IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR

(COMMERCIAL DIVISION)
SUIT NO. WA-22M-35-02/2021

BETWEEN

1. KHEE SAN BERHAD .

(Company No.: 304376-A)
2. KHEE SAN FOOD INDUSTRIES SDN BHD
(Company No.: 27605-H)
... PLAINTIFFS
AND

MAYBANK ISLAMIC BERHAD

(COMPANY NO. 197301002412(787435-M)) … DEFENDANT

JUDGMENT

[1] This judgment concerns the Defendant’s application (encl.

17) to strike out the Plaintiffs’ Writ and Amended Statement
of Claim under para.s (b) and (d) of O. 18 r. 19(1) Rules of
Court 2012 (“ROC 2012”) and the inherent jurisdiction of the
Court.

[2] This suit was filed by the Plaintiffs on 15.7.2020 and

registered as Suit No. WA-22NCC-304-07/2020 to be heard
in Court NCC 6. The Statement of Claim was subsequently
amended. In respect of the same subject matter, the
Defendant filed Suit No. WA-22M-269-07/2020 on
21.7.2020 (“Suit 269”) in this Court, the Muamalat Court. In

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 Suit 269, the Plaintiffs, who are defendants in Suit 269 filed
a Defence and Counter Claim where in the Counter Claim
of Suit 269, the Plaintiffs prayed for the same reliefs in this
suit. The Defence and Counter Claim was also
subsequently amended. In Suit 269 the Defendant (the
plaintiff in Suit 269) filed an application for summary
judgment application in encl. 9 and an application to strike
out the Defendants’ Amended Counter Claim in encl. 17.

[3] As the subject matter of this dispute concerns an Islamic

Financing matter, on 24.2.2021 the learned Judge in Court
NCC 6 transferred the suit to the Muamalat Court and
registered as Suit No. WA-22M-35-02/2021 in the Muamalat
Court. During the case management of both this suit and
Suit 269 on 8.3.2021, by agreement of parties, I ordered
that encl.s 9 and 17 in Suit 269 be heard together with encl.
17 in this suit and the decision in Suit 269 will bind encl. 17
in this suit.

[4] I heard the applications together and after reserving my

decision, on 30.3.3021 I allowed both encl.s 9 and 17 in
Suit 269 with costs. My decision in encl. 17 of Suit 269
binds encl. 17 in this suit as ordered, thus encl. 17 in this
suit is also allowed with costs. As the Plaintiffs have filed a
Notice of Appeal specifically in respect of my decision for
encl. 17 in this suit, I have prepared these grounds of
judgment on the basis that that these grounds relate to encl.
17 in this suit.

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BACKGROUND FACTS

[5] From the outset it must be made clear that prior to a Vesting
Order dated 12.12.2007 the 2nd Plaintiff and the 1st Plaintiff
dealt with Malayan Banking Berhad (“MBB”) and
agreements entered into by the 2nd Plaintiff and the 1st
Plaintiff relating to the subject matter of this action were with
MBB. The Vesting Order was obtained in the Kuala Lumpur
High Court vide Originating Summons No. D5-24-349-2007
upon a joint application by MBB and the Defendant,
effective from 1.1.2008 which caused all contracts of the
Islamic Banking Business of MBB to be transferred to and
placed with the Defendant, an Islamic Bank. For simplicity,
for events occurring before 12.12.2007, MBB will be
referred to as the Defendant.

[6] Pursuant to a Letter of Offer dated 20.8.2004 (“the 2004

Letter of Offer”) issued by the Defendant and accepted by
the 2nd Plaintiff, the Defendant had granted to the 2nd
Plaintiff, a business manufacturing various confectionary
items, a Murabahah Overdraft Facility of RM1,000,000.00
(“the Murabahah Overdraft Facility”) and Trade (Letter of
Credit Murabahah, Murabahah Trust Receipts, Islamic
Acceptance Bills and Islamic Bank Guarantee) facilities
totaling RM3,000,000.00 (“the Trade Facilities”) subject to
the terms and conditions set out therein (referred together
as “the Financing Facilities”).

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[7] Pursuant to the 2004 Letter of Offer, the Defendant and the
2nd Plaintiff entered into a Facilities Agreement dated
29.12.2004 (“the 2004 Facilities Agreement”), an Asset
Sale Agreement dated 29.12.2004 and an Asset Purchase
Agreement dated 29.12.2004 in respect of the Murabahah
Overdraft Facility and a Facilities Agreement dated
29.12.2004 in respect of the Trade facililties (“the 2004
Agreements”).

[8] By a Letter dated 1.7.2010 issued by the Defendant and

accepted by the 2nd Plaintiff, the Defendant renewed the
Financing Facilities subject to the existing terms and
conditions contained in the 2004 Agreements. By a Letter of
Offer dated 29.1.2013 and a Supplemental Letter of Offer
dated 5.6.2013 (“the 2013 Letters of Offer”) issued by the
Defendant and accepted by the 2nd Plaintiff, the limit for the
Trade Facilities was increased from RM3,000,000.00 to
RM8,000,000.00 and the Murabahah Overdraft Facility of
RM1,000,000.00 was renamed as Cash Line-i, referred to
hereon as “the Cash Line-i Facility”. Pursuant to the 2013
Letters of Offer, the Defendant and the 2nd Plaintiff entered
into a Facility Agreement dated 14.5.2013 (“the 2013
Facility Agreement”), an Asset Sale Agreement dated
28.2.2013 and an Asset Purchase Agreement dated
28.2.2013 in respect of the Trade facilities. By a
Supplemental Letter of Offer dated 29.10.2014 and the
Defendant's Letter dated 31.10.2018, the Financing
Facilities totaling RM9,000,000.00 were renewed.

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[9] By Corporate Guarantees dated 29.12.2004 and 2.4.2013
(“the Corporate Guarantees”), the 1st Plaintiff, the holding
company of the 2nd Plaintiff, guaranteed, inter alia, to the
Defendant not merely as surety but also as principal debtor
the payment on demand of all monies due and owing by the
2nd Plaintiff to the Defendant. The 1st Plaintiff also agreed
to indemnify the Defendant in full and keep the Defendant
fully indemnified from and against all losses, costs, fees,
damages and expenses arising out of the guarantee.

[10] The Financing Facilities were then granted and disbursed at

the request of the 2nd Plaintiff, in accordance with the
Shariah principles. The Trade Facility (Islamic Acceptance
Bills), which is part of the Trade Facilities, was disbursed
based on the concept of Murabahah and Bai Al-Dayn. In
respect of the Trade Facility (Islamic Acceptance Bills),
relating to the exports and domestic sales based on the
concept of Bai-AI-Dayn, the Defendant relied on the 2nd
Plaintiff’s documents to process each drawdown. The
disbursement of the financing sums under the Trade Facility
(Islamic Acceptance Bills) was paid to the 2nd Plaintiff
directly into the 2nd Plaintiff’s designated current account
bearing Account No. 564016115503 maintained with the
Defendant (“the 2nd Plaintiff’s Account”).

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[11] The 2nd Plaintiff had, however, defaulted in making
payments due and owing under the Financing Facilities and
the Defendant through its solicitors, Messrs. Shook Lin &
Bok issued a letter of demand dated 18.7.2019 to the 2nd
Plaintiff which was extended also to the 1st Plaintiff,
demanding for payment to the Defendant of the arrears of
payments/in excess of limit under the Financing Facilities.

[12] Upon receiving the letter of demand dated 18.7.2019, the

Plaintiffs, by way of letters dated 31.7.2019, 17.10.2019,
and 14.11.2019, issued by the Plaintiffs’ solicitors, Messrs.
Krish Maniam & Co, sought for indulgence from the
Defendant to resolve their debts. Several meetings were
held between the Defendant and the Plaintiffs and their
other financiers to discuss settlement terms but the
settlement did not materialise.

[13] A further effort was undertaken by the Plaintiffs again to

resolve their debts by introducing to their various bank
creditors one Mamee Double-Decker (M) Sdn Bhd
(“Mamee”) as a white knight, who was to restructure the
Plaintiffs’ debts. Some time indulgence was granted to the
Plaintiffs to resolve their debts with the creditor banks,
including the Defendant. A Subscription Agreement dated
2.12.2019 was signed between the 1st Plaintiff and Mamee
but was, however, terminated by mutual agreement on
3.6.2020.

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[14] On 9.6.2020 Messrs. Krish Maniam & Co wrote to the
Defendant’s solicitors enclosing a notification from Messrs.
Krish Maniam & Co addressed to the creditor banks of the
1st Plaintiff. In the notification the 1st Plaintiff invited the
creditor banks to reconsider the settlement with the
Plaintiffs and highlighted that the 1st Plaintiff has a new
board and a new major shareholder. The 1st Plaintiff also
raised the issue of certain irregularities in the management
of the 1st Plaintiff by the previous board of the 1st Plaintiff
comprised of individuals who also were in the board of
London Biscuits Berhad (“LBB”) which controlled the 1st
Plaintiff when certain drawdowns were made by the 1st
Plaintiff’s subsidiaries on facilities with the creditor banks,
effected by fictitious invoices and purchase orders, the
monies from which were then channeled to LBB. The 1st
Plaintiff also indicated that if any action was taken against
the 1st Plaintiff and it subsidiaries this would be met with a
counter claim for damages.

[15] As the Plaintiffs’ debt with the Defendant was not resolved
the Financing Facilities were subsequently terminated by
the Defendant vide its solicitors’ letter of demand dated
8.11.2019. A letter of demand dated 8.11.2019 was also
issued to the 1st Plaintiff demanding for payment of the
indebtedness under the Financing Facilities. The Defendant
demanded from the Plaintiffs the sum of RM1,007,153.76
under the Cash Line-i Facility together with the applicable
profit and the sum of RM5,547,129.63 (inclusive of the
principal sum of RM5,408,950.95) under the Trade Facilities

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 together with the respective late payment charges
(Ta’widh), both sums as at 31.10.2019.

[16] The Plaintiffs then filed this action on 15.7.2020 and the
Defendant filed encl. 17 on 28.10.2020.

DEFENDANT’S CASE

[17] The Defendant’s case is grounded on the Plaintiffs’ default

in making payments due and owing under the Financing
Facilities thus the 2nd Plaintiff as principal debtor and the
1st Plaintiff as guarantor are indebted to the Defendant as
at 30.6.2020 for the sum of RM1,060,412.56 under the
Cash Line-i Facility together with the applicable profit and
the sum of RM5,467,194.64 (inclusive of the principal sum
of RM5,408,950.95) under the Trade Facilities together with
the respective late payment charges (Ta’widh).

[18] The monies under the Trade Facility (Islamic Acceptance

Bills) are disbursed when the 2nd Plaintiff draws up the
Islamic Acceptance Bills and presents these to the
Defendant with supporting documents, i.e. the invoices and
delivery orders issued to the trade debtor (customer) of the
2nd Plaintiff, one Wonder Food Sdn Bhd. By the maturity
date of the Islamic Acceptance Bills, the face value of the
bills would have to be paid to the Defendant.

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[19] The Plaintiffs are justly and truly indebted to the Defendant
and have no valid defence to the Defendant’s claim against
the Plaintiffs for the sums indebted to the Defendant under
the Cash Line-i Facility and Trade Facilities together. The
Plaintiffs have only challenged the Defendant’s claim
concerning the Trade Facility (Islamic Acceptance Bills) and
pursued their claim in the Amended Statement of Claim
relating to the Trade Facility (Islamic Acceptance Bills) only.
The Plaintiffs raised no issues vis-a-vis the Cash Line-i
Facility.

[20] In respect of the Trade Facility (Islamic Acceptance Bills), 4

Islamic Acceptance Bills were drawn down between
28.1.2019 and 28.3.2019 for a sum of RM1,964,813.73.
The applications for each of the Islamic Acceptance Bills
were signed by DSL, one of the directors of the 2nd Plaintiff
and a shareholder of the 1st Plaintiff who was an authorized
signatory of the 2nd Plaintiff for the purpose of utilization of
the Financing Facilities. The financing sum were credited by
the Defendant into the 2nd Plaintiff’s Account maintained
with the Defendant which was at the 2nd Plaintiff’s own
disposal.

[21] The Plaintiffs have admitted their indebtedness under the

Financing Facilities but sought for an indulgence from the
Defendant to resolve their debts to which there was no
agreement reached for the settlement of their debts.

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[22] The Plaintiffs have no valid claim against the Defendant in
this suit as the Plaintiffs did not suffer any damages as the
monies disbursed and drawn down pursuant to the Trade
Facility (Islamic Acceptance Bills) based on the Islamic
Acceptance Bills were paid into the 2nd Plaintiff’s own
current account as per the instruction stated in the 2nd
Plaintiff’s applications.

[23] The Defendant was under no obligation to verify the

documents with any third parties prior to the disbursement
of the Islamic Acceptance Bills or to make any enquiry. The
Defendant owes no duty of care or obligation to the
Plaintiffs and there exists no such implied duty of good faith
whatsoever.

[24] With regard the Islamic Acceptance Bills, the documents

were issued and furnished by the 2nd Plaintiff and signed
off by their authorised signatory and appeared valid and
proper to the Defendant thus the Defendant is not liable for
the purported wrongful actions of the 2nd Plaintiff’s
employees/officer.

PLAINTIFFS’ CASE

[25] The Plaintiffs’ claim against the Defendant is grounded on

the tort of negligence. According to the Plaintiffs, the
Defendant had breached its duty of care in the banker-
customer relationship by allowing drawdowns on the Trade
Facility (Islamic Acceptance Bills) based on forged or

10
 fictitious documents and transactions and as a
consequence thereof the Plaintiffs suffered loss and
damage. The Plaintiffs also maintained that the Defendant
has breached its duty of care by breaching the Bank Negara
Malaysia’s Guidelines on Accepted Bills-i 2003 (“Bank
Negara Guidelines”). A brief narrative is set out below
based on the Plaintiffs’ pleadings which explains how the
Plaintiffs arrived at this position, according to the Plaintiffs.

[26] LBB was a 30% shareholder of the 1st Plaintiff and the 1st
Plaintiff in turn held 100% of the shares in the 2nd Plaintiff.
At the material time, LBB, the 2nd Plaintiff and the 1st
Plaintiff were all under the control of one Dato’ Sri Liew Yew
Chung (“DSL”) who was a Director of all three companies.
At the material time DSL carried out the executive functions
of the three companies.

[27] In 2004, the Defendant had granted the Trade Facility

(Islamic Acceptance Bills) as part of the Trade Facilities to
the 2nd Plaintiff for financing invoices and purchase orders
for the 2nd Plaintiff’s products. The 1st Plaintiff executed the
Corporate Guarantees and stood as a corporate guarantor
of the 2nd Plaintiff’s indebtedness under the Guarantee.
From 30.5.2019 to 29.7.2019 a total of RM1,964,813.73
was drawn down by the Defendant to the 2nd Plaintiff
pursuant to Islamic Acceptance Bills in respect of the Trade
Facility (Islamic Acceptance Bills).

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[28] Upon DSL’S resignation as a Director in the 2nd Plaintiff
and the 1st Plaintiff and the disposal of LBB’s shares in the
1st Plaintiff in the later part of 2019, the 2nd Plaintiff
discovered that fictitious documents were submitted earlier
to the Defendant in 2019 to make drawdowns under the
Trade Facility (Islamic Acceptance Bills). On 25.6.2020, the
Plaintiffs appointed BDO Governance Advisory Sdn Bhd
(“BDO”) to carry out a comprehensive investigation into the
documents used for the drawdowns. It was discovered that
up to RM2,109,200.00 out of the RMRM5,467,194.64 of the
principal sum of the Trade Facility (Islamic Acceptance Bills)
claimed by the Defendant as due and owing is a fictitious
debt.

[29] The following were disclosed from reports produced by

BDO dated 11.9.2020 and 16.10.2020 (“the BDO
Reports”):

a) The former directors of the 1st Plaintiff, who were

also directors of LBB, had submitted fictitious
invoices from both customers and suppliers of the
2nd Plaintiff as support for drawdowns from the
credit facilities.

b) DSL was at all material time carrying out executive

functions despite not being a designated executive
director of the 1st Plaintiff (as he was re-designated
from Chief Executive Officer of the 1st Plaintiff to
Chairman).

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c) All applications of the credit facilities were signed by
DSL.

d) Fictitious sales invoices amounting to

RM39,454,484,00 were submitted as the basis for
the drawdown of the credit facilities, including the
Defendant’s credit facilities.

e) Fictitious purchase invoices amounting to

RM4,467,123.00 were submitted as the basis for
drawdown of credit facilities.

f) There were discrepancies between the summary

listings of invoices submitted for credit facilities
drawdown and the actual invoices.

g) The financing drawn was in excess over total

amounts stated in the invoices used for the
drawdown.

h) There were financing from 2 different banks over the

same invoices.

i) The purchases and payments of the 2nd Plaintiff

were at that material time managed by LBB.

j) The monies drawn from the Defendant and the other

banks were channelled to LBB to a tune of
approximately RM85 million.

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[30] The Plaintiffs contended that based on the Defendant’s duty
of care arising from the banker-customer relationship
relation between the Defendant and the 2nd Plaintiff and
BNM Guidelines, the Defendant had an obligation to
investigate and inquire the propriety of the documents
submitted by the officers of the 2nd Plaintiff to the
Defendant for the drawdowns and make reasonable
inquiries to satisfy itself that the transactions are bona fide
before carrying out the instructions of the 2nd Plaintiff’s
agent to draw down the Trade Facility (Islamic Acceptance
Bills). The Defendant failed to do this despite the Securities
Commission Malaysia (“Securities Commission”), on
23.5.2018, reprimanding the directors of the 1st Plaintiff at
the material time namely, Leslie Looi Meng, Huang Yan
Teo, DSL, and Liew Yet Mei, including Dato’ Sri Liew Kuek
Hin for failing to ensure the Company’s Annual Financial
Statement 2015 and 2016 were prepared and presented in
accordance with approved accounting standards.

[31] In addition to engaging BDO on 25.6.2020 to carry out a

comprehensive investigation into the documents used for
drawdowns, the Plaintiffs did the following:

a) The Plaintiffs informed the Defendant via its

solicitors’ letter dated 9.6.2020 of the possible usage
of fictitious documents for the drawdowns.

14
 b) The Plaintiffs commenced legal proceedings against
DSL on 28.9.2020 to recover the sums extracted
from the Plaintiffs with the aid and assistance of the
Defendant.

c) On 21.10.2021 the Plaintiffs lodged a police report

against the perpetrator and the co-conspirator who
were involved in the commission of this fictitious
drawdown and stated that based on the frequency of
the drawdowns, the Board of the 2nd Plaintiff had
also sued the bankers for negligence and believed
there had been collusion or conspiracy.

[32] The Defendant’s breach caused the Plaintiffs to suffer loss

and damage and in the Amended Statement of Claim the
Plaintiffs pray mainly for the following:

a) Damages for negligence;

b) That the sums due to the Defendant be set off in

totality or the fictitious portion be omitted from
repayment as the court directs;

c) An account of all monies drawn down by virtue of

fictitious invoices presented to the Defendant;

d) An account of all monies paid by the 2nd Plaintiff to

the Defendant by virtue of maturity of those fictitious
invoices;

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 e) An account be taken of what is due by 2nd Plaintiff to
the Defendant or vice versa;

f) All further proper accounts inquiries and directions;

g) An order for payment of any sum due by the 2nd

Plaintiff to the Defendant or vice versa upon taking
such account;

h) A sum of RM114,000,000.00 which is equivalent to

RM1.00 to every shareholder of the 1st Plaintiff be
paid by the Detendant as damages;

i) Additional damages of RM140,000,000.00 for the

damage caused to the Plaintiffs in terms of
operations and revenue loss including reputational
damage to the Plaintiffs and their brands; and

j) General damages of RM150,000,000.00 to be

assessed by the Court.

THE LAW ON STRIKING OUT PLEADINGS (O. 18 R. 19 RULES

OF COURT 2012)

[33] The rules on striking out pleadings are provided in O. 18 r.

19(1) ROC 2012 which is reproduced below for
convenience:

16
 “19. Striking out pleadings and endorsements (O. 18
r. 19)

(1) The Court may at any stage of the proceedings

order to be struck out or amended any pleading or
the endorsement, of any writ in the action, or
anything in any pleading or in the endorsement, on
the ground that-

a) it discloses no reasonable cause of action or

defence, as the case may be;

b) it is scandalous, frivolous or vexatious;

c) it may prejudice, embarrass or delay the fair

trial of the action; or

d) it is otherwise an abuse of the process of the

Court, and may order the action to be stayed or
dismissed or judgment to be entered accordingly, as
the case may be.”

[34] The Federal Court in Tan Wei Hong (A Minor Suing

Through Guardian Ad Litem And Next Friend Chuang Yin E)
& Ors v. Malaysia Airlines Bhd And Other Appeals [2018] 9
CLJ 425 has succinctly laid out the test for striking out
pleadings, referring to the locus classicus Bandar Builders
Sdn Bhd. v. United Malayan Banking Corporation Bhd
[1993] 4 CLJ 7. Ramly Ali FCJ delivering the judgment of
the court, stated as follows:

“The tests for striking out application under O. 18 r.

19 of the ROC, as adopted by the Supreme Court in
Bandar Builders are, inter alia, as follows:

a) it is only in plain and obvious cases that

recourse should be had to the summary process
under the rule;

b) this summary procedure can only be adopted

when it can be clearly seen that a claim or answer is
on the face of it obviously unsustainable;

17
 c) it cannot be exercised by a minute examination
of the documents and facts of the case in order to
see whether the party has a cause of action or a
defence;

d) if there is a point of law which requires serious

discussion, an objection should be taken on the
pleadings and the point set down for argument under
O. 33 r. 3 of the ROC; and

e) the court must be satisfied that there is no

reasonable cause of action or that the claims are
frivolous or vexatious or that the defences raised are
not arguable.”

[35] The Court of Appeal, in Sivarasa Rasiah & Ors v. Che

Hamzah Che Ismail & Ors [2012] 1 CLJ 75 adopted the
well-settled principle of striking out in the following passage:

“A striking out order should not be made summarily

by the court if there is issue of law that requires
lengthy argument and mature consideration. It
should also not be made if there is issue of fact that
is capable of resolution only after taking viva voce
evidence during trial (see: Lai Yoke Ngan & Anor v.
Chin Teck Kwee & Anor [1997] 3 CLJ 305; [1997] 2
MLJ 565 (Federal Court)).”

PLAINTIFFS’ SUBMISSIONS

[36] The Plaintiffs’ submissions, put forward by counsel of the

Plaintiffs, Mr Owee Chia Ming, are summarised and laid out
in para.s 37 to 49 of this Judgment below.

[37] There is a triable issue in this case in that the Defendant

has breached its duty of care by allowing forged and/or
fictitious documents to be produced and therefrom creating

18
fictitious debts on the part of the Plaintiffs. In this regard, the
Plaintiffs submitted and contended as follows:

a) The Defendant and the 2nd Plaintiff’s banker-

customer relationship creates a duty of care where
the Defendant has an obligation to investigate and
inquire the propriety of the invoices and the delivery
orders issued by the 2nd Plaintiff and the underlying
transactions. The accepting bank must be prepared
to authenticate its own facility by checking the
relevant documents and verifying its authenticity after
the 2nd Plaintiff requests for such facilities.

b) The Defendant should have refrained from allowing

drawdowns of the Trade Facility (Islamic Acceptance
Bills) if the Defendant was put on inquiry in the sense
that the Defendant had reasonable grounds for
believing that the Trade Facility (Islamic Acceptance
Bills) was an attempt to misappropriate funds of the
2nd Plaintiff when (i) all applications for drawdowns
on the fictitious invoices for LBB’s products were
made by DSL who also controlled LBB; (ii) the
invoices were for LBB’s products such as London
Rolls and Jumbo Rolls which were not products
manufactured and normally sold by the 2nd Plaintiff
thus did not qualify for drawdowns; (iii) the fictitious
invoices used for the drawdowns were reversed via
credit notes and re-categorised in the 2nd Plaintiff’s
accounting records as amounts owing to LBB; (iv)

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 the drawdowns for LBB’s products were made in
early 2019 when LBB was in financial distress; and
(v) the Securities Commission had on 23.5.2018
reprimanded Directors of the 1st Plaintiff including
DSL for failure to comply with financial reporting
standards.

c) The Defendant also owes the 2nd Plaintiff a duty of

care to make reasonable inquiries to satisfy itself that
the transaction is bona fide before carrying out the
Plaintiffs’ agent’s instructions to draw down the
Trade Facility (Islamic Acceptance Bills).

d) The Defendant should have made reasonable

inquiries to satisfy itself that a transaction was bona
fide before allowing the 2nd Plaintiff’s application to
draw down the Trade Facility (Islamic Acceptance
Bills) if the Defendant through its agent was aware or
ought to be aware of circumstances surrounding the
transaction which would suggest that the transaction
was part of a breach of trust and/or breach of
fiduciary duty and/or fraudulent scheme.

e) The Defendant failed to validate the documents and

verify the documents with the relevant third parties.
The Defendant cannot rely purely on the contract to
state that the documents were delivered by the
Plaintiffs and that the Defendant bore no
responsibility. As a financial institution the Defendant

20
 has a duty of care to ensure compliance which
extends to the veracity of the documents used for the
drawdown.

f) Based on an operational manual of the trade

processing centre of a bank providing Banker’s
Acceptance Facility similar to the Trade Facility
(Islamic Acceptance Bills), the bank is supposed to
evaluate and verify the documents, i.e. the Banker’s
Acceptance Draft, Acceptance Request Form, and
other supporting documents for the said facility prior
to the drawdown. The Defendant’s trade finance
department failed to do these evaluations and
verifications.

g) The alleged fictitious documents and/or transactions

was brought to the atttention of the public (published
in the Edge Malaysia) as it has highlighted that there
were many warning signs of irregularities existing
which the Defendant ought to known but reluctant to
verify.

h) The above incidents should have raised the

awareness to the Defendant, but instead of taking
any precautions, i.e. to check and verify the credit
facilities granted to the 2nd Plaintiff, the Defendant
still proceeded to grant the Trade Facility (Islamic
Acceptance Bills) to the 2nd Plaintiff upon DSL’s
submission.

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[38] There is a triable issue in this case in that the Defendant
breached its duty of care by breaching the BNM Guidelines.
In relation to this the Plaintiffs further submitted:

a) The Defendant has a duty to authenticate 3rd party

documents used for the drawdown as per s. 20 of the
BNM Guidelines.

b) Sections 6.4 and 6.5 of the BNM Guidelines provides

that the Defendant ought not to have allowed
drawdowns under the Trade Facility (Islamic
Acceptance Bills) where there were related
corporations, i.e. the 2nd Plaintiff and LBB. There
was a duty on the Defendant to verify the impugned
transactions to determine whether to allow any
drawdowns.

[39] To support their submissions that the obligation to

investigate and inquire the propriety of the documents
submitted to the Defendant by the officers of the 2nd
Plaintiff before allowing the drawdowns, the Plaintiffs relied
primarily on the principle stated in the English High Court
case of Barclays Bank plc v. Quincecare Ltd [1992] 4 All ER
363 (“Quincecare”) which was approved by the English
Court of Appeal in Singularis Holdings Ltd (in liquidation) v.
Daiwa Capital Markets Europe Ltd [2018] 2 BCLC 1
(“Singularis”). Quincecare was also applied by the English
High Court in Federal Republic of Nigeria v. JP Morgan
Chase Bank, NA [2019] EWHC 347 (Comm), a decision

22
 which was upheld by the English Court of Appeal in JP
Morgan Chase Bank, NA v. Federal Republic of Nigeria
[2019] EW CA Civ 1641(“JP Morgan”).

[40] The principle in Quincecare relied on by the Plaintiffs as laid

down by Steyn J is that a banker must refrain from
executing an order if they are ‘put on inquiry’ in the sense
that they have reasonable grounds (although not
necessarily proof) for believing that an order is an attempt to
misappropriate funds of the company. The Plaintiffs
submitted that the Defendant owed the Plaintiffs a
Quincecare duty to refrain from allowing drawdowns under
the Trade Facility (Islamic Acceptance Bills) as there were
reasonable grounds to believe the Plaintiffs were being
defrauded and the Plaintiffs’ funds were being
misappropriated. Once these reasonable grounds arose,
the Defendant had a duty to make reasonable inquiries on
the drawdowns and the Defendant ought to have refrained
from allowing drawdowns under the Trade Facility (Islamic
Acceptance Bills).

[41] The Plaintiffs also referred the Court to the Federal Court
case of Abdul Rahim Abdul Hamid v. Perdana Merchant
Bankers [2006] 5 MLJ 1 (“Abdul Rahim”) which approved
the Quincecare principle. It was held by the Federal Court
that the bank had breached its Quincecare duty in not
informing its customer of a material variation in the facility
agreement.

23
[42] The Defendant is unable to rely on the 2nd Plaintiff’s
representation that the impugned transactions were
genuine. It was further submitted by the Plaintiffs as follows:

a) In the High Court decision of the JP Morgan case it

was held that a customer cannot warrant to the bank
that it customer is not being defrauded by relevant
transactions when, despite there being terms in an
agreement providing that the bank has no duty to
investigate the validity of a customer’s instruction,
the terms do not apply where the bank has
reasonable grounds for believing that the customer is
being defrauded.

b) The Quincecare duty is in tandem with the

Defendant’s contractual duties under the Trade
Facility (Islamic Acceptance Bills) and is implied by
law by virtue of the banker-customer relationship
between the Plaintiffs and the Defendant. In Abdul
Rahim the Federal Court held that the duty of the
bank to observe reasonable skill and care in
executing a customer’s orders is an implied term of
the contract between the bank and its customer. In
JP Morgan the English Court of Appeal held that it is
the duty of a bank to exercise reasonable skill and
care in the services it provides which is inherent in
the banker-customer relationship.

24
 c) There was no exclusion of the Quincecare duty in the
Trade Facility (Islamic Acceptance Bills). It was held
by the High Court in JP Morgan that clear words are
required to exlude the right conferred by the
Quincecare duty of care.

d) As the Plaintiffs’ funds were being misappropriated,

such fraud unravells all i.e. the Defendant cannot
insist on the exclusions under the Trade Facility
(Islamic Acceptance Bills), relying on CIMB Bank
Bhd v. Maybank Trustees Bhd [2014] 3 MLJ 169
(Federal Court).

[43] The Defendant was not contractually bound to draw down

despite the customer’s mandate to do so when the
Quincecare duty is applicable where the Defendant was put
on inquiry of the misappropriation. The Defendant stated
that in extreme cases the bank is not obliged to treat the
customer’s mandate at its face value, relying on Lipkin
Gorman (a firm) v. Karpnale Ltd [1992] 4 All ER 331. This is
also the case when there are grounds for believing that
there was a misuse of authority for the purpose of
committing a fraud as held in Abdul Rahim and Public Bank
Bhd & Anor v. Exporaya Sdn Bhd [2013] 1 MLJ 507 (Court
of Appeal) (“Exporaya”). The Plaintiffs also argued that the
fraud committed by DSL cannot be attributed to the 2nd
Plaintiff, relying on Singularis which held that based on the
Quincecare principle, to protect the company which is a

25
 customer of the bank, the fraudulent conduct of a director
cannot be attributed to the company.

[44] There were no benefits retained by the 2nd Plaintiff when

the drawdowns were disbursed directly into the 2nd
Plaintiff’s account as the monies were siphoned off to LBB
since the account at the material time was under the control
of DSL. The wrongdoings of DSL cannot be attributed to the
company where there is a Quincecare breach as held in in
Singularis.

[45] The Quincecare duty is not limited to instances of payments

of monies into accounts of third parties. The Plaintiffs
illustrated this point with Abdul Rahim, where there was a
breach of the Quincecare duty where the bank had made
one drawdown under the loan facility without informing the
customer, contrary to their agreement that there be two
drawdowns. Simliarly, the Defendant allowed drawdowns
for LBB’s products and not the 2nd Plaintiff’s products
contrary to the terms of the Trade Facility (Islamic
Acceptance Bills).

[46] The Plaintiffs submitted, relying on Silver Corridor Sdn Bhd

v. Gallant Acres Sdn Bhd [2016] 5 MLJ 1 (Federal Court)
and KTL Sdn Bhd v. Leong Oow Lai [2014] MLJU 1405
(High Court) that estoppel does not apply where there is an
illegality due to the Defendant’s contravention of the BNM
Guidelines as drawdowns were made despite LBB and the
2nd Plaintiff being related companies. The Plaintiffs also

26
 submitted that s. 24 of the Contracts Act 1950 was
breached as the object of the agreement is not lawful due to
it being fraudulent. Also s. 471 of the Penal Code was
breached as a forged document was used.

[47] The 1st Plaintiff as a guarantor has the locus standi to

commence the action against the Defendant based on the
following:

a) When looked at the big picture, the Defendant owes

an implied duty of good faith to the 2nd Plaintiff and
by extension, the 1st Plaintiff as corporate guarantor.

b) The 1st Plaintiff is affected by the claim in this

instant, having suffered from the Defendant’s breach
of its Quincecare duty.

c) In the event that breach of the Quincecare duty is

established, there is no liability to repay any
outstanding sums under the Trade Facility (Islamic
Acceptance Bills) and damages may be awarded as
was done by the Federal Court in Abdul Rahim.

d) Similar relief was granted in Singularis in that the

amounts wrongly paid out was ordered to be repaid
to Singularis deducting contributory negligence.

27
[48] The Plaintiffs’ action herein is not inconsistent with
contemporaneous documents so as to be obviously
unsustainable so as to warrant a striking out as held in
Bandar Builder. The Plaintiffs submitted further as follows:

a) Facts will be proven at trial that the Defendant has

breached its Quincecare duty by allowing drawdowns
under the Trade Facility (Islamic Acceptance Bills)
despite there being reasonable grounds to believe
the Plaintiffs' funds were being misappropriated and
such breach had caused losses suffered by the
Plaintiffs. The Defendant has raised many
contentious facts and this is tantamount to raising
triable issues.

b) There is a conflict of material affidavit evidence and a

serious dispute on material facts and the Defendant
has only put forward allegations which are bare
denials, particularly on the BDO Reports showing the
fictitious documents for the drawdowns for
channeling of monies to LBB and breaches of the
BNM Guidelines by the Defendant.

[49] The Defendant’s allegation that the Plaintiffs’ action is

tainted with mala fides to pressure the Defendant accept the
Plaintiffs’ settlement proposal cannot be determined via
affidavit evidence and hence, ought to be tried citing Tan
Vei Lian & Ors v. Mansor bin Masikon & Ors [2019] MLJU
1227.

28
DEFENDANT’S SUBMISIONS

[50] The Defendant’s submissions, put forward by counsel of the

Defendant, Ms Ng Hooi Huang, are summarised and laid
out in para.s 51 to 62 of this Judgment below.

[51] The relationship between the banker and customer is

governed by contract and the parties’ obligations in tort, if
any, cannot be greater than those to be found expressly or
by necessary implication in their contract, there is no
obligation on the Defendant to verify with third parties prior
to the drawdown of the Trade Facility (Islamic Acceptance
Bills) and the Defendant had not breached its duty for
financing the sales transaction of LBB’s product instead of
the 2nd Plaintiff’s products. To support this proposition, the
Defendant referred the Court to the case of Aseambankers
Malaysia Bhd & Ors v. Shencourt Sdn Bhd & Anor [2014] 4
MLJ 619 which affirmed the Privy Council’s decision in Tai
Hing Cotton Mill Ltd v. Liu Chong Hing Bank Ltd and others
[1985] 2 All ER 947. The Defendant further submitted and
contended as follows:

a) Referring to cl.s 2.2 and 7.2 of the 2004 Facilities

Agreement, the Letter of Offer dated 29.1.2013, cl.
2.2 and cl. 7.2 of the 2013 Facility Agreement, the
terms demonstrate that the 2nd Plaintiff undertakes
that its transactions are genuine and the Defendant
was entitled to rely on that and the transactions as

29
 drawn by the authorized signatory (DSL) must be
accepted.

b) There is nothing in the agreements executed

between the 2nd Plaintiff and the Defendant which
required the Defendant to verify the transactions with
the purchasers of goods or third parties before
disbursements may be made to the 2nd Plaintiff.
Neither was there any term that the transactions
financed must relate to the sale of only the Plaintiffs’
manufactured product.

c) There is no duty imposed on the Bank to verify such

sales with the 2nd Plaintiff’s third party buyers. The
Court was referred to Maybank Islamic Berhad v.
Aldwich Enviro-Management Sdn Bhd [2015] 1 LNS
1300 (High Court) which held that in a situation
where documents are submitted to the bank to apply
for drawdowns under an Accepted Bills facility, it is
the customer that owes a duty of care to ensure that
all their trade, trade documents, shipping documents,
and applications to the bank are properly verified to
be authentic and genuine.

d) The issue relating to the transactions between the

2nd Plaintiff and third parties would not absolve the
2nd Plaintiff from its liability under the Trade Facility
(Islamic Acceptance Bills). The Defendant should not
query transactions between the 2nd Plaintiff and third

30
 parties as to do so would be onerous as it would
require the Defendant, as a bank, to verify and
investigate transactions to which the Defendant is
not a party. The Defendant referred to the Federal
Court case of Chang Yun Tai v. HSBC Bank (M) Bhd
and other appeals [2011] 7 CLJ 909 to support this
argument.

e) As the Defendant merely grants financing in respect

of the 2nd Plaintiff’s sale of goods to third parties,
allegations relating to the “fictitious documents” do
not absolve the Plaintiffs from their liabilities under
the Trade Facility (Islamic Acceptance Bills) and the
1st Plaintiff’s Guarantee.

f) The Plaintiffs' cannot rely on an alleged “operational

manual of trade processing” to support their
contention that the Defendant has an obligation to
verify and investigate transactions as the alleged
operational manual is not the Defendant’s and the
Plaintiffs have not stated the source of such
document. The operational manual does not require
verification or authentication to be done but only “if
documents are not consistent with one another, and
there is doubt, to investigate further with relevant
parties, if applicable”.

31
[52] The Defendant was bound contractually to execute the 2nd
Plaintiff’s mandate to disburse the monies under the Trade
Facility (Islamic Acceptance Bills) upon receiving the 2nd
Plaintiff’s application and supporting documents at their face
value which appeared to be proper and valid to the
Defendant and had allowed the drawdowns in accordance
with the mandate. In relation to this the Defendant
submitted and contended as follows:

a) At the material time of disbursements, there was

nothing to arouse the Defendant’s suspicion.

b) The mandate given to the Defendant was to deal

with the applications for disbursements under the
Trade Facility (Islamic Acceptance Bills) as drawn by
the authorised signatory, DSL. The application forms
for the Islamic Acceptance Bills and the Bai Dayn
contract notes for the Trade Facility (Islamic
Acceptance Bills) were signed by DSL, supported by
all the relevant invoices and delivery orders. DSL
was an authorised signatory of the 2nd Plaintiff to
operate the Financing Facilities pursuant to the 2nd
Plaintiff’s Directors’ Circular Resolution dated
31.1.2013.

c) The Defendant referred the Court to Exporaya and

Abdul Rahim for the proposition that a bank is
entitled to treat the customer's mandate at its face
value save in extreme cases and is not obliged to

32
 question any transaction which is in accordance with
the mandate and it is not commercially viable for
banks to police how the banking transactions were
undertaken or to act as amateur detectives.

d) The reprimand of the directors of the 1st Plaintiff by

the Securities Commission in May 2018 was not
sufficient to have raised the Defendant’s awareness
to take precautions when approving the drawdowns.
The Defendant further contended as follows:

e) The directors of the 1st Plaintiff, and not the 2nd

Plaintiff, at the material time were reprimanded for
failing to ensure the Company’s Annual Financial
Statements 2015 and 2016 were prepared and
presented in accordance with the approved
accounting standard. This did not concern
documents submitted for disbursements under the
Trade Facility (Islamic Acceptance Bills) as no
reference was made to the 2nd Plaintiff’s credit
facilities with its bankers and did not arouse the
suspicion of the Defendant in allowing the
drawdowns.

f) Steps were taken by the 1st Plaintiff’s directors

following the said sanction by the Securities
Commission in May 2018.

33
 g) Nothing regarding the Securities Commission
reprimand nor the steps taken by the 1st Plaintiff to
address the Securities Commission reprimand
concerned the 2nd Plaintiff or its facilities.

h) Nothing has been shown which would have put the

Defendant on notice that there was anything amiss
when the documents were presented to the
Defendant and the Plaintiffs have not shown in any
manner how such documents were “fictitious”.

[53] DSL being in control of LBB, the 1st Plaintiff and the 2nd
Plaintiff does not suffice to raise any suspicion so as to put
the Defendant on inquiry before the drawdowns. In this
regard, the Defendant submitted and contended as follows:

a) LBB, the 1st Plaintiff and the 2nd Plaintiff are

separate legal entities. LBB only held a 20%
shareholding in the 1st Plaintiff (which was
subsequently disposed off) and LBB was not the sole
shareholder of the Plaintiffs. There are two
authorized signatories of the 2nd Plaintiff in
connection with the financing.

b) LBB going into financial distress in early 2019 could

not have put the Defendant on inquiry as LBB and
the Plaintiffs are separate and distinct legal entities.
LBB’s financial distress would not have raised any
grounds for suspicion in the drawdown of the Trade

34
 Facility (Islamic Acceptance Bills) which were
supported by the application forms, the 2nd Plaintiff’s
own invoices and delivery orders.

c) Although the invoices used for the drawdown of the

Trade Facility (Islamic Acceptance Bills) included
LBB’s products this did not raise any suspicion as
there was no restriction in the Letter of Offer dated
20.8.2004, Letter of Offer dated 29.1.2013 the
Facilities Agreement dated 29.12.2004 to prevent
such financing.

d) There was nothing in any of the Defendant's Letters

of Offer or the Facilities Agreements to prohibit the
financing of sale of goods manufactured/produced by
another company.

e) The Plaintiffs have avoided affirming under oath that

the 2nd Plaintiff could not sell LBB products and the
Trade Facility (Islamic Acceptance Bills) could not be
used to finance the sale of goods which included
LBB products.

f) The objects of the 2nd Plaintiff set out in the 2nd

Plaintiff’s Memorandum and Articles of Association
show that the 2nd Plaintiff can carry on business as
dealers in the products that it purchased from LBB
which include cakes, bread, confectionary of all kinds

35
 and descriptions and other articles of food and in all
other articles of merchandise.

g) The fact that the Plaintiffs’ bankers had financed the

sale by the 2nd Plaintiff of LBB products shows that
this was part of the 2nd Plaintiff's business.

[54] The reversals of the 2nd Plaintiff’s invoices could not have
raised any suspicion on the Defendant's part as the
Defendant would not be aware of what transpired internally
with the internal accounting process of the 2nd Plaintiff.

[55] Section 20 of the BNM Guidelines which the Plaintiffs rely

on is not relevant in the circumstances of the case and went
on to explain as follows:

a) Section 20 only applies if the Islamic Acceptance Bill

drafts were sold in the secondary market to a 3rd
party and the bearer of the draft was inquiring from
the Accepting Bank for authentication of the Islamic
Acceptance Bills which is not the case here.

b) There is thus no duty on the part of the Defendant to

verify the documents submitted by the 2nd Plaintiff
with the third parties prior to allowing the drawdown
under the Trade Facility (Islamic Acceptance Bills).

36
[56] With regards s. 6.4 and s. 6.5 of the BNM Guidelines which
provide that an accepted bill may be drawn provided that
the accepting bank verifies that the related corporations are
indeed separate legal entities, the trade transaction
between the two related corporations was undertaken at
arm’s length and there was a genuine transfer of title to the
goods concerned, these are also inapplicable as the 2nd
Plaintiff and the LBB which, although they were related
corporations as provided in s. 6.4, at all material times were
not the “transacting parties” for which the transaction is
being financed under the Trade Facility (Islamic Acceptance
Bills). LBB was not one of the Plaintiffs’ trade debtors to
whom goods were sold.

[57] The Defendant cannot be held responsible for any

purported wrongdoing by DSL regarding the disbursed
monies as it has no obligation to concern itself with the 2nd
Plaintiff’s application of the amounts made available under
the Trade Facility (Islamic Acceptance Bills). In relation to
this, it was further submitted and contended by the
Defendant as follows:

a) All monies that were disbursed under the Trade

Facility (Islamic Acceptance Bills) were all paid into
the 2nd Plaintiff’s Account maintained with Maybank
Islamic Berhad.

37
b) Once the monies were disbursed and paid into the
2nd Plaintiff’s Account, how the monies were utilised
thereafter is a matter within the internal operations
and/or management of the 2nd Plaintiff and not
within the Defendant’s control. Thus the control of
LBB by DSL and siphoning of monies from the 2nd
Plaintiff to LBB has nothing to do with the
Defendant’s financing to the 2nd Plaintiff.

c) The 2nd Plaintiff has expressly agreed that the

Defendant shall have no obligation to concern itself
with the 2nd Plaintiff’s application of the amounts
made available under the Trade Facility (Islamic
Acceptance Bills) as provided under cl. 2.2 of the
2004 Facilities Agreement.

d) Any wrongdoing on DSL’s part is the Plaintiffs’ failure

in the lapses in the presentation of the documents for
the Trade Facility (Islamic Acceptance Bills) would
be as against DSL and not the Defendant which are
internal matters to be dealt with between the 2nd
Plaintiff and DSL which the Defendant is not
responsible for.

e) Vis-a-vis the Defendant, the 2nd Plaintiff suffered no

loss and damage. Thus there is no accrual of a
cause of action based in tort against the Defendant.
The Defendant relied on Ambank (M) Bhd v. Abdul
Aziz Hassan & Ors [2010] 7 CLJ 663 (Court of

38
 Appeal), Allure Gold (S) Pte Ltd & Anor v. Malayan
Banking Berhad & Ors [2012] 1 LNS 412 (High
Court) and UDA Holdings Bhd v. Melewar Leisure
Sdn Bhd [2009] 2 MLJ 408 in support of this
submission.

f) The Plaintiffs’ claim is not bona fide as they mounted

the claim against the Defendant in respect of the
disbursement of monies under the Trade Facility
(Islamic Acceptance Bills) after benefiting from it,
relying on the case of Tan Sri Khalid bin Ibrahim v.
Bank Islam Malaysia Bhd and another suit [2009] 6
MLJ 416. The 2nd Plaintiff having had full benefit of
the monies disbursed, it was beyond the control of
the Defendant how the 2nd Plaintiff utilised such
monies and the Defendant cannot be held liable for
the 2nd Plaintiff’s own use of the monies. The
Defendant relied on the case of Francis Phillips a/l
AJ Phillips v. Bank Industri Malaysia Bhd [2004] 2
MLJ 1 (Court of Appeal) in support of this
submission.

[58] The Quincecare duty of care only applies in scenarios

where monies are being misappropriated and/or transferred
out to third parties and is wholly inapplicable to the
Defendant’s claim herein as the monies that were drawn
down under the Trade Facility (Islamic Acceptance Bills)
were paid directly to the 2nd Plaintiff. The Defendant
submitted further as follows:

39
a) It was in the context of transferring monies out of a
company’s account to third parties, (and not to its
own account) in an attempt to misappropriate monies
that the English High Court in Quincecare held that
that a bank owes the duty of care. It was also in a
situation where monies are being transferred to third
parties that the Malaysian High Court in RHB Bank
Bhd v. Singlefine (M) Sdn Bhd & Ors [2019] 11 MLJ
333 recognised the underlying principle of the
Quincecare duty of care.

b) Monies drawn down under the Trade Facility (Islamic

Acceptance Bills) were directly paid to the 2nd
Plaintiff and the 2nd Plaintiff had not suffered any
loss even if the Defendant had wrongfully paid out
such monies for which the Defendant cannot be held
liable.

c) In cases involving the wrongful honouring of

cheques, the position in the law is that if payments
made under the cheques are for the purpose of
discharging the debts of the customer (which is to
the customer’s benefit), the bank would not be liable
for honouring such cheques, even if for some reason
the cheques were wrongly honoured as held in Noel
Kenneth Dayidson v. Firm Corp Sdn Bhd [1994] 2
CLJ 637, A.L. Underwood. Limited v. Bank of
Liverpool and Martins [1924] K.B. 775 (English Court

40
 of Appeal) and B. Liggett (Liverpool) Limited v.
Barclays Bank Limited [1928] 1 K.B. 48.

[59] No reliance ought to be given to the BDO report for the

following reasons:

a) The report is heavily qualified and BDO itself has

stated expressly that it had “primarily relied on
documents provided by the management of Khee
San Berhad. We do not accept responsibility for the
accuracy and completeness of such information
which remains the responsibility of the client…
However; we have not sought to establish the
reliability of the sources by reference to other
evidence.”

b) The report is incomplete as only segments are

reproduced.

c) The report is merely a general report with nothing

specifically stated with regard to any purported
liability or the negligence of the Defendant, thus the
liability on the part of the Defendant is not
established.

d) The movement of monies of the 2nd Plaintiff to LBB

did not concern the Defendant nor was the
Defendant the cause of such transfers.

41
[60] As issues concerning the “fictitious documents”, the
management of the 2nd Plaintiff’s account and the
impropriety in respect of the Trade Facility (Islamic
Acceptance Bills) were only raised in June 2020 after the
refusal of the creditor banks, including the Defendant, to
grant further indulgence to the Plaintiffs to resolve their
debts with the creditor banks by restructuring the debts due
to them shows that the filing of this claim was with mala fide
intent to vex the Defendant, to stifle the Defendant’s action
for recovery of the debts owed by the Plaintiffs to the
Defendant to pressure the Defendant into agreeing to
restructure its debts as hitherto, the Plaintiffs had no
grievance against the Defendant at all. In this regard the
Defendant submitted and contended as follows:

a) The Plaintiffs hastily filed actions against the creditor

banks, including the Defendant, even before the
BDO report was prepared shows the mala fide intent
of the Plaintiffs.

b) From the timelines as deposed in the affidavits and

the contemporaneous documents showing the
collapse of the negotiations for the restructuring of
the Plaintiffs’ debts the only reasonable conclusion
that can be drawn is that the suit was filed to
pressure the Defendant into continuing with such
restructuring negotiations.

42
 c) The Court has a duty, and not merely a discretion, to
strike out a matter under O. 18 r. 19(d) of the ROC
2012 when abuse of process is found, pursuant to
the decisions in Times Group Ltd v. Computer 2000
Distribution Ltd (IBM United Kingdom Ltd, Part 20
Defendant) [2002] EWHC 126 and Middy Industries
Sdn Bhd & Ors v. Arensi-Markey (M) Sdn Bhd [2013]
3 MLJ 511 (Court of Appeal).

[61] The claim of the 1st Plaintiff, who is only a guarantor who
has suffered no loss/damages and has not pleaded that it
has, ought to be dismissed as it lacks the necessary locus
standi to bring any action against the Defendant to claim for
damages. The Defendant submitted and contended further
as follows:

a) The 1st Plaintiff is only a corporate guarantor for the

Facilities granted by the Defendant to the 2nd
Plaintiff and the 1st Plaintiff has made no payment to
the Defendant in connection with the outstanding
sums which are due and owing to the Defendant.

b) Where the 1st Plaintiff as a guarantor has not paid

any monies to the Defendant and not suffered any
loss, the 1st Plaintiff lacks the necessary locus standi
to bring any action against the Defendant to claim for
damages, relying on the case of Malaysian Trustees
Bhd v. Tan Hock Keng [2017] MLJU 2412 (High
Court).

43
 c) The Defendant referred the Court to the case of
Perwira Habib Bank Malaysia Bhd v. Samuel
Pakianathan [1993] 2 MLJ 423 where the Supreme
Court held that a bank owed no duty of care to the
guarantor of a banking transaction to ensure that the
other directors of the borrower had acted within their
authority.

d) The Defendant also referred the Court to the

Supreme Court case of Bank Bumiputra Malaysia
Bhd v. Esah Binti Abdul Ghani [1986] 1 MLJ 16 for
the proposition that a guarantor who has not has not
discharged himself of his liability and fulfilled his own
contract has no right to make any demand on his
creditor.

e) The Quincecare duty of care relied on by the

Plaintiffs is inapplicable to the Plaintiffs’ claim herein
as the English High Court in the case expressly held
that the relationship between a bank and a guarantor
is prima facie governed by the guarantee and the
bank does not owe a duty of care to a guarantor as
there is no sufficient close proximity.

[62] There is no serious conflicting evidence here warranting a

full trial of the Defendant’s claim and the Plaintiffs’ claim as
the Plaintiffs and their counsel had only made bare
assertions which are not sufficient to establish any real and
substantial questions to be resolved. The Defendant relied

44
 on the Court of Appeal in the case of Abdol Mulok Bin
Awang Damit v. Perdana Industri Holdings Bhd [2003] 4
MLJ 441 for the proposition that a bare assertion does not
necessarily amount to a triable issue compelling a case to
go for a full trial and may still be subject to critical scrutiny
for its value.

ANALYSIS AND FINDINGS

Claim by the 2nd Plaintiff

[63] The Plaintiffs’ case and triable issue put forward is that the
Defendant owed the Plaintiffs a Quincecare duty to refrain
from allowing drawdowns under the Trade Facility (Islamic
Acceptance Bills) as they were put on inquiry that there
were reasonable grounds to believe the Plaintiffs’ funds
were being misappropriated and once these reasonable
grounds arose, the Defendant had a duty to make
reasonable inquiries on the drawdowns. Further, it was
submitted that by allowing drawdowns under the Trade
Facility (Islamic Acceptance Bills) upon the fictitious
documents as allged and failing to make reasonable
inquiries that these drawdowns were genuine, the
Defendant breached its Quincecare duty to the Plaintiffs.

45
[64] The Quincecare duty was exposited by Steyn J in the case
of Quincecare wherein it was held:

“…. a banker must refrain from executing an order if

and for as long as the banker is ‘put on inquiry’ in the
sense that he has reasonable grounds (although not
necessarily proof) for believing that the order is an
attempt to misappropriate the funds of the
company…”

[65] The Plaintiffs then relied on the English cases of Singularis

and JP Morgan which applied the principle in Quincecare.
The Plaintiffs also cited the Malaysian Federal Court case of
Abdul Rahim and the Court of Appeal case of Exporaya to
show that the Quincecare duty is recognised by our Courts.

[66] As the Plaintiffs attempt to fit in the principle in Quincecare

as applied in Singularis, JP Morgan, Abdul Rahim and
Exporaya to their narrative, a thorough examination of the
facts and circumstances of these cases will have to be
undertaken before anything else to aid the Court in
determining whether the Quincecare principle is indeed
applicable to the specific circumstances of this case before
the Court.

[67] In Quincecare, the borrower, Quincecare Ltd, a company

formed specifically to purchase four chemists shops, had
applied for a GBP400,000.00 loan to purchase the four
chemist shops, which Barclays Bank agreed to lend. The
loan was guaranteed by one UniChem. The chairman and
director of the company, Mr Harry Stiller, caused the loan

46
 monies to be transferred in the following manner: (i)
GBP344,840.00 to Phillip Evans & Co and (ii)
GBP22,437.00 to Manygill Ltd. The sum of GBP344,840.00
was misapplied for Mr Stiller’s dishonest purposes. Mr
Stiller was later sentenced to four years' imprisonment, but
almost the entire sum was lost. The bank then sued
Quincecare Ltd as principal debtor, and its guarantor
UniChem. Both Quincecare Ltd and UniChem defended the
claim, and put forward counter claims. The central issues
related to the question whether the bank acted in breach of
duty towards either Quincecare Ltd or UniChem, the
guarantor.

[68] The English High Court in allowing Barclays Bank’s claim

against the Plaintiffs had held that a bank did in fact owe a
duty of care to refrain from executing an order if and for as
long as the banker is ‘put on inquiry’ in the sense that he
has reasonable grounds for believing that the order was an
attempt to misappropriate funds of the company. However,
the court found that there was no such breach in that case.

[69] In the Singularis case, a person acting on behalf of a

corporate customer of the bank directed the bank to transfer
money out of the company's account as part of a fraudulent
scheme. The company here was Singularis Holdings
Limited, a company incorporated in the Cayman Islands
which was a personal asset holding company for Mr Maan
Al Sanea. Mr Al Sanea was both a director and shareholder
of Singularis. Singularis held a bank account with Daiwa

47
 Capital Markets Europe Limited (“Daiwa”) which had very
substantial sums of money on it. Between 12.6.2009 and
27.7.2009 during a time when Singularis was on the verge
of insolvency, Mr Al Sanea gave eight separate instructions
to Daiwa to make payments totalling approximately US$204
million out of Singularis's account which were fraudulent to
companies in the Saad Group which were owned and
controlled by Mr Al Sanea.

[70] Daiwa had raised concerns about the financial state of

Singularis's financial position, as well as the freezing of Mr
Al-Sanea's personal assets. Shortly before the relevant
payment instructions, Daiwa's head of compliance sent an
internal e-mail to colleagues highlighting that the Saad
group were experiencing well publicised problems and
reminded his colleagues to take care and exercise caution
in terms of any activity on their accounts with Daiwa,
particularly to ensure that that any funds received relate to
normal investment business activities. That warning was not
heeded, and the eight fraudulent payment instructions were
paid out either without demanding any explanation or on the
basis of explanations that ostensibly appeared to be false.

[71] Five years later, Singularis (by its joint liquidators) brought a
claim against Daiwa to recover the misappropriated funds.
Singularis brought the claim on the basis that Daiwa had
breached the Quincecare duty of care it owed to Singularis
as it had failed to prevent the misappropriation of Singularis’
funds.

48
[72] At the conclusion of the trial, Rose J applied the Quincecare
principle and held that the bank had breached its duty to the
customer, stating that any reasonable banker would have
realised that there were many obvious signs that Mr Al
Sanea was perpetrating a fraud on the company. The claim
was reduced by 25% to reflect the contributory negligence
of the customer in allowing Mr Al Sanea to act without
restraint. The Court of Appeal upheld the High Court
decision stating that there were “many obvious, even
glaring, signs that Mr Al Sanea was perpetrating a fraud on
the company” as Daiwa was aware of Mr Al Sanea’s dire
financial circumstances, that his companies owed
approximately $22 billion, that Singularis had substantial
creditors and there was plenty of evidence that there was
something wrong with the way Mr Al Sanea was operating
Singularis’ bank account. The Court of Appeal was of the
view that Daiwa facilitated Mr Al Sanea’s fraud on Singularis
holding that “everyone recognised that the account needed
to be closely monitored… but no one in fact exercised care
or caution or monitored the account”. The Supreme Court
upheld the Court of Appeal decision.

[73] The JP Morgan case concerned the claim of the Federal

Republic of Nigeria (“the FRN”) in respect of three
payments totalling US$875,740,000 which were transferred
from a depository account held with JPMorgan Chase Bank,
N.A. by the FRN. In 2011, the FRN opened a depository
account in its name with JP Morgan. The account was
opened to receive a sum of $875,740,000 from Shell for the

49
 purpose of settling a dispute about an oil production licence.
The monies were to be paid to a company called Malabu
Oil, a party to the settlement. Three transfers were made by
JP Morgan on the instruction of persons authorised to give
those instructions under the terms governing the operation
of the depository account. It was discovered subsequently
that those instructions were made fraudulently, and the
payments were made to a shell company controlled by a
corrupt former oil minister and to make other illegitimate
payments.

[74] The FRN brought a claim against JP Morgan to recover the

sums held in the depository account on the basis that the
payments were made in breach of the Quincecare duty. The
FRN contended that JP Morgan should have realised that it
could not trust the senior Nigerian officials from whom it
took instructions and claimed that JP Morgan should not
have made the payments it was instructed to make and is
therefore liable to pay damages to the FRN in the same
sum as the payments that were made. JP Morgan applied
for reverse summary judgment and/or strike out on various
grounds, including that there was no Quincecare duty of
care applicable on the facts because such a duty was
inconsistent with, or was excluded by, the express terms of
the depository agreement.

50
[75] The High Court rejected JP Morgan’s application, holding
that the express terms of the depository agreement
between JP Morgan and the FRN did not exclude, and were
not inconsistent with, the imposition of the Quincecare duty
which at its core was to refrain from paying while on notice
of a possible fraud on the customer. The Court considered
each of the clauses relied upon by JP Morgan, applying the
modern approach to contractual construction in the context
of the agreement as a whole, and rejected the contention
that the duty had been excluded. The Court of Appeal
upheld the decision.

[76] The case of Exporaya concerned a defamation case against

a bank by its customer on the basis that when the
customer’s account was frozen and the customer’s cheques
were dishonoured by the bank with the remark “pending
confirmation” there was a breach of contract by the bank
and the words “pending confirmation” were libellous. Prior to
that the customer of the bank instructed the bank to change
the authorised signatories to the customer’s account and
add two persons, Pang and Lee, as the new authorised
signatories to the account. The bank subsequently received
a letter written on Exporaya’s letterhead and signed by
other individuals, Adjes and Musa who claimed to be the
directors and shareholders of the company stating that
Pang and Lee were not directors of the company and a
police report had been lodged over the matter. The bank’s
investigation revealed that both Adjes and Musa were still
directors of the company and it immediately froze the

51
 customer’s account which had a credit balance of
RM23,022.16 but the customer’s issued three cheques for
RM1,000, RM500 and RM481.04 were dishonoured by the
bank with the remark “pending confirmation”. The Malaysian
Court of Appeal, applying Quincecare and finding in favour
of the bank, held that when a bank was in doubt over a
customer’s instructions to change its mandate, the bank
was entitled to a reasonable time to investigate the
authenticity of the instructions and it was not unreasonable
for the bank to freeze the customer’s account pending the
bank’s investigations as it was the duty of the bank in the
circumstances was to safeguard or protect the customer’s
money in the account which overrode the bank’s mandate
to honour cheques and to execute the order given for
withdrawal of the money in the account.

[77] In Abdul Rahim’s case, the customer obtained a RM20

million loan facility from the bank to finance the purchase
from a German company, Rheinhold & Mahla, a cold
storage with tube ice factory and machinery for processing
pineapples. The draft agreement for the loan facility stated
that the loan would be released in two instalments. The
actual agreement presented by the bank for the appellant’s
signature, however, provided for one single draw down of
the entire RM20 million loan facility. The bank did not alert
the customer to the variation in the loan facility. The entire
loan was released by the bank to the German company in
one single drawdown. The customer contended that the
bank had failed to exercise reasonable care in disbursing

52
 the loan. The Malaysian Federal Court decided that a bank
owed a duty of care in carrying out a customer’s instructions
as there was an elementary obligation on the part of the
bank to inform the customer of the substantial change that it
had inserted in the facility agreement. The bank breached
its duty of care when it failed to alert the customer to the
variations made or the departure from the agreed terms in
the working draft. The Court held:

“[28] To our minds, if a bank executes an order

knowing it to be dishonestly given, or shuts its eyes
to an obvious fact of dishonesty, or acted recklessly
in failing to disclose material facts, the bank will
plainly be liable. In our judgment, it is an implied term
of the contract between the bank and the customer
that the bank will observe reasonable skill and care
in and about executing customer's orders (see
Barclays Bank plc v. Quincecare Ltd [1992] 4 All ER
363).”

[78] At this point I pause to state my observation that in

Quincecare, Singularis and JP Morgan the monies in
question were transferred, whether out of the customer’s
bank accounts or as drawdowns for the customer’s loans, to
the accounts of third parties. What is common here is that
the banks in question transferred the monies to third parties
who ought not to have received the monies as a result of
instructions from persons who were authorised to give those
instructions or appeared to be authorised to to do so. In
none of these cases were the monies transferred to the
actual customer’s own accounts. In Exporaya, the bank
succesfully relied on the Quincecare principle to avoid
liability when it was put on inquiry by way of a letter of

53
 complaint by the directors of the customer. Again this
involved a bank account belonging to a customer from
which monies were to be paid out to third parties although
through the honouring of cheques.

[79] In Abdul Rahim, the Federal Court recognised the

Quincecare duty in a case where the issue was not about
the bank being put on inquiry before the transfer of monies
or paying out of monies from a customer’s accounts to third
parties. Here the dispute was as to the method of drawdown
for a loan, as the working draft of the facilities agreement
(which provided 2 drawdowns) differed from the final
executed agreement (which provided for a single
drawdown), which the borrower alleged was amended
without his knowledge. Quincecare here was cited as an
authority for the proposition that it is improper for a bank to
act on an order (following the terms of drawdown in the
executed agreement) when it knows that the terms of the
agreement was contrary to the intention of the customer in
the circumstances of the case. Thus, Abdul Rahim applied
Quincecare not in a situation where the bank is put on
inquiry before paying out monies (as the Plaintiffs alleged)
and is not applicable in this case.

[80] The facts in this case are different where the flow of monies
is concerned. Here, the drawdowns were done upon the
submission of the invoices and other documents by the 2nd
Plaintiff as per the terms of the agreements. The monies
drawn down were transferred into the 2nd Plaintiff’s own

54
 account, not to third parties. It is only after these monies
were transferred to the customer that they were then
channeled to LBB. There is a significance to this as
inherently a higher level of circumspection is required when
transferring monies to third parties compared to the
customer’s own account.

[81] In Quincecare, Steyn J observed that while certain factors

may give the bank reasonable grounds for believing that the
payment order is an attempt to misappropriate the funds of
the company, it would be natural for a banker to approach
the suggestion of a company’s own director being involved
in a fraud on the company with “instinctive disbelief”. Steyn
J. stated at p. 377:

“Having stated what appears to me to be the

governing principle, it may be useful to consider
briefly how one should approach the problem.
Everything will no doubt depend on the particular
facts of each case. Factors such as the standing of
the corporate customer, the bank’s knowledge of the
signatory, the amount involved, the need for a
prompt transfer, the presence of unusual features,
and the scope and means for making reasonable
inquiries may be relevant. But there is one particular
factor which will often be decisive. That is the
consideration that, in the absence of telling
indications to the contrary, a banker will usually
approach a suggestion that a director of a
corporate customer is trying to defraud the
company with an initial reaction of instinctive
disbelief.”

(emphasis added)

55
[82] Steyn J also recognised that the law should not impose too
burdensome an obligation on bankers, which hampers the
effective transacting of banking business unnecessarily and
to impose liability whenever speculation might suggest
dishonesty would impose wholly impractical standards on
bankers:

“The law should not impose too burdensome an

obligation on bankers, which hampers the
effective transacting of banking business
unnecessarily. On the other hand, the law should
guard against the facilitation of fraud, and exact a
reasonable standard of care in order to combat fraud
and to protect bank customers and innocent third
parties. To hold that a bank is only liable when it has
displayed a lack of probity would be much too
restrictive an approach. On the other hand, to
impose liability whenever speculation might
suggest dishonesty would impose wholly
impractical standards on bankers. In my judgment
the sensible compromise, which strikes a fair balance
between competing considerations, is simply to say
that a banker must refrain from executing an order if
and for as long as the banker is ‘put on inquiry’ in the
sense that he has reasonable grounds (although not
necessarily proof) for believing that the order is an
attempt to misappropriate the funds of the company
(see proposition (3) in Lipkin Gorman v. Karpnale Ltd
(1986) [1992] 4 All ER 331 at 349, [1987] 1 W LR
987 at 1006).”

(emphasis added)

[83] The Federal Court in Chang Yun Tai v. HSBC Bank (M) Bhd
and other appeals [supra] held that it is unsustainable to
impose on the banks a duty to investigate or enquire into a
transaction or contract to which they are not a party as it is
too onerous and would render banking business

56
 impracticable and impede the proper functioning of the
commercial community. Zulkefli Makinudin FCJ stated:

“[15] It is to be noted the SPA has already been

executed before the end financing facilities were
granted. Therefore, the respondent can presume that
the SPA which the appellants had entered into has
been ascertained by the appellants to be valid. It
would be too onerous to require the respondent
to investigate or enquire into a transaction or
contract to which they are not a party. Banking
business will be rendered impracticable and
burdensome if this was so. In this regard the
courts should not impose such a requirement
that may impede the flow of commerce. On this
point Edgar Joseph Jr FCJ in Co-operative Central
Bank Ltd (In receivership) v. Feyen Development
Sdn Bhd [1995] 3 MLJ 313; [1995] 4 CLJ 300 in
delivering the judgment of this court cautioned at p
328 (MLJ); p 313 (CLJ) as follows:

... a commercial Judge must be anxious

about the impact that a decision may
have on the proper functioning of the
commercial community.”

(emphasis added)

[84] The Court of Appeal in Exporaya applied the decision in the

case of Lipkin Gorman (a firm) v. Karpnale Ltd [supra] which
held that where the bank receives a mandate from a
customer for payment, it is the contractual duty of the bank
to make the payment unless it has reasonable grounds for
believing that there is fraud but in doing so the bank is not
required to act as an amateur detective and is not obliged to
hold the payment on a mere suspicion or unease. Alliot J in
Lipkin Gorman stated:

57
 “(1) The bank is entitled to treat the customer's
mandate at its face value save in extreme cases. (2)
The bank is not obliged to question any transaction
which is in accordance with the mandate; unless a
reasonable banker would have grounds for believing
that the authorised signatories are misusing their
authority for the purpose of defrauding their principal
or otherwise defeating his true intention. (3) It follows
that if a bank does not have reasonable grounds for
believing that there is fraud, it must pay. (4) Mere
suspicion or unease do not constitute reasonable
grounds and are not enough to justify a bank in
failing to act in accordance with a mandate. (5) A
bank is not required to act as an amateur detective.”

[85] In Singularis, the English Court of Appeal explained, per Sir

Geofffrey Vos C, that the scope of the Quincecare duty is
narrow and well-defined which is to protect a banker's
customer from losing funds held in a bank account with that
banker, whilst the circumstances put the banker on inquiry
(at para. 86 of the judgment).

“In my judgment, this case can be decided on a more

straightforward and well established basis. It is true
that the court must always have regard to the scope of
the duty of care that is relied upon in any particular
case, but the scope of the Quincecare duty is
narrow and well-defined. It is to protect a banker’s
customer from losing funds held in a bank account
with that banker, whilst the circumstances put the
banker on inquiry. The scope of this duty is not closely
comparable with the scope of the duty owed by an
auditor reporting on a company’s financial statements.
It is of an entirely different character.”

(emphasis added)

58
[86] The High Court in RHB Bank Bhd v. Singlefine (M) Sdn Bhd
& Ors [supra], in discussing whether in the context of a loan
by a bank to its customer, a banker-customer relationship
creates any fiduciary obligations on the bank, the Court
differentiated between the situation where the banker-
customer relationship arises from a loan where the debtor-
creditor relationship generally does not impose any fiduciary
obligations on the bank or from transactions where monies
are transferred to other parties where there is a duty of care
on the part of the bank. Azizul Azmi Adnan J observed as
follows:

“[63] In the context of a loan by a bank to its

customer, that banker-customer relationship is that of
a debtor and creditor. This relationship generally
does not impose any fiduciary obligations on the
bank: see the judgment of Abdul Malik Ishak JCA in
the Court of Appeal decision of Aseambankers
Malaysia Bhd & Ors v. Shencourt Sdn Bhd & Anor
[2014] 4 MLJ 619; [2014] 1 AMCR 1; [2014] 2 CLJ
773; [2014] 4 MLRA 104 at paras 90-116.
Nonetheless, the common law has also developed to
impose on a bank in certain limited circumstances a
duty to exercise reasonable care and skill, arising
both in equity [2019] 11 MLJ 333 at 353 as a result of
the fiduciary obligations imposed in a principal-agent
relationship, and at law, as an implied contractual
term. For instance, in the English case of Barclays
Bank plc v. Quincecare Ltd and another [1992] 4 All
ER 363, Steyn J found that, when a bank effects
transfers of money for its customer, it is bound to
exercise reasonable care and skill in carrying out the
payment instructions.”

59
[87] From an examination of the authorities above, I derived the
following propositions:

a) The Quincecare duty is narrow and should only be

applied in well-defined circumstances to protect a
customer from losing his funds held by a bank;

b) The first instinct of a bank when receiving an

instruction from a company’s own director is not to
suppose that he is involved in a fraud on the
company;

c) When receiving a mandate from a customer for

payment the bank is not required to act as an
amateur detective and is not obliged to hold the
payment on mere suspicion;

d) The Quincecare principle has always been applied in

situations which involve payments effected by the
banks to third parties and not to the customer
himself; and

e) The banks should not be imposed burdensome

obligations which hampers the effective transacting
of banking business unnecessarily.

60
[88] In the premise, I hold the view that the Quincecare duty,
although applicable when there is a banker-customer
relationship, will apply only in limited circumstances where
monies are transferred to third parties only and not to the
customer. This is especially so when the mandate from the
customer is clear for the payment and is effected by a
person who is authorised to do so. The Quincecare duty,
being a common law duty, rested on the more general
concept of a bank adhering to standards of honest and
reasonable conduct in being alert to suspected fraud. The
standard is of the ordinary prudent banker and should only
be confined to cases where the suspicion which has been
raised is one of attempted misappropriation of the
customer’s funds by an agent of the customer with
instructions to transfer these funds to third parties. It is not
for the bank to be a ‘fraud detector’ investigate further into
how the customer decides to spend his or her money once
received from the bank. It is thus commercially unrealistic to
expect bank staff to carry out detective work or act as a
guardian or a gatekeeper to second guess the customer’s
own ostensibly genuine instruction.

[89] The manner in which the Plaintiffs themselves detected that

there were fictitious invoices (as alleged) demonstrates how
becoming a detective is fraught with difficulties. The
Plaintiffs themselves could not detect the fictitious invoices
before submitting them to the Defendant for the drawdowns.
It took an internal investigation and subsequently BDO,
professionals with expertise in forensic auditing, to uncover

61
 the irregularities with the invoices. What hope did the
officers of the Defendant’s trade finance department have to
detect any irregularities especially when the instructions
came from the customer themselves for the drawdown
monies to be paid into its own account?

[90] The Court cannot prescribe a duty for banks to create red
flags for all borrowers of loans and facilities when the
ordinary duty is for a bank to treat the customer’s mandate
at its face value, save in extreme cases, and a bank is not
obliged to question any transaction which is in accordance
with the customer's mandate (see the cases of Exporaya
and Abdul Rahim which applied Lipkin Gorman (a firm) v.
Karpnale Ltd). I am reluctant to extend the Quincecare duty
to include detection of the underlying purpose of drawdowns
received by the customer pursuant to his or her own loan or
financing.

[91] Premised on the authorities above and the application of

the Quincecare principle to the facts of the cases, there is
no Quincecare duty owed by the Defendant to the Plaintiffs
as there is no misappropriation of the 2nd Plaintiff’s funds
by way of a transfer of funds to third parties in this case.
Here, the Defendant merely allowed drawdowns from the
Trade Facility (Islamic Acceptance Bills) obtained by the
2nd Plaintiff which were disbursed to the 2nd Plaintiff into its
own current account according to the terms of the under the
facility. The Defendant cannot be held responsible for how
the funds are then utilised after the 2nd Plaintiff has

62
 received it. In this respect cl. 2.2 of the 2013 Facility
Agreement is relevant. It states:

“Purpose

The Customer shall use the Facility solely for the

purposes more particularly stated herein that
conform with Shariah principles and purchases and
acquisitions of “halal' goods only. The Bank however
shal1 not be obliged to enquire as to the application
of the proceeds of the Facility to ensure that they are
in fact applied for the said purposes and the
obligations and liabilities of the Customer under this
Agreement and the other Security Documents shall
not in any way be prejudiced, affected or diminished
by reason that all or any part of the proceeds of the
Facility are applied for some other purposes (whether
or not the Bank has notice of that fact).”

[92] From the thrust of the Plaintiffs’ arguments, the Plaintiffs will
succeed at trial, after proving its facts, only if they could
persuade the Court that the Defendant had breached its
Quincecare duty by allowing drawdowns under the Trade
Facility (Islamic Acceptance Bills) and such breach had
caused the losses suffered by the Plaintiffs. As the
Quincecare duty of care is inapplicable to the Plaintiffs’
claim, the Plaintiffs do not have a realistic prospect of
obtaining the reliefs claimed against the Defendant.

[93] In this striking out application a question of law became a

central issue which is whether the Quincecare duty of care
is applicable where monies were disbursed from the bank to
the customer itself and not to third parties. I have decided
that the Quincecare principle does not apply in this
situation. This leaves the Plaintiffs with no legal basis for

63
 their action even if they successfully prove the facts they
plead. The Court of Appeal in Pengiran Othman Shah bin
Pengiran Mohd Yusoff & Anor v. Karambunai Resorts Sdn
Bhd (formerly known as Lipkland (Sabah) Sdn Bhd) & Ors
[1996] 1 MLJ 309 held that a striking out application can be
determined on questions of law. Siti Norma Yaakob JCA (as
she then was) stated:

“When a question of law becomes an issue, this in

itself will not prevent the court from granting the
application, for as long as the court is satisfied that
the issue of law is unarguable and unsustainable, it
may proceed to determine that question.”

[94] As the Plaintiffs’ action is groundless and does not have a

realistic prospect of success, it is a frivolous and vexatious
action or obviously unsustainable action fit to be struck off
pursuant to para. (b) O. 18 r. 19(1) ROC 2012. In the case
of Middy Industries Sdn Bhd & Ors v. Arensi-Marley (M)
Sdn Bhd [supra] the Court of Appeal stated:

“The words “frivolous or vexatious” generally refer to

a groundless action or statement with no prospect of
success, often raised to embarrass or annoy the
other party to the action. In considering whether any
proceedings were vexatious or frivolous, one is
entitled to and ought to look at the whole history of
the matter and it is not to be determined by whether
the pleading discloses a cause of action or not (see:
Attorney General of Duchy of Lancaster v. London &
North Western Railway Co [1892] 3 Ch 274; and Re
Vernazza [1959] 2 All ER 200). It was decided in the
above cases that “frivolous or vexatious actions
mean cases which are obviously frivolous or
vexatious or obviously unsustainable.”

64
[95] Having found that the Plaintiffs’ action is fit to be struck off
pursuant to para. (b) O. 18 r. 19(1) ROC 2012 on the basis
that the Quincecare is not applicable, the grounds of
suspicions that the Plaintiffs contended that should have put
the Defendant on inquiry becomes irrelevant for further
consideration.

[96] However, even if I am wrong on this score, I still find that

there are no reasonable grounds for believing that the
Trade Facility (Islamic Acceptance Bills) was an attempt to
misappropriate funds of the 2nd Plaintiff or circumstances
surrounding the transaction which would suggest that the
transaction. Neither were there any circumstances
surrounding the transactions which would suggest that the
transaction was part of a breach of trust, breach of fiduciary
duty or fraudulent scheme. There being none, the
Defendant was not put on inquiry before the drawdowns on
the Trade Facility (Islamic Acceptance Bills). I shall give my
reasons below.

[97] I agree with the Defendant that nothing has been shown
which would have put the Defendant on notice that there
was anything amiss when the documents were presented to
the Defendant. The Plaintiffs have not shown in any manner
how such documents were fictitious. That the documents
were discovered to be fictitious only after the Plaintiffs
conducted an internal investigation after the alleged rogue
directors have left the company is telling. The Defendant’s
officers could not possibly find anything out of place when

65
 these documents were submitted before the drawdowns
especially when done pursuant to the terms of the Trade
Facility (Islamic Acceptance Bills). The Defendant was
entitled to take the documents at face value unless the
Defendant was put on inquiry but there was no reason for
the Defendant to be so.

[98] Mr Owee points the Court to an article in the Edge Malaysia

which reported that there were fictitious documents or
transactions relating to facilities given to the 1st Plaintiff’s
subsidiaries. However, this Edge report is dated 5.10.2020
and the last of the drawdowns occurred on 29.7.2019. The
Plaintiffs’ solicitors’ letter dated 9.6.2020, a year after the
last drawdown, informing the Defendant of the possible
usage of fictitious documents for the drawdowns also does
not do anything to give raise reasonable grounds of
suspicion. The Plaintiffs’ police report made on 21.10.2021
against the DSL and his alleged co-conspirators is self-
serving and does not assist the Plaintiffs.

[99] I agree with the Defendant that the reprimand of the

directors of the 1st Plaintiff by the Securities Commission in
May 2018 was not sufficient to have raised the Defendant’s
awareness to take precautions when approving the
drawdowns. It was the directors of the 1st Plaintiff, and not
the 2nd Plaintiff, at the material time who were the subject
of the reprimand for failing to the irregularity in the
preparation of the 1st Plaintiff’s Annual Financial
Statements 2015 and 2016 and did not concern documents

66
 submitted for disbursements under the Trade Facility
(Islamic Acceptance Bills). This could not have aroused the
suspicion of the Defendant in allowing the drawdowns.
Steps taken by the 1st Plaintiff’s directors following the
reprimand also did not concern the 2nd Plaintiff or its
facilities.

[100] On DSL being in control of LBB, the 1st Plaintiff and the 2nd
Plaintiff, I find that this is not sufficient to raise any suspicion
so as to put the Defendant on inquiry before the
drawdowns. LBB, the 1st Plaintiff and the 2nd Plaintiff are
separate legal entities with LBB only a 20% shareholding in
the 1st Plaintiff and LBB was not the sole shareholder of the
Plaintiffs. I cannot see how the Defendant would be put on
inquiry just because LBB went into financial distress. That
monies are being siphoned off from the 2nd Plaintiff to LBB
would not immediately come to the mind of the banker.
Steyn J in Quincecare said “a banker was under a duty to
refrain from executing an order if and for as long as he was
put on inquiry in the sense that he had reasonable grounds
(although not necessarily proof) for believing that the order
was an attempt to misappropriate funds.” I do not believe
that the learned judge had in mind a related company of a
customer going into distress at the same time monies under
a trade facility was being drawn down by the customer as
something that would constitute such reasonable grounds.
Must banks suddenly be more circumspect with customers
when companies related to them are facing financial

67
 difficulties? I do not think this is a view that can easily be
subscribed to in the banking industry.

[101] As for the invoices used for the drawdowns including LBB’s
products, this would not raise any suspicion as there was no
restriction on the Letter of Offer to prevent such financing.
Clause 7.2 of the 2004 Facilities Agreement and cl. 7.2 of
the 2013 Facility Agreement state that the purpose of the
Trade Facility (Islamic Acceptance Bills) is to finance
purchases from residents and non-residents, and sales to
residents and non residents in Malaysia.There was nothing
in the Letter of Offer to prohibit the financing of sale of
goods manufactured/produced by another company. To
refute this the Plaintiffs could have affirmed under oath that
the 2nd Plaintiff could not sell LBB products and Trade
Facility (Islamic Acceptance Bills) could not be used to
finance sale of goods which included LBB products, but
chose not to do so. This significantly dilutes the effect of the
Plaintiffs’ contentions.

[102] I accept Ms Ng’s submissions that s. 20 of the BNM

Guidelines which the Plaintiffs rely on is not relevant in the
circumstances of the case as the Defendant’s duty to verify
the documents submitted by the 2nd Plaintiff with the third
parties prior to allowing the drawdown under the Trade
Facility (Islamic Acceptance Bills) only arises where the
Islamic Acceptance Bill draft is sold in the secondary market
to a third party and the bearer of the draft was inquiring from
the Accepting Bank for authentication of the Islamic

68
 Acceptance Bill. This is pursuant to s. 20 which provides
that “Accepting/drawing bank must be prepared to
authenticate its own AB-i upon the request of the bearer
during banking hours”. This does not apply in this case as
the 2nd Plaintiff or the Defendant did not sell any of the
Islamic Acceptance Bill drafts in the secondary market to a
3rd party. As for s. 6.4 and s. 6.5 of the BNM Guidelines,
these were never raised in the Plaintiffs’ affidavits but raised
in submissions. As this offends procedural justice, I decline
to give any consideration to the Plaintiffs’ submissions on
this point.

Claim by the 1st Plaintiff

[103] As for the 1st Plaintiff, the 1st Plaintiff has no cause of
action against the Defendant as it is only a corporate
guarantor for the Financing Facilities granted by the
Defendant to the 2nd Plaintiff. The 1st Plaintiff has made no
payment to the Defendant in connection with the
outstanding sums which are due and owing to the
Defendant and has not suffered any loss thus lacking the
necessary locus standi to bring any action against the
Defendant to claim for damages. This position is fully
supported by the cases referred to me by Ms Ng from which
I shall produce the relevant passages.

69
[104] In Perwira Habib Bank Malaysia Bhd v. Samuel
Pakianathan [1993] 2 MLJ 423 (Supreme Court) the
guarantor, a director of the borrower company, disputed his
liability by contending that the bank had acted recklessly in
granting the banking facilities to the borrower without
checking whether the documents submitted were genuine
or not. He also alleged that the bank had assisted the
borrower and the other co-guarantors/directors in misusing
the banking facilities by siphoning money from the account
of the borrower for their own use to the detriment of the
borrower and the respondent himself. It was held by the
Supreme Court that the bank owed no duty of care to the
guarantor of such banking transaction, to ensure that the
other directors of the borrower had acted within their
authority. Mohamed Azmi SCJ had this to say:

“But clearly, the appellant Bank owed no duty of care

to Mr. Samuel as a director/guarantor on such
banking transaction, to ensure that the other
directors of the Principal Borrower had acted within
their authority. On the contrary, if there had been any
malpractice in the internal affairs of the Principal
Borrower, it was surely the duty of Mr. Samuel as a
director to take whatever action that was necessary
to protect the interest of the company and its
shareholders, and to notify immediately the appellant
Bank of such alleged malpractice or fraud, instead of
executing the Contract of Guarantee blindly and
remaining completely silent until he was sued by the
Bank.”

[105] In Malaysian Trustees Bhd v. Tan Hock Keng [2017] MLJU

2412 (High Court) a guarantor for the payment settlement
sum under a settlement agreement relating to Redeemable
Convertible Secured Loan Stocks issued by one Pilecon

70
 Engineering Berhad. When the settlement failed and the
trustee commenced an action against the Defendant for
recovery of monies under the settlement agreement, the
Defendant brought a counter claim and contended that the
Defendant was not entitled to call on the guarantee and was
negligent in failing to take reasonable steps to dispose of
and/or sell the assets which were the primary means of
satisfying the sums due under the settlement agreement.
The learned High Court Judge held that as the guarantor
did not pay any monies to the trustee and not suffered any
loss, the guarantor lacks the necessary locus standi to bring
any action against the trustee to claim for damages. Lau
Bee Lan J (as she then was) held:

“I find there is no merit in the Defendant’s argument

as the Defendant is not the owner of the Security and
neither had he made payment to the Defendant and
has no locus standi to maintain any complaint
against the Defendant...”

[106] In Bank Bumiputra Malaysia Bhd v. Esah Binti Abdul Ghani

[1986] 1 MLJ 16 the Supreme Court commented that a
guarantor who has not has not discharged himself of his
liability and fulfilled his own contract has no right to make
any demand on his creditor. The Supreme Court observed:

“On the contrary, the right to sue the guarantor

without resorting to the securities is clearly
recognised by Lord Selborne, and by Lord
Blackburn, in the Scottish case of Ewart v. Latta
(1865) 4 Macq 983 987. Lord Westbury, C. says:

'Until the debtor has discharged himself

of his liability, until he has fulfilled his

71
 own contract, he has no right to dictate
any terms, to prescribe any duty, or to
make any demand on his creditor. The
creditor must be left in possession of the
whole of the remedies which the original
contract gave him, and he must be left
unfettered and at liberty to exhaust those
remedies, and he cannot be required to
put any limitation upon the course of
legal action given by him by his contract
by any person who is still his debtor,
except upon the terms of that debt being
completely satisfied.”

[107] I have considered the Mr Owee’s submissions on this point

and found that there is nothing of substance provided by the
Plaintiffs. The Plaintiffs only submitted that the 1st Plaintiff
has locus standi to commence the action against the
Defendant as the Defendant owes an implied duty of good
faith to the 2nd Plaintiff and by extension, the 1st Plaintiff as
corporate guarantor. According to the Plaintiffs, the 1st
Plaintiff is affected by the claim in this instant, having
suffered from the Defendant’s breach of its Quincecare
duty. The Plaintiffs tried to persuade the Court that the
Defendant was merely attempting to utilise technical
arguments when providing these proposition supported by
authorities without offering any legal basis for their
submissions. I have no misgivings in rejecting the Plaintiffs’
submissions as these are without legal support. In any
event, I have earlier held that the Quincecare does not
apply to the facts of this case as there was no transfer of
monies to any third party thus it cannot be said that the 1st
Plaintiff suffered from the Defendant’s breach of its
Quincecare duty.

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CONCLUSION

[108] Considering the totality of the facts and circumstances of

the case as disclosed in the affidavit evidence, It was quite
clear to me that the Defendant had clearly met the
requirements in O. 18 r. 19(1) ROC 2012 application in
accordance with the principles established by Bandar
Builders Sdn Bhd. v. United Malayan Banking Corporation
Bhd [supra]. Accordingly I allowed encl. 17 with costs of
RM8,000.

30 June 2020

ATAN MUSTAFFA YUSSOF AHMAD

Judicial Commissioner
Kuala Lumpur High Court
(Commercial Division)

Counsel:

For the Plaintiffs: Owee Chia Ming, Shermaljit Singh a/l

Amarjit Singh & Lew Wei Hung
(Messrs Krish Maniam & Co.)

For the Defendant: Ng Hooi Huang & Ooi Jia Liang

(Messrs. Shook Lin & Bok)

73