3/22/23, 4:51 PM Can Banks Owe A Duty of Care To Non-Customers?

n-Customers? - Yes, Says Court of Appeal in Koperasi Sahabat v RHB Investment Ban…

B A N KING L AW

Can Banks Owe A Duty of Care

To Non-Customers? – Yes, Says
Court of Appeal in Koperasi
Sahabat v RHB Investment
Bank [2022] 6 MLJ 722
March 7, 2023 Lim Wei Jiet

There are a plethora of cases across the Commonwealth where banks are found to be negligent
by Courts towards their customers.

What is less common is for banks to be found liable towards non-customers. After all, the
bedrock of negligence is the existence of a duty of care. At first blush, it does seem counter-
intuitive for banks to owe a duty of care to non-customers, who have not opened an account or
engaged the services of the bank concerned.

However, the Court of Appeal in Koperasi Sahabat Amanah Ikhtiar Bhd v RHB Investment Bank
Bhd [2022] 6 MLJ 722 delivered a thorough analysis on why such duty of care can be imposed
by law in certain circumstances.

The Facts

The Appellant is a cooperative body which handles 9-figure investments annually for its 133,843
members. The 1st Respondent (“RHB”) is an investment bank. The 2nd Respondent (“R2”) had
falsely misrepresented that it was an agent of RHB, and convinced the Appellant to invest
RM10million with a promised 10.5% annual profit/dividend.

The Appellant then passed a cheque for RM10million to R2. R2 brought the cheque to RHB &
instructed RHB’s employee to deposit the RM10million into the 3rd Respondent company (“R3”)
belonging to R2’s sons – R3 operated a share trading account with RHB. The RM10million was

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3/22/23, 4:51 PM Can Banks Owe A Duty of Care To Non-Customers? - Yes, Says Court of Appeal in Koperasi Sahabat v RHB Investment Ban…
deposited into RHB’s pool account & then subsequently transferred to R3. R3 then siphoned off
the RM10million. The Appellant sued RHB, R2 & R3 for inter alia negligence.

The High Court dismissed the Appellant’s claim. At the Court of Appeal (“COA”), the crux was
whether RHB was liable for negligence towards the Appellant, notwithstanding that the Appellant
was not RHB’s customer & had no banking facilities with RHB.

The Decision

Lee Swee Seng JCA for the COA rejected the rigid notion from certain jurisdictions that a
provider of professional services such as an investment bank cannot under any circumstance
owe a duty of care to a non-customer.

The COA acknowledged that the law on negligence was versatile, and held that banks owe a
duty of care in preventing its facilities from being used to perpetrate fraud. It acknowledged
Canadian jurisprudence which held that, although common law imposes no duty to rescue a
stranger, because of the unique position of banks as a focal point of commerce & where they
operate in a regulated environment with few participants, banks owe a duty to not permit their
facilities to be used for fraudulent purposes.

In this case, the COA held that, the moment a sum of money is deposited into a bank, the bank
owes a duty of care to find out whose money it is – if it does not belong to a customer, it must
take the effort to verify the depositor’s identity & to return to the depositor.

The COA was satisfied that RHB breached its duty of care to the Appellant when it failed to verify
the identity of the RM10million depositor, the purpose of the deposit & to check with the Appellant
on whether it had instructed for the RM10million to be transferred to R3. The COA ultimately
ordered for RHB to pay the Appellant RM10million in damages.

Implications

This is the first case in Malaysia which held that banks owe a duty of care to non-customers. This
will leave an impact on the financial services industry as it now opens up the possibility of legal
duties being owed to all kinds of victims of banking fraud or any unfair banking transactions
(irrespective of whether they are customers). Banks would have to set up additional measures to
ensure that they are not being used as a vehicle for fraud, failing which they may be at risk of
being held liable to pay large sums of damages.

Wei Jiet acted as co-counsel together with Ambiga Sreenevasan & Fadly Zakariya for the
successful Appellant.

(Note: RHB Investment Bank Berhad has since successfully obtained leave to appeal from the
Federal Court recently on precisely the question of law on whether banks owe a duty of care to
non-customers. We will update this post once the apex court reaches a decision)

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