit
card, Citibank could not have the discretion, despite having it so written in the agreement, to
circumvent the Credit Card Guidelines, with a view to limit its liability. The terms and conditions of
the credit card agreement, as a contract, were to be read, governed and construed in accordance
with the laws of Malaysia, specifically in the instant case with the Payment Systems Act 2003.
Commentaries
Overall, it is commendable that the court in Diana Chee’s case gave legal enforceability to the Credit Card
Guidelines since it has always been regarded as “soft” law.
However, the court had erred in law – the more accurate interpretation of the Credit Card Guidelines is
that it falls within the quasi legislation, which in the context of administrative law is also known as
‘directions’.
‘Directions’ / ‘Guidelines’ in the field of banking law, are created by the executive, namely, the Bank
Negara Malaysia, due to its need to administer the credit card industry. This is created pursuant to the
power conferred by section 69 of the Payment System Act 2003
**You can read her article for more information. If you can cite her, better.
11.5 Cardholder’s Redress for Unauthorized Use

1. Guidelines on Consumer Protection on Electronic Fund Transfer (BNM/GP 11) - Repealed
2. CCG (BNM/RH/GL016-5) - Statutory Protection against unauthorized use of CC
a) Financial institutions are more familiar with these guidelines.
b) Financial institution is to provide a consumer credit card service section – deals with all matters
related to credit cards including Unauthorized Use.
c) Clause 15.2 ;The cardholder’s liability for Unauthorized Use is limited to RM250 provided:
d) But for 15.2, cardholder has to not act fraudulently and not failed to give reasonable notice of
any unauthorized use. If he fails either one, the limit can exceed RM250 (as per Diana Chee)
3. Code of Good Banking Practice (self-regulation)
a) Issued by the Association of Banks
b) The manner banks are required to deal with their customers in areas (opening of account,
confidentiality, complaints and disputes)
c) A standard implemented by ABM to introduce positive banking practices
d) In regards to CC, banks are required to inform customers about their responsibilities of
safeguarding their cars and PINS to prevent frauds
e) Suggestion: Banks should inform customers about the liabilities of both parties in the event of
unauthorized used of CC
f) Has no legal enforceability - merely an in0house measure
4. Consumer Protection Amendment Act
a) Includes transactions conducted through electronic means
b) Only useful in claiming against the merchant for defective goods/servies
c) Not so useful for unauthorized use - the dispute is with the bank
d) Not a banking legislation - hence not under the purview of BN.
11.6 Financial Mediation Bureau

CCG: Bank is to provide an ‘in-house’ procedure to resolve disputes relating to the unauthorized use of CC
- If one is unsatisfied, the consumer can lodge a complain with the FMB (claim up to RM25k)
- Acts as a middle person to resolve conflict
- But the consumer must exhaust the in-house avenue first before resorting to FMB
- Consumer has to hand FMB a ‘final decision’ letter from the bank indicating that the matter has yet
to be solved
- Complete and submit to FMB a Complaints Form and a Consent Form to permit the banker to make
disclosure to the mediator all info relating to customer’s account
- Bank is bound by the mediator’s decision and cannot refer the matter to court
- If customer is unhappy with FMB decision, can refer the matter to the court
11.7 Duty of Secrecy

- Section 73 PSA 2003
- All cases for s97 BAFIA applicable to this section
- Now s 133 FSA 2013 applies to credit cards as well.
12.0/Part B: Internet Banking

Tutorial: Discuss the legal problems related to Internet Banking in MY.
12.1 Introduction
- Internet banking
Banking products and services offered by banking institutions through access devices including personal
computers and other intelligent devices.
- Internet banking services have been operational in Malaysia since 2001.
- In 2003, fraudulent activities began to emerge pertaining to internet banking.
12.2 Security Aspect

 Phishing
- An attempt to commit fraud via social engineering
- Victims are being deceived into going to a fake website set up by perpetrators that appears to be
part of the bank’s website
- A fake email with the fake website link is then sent out to obtain customers’ usernames and
passwords
- These information are for the perpetrators’ own advantage.
**There is also Vhishing now - similar but uses voice
 Trojan attacks
- When users visit certain websites to download programs, a key-logger program is also being installed
into their computers w/o their knowledge
- When a user logs into bank’s website, the information (username & password) entered will be
recorded by the key-logger & sent back to the attacker
- Attacker obtains information of the user & makes own transactions
 Macmillan Duty
Bank not liable as a customer has the duty to exercise reasonable care in drawing the cheque.
If he draws a cheque in a manner which would facilitate fraud, then he is guilty of breach of duty and is
responsible for the loss
 Greenwood Duty
Appellant owed a duty to the bank to disclose the forgeries. By keeping quiet, he does not have the right
to recover the amount paid for the forged cheques.
12.3 Privacy Aspect

 Tournier Principles
- A banker's duty to maintain secrecy and confidence not only encompasses information and facts that
he learns from the state of the customer's account, but includes and extends to all information
gained from other sources than the customer's actual account by virtue of the banking relationship.
- Duty of confidentiality is not absolute but qualified
- Qualifications can be classified under 4 categories:
i. Where disclosure is under compulsion by the law
ii. Where there is a duty to the public to disclose
iii. Where the interests of the bank require disclosure
iv. Where the disclosure is made by express/implied consent of the customer
 Section 97 of Banking and Financial Institutions Act 1989

 Section 133 of Financial Services Act 2013
 Personal Data Protection Act 2010
 BNM Internet Banking Guidelines

- To protect the privacy of bank customers in Internet Banking
- Many banks’ privacy policy statements do not comply with the BNM Guidelines because:
- Most of the statements permit dissemination of information to the whole bank’s group and related
companies
- Some of the websites contain cookies that track customers’ activities on the internet
- Customers will not be protected if they click on a third party link from the bank’s website
- Information collected for promotions & contests can be used for marketing purposes
12.4 Unfair Terms in the Contract

Standard Form of Contract
- Forces the customer to agree to indemnify the bank for any loss arising from using internet banking
regardless of whether they are at fault or responsible for the fault
- Exclude liability for negligence and any technical, software or hardware failure of any kind
- In violation of BNM Internet Banking Guidelines as Part 5, Clause 1.2(iii) provides:
“The customer know their rights and liabilities and are fully aware that they are responsible for
their own actions. The contractual arrangements for liability arising from unauthorized or
fraudulent transactions have been laid out to the customers. The arrangements should provide
for sharing of risks between the banking institution and the customers. However, customers
should not bear any loss arising from system failures.”
Clause 17 of the BNM Guidelines On Consumer Protection On Electronic Fund Transfers provides that:
A customer shall not be liable for loss -
(a) not attributable to or not contributed by the customer;
(b) caused by the fraudulent or negligent conduct of officers or agents appointed by, the -
(i) financial institution;
(ii) companies & other financial institutions involved in networking arrangements w/in this country; or
(iii) merchants who are linked to the card system.
12.5 Redress Mechanism

Financial Mediation Bureau (FMB)
- An independent body that is established under the initiative of BNM.
- An alternative dispute resolution channel to assist financial consumers to resolve their disputes with
the Financial Service Providers (FSPs) after a final decision has been made by the FSPs.
 Conventional/Islamic Banking Product and Services
All claims not exceeding RM100,000.00 except for fraud cases involving payment instruments, credit
cards, charge cards, Automated Teller Machine (ATM) cards and cheques for which the limit is not
more than RM25,000.00
 Insurance/Takaful Products and Services

Banking 1.0 Introduction To Banking Law: The History: Tasha Lim Yi Chien Leb140116

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Banking 1.0 Introduction To Banking Law: The History: Tasha Lim Yi Chien Leb140116

Uploaded by

Copyright:

Available Formats

TASHA LIM YI CHIEN LEB140116

1.1 The History of Banking in MY

2.0 The Relationship between a Banker and a Customer

This can be examined from 4 angles:

2.1.1 Common Law

Re Shields Estate (1901) Ir. R. 173

Bank of Chettinad Ltd of Colombo v Commissioners of Income Tax, Colombo [1948] AC 37

Woods v Martins Bank Ltd [1958] 3 AER 166

United Dominions Trust Ltd v Kirkwood [1966] 2 QB 431 (“UDT”)

Re Roe Legal Charge [1982] 12 Lloyds Law Rep 380

2.1.2 Statutory Definitions

2.1.3 Book Authors

Halsbury’s Law of England

2.1.4 Local Cases

Sabah Development Bank Bhd v SKBS [1991] 3 CLJ 2941

2.2 Definition of a Bank’s Customer

2.2.1 Statutory Definition

United States’ statutory definition is in s.4-104(1)(e) Uniform Commercial Code

In a bigger picture, what makes a customer?

2.2.2 Common Law Definition + Court’s Interpretation

Robinson v Midland Bank (1925) 41 TLR 402 COA

Commissioners of Taxation v English, Scottish & Australian Bank [1920] AC 683

**The s82 of that time is our today’s s85.

Ladbroke Co. V Todd (1914) 19 Com Cas 256

Barclays Bank Ltd v Okenarhe [1966] 2 Llyods Rep 87

Y Woods v Martin Bank Ltd [1959] QB 55

Rowlandson v National Westminister Bank Ltd [1978] 1 WLR 798

Kehar Singh v Standard Chartered Bank

3.0 Types of Relationship between Bank and Customer

Standard Chartered Bank v Tiong Ngit Ting [1998] 5 MLJ 220

3.1 Debtor and Creditor Relationship

3.1.1 Common Law

Joachimson v Swiss Bank Corporation (1921) 3 KB 110 COA

6 principles derived by Ellinger:

Damayati Kantilal Doshi v Indian Bank [1999] 4 SLR 1

3.2 Relationship of Agent-Principal

Westminister Bank Ltd v Hilton [1926] 43 TLR 124

3.3 Fiduciary Relationship between Banker and Customer

Woods v Martins Bank Ltd & Anor [1959] 1 QB 55

Llyods Bank v Bundy [1975] QB 326

National Westminister Bank Plc v Morgan [1985] AC 686

Cornish v Midland Bank Plc [1985] 3 All ER 513

Commercial Bank of Australia v Amadio [1983] 151 CLR 447 HC 3:1

This was later applied in local case

3.4 Relationship of Constructive Trust and Beneficiary

Barnes v Addy (1874) LR 9 Ch App 244

3rd category: Inconsistent Dealing

How does this apply to banking?

Baden Delvaux v Societe’ Generale[1983] BCLC 325

“Knowing Assistance” consists of several elements: (the old one)

5 level of knowledge of “knowing assistance” by a constructive trustee

Similarly, this was proven in

Lipkin Gorman v Karpanale[1987] 1 WLR 987

Twinsectra Ltd v Yardley [2002] 2 A.C. 164 [Combined Test]

Abou Rahman v Abacha [2007] 1 All ER (Comm) 827 [Objective]

4.0 Bank’s Duty to a Customer

4.1 Duty to Honour Cheques

UMBC v Liew Yang [1975] 1 MLJ 148

4.1.1 What is the Quantum of Damages for breach of ctt?

Gibbons v Westminister Bank [1939] 2 KB 882

Definition of Trader as per Holden’s book.

Rolin v Steward [1854] 14 CB 595

Ng Cheng Kiat v Overseas Union Bank [1984] 2 MLJ 140

The Duty of Care does not include a duty to prevent forgery!