CHAPTER 1---DEFINITION OF BANK AND BANKING BUSINESS characteristics is capable of being filled by evidence that the relevant person

enjoys, in banking and commercial circles, the reputation of being a banker.

Definition of bank from 4 angles:
1)common law Re Shields Estate
2) statute
-the business of banking is to traffic with the money of others for the
3) textbook authors
purpose of making profit.
4) court’s interpretation
Woods v Martin Bank Ltd
1) COMMON LAW
-Mr. Wood was a customer to the Martin Bank. Mr. Wood asked for an
-no exhaustive definition of ‘bank’
advice for investment from the manager of the said bank. The said manager
Bank of Chettinand Ltd v Commissioner of Income Tax knew that the advice given to invest on BR Ltd was a bad one. Mr Wood had
made a loan in a form of an unregistered bill. The issue that had arisen was
-the operation of current accounts is regarded as an important service whether the business of giving advice on financial matters constituted
ordinarily provided by bankers banking business?
-By solely giving financial advice, the said bank had conducted banking
United Dominions Trust Ltd. V Kirkwood business
-“the limit of the banker’s business cannot be laid down as a matter of law.
-Facts: UDT is a financial institution referred to itself as a “bank. UDT
The nature of such a business must in each case be a matter of fact and
granted loan for hire purchase transactions. The D received loan from the
accordingly, cannot be treated as if it were a matter of pure law.
UDT and was subsequently defaulted. D claimed that UDT was a money
-according to Ellinger: “this principle is particularly important in recent years,
lender and unregistered pursuant to moneylenders act hence the
as banks have become multifunctional institutions engaged in a wide range
agreement was unenforceable.
of business activity beyond their traditional core activities.
-per lord denning: the characteristics of banking business are

i) The acceptance of money from and collection of cheques on behalf of

2) STATUTE
customers and placing them to the credit of the customer. (the collection of
cheques for customers) A) BAFIA
ii) Honouring cheques presented or orders drawn on them by their
customers. (the payment of cheques drawn on bankers) -Sec 2 BAFIA: “banking business” means-
iii) They must keep current accounts or something of that nature in their
books in which the credits and debits are entered. (the conduct of current a) the business of-
accounts)
i) receiving deposits on current accounts, deposit accounts, saving accounts,
-although UDT did not possess the normal characteristics of a bank however or other similar accounts.
from the aspect of reputation, UDT succeeded being regarded as a bank ii) paying or collecting cheques drawn by or paid in by customers; and
bcoz four other leading banks in London regarded UDT as a bank. UDT has iii) provision of finance
succeeded in this case bcoz of its reputation and standing in the city of
b) Such other business as the Bank, with the approval of the Minister; may
London as a banker.
prescribe.
-Lord Justice Diplock: A lacuna in the evidence relating to these
1
B) FSA Bank of China v Lee Kee Pin

 Sec 2 FSA: “banking business” means: -P bank had been operating in Malaysia but was later refused a license to
transact banking business. P sought to recover debt due to it. The D claimed
a) the business of: that this was against the Banking Ordinance because P no longer had a
i) accepting deposits on current account, deposit account, savings account license to transact banking business.
or other similar account The act of taking proceedings to recover debts does not amount to
ii) paying or collecting cheques drawn by or paid in by customers; and carrying on banking business and hence, they do not need a license under
iii) provision of finance the banking ordinance to do so.
b) Such other business as prescribed under section 3.  Whether a foreign bank that accepts charges for Malaysian land is
 Sec 3 FSA conducting banking business?

The minister may, on the recommendation of the Bank prescribe- Koh Kim Chai v Asia Commercial Banking Corporation Ltd

a) Any business or activity as an addition to the definition of- -R was a bank carrying on business in Singapore. A charged his land in
Malaysia to R as a guarantee for overdraft facilities given to R’s customers.
i) “banking business” No payment was made, therefore R applied for an order for sale of land by
public auction. A’s argument was that by requiring and accepting charges of
ii) “investment banking business” Malaysian land to secure loans made by seeking to enforce the security, R
was carrying on ‘banking business’ in Malaysia without license.
iii) “financial intermediation activities”
Acquiring and accepting charges of land in Malaysia do not fall within the
iv) “factoring business” ambit of “banking business” in Malaysia.
Recovery of loan is not banking business so you do not need a banking
v) “leasing business” license for that.
The expression ‘making advances to customers’ in Sec 2 of the Banking
And upon such prescription, the definition as added to shall be deemed to Act cannot be held to include taking the security against a guarantor.
be an integral part of this Act as from the date of commencement of such Even if the security was held to be taken in Malaysia, it was not contrary
prescription or from such later date as may be specified in the order; and to Sec 3 of the banking act because the law of Singapore on security was not
taken in Malaysia.
b)Any business, services or activity in relation to a financial service as a
financial advisory business for the purposes of the definition of “financial  Whether sec 2 banking act is read conjunctively or disjunctively?
advisory business under subsection 2 (1).
Vernes Asia Ltd v Trendale Investment Pte Ltd & Anor
3) JUDICIAL INTERPRETATION (MALAYSIA CASES)
-P was a deposit taking company incorporated in Hong Kong. 1st D was a
 Whether the act of recovering loans was considered “banking property developer in Singapore.1st D took a loan from P in Hong Kong but
business”? the agreement was executed in Singapore. 1st D leased the property to 2nd D
without the consent of P.1st D then defaulted in the repayment of the loan.
P sought to exercise its power of sale over the property. 1st D claimed that P
was an unlicensed moneylender carrying on business in Singapore and P
was carrying on banking business without a valid banking license, therefore
2
was unlawful. Bank Industri (M) Sdn. Bhd. v Technopro Corp (M) Bhd. & Ors.
Sec 2 BA means you have to perform ALL of the functions of receiving
money on current or deposit account, paying and collecting cheques, -P is a limited company registered under the Companies Act. P was formed
making advances and such other business. The plaintiff only made advances to carry on the business of banking in order to promote the economic and
to its customers and that does not make it a bank. It did not offer a full social development and to assist enterprises in Malaysia. P had the mandate
range of services ordinarily provided by a bank. (read conjunctively) from BNM and the relevant ministry to carry on the banking business. It
Since it is not a bank, it does not need a license and hence did not administers funds received from the foreign institution including the World
perform their acts illegally. Thus, since the contract was legal, both the sum Bank and the Islamic Development Bank. 1st D loaned a fixed loan facility
and vacant possession should be returned to the plaintiff. from WB and also an import trade financing facility which was granted by
the Islamic Development Bank. 2nd D was one of the guarantors to the 1st D.
 Whether development finance institutions conducted banking P sued the 2nd D for the credit facilities on the capacity as a guarantor. 2nd D
businesses? contended that the credit was illegal because P was not licensed under
BAFIA.
--Development finance institutions are specialized financial institutions.  The development finance business which Bank Negara permitted the
They are established to promote a higher level of investment in industries plaintiff to engage in was one of the 'scheduled businesses' as found in the
and agriculture. Their functions include the extension of financial assistance Third Schedule to the BAFIA.
in the form of medium and long-term loans and the provision of guarantees The business conformed with the definition of ‘development finance
for loans. business’ in section 2 as it includes any such business that the Central Bank
Sabah Development Bank Bhd v SKBS (Sabah) Sdn Bhd & Ors and the Finance Minister approves of.
They did get both approvals and hence, they are not doing anything
-P were set up with the object of providing medium-term and long term illegally.
loans to private and state enterprises for activities involving agriculture,
manufacturing, utilities and real estates construction. P granted  Whether foreign banks that offers facilities to Malaysians is
documentary letters of credit facilities to 1st D to enable them to import considered to be conducting banking businesses in malaysia?
electrical and mechanical equipment. 1st D became indebted to P. P sought Banque Nationale De Paries v Wuan Swee May
to recover the debt. D claimed that the advances were illegal because P
were transacting banking business without a valid license. -P is the Sg branch of a French Bank. P did not have any branch in Msia. P’s
officer had solicited business in Msia and offered financial facilities in
Development finance institutions are not banks. No one and nobody, foreign currency to 1st D (Malaysian) to purchase shares in Msia. Upon
corporate or otherwise, can be a ‘banker’ who does not: (i) take current default in repayment, P obtained judgment in Sg and registered the
accounts, (ii) pay cheques drawn on himself, (iii) collect cheques for his judgment in Msia. D applied for an order that the judgment to be set aside
customers. as the enforcement of the judgment would be contrary to public policy and
To determine whether or not the granting of the facilities constitutes breaches s4 of BAFIA.
banking business, the purpose of the facilities would have to be considered. The bank did not even have an office or branch in Malaysia. Just because
In this case, it was clearly set out that the purpose was to facilitate the first the bank offers facilities in foreign currency to purchase shares in Malaysia,
defendants' importation of electrical and mechanical equipment and for although is a “banking business” does not mean that the bank is carrying
their general working capital purpose. business of banking in Malaysia.
Just because a company has consent to use the word bank under Sec 9 s4 of BAFIA was no breached and the transaction was legal.
of the Banking Act, it does not mean that such a bank carries on banking
business Sec 2 of the Banking Act.
3
4) TEXTBOOK DEFINITION for him. Such expedients as making the draw a counter cheque or entering
the transaction under ‘sundry customer’ will not make him a customer.
 Halsbury’s Law of England: there must be some sort of account, either a deposit or a current account
to make a man a customer.
“…an individual, partnership or a corporation, whose sole or
predominating business is banking, that is, the receipt of money on Commissioners of Taxation V English, Scottish And Australian Bank Ltd
current or deposit account and the payment of cheques drawn by
and the collection of cheques paid by a customer.” -whether a man was a customer when his only connection with the bank at
the material date was the payment in of a single cheque for collection.
the man was a customer as the duration of the r/s was not of the essence.
CHAPTER 2---DEFINITION OF CUSTOMER Barclays Bank Ltd V Okenarhe
-s 131 of FSA stated that customer includes a participant or user. a person is not customer if the bank performs a casual service for him
-participant means any person who is permitted by the rules governing a
payment system to send payment instructions or settlement instructions to Kehar Singh V Standard Chartered Bank
the payment system and who is bound by the rules governing the payment
system. (can be a bank also, more for electronic users) bank still owed a duty of care even the bank performs a casual service
-user means any person to whom a designated payment instrument has (buying bank draft)
been issued or any person who uses a designated payment instrument to Woods V Martin Bank Ltd***
obtain money, goods or services or to make any payment. (more for credit
card) -P was given certain advice by the manager about investing money. The
- The mere opening of an account in a person’s name does not establish a manager then dictated a letter addressed to the bank for the P to sign
relationship of banker and customer between the parties. Both parties instructing the bank to collect moneys from a building society, to pay part to
must have the INTENTION to form the relationship of Banker and customer. a company he was going to finance and ‘retain to my order the balance of
There is a need for meeting of their minds. the proceeds’. At that time no acc was opened. An acc was opened almost 3
weeks ltr.
Robinson V Midland Bank Ltd the r/s of banker and customer existed as from the date when the bank
-a person purporting to be a customer sought to make the bank liable for accepted the instructions contained in the letter even though an acc was
funds passing through the account which did not belong to him. not opened.
 bank not liable for funds passing through the acc that does not belong to these were early negotiations for which it could be inferred that Woods
tat person. No account= no intention. would open an acc with the bank and the bank was willing for him to do so,
the r/s between banker and customer does not come into existence a contract was concluded btw them.
unless both parties intend to enter into it. Oriental Bank of Malaya v Rubber Industry Replanting Board
Great Western Railway Co V London and County Banking Co Ltd A person is a customer from the time a bank accepts instruction to collect
-a man had for some years been in the habit of getting crossed cheques monies from a third party although no account is formally opened
exchanged for cash at a bank where he had no account. The bank did not duration is not of the essence
charge him anything for the service.
that man was not a customer. The bank collected for themselves and not
4
  What is the situation if a bank account is opened fraudulently by a her grandchildren’s joint names. The grandchildren’s guardians were given
third party by using the name of cheque’s recipient (payee) or a the right to draw on the acc even though they were never specifically
signature on the cheque is forged? notified of the acc’s opening nor ever expressly consented to it. After the
Marfani & Co Ltd v Midland Bank Ltd guardians known of the existence of the acc, one of them deposited a
cheque drawn on the grandchildren’s acc into his personal acc.
-a fraudster opened an acc with Ds bank in the name of ‘eliaszade’, who was the bank had committed a breach of its fiduciary duty to the
a client of the fraudster’s employer, and paid a cheque drawn on his grandchildren by permitting the guardian to act in this way.
employer and payable to ‘eliaszade’ into the acc. a banker customer contract came into existence btw the bank and the
the bank customer was the fraudster and the ‘eliaszade’ who had never grandchildren as a result of the guardians’ subsequent tacit approval of the
intended to create a banker and customer r/s with the Ds bank. acc.

Stoney Stanton Supplies (Coventry) Ltd v Midlands Bank

-A forged the signatures of B Ltd’s directors in order to open an acc in the CHAPTER 3---TYPES OF R/S BETWEEN BANKER AND CUSTOMER
company’s name, no banker customer r/s arose btw B Ltd and the bank with
the result that the bank did not owe the company any contractual duty of The banker and customer relationship is classified into four, being:
care with respect to the monies fraudulently withdrawn from that acc.
a) The Debtor and Creditor Relationship
 Mere opening acc in another’s name w/o their authority does not b) The Agent and Principal Relationship
establish a banker customer r/s. There must be meeting of their c) The Fiduciary Relationship Between Bank and Customer
minds. d) The Constructive Trustee Relationship With Beneficiary
 However, there are exceptions. For eg, where a domestic bank Bank Pertanian Malaysia v Mohd Gazzali Mohd Ismail
opens a foreign currency acc with a foreign bank in the name of a
British customer who will be travelling abroad. The customer gives where there is r/s btw banker and customer and where there are express
his tacit prior consent to the opening of the foreign currency acc contractual terms agreed upon, these express terms, being the intention of
when he 1st instructs his own bank to remit his money overseas the parties, apply.
although the customer may also be required to sign a formal
application for the acc upon his arrival. Another example is when a A) Debtor and Creditor r/s (have to demand/send out letter of demand)
director or promoter opens an acc in their company’s name or
where a parent opens an acc in his child’s name. In these situations, The relationship exists in two situations that are:
the company or the child could only give their consent some time
I. The customer opens an account at the bank. When the customer
after the acc has been opened. opens an account, the customer is the creditor and the Bank, is the
Rowlandson V National Westminster Bank Ltd Debtor.
II. The customer borrows money from bank. When the customer
-a grandma approached a bank at which she was known but with which she borrows money from the bank, the bank is the Creditor and the
held no account, and deposited a cheque as a gift into an account opened in customer is the Debtor.

5
Foley v Hill I. The customer gives the bank a mandate to perform an act in
relation to his account or instructs the bank to allow a third party to
-a customer brought an action against his banker for moneys had and perform his mandate.
received. He claimed that the r/s btw him and bank was of a fiduciary II. The bank collects the amount stated on the cheque for its customer.
nature similar to that of principal and agent and he was entitled to know III. The transactions of drawing and payment of cheques.
what happened to his money and what profits had been derived from it.
Westminister Bank Ltd v Hilton
the court rejecting the customer’s contentions and stated the r/s is of
debtor and creditor. as regards the drawing and payment of cheques, the r/s btw banker and
The money placed in the custody of a banker, is to all intents and customer is that of principal and agent.
purposes, the money of the banker, to do with it as he pleases; he is guilty
of no breach of trust in employing it; he is not answerable to the principal if
he puts it into jeopardy, if he engages in a hazardous speculation; he is not
C) Fiduciary r/s
bound to keep it or deal with it as the property of his principal; but he is, of
course, answerable for the amount, because he has contracted, having - In several cases the court had decided that the bank owes a fiduciary duty
received that money, to repay to the principal, when demanded, a sum to its customer. The bank must ensure these are no conflict of interest with
equivalent to that paid into his hands. its customer.
the need for demand is important -‘selflessness’ lies at the heart of the fiduciary r/s
-a fiduciary is expected to promote his principal’s interest above his own.
Joachimsom v Swiss Bank Corporation
-for normal banking transactions such as opens an acc or drawing money
-a partnership of English and German nationals maintained an account with from ATM, there is no fiduciary r/s.
the defendant bank. Upon the outbreak of the 1st world war, the acc’s credit
Woods v Martins Bank Ltd & Anor
balance was still with the money but the partnership was prohibited as an
enemy alien from operating the acc. At the end of the war, the English -the bank granted a large overdraft to a certain company. The bank advised
partner sought to wind up and brought the proceedings in the partnership’s Woods to invest in that company.
name for repayment of the acc balance but these proceedings had not been it was held that there was a breach of fiduciary r/s since it would benefit
preceded by a formal demand for repayment. the bank if that company could repay the loan with the money invested by
court held that it is an implied term of the contract that the banker is not Woods.
liable to repay the customer until demand is made.
Lloyds Bank Ltd v Bundy (inequality of bargaining power)

-claimant bank obtained guarantee secured over the house of its customer
B) Agent and Principal r/s (Agent=banker; Principal=customer, cheque who was aged, commercially naïve and w/o any other substantial assets
matters) besides his home, in support of an overdraft granted to that customer’s son.
The manager did not disclose the extent of the son’s financial problems and
This relationship may exist in three situations:
failed to suggest that the father seek independent legal advice before

6
executing the security documents. D) Constructive Trustee and Beneficiary R/s
the court set aside the guarantee as the bank had breached its duty of
fiduciary care to the surety. - In the constructive trustee and beneficiary relationship, the bank is liable
bundy had relied on the advice of the bank and that the bank’s failure to as a constructive trustee if it has express notice about a person’s breach of
trust and the bank is involved in the said breach. The trust exists without
disclose the full facts was akin to the exercise of undue influence.
any formality as long as there is a fiduciary relationship between the
National Westminister Bank Plc v Morgan constructive trustee and the beneficiary’s property.

-a customer who had defaulted on an earlier loan from a building society  What is constructive trustee?
that was secured upon the matrimonial home, which the customer owned
Lipkin Gorman v Karpnale Ltd & Anor
jointly with his wife, sought to refinance the loan with the bank to prevent
the building society from selling his house. The bank manager visited the -a firm of solicitors claimed against the bank as constructive trustee of
customer’s home. Despite the wife expressing her unwillingness to secure moneys stolen by one of their partners from the firm’s client’s account.
her husband’s business ventures on her home, the manager failed to explain the bank was held not liable as the bank did not provide ‘knowing
the nature of the security, and reassured her that the new charge only assistance’ w/in the rules of Barnes.
secured the amount advanced to refinance the original mortgage and failed Where a banker knowingly assisted a customer in committing a breach of
to advice the wife to seek independent legal advice. trust, the banker became liable as a constructive trustee.
court held that the parties’ relationship had remained as banker and
customer and that the manager had not exercised undue influence over the ****Bank is not the real trustee. However, as it is involved in breach of trust,
wife and accordingly the bank was not obliged to suggest the wife to seek law regards it as a CONSTRUCTIVE TRUSTEE
legal advice. This is bcoz:
Barnes v Addy
(i) bank did not derive any hidden or undue benefit from the transaction
and the wife was anxious to enter the refinancing arrangement. -the elements before a banker is held liable as constructive trustee:
(ii) manager’s explanation was only technically inaccurate since the bank’s
intention was only to enforce the charge in respect of the liability under the i. The bank offered assistance (eg by releasing money)
ii. Bank had actual or constructive knowledge
refinancing arrangement.
iii. There was dishonest and fraudulent design or intention
(iii) the wife understood the general nature of the charge and was aware
that w/o it the building society would sell her home. -Lord Selbourne had formulated 2 types of liability:
1) Knowing receipt: Knowingly receiving or operating trust funds/money
Cornish v Midland Bank Plc
2) Knowing assistance/dishonest assistance: Knowingly assisting a dishonest
-defendant bank had provided negligent advice to a surety who was also a trust.
customer.
--issue: whether banks owed any general duty of care to their customer?
banks owe their customers a duty to proffer an adequate explanation
about the nature and effect of any security documents before they sign.
7
  What is the mental state for “knowing receipt” and “knowing -A grandmother by will gave fund through undated cheques to a bank for
assistance”? the benefit of her grandchildren. Somehow, one of the real trustees ie the
uncle transferred the grandchildren's’ fund into his own personal account.
(1) Knowing receipt: Does not require the mental state as in “dishonest
Court held that only by receipt of cheque by the bank, there does not
assistance” but at least a lack of probity must be present.
exist any trust responsibility by the bank. But after the trust account was
(2) Dishonest assistance: Dishonestly, morally reprehensible behavior or lack
opened by the bank, the bank has a fiduciary relationship with the
of probity; to the extent the bank is said to be privy to the dishonesty.
grandchildren and is liable in this case for knowingly assisting “A”, in a
What is the bank’s liability for “knowing receipt” and “knowing fraudulent and dishonest scheme. As a reasonable banker, the bank ought
assistance”? to have prevented withdrawal from the trust account by A.

1. In the case of “knowing receipt”, the bank is only liable to account -Elements of knowing assistance:
for the sum received or handled for the breach of trust. These are
situations where the remedy of “Tracing” or Detection is available. 1. Existence of a trust
2. In the case of “knowing assistance”, the bank’s liability extends to
all losses to the trust funds due to the trustee’s dishonesty, 2. Dishonesty and intention to commit fraud by the trustee
irrespective whether the trust funds fall into the bank’s hands or
not. 3. Assistance rendered by the third party (bank) to the dishonesty and
fraudulent intent of the trustee

 Knowing Receipt 4. Third party’s level of knowledge

- If trustee’s account has an overdraft, monies transferred used to reduce

overdraft, bank will be held liable as the bank allowed the transaction to
happen.  What is the level of knowledge required by equity to append liability
to a constructive trustee?
Imperial Bank of Canada v Begley
Baden Delvaux v Societe’ Generale
Bank is liable as a constructive trustee when it received monies from its
(i) actual knowledge or notice of the trust and awareness of the breach;
customer for the bank’s personal benefit with knowledge that the monies
(ii) knowledge that he would have obtained but for willfully shutting his eyes
were derived by the customer from a breach of trust.
to the obvious;
 Knowing Assistance/Dishonest Assistance (iii) knowledge which he would have obtained but for willfully failing to
make such inquiries as an honest and reasonable man would;
-Bank duly notified it is a trust account, acts as conduit pipe and allows a (iv) knowledge of circumstances which would indicate that there has been a
cheque to be drawn whereby monies are credited into trustee’s account, breach to an honest and reasonable man; and
then the bank will be held liable. (v) knowledge of circumstances which would put an honest and reasonable
Rowlandson V National Westminister Bank man on inquiry.

8
*** Elements (i) - (iii) are subjective queries whereby an individual is fully -Royal Brunei Airlines(P), appointed a company (BLT) to act as their general
aware of his acts or omission. This is actual notice. travel agent for the sale of passenger and cargo transportation. Under the
terms of their agreement, BLT was required to account to the airline for all
*** Elements (iv) and (v) are objective queries (constructive notice) and amounts received from sales of tickets. In fact, BLT was afforded a 30-day
raised anxiety when applied in commercial cases. credit period before it was required to pay the airline. However, the
Selangor United Rubber Estate v Cradock (reasonable man agreement expressly provided that all amounts received from sales of
test/constructive notice is sufficient; harsher test) tickets were to be held liable by BLT on trust of the airline. In practice,
money received by BLT was not paid into a separate account but credited to
 By applying elements of constructive notice, a bank that honoured a BLT’s current account, where it was used to meet the company’s normal
cheque in good faith was found liable for “knowing assistance”, because a business expenditure. All this was done to the knowledge and with the
reasonable bank would have taken a different course of action. assistance of the D, who was the MD and principal shareholder of BLT.
When BLT defaulted payments to the airline and couldn’t pay, the plaintiff
Lipkin Gorman v Karpnale Ltd & Anor (subjective test/actual notice; less
wanted the D to personally liable on the basis that he assisted the admitted
harsh)
BOT.
-Cass, a junior partner in a firm, misused his authority to draw cheques on Defendant was held not liable on the ground that accessory liability was
the firm’s client acc in order to finance his gambling activities. Although the dependent on the BOT being dishonest, whereas here the admitted BOT
bank was concerned about Cass’s own acc, knew of C’s gambling activities was the result of bad management and not dishonesty.
and was aware that the method used for drawing the relevant cheques was Has revised the elements of knowing assistance. It is now dishonest
unusual, he failed to inform the firm. assistance.
A bank could not be held liable to its customer as CT of the money’s in the Dishonesty is a necessary ingredient of accessory liability and it is also a
customer’s account unless the bank could be shown to be in breach of the sufficient ingredient.
contractual duty of care owed to the customer. There was no negligence by Knowingly was better to be avoided as a defining ingredient of the
the banker. principle and the five point scale of knowledge set out in Baden’s case was
bank will only liable when the circumstances are such that any reasonable best forgotten.
cashier would hesitate to pay a cheque at once and refer it to his or her Dishonesty is to be assessed objectively not subjectively
superior, and when any reasonable superior would hesitate to authorise
payment without inquiry, that a cheque should not be paid immediately on
presentation and such inquiry made. CHAPTER 4-DUTY TO HONOUR CHEQUES
P must establish that there was a serious or real possibility that C was
drawing on the client’s account and using the funds so obtained for his own -The bank has a duty to honour customer’s cheques presented to it, but
and not the solicitors’ or beneficiaries’ purposes. subject to the condition that the customer must have sufficient funds to his
credit or the said cheque is within the agreed overdraft limit.
Royal Brunei Airlines v Tan Kok Ming(overruled Baden)

9
United Malayan Banking Corp Bhd v Liew Yang  For a trader, the presumption of law is that if the cheque is
dishonoured based on a wrongful ground, this will threaten his
cheques were honoured although monies in the account were not business credit, therefore he need not prove actual damage. The
sufficient. This was regarded as a bank loan. trader is entitled to receive substantial damages, but an amount
that is appropriate and reasonable.

-A customer is entitled to commence legal actions against the bank:

Rolin v Steward
1. In a situation where the bank failed to honour the cheque without -a merchant’s cheque was wrongfully dishonoured by his bank.
reasonable ground, the customer can commence action based on when the customer is a trader, the action lies w/o proof of special
breach of contract. damage.
2. In a case where the bank gives a reason to a third party as to why
the cheque was dishonoured, the customer can commence action Great One Coconut Product Industries (M) Sdn Bhd v Malayan Banking Bhd
based on the tort of libel if the said reason was unfounded. bcoz he’s a trader thus he’s entitled to a substantial amount for a bank
draft that wrongfully dishonoured. No need to prove the actual loss.

1) Breach of Contract

 Can both the claim for breach of contract and tort be combined into  For non-trader, amount of damage obtained for a dishonoured
one action? cheque is minimal unless special damage is proved.

The Chartered Bank v Yong Chan Evans v London and Provincial Bank

A wrongful dishonour of a cheque gives rise to two possible causes of -the customer was the wife of a naval officer. When her cheque for
action, one for breach of contract and the other in tort, and in a proper case groceries was wrongfully dishonoured by the bank, she sued in breach of
the practice has been to combine the two claims in one action. Rules of contract.
pleadings determine how those claims may be so combined. held that she had suffered no loss and she was awarded one shilling by
the jury.
 What is the quantum of damages for breach of contract?
Gibbons v Westminster Bank Ltd
-Quantum of damages for breach of contract depends on whether:
(a) The customer is a businessman (trader); or -bank dishonoured a cheque drawn by a tenant in favour of a landlord.
held that the customer had to prove loss in order to recover substantial
(b) The customer is a non businessman (non-trader). damages.
-Trader= a terminology that covers all merchants that buy and sell goods,
Kpohraror v Woolwich Building Society***(special case)
and also agents as well as business brokers.

10
-the customer who had described himself in the acc opening form as a self- -the test used to ascertain if the words endorsed are libelous or not is
employed exporter/importer with an annual income of below 5000 pounds, “Would the words tend to lower the plaintiff in the estimation of right
drew a cheque in favour of a supplier. Initially, the cheque was dishonoured thinking members of society, generally?”
by the bank in the mistken belief that it had been reported lost. When the
mistake was discovered, before the close of the very day of dishonor, the Baker v Australia & New Zealand Bank Ltd
payee was informed there were adequate funds in the acc. ’present again’ was libelous.
held that even a person other than a trader could recover substantial
damages for loss of business reputation resulting from a cheque being Bumiputra Commerce Bank Bhd v Top A Plastic Sdn Bhd
dishonoured. However, the special damages which the customer sought
’frozen acc’ and ‘refer to drawer’ were highly libelous and tantamount to
were too remote since there was no evidence to indicate that a one-day
mean that the claimant had been locked up or went into liquidation.
delay could cause a substantial loss.
 Holden in his book submitted that it makes no difference whether
***suggestion—the safest course that can be adopted by the bank is the
the answer is ‘refer to drawer’ or ‘present again’ or ‘not sufficient’.
return of the unpaid cheque, accompanied by a note which confirms its
As a general rule, each of those answers ‘import the clear intimation
dishonor but does not give any specific reason. (Frost v London Joint Stock
that the maker of the cheque so answered has defaulted as to time
Bank Ltd) for the performance of the legal and ethical obligation to provide
***the mere dishonour of the cheque w/o giving reason is probably not the for payment by the bank on presentation of a cheque issued for
basis for an action in defamation. immediate payment’.
 The legal defence for a paying bank or a collecting bank for the tort
of ‘libel’ is justification. Justification can be used if the endorsement
2) Breach of Tort on the cheque is the actual reflection of the customer’s account.
(Tan Ah Sam v Chartered Bank)
-The tort of libel exists if the reason for wrongful dishonour of a cheque is
defamatory.
-When a customer’s cheque is dishonoured, the paying bank may endorse CHAPTER 5---DUTY OF SECRECY
words on the cheque, being ‘Insufficient Funds’ or ‘Accounts Closed’. If the
bank has made a mistake whilst endorsing the aforesaid words, then a -The bank has a legal obligation to maintain secrecy of its customer’s affairs.
prima facie liability exists for the tort of libel. Generally, a bank obtains financial information regarding its customer while
-The tort of libel also exists against the collecting bank. Since the action in being its payment or recipient agent for any debts settled by a third party.
tort does not depend on any contractual relationship, the drawer of the -Therefore the bank is the sole financier or the largest financier for its
cheque can commence an action in the tort of libel against the collecting customer. As a result, if the duty of secrecy is breached, then the customer
bank for any defamatory remarks wrongfully endorsed on the cheque. could receive damages.

Sims v Stretch

11
A) Common Law Aspect  The confidence is not confined to the actual state of the customer's
account. It extends to information derived from the account itsel
Tournier v National Provincial and Union Bank of England Ltd and information derived from other sources.
-P was a customer of the D bank. The bank acc of P was in debit to the Lord Atkin:
extent of 9 pounds. The bank pressed P for payment and they agreed that P
paid 1 pound a week. After 3 payments, P stopped. The manager of D bank  obligation of secrecy extend at least to
i. all the transactions that go through the account, and
noticed that another customer had issued a cheque to P for 45 pounds. But
ii. to the securities, if any, given in respect of the account;
P did not deposit this cheque into his acc but the cheque was collected thru
iii. extend beyond the period when the account is closed, or
the London City and Midland Bank. Manager then inquired the collecting
ceases to be an active account
bank who its customer was that collected the cheque and he was informed
iv. extends to information obtained from other sources than
that it was a bookmaker. Manager then phoned P’s employers to get P’s the customer's actual account
address. In the course of conversation, manager mentioned that P was
indebted to bank and a cheque was payable to P being diverted to acc of *** if the occasion upon which the information was obtained arose out of
bookmaker. Owing to this, P’s contract of employment was not renewed by the banking relations of the bank and its customers.
his employers. P brought action against bank for breach of duty of
Lord Scrutton:
confidentiality.
Court held that bank had breached this duty and awarded damages to the  the implied legal duty towards the customer to keep secret his
customer. affairs does not apply to:
Lord Bankers: i. knowledge which the bank acquires before the relation of
banker and customer was in contemplation, or after it
 duty of banker towards customer not to disclose his affairs is a legal ceased; or
one arising out of contract, and that the duty is not absolute but ii. knowledge derived from other sources during the
qualified. continuance of the relation.
 The qualifications of the contractual duty of secrecy implied in the
relation of banker and customer can be classified under four heads:
(a) Where disclosure is under compulsion by law;
 Current position for the scope of DOS?
(b) where there is a duty to the public to disclose;
(c) where the interests of the bank require disclosure; -Courts have subsequently preferred the majority view in Tournier’s case.
(d) where the disclosure is made by the express or implied consent
of the customer Barclay Bank plc v Taylor
 The duty does not cease the moment a customer closes his account.
-the banker customer relationship imposes upon the bank a duty of
Information gained during the currency of the account remains
confidential. confidentiality in relation to information concerning its customer and his
affairs which it acquires in the character of banker.

12
  there are some excluding information which does not falls under Barker v Wilson
bank’s duty of secrecy
the definition of Banker’s Books included microfilms of a bank’s records
and any permanent record made by means furnished by modern technology.
Christofi V Barclays Bank Plc Wheatley V Commissioner Of Police Of The British Virgin Islands
-the customer’s husband transferred matrimonial home into her name The entire purpose of this procedure is to enable the bank to make
before he went bankrupted. The husband’s trustee in bankruptcy registered disclosure w/o being liable to its customer for breach of is duty of
a caution against the property but subsequently cancelled. Despite the confidentiality.
husband who was acting as his wife’s agent informed the bank not to
disclose that the caution had been cancelled but then the banks still  Whether bank owed duty to inform its customer an application for
mentioned that to the husband’s trustee. The trustee then registered its disclosure had been made?
caution. The customer claimed that the bank had breached its duty of Barclays Bank Plc V Taylor
confidentiality.
court struck out the claim on the ground that the cancellation of caution Whenever a 3rd party applies for information from a bank about its
would occur once the cautioner received notice from the land registry. The customer, the bank does not owe its customer a duty to oppose the
trustee in bankruptcy must have been informed about that, thus the bank application or inform him that such application had been made.
does not breached its duty.
Robertson v Canadian Imperial Bank of Commerce
COMMON LAW EXEMPTIONS OF DUTY OF SECRECY
-a bank was served with a witness summons and even though its customer
a) Compulsion of Law was not the party of the proceedings, the bank was ordered to produce to
the court its customer’s bank statements.
-The bank can be ordered by the court to disclose information regarding the the court refused to exclude the possibility that a bank might owe its
customer’s account in a legal proceeding. The court applies its discretion customer a duty to inform the court of the fact that it had been unable to
‘cautiously’ when making the said order and the bank cannot refuse to contact its customer or that the bank statements contained material
answer any issue on the ground it is, privileged. irrelevant to the proceedings.
Their lordships left open the question of whether the bank owed an
 Section 7 of Bankers Book Evidence Act 1949 (rev. 1971)
implied contractual duty to inform its customer that the subpoena had been
-On the application of any party to a legal proceeding….the court or a judge served.
may order…to inspect and take copies of any entries in a banker’s book..for
the purposes of such proceedings. (not a fishing trip)  FSA--Permitted disclosures under compulsion of law can be seen
-see s100 of BAFIA which stated that “nothing in this Part shall limit any under section 134(1)(a) read with Schedule 11
powers conferred upon the High Court or a judge thereof by the Banker’s --garnishee order, court order, written law and etc
Books (Evidence) Act 1949 or to prohibit obedience to an order made under
that Act.” b) Public interest
13
-For example, during war the bank has to disclose accounts of the enemy of drawn in respect of gambling debts. During the phone conversation with the
war. According to Paget this is exclusion to the duty of banking secrecy that claimant, the claimant’s husband interceded at her request and was
is difficult to define. The scope of ‘public interest’ may change according to informed that most of his wife’s cheques were drawn in favour of
time and circumstances. bookmakers.
court held that the disclosure was justified in its own interest and the
Weld Blundell v Stephens bank had an interest in defending its reputation by informing the husband
The danger to the state may supersede the duty of secrecy owed by an that bcoz of insufficiency funds in his wife’s acc and thus they refused to
agent to his principal. honour the cheques.

Price Waterhouse v BCCI Holdings (Luxembourg) SA Christofi V Barclays Bank Plc

Duty of confidentiality might sometimes be overweighed by a higher disclosure of the fact that a trustee in bankruptcy’s caution had been
public interest in favour of disclosure, in which circumstances there would cancelled was necessary to protect the bank’s commercial reputation as the
be a right not merely a duty to disclose the information. bank would otherwise have been open to criticism that it had dealt with the
property over which the bank had a charge behind the trustee’s back and
knowing of his mistake.

Pharom and Ors v Bank of Credit and Commerce International S.A d) Consent of the Customer

Public interest in making documents available to a litigant could -The consent of a customer for disclosure can be granted impliedly or
overweigh the duty of confidentiality a banker owed to a customer. expressly.

Sunderland v Barclays Bank Ltd (implied consent)

c) The bank’s Interest the court decided that the consent of the customer to permit the
disclosure of information concerning the acc might be implied from the
-when a bank commences proceedings against its customer to recover an
conduct of the customer.
unpaid loan or overdraft facility and the bank has to disclose in the
the husband having taken over the conduct of the matter, the manager
pleadings the extent of the customer’s liabilities.
was justified in thinking that the wife did not object to his offering to the
-bank reveals confidential information in circumstances where its interest
husband the explanation which might satisfy the husband that the
conflicts with the customers.
complaint made was unjustified.
Sunderland v Barclays Bank Ltd

-D bank dishonoured the claimant’s cheques primarily due to the acc having
insufficient funds, but also due to the knowledge that the cheques were

14
 c) that is at the time of disclosure is or has already been made
lawfully available to the public from any source other than
the financial institution.

***for eg if the news had been reported or published in the newspaper

then the person that divulged it would not be held liable.
Position In Malaysia
(3) This subsection states that a person who has any information or
 Section 133 of FSA(can only used by the Central Bank) document which to his knowledge has been disclosed in contravention of
s133(1) shall not disclose the same to any other person.
(1) No person who has access to any document or information relating to
the affairs or account of any customer of a financial institution, including— (4) Any person who contravenes subsection (1) or (3) commits an offence
and shall, on conviction, be liable to imprisonment for a term not exceeding
(a) the financial institution; or
five years or to a fine not exceeding ten million ringgit or to both.
(b) any person who is or has been a director, officer or agent of
*** based on FSA, the customer can initiate the action against the financial
the financial institution,
institution and also the bank officer who was in breach.
shall disclose to another person any document or information relating
 Section 97 of BAFIA
to the affairs or account of any customer of the financial institution.
-quite similar with s133 of FSA.
***This section imposes a duty of secrecy, not only on the financial - The difference between these two sections is that of their cause of action.
institutions and the directors or officers of the bank, but also includes any - Based on BAFIA, the customer can only initiated the action against the
other persons who have access to the information of the customer. bank officer who committed such breach.

(2) Subsection (1) shall not apply to any document or information relating to Tan Eng Seong v Malayan Banking Berhad
the affairs or account of any customer of a financial situation
the judge held that the plaintiff who sought for remedy against the bank
a) that is disclosed to the Bank, any officer of the Bank or any could only do so using a cause of action based on Tournier’s case and not
person appointed under this Act or the Central Bank of BAFIA as the cause of action available under BAFIA is only against the bank
Malaysia Act 2009 for the purposes of exercising any officer who committed the breach.
powers or functions of the Bank under this Act or the
Central Bank of Malaysia Act 2009  Whether the duty of secrecy governed by FSA and repealed BAFIA
b) that is in the form of a summary or collection of information extended to other territory?
set out in such manner as does not enable information
Attorney General of Hong Kong v Zauyah Wan Chik & Ors and another
relating to any particular customer of the financial
institution to be ascertained from it appeal

15
Since section 97 was not expressed to have extra-territorial effect, DOS. He brought under s97 and tournier for damages. Court held cannot
therefore the respondents would not be criminally liable if they were to give use s97 coz is a penal statute.
evidence in Hong Kong.
Wong Yeng Mun v CIMB Bank Berhad
*** Based on the judgment in Zauyah’s case, section 133 of FSA was not
court granted P damages for breach of DOS based on Tournier but made
expressed to have extra-territorial effect as well.
no reference to BAFIA.
 Whether the information obtained in breach of DOS still admissible
as evidence? Position in Singapore

Lim Lean Heng v Wako Merchant Bank (Singapore) Ltd & Other Appeals -a bank has both contractual as well as statutory duty to keep the affairs of
a customer confidential.
Court held that the information relating to bank accounts obtained in -Contractual duty : is to be implied from the banker-customer relationship.
breach of section 97 of BAFIA is still admissible as evidence. -statutory duty : is imposed by S47 of the Banking Act
 Whether implied or express consent of customer is needed? Susilawati v American Express Bank
-S99(1)(a) of BAFIA stated that the provisions of section 97 shall not apply to
In this case, the court reiterated that the standard of banking secrecy in
the disclosure of any information or document in which the customer, or his
Singapore is of that laid down in s47 of the Singapore Banking Act or higher
personal representative, has given permission in writing to disclose.
than those. The common law duty of secrecy laid down in Tournier is no
-Paragraph 1 of Schedule 11 of FSA which stated that duty of secrecy shall longer applicable in Singapore as it is now only of historical importance.
apply to the documents or information which is permitted in writing by the
***However in Malaysia, in the case of Tan Eng Seong v Malayan Banking
customer, the executor or administrator of the customer.
Bhd, the judge held that despite the existence of BAFIA, the common law
Tan Lay Soon v Kam Mah Theatre Sdn Bhd standard of duty of secrecy laid down in Tournier is still applicable here.

-P sought injunction, land charged to intervener who got an order for sale. CHAPTER 5---CUSTOMER’S DUTY TO THE BANK
Court held that letter of discharge was implied consent given by the
From the aspect of common law, the customer owes two duties to the
chargor. However it is to be noted that the judge did not consider section
banker, being:
99(1)(a) of BAFIA in that case.
(a)The Macmillan Duty; and
 Whether can use s133 for civil claim? (b)The Greenwood Duty

-section 133(4) imposed criminal liability to the wrongdoer. A) Macmillan Duty

Tan Eng Seong v Malayan Banking Berhad -the customer has an implied duty to exercise reasonable care in executing
his written orders so as not to mislead the bank nor facilitate forgery.
he is a bank officer in maybank. One day he had an acc rm15. He asked
officer to close and not closed. Bank told his bro. He sued bank for breach of London Joint Stock Bank Ltd v Macmillan & Arthur
16
The customer contracts that ‘in drawing his cheques he will draw them in estoppels/bar to his right to sue the bank.
such a form as will enable the banker to fulfill his obligations and therefore -A bank may not be able to rely on a plea of estoppels if it has been
in a form which is clear and free from ambiguity. instrumental in causing the customer to maintain his silence.

Ogilvie v West Australian Mortgage & Agency Corporation Ltd

-An officer of a bank requested a customer whose cheque had been forged
to remain silent so that the bank might stand a better chance of recovering
Lewes Sanitary Steam Laundry Co v Barclays, Bevan & Co money from the forger.
-A guy named Mr William Gates was employed by Ps company as secretary. The request by the bank for silence led the customer to believe that it
Gates was the son of one of the directors of the company. As the company’s was in the interest of the bank that he should remain silent so that the
secretary, Gates was entrusted with the custody of the company’s cheque customer was not stopped from asserting that his signature was a forgery.
books and its bank pass-books. Gates forged the signature of one of the
Greenwood v Martins Bank Ltd
authorized signatories and the cheques were duly paid by the bank. The
company claimed that the bank had no authority to make payment on the -P kept 2 accs with D bank. One acc was kept in the name of P and the other
cheques. The bank relied on 2 main defences ie: was a joint acc with his wife. P’s wife forged his signature on a number of
cheques drawn on both the accs. When P discovered he was persuaded by
(i) It alleged that Gates’s father who was a director of the company was wife not to report the matter to the bank after she told him that the money
aware that his son had committed forgery before he became the secretary was used to help her sister. 8 mths later P threatened to tell the bank when
of the company and he should have told the bank. he found out that his wife had lied to him over where the money gone. Wife
(ii) The company was negligent in failing to supervise its secretary and failing then committed suicide. P claimed that the bank had no authority to make
to check its bank pass-books. payment on the cheques bcoz they were forgeries. The bank pleaded that
Court held that the negligence of the customer could not be relied upon the customer owed a duty to inform the bank about the forgeries. By
by the bank unless it actually facilitated the fraud. In this case the forgeries remaining silent, he led the bank believes that the forged signatures were
did not result from the company’s failure to supervise its secretary and genuine and he was stopped from relying on the forgeries.
pass-books. the customer has an implied duty to inform the bank if he discovers that
cheques purporting to have been signed by him have been forged.
B) Greenwood Duty  Failure to notify will operate as an estoppel. Cannot then after
commenced action against banker bcoz had breached greenwood duty.
-The second duty of the customer is to the duty to notify/inform the bank
when it realizes that its cheques have been forged.  The essential factors giving rise to an estoppels are :
-With fast and prompt notification, the customer protects the bank from the (1) a representation or conduct amounting to a representation
possibility of any legal action arising from improper payments or the tort of intended to induce a course of conduct on the part of the person to
negligence/ conversion. whom the representation is made.
-The failure of the customer to notify the bank, will operate as an (2) an act/omission resulting from the representation, whether
actual or by conduct, by the person to whom the representation is
17
 made. imposed upon the customer to inspect his periodical bank statements to
(3) detriment to such person as a consequences of the act or ensure that his acc is being properly maintained by the bank.
omission.

Proven Development Sdn Bhd v Hong Kong and Shanghai Banking Corp
(irregularities in account) CHAPTER 6---EXAMINATION OF PASS-BOOKS
-P company opened a current acc with D bank. The mandate given to the  Do the customers have a duty to check the pass books or bank
bank stipulated that cheques drawn on the acc were to be signed by 2 statements?
directors, Mr Ng and Mr Lee. In 1976, mr Ng orally instructed the bank to
transfer 3 sums of money to Bee Brothers development, a company owned Chatterton v London & County Banking Co Ltd
by Ng. In 1986, the company brought an action against the bank to recover
-A customer had acc and regularly makes payment with cheques. He checks
the payments contended that it was in breach of mandate. The bank
pass books with the assistance of his acc clerk. After that he found 25 of
contended that the oral instructions were ratified by the directors of the cheques were forged by clerk and he brought action against banker which
company but due to the lapse of time, the bank was unable to produce the was debited from his acc. The issue raised is whether the customer has the
same. duty to check the pass books?
The court decided that the P had ratified the actions of Ng and could no a customer is not bound to check his pass books
longer rely on the irregularities as the bank was prejudiced by P’s failure to
report. P must have fully aware of the 3 debit notes and had in fact given his Kepitigalla Rubber Estates v Nat. Bank of India Ltd
permission. P failed to inform as soon as it came to the attention of their
-A company had 2 directors. Secretary forged cheques for 2 mths and the
directors and had waited for 9 yrs be4 bringing this suit. Thus, P should be bank made payment on the cheques. Directors did not check the pass books.
estopped from claiming against D. The company contended that the cheques were paid by the bank w/o its
authority. The bank alleged that the customer owed a duty to the bank to
United Asian Bank Bhd v Tai Soon Heng Construction Sdn Bhd take reasonable care to prevent its servants from forging his signature.
duty of a customer of the bank in issuing mandates to the bank is to take
-D opened acc at A’s bank. His account’s clerk forged cheques and were reasonable care so as not to mislead the bank but there is no duty on the
honoured by A’s bank. part of a customer to take precautions in the general course of carrying on
at common law a customer owes his banker only two duties ie refrain his business to prevent forgeries on the part of his servants.
from drawing a cheque in such a manner as may facilitate fraud or forgery
and duty to inform the bank about the forgery/fraud as soon as the Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd & Others
customer becomes aware of it.
-over the years, a clerk who had the custody of his employers’ cheque-
there does not exist a further duty on the part of the customer to take
books forged the general manager’s signature on a substantial number of
precautions to prevent forgeries on the part of his servants. There is no duty
18
cheques and were paid by 3 different banks. As the firm did not maintain it would be absurd to hold that the taking of a pass book by a bank and its
any regular audits, this remained undetected. return to the customer established a ‘settled acc’.
banks offer a service which is to honour their customer’s cheques and if
they ay out upon cheques which are belong to the customers then they are Chatterton v London & County Banking Co Ltd
acting outside their mandate.
the customer was not under a wider duty to combat the perpetration of the pass book would not constitute an ‘account stated’ even if it was
fraud or to check periodic bank statements. updated at regular intervals and returned to the customer accompanied by
the paid effects, and even though the customer had ticked off all entries.

 What is the situation if the bank imposes a duty on the bank’s

United Asian Bank Bhd v Tai Soon Heng Sdn Bhd customer to accept the account book and statement of account ‘as
stated’ by the bank?
the court opined that if there does not exist any express provision
between the customer and the bank then the customer does not have any -Banks in Canada have for a long time, practised the use of an express
duty to examine or ensure if the bank correctly manages the statement of clause that stipulated the customer has a duty to examine bank statements
account. and inform the bank if there are any errors/mistakes or irregularities in a
stipulated duration.
-The failure of the customer to provide a notification to the bank in the
 Is the customer bound by the entries in the pass-book/statement of stipulated duration will be deemed as verification by the customer of the
account? account sum ‘as stated’.
-this clause is known as ‘conclusive evidence clause/verification clause’.
-the plea that a periodic acc statement or a pass book constitutes an -Conclusive evidence clause or at times known as verification clause is a
‘account stated’ may be raised either by the bank or by the customer. clause imposed by the bankers on customer to inspect and verify bank
-the argument is pressed by the party that seeks to deny the other the right statements within a limited period of one to two weeks in a standard form
to have an error or a wrong entry rectified. contract.
-In equity, an ‘account stated’ has to be settled by the debtor w/o further -clause effectively displaces the common law proposition that a customer
regard to the individual items involved. When an acc is stated it becomes does not have the duty to examine banks statements and to accept all
similar to a confirmation by the debtor that the creditor s claiming the entries therein ‘as stated’ by the bank.
correct acc.
-the customer and the bank would lose the right to query the correctness of Banche & Co (London) Ltd v Banque Verues et Commerciale de Paris SA
given items once the bank statement or the pass book became an ‘acc
stated’. There is no public policy against it … on the contrary public policy is in
-The bank’s stand that the account book and statement of account is ‘as favour of enforcing it.
stated’ was rejected by the English cases. Bank statements and pass-book
entries are not to be regarded ‘as the stated accounts’. Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd & Others

 their Lordship held that these terms of business are contractual in effect,
but in no case do they constitute what has come to be called “conclusive
Kepitigalla Rubber Estates v Nat. Bank of India Ltd evidence clause”.
their terms are not such as to bring home to the customer either “the
19
intended importance of the inspection he is being expressly or impliedly discrepancies, omission or debits wrongly made to or inaccuracies or
invited to make,” or that they are intended to have conclusive effect against incorrect entries in the account as so stated and that at the end of the said
him if he raises no query, or fails to raise a query in time, upon his bank period of seven (7) days the account at kept by you shall be conclusive
statements. evidence without any further proof that, except as to any alleged errors so
the burden of the objection and of the sanction imposed must be brought notified and any payment made on forged or unauthorized indorsements,
home to the customer. the account is and entries therein are correct, and except as provided above
clear and unambiguous provision is needed if the banks are to introduce you shall be free from all claims in respect of the account.
into the contract a binding obligation upon the customer who does not
query his bank statement to accept the statement as accurately setting out Court applied a wider approach by stating that an amount drawn by
the debits items in the accounts. forged or unauthorized cheque which has been debited to the account is a
“debit wrongly made” and is also an incorrect entry in the account which
Principal Salute S/B V PHB Bank Bhd squarely fall within the ambit of clause 3(c).

-Clause 18 reads as follow: ***criticized by PCC

“A statement of the customer’s account will be rendered once a month. “it is indeed difficult for anyone reading clause 3(c) of the contract to
Customers are asked to examine all entries in the statement as soon as realize that his right to raise the issue of forgery is being taken away seven
possible and to report at once to the Bank any error found therein. If the days after the bank send him a bank statement. If a bank wished to shift its
customer does not respond within 14 days after the date of receipt of the responsibility for verifying a customer’s signature to the customer himself,
statement of account and object to any entry therein, the statement shall then it should say so in clear terms rather than hide it in clause which refers
be treated as conclusively settled as between the customer and the bank.” to something else.”
‘Error’ not necessarily included forgery/fraud. If u want put in the CEC to
include forgery or fraud then u must put in expressly.  What is the situation if the customer’s bank account entry is over-
this clause is insufficient as it is far from being a clear and unambiguous credited?
provision.
Customer reading clause 18 might be inclined to think that the said clause -If the aforesaid over-crediting does not involve negligence or fraud on the
merely refers to some incorrect mathematical calculations in the account or part of the customer, then the customer can rely on the said entry.
failure to take into account legitimate credits and debits to the account -The bank can correct the entry in the account book but this must be done
rather than more serious matters of forgery or fraud. within reasonable time.
The burden of the objection and of the sanction imposed had not been
brought home to the plaintiffs in this case. Holland v Manchester and Liverpool District Banking Co

Consmat Singapore (pte.) Ltd. V. Bank of America National Trust & Saving -the customer’s pb showed a credit balance of 70 pounds instead of the true
association amount of 60 pounds. In reliance of this entry, the customer drew a cheque
for 67 pounds which was dishonoured when presented. The customer’s
-plaintiffs maintained a bank account with D bank. The plaintiffs later action in breach of contract succeeded.
discovered that their signature on 15 cheques were forgeries. the bank was entitled to debit the customer’s acc with the amount
-clause 3 reads as: erroneously credited but did not have the right to dishonour cheques drawn
“I/We hereby undertake to verify the correctness of each statement for sums w/in the balance conveyed to the customer until, at any rate, they
of account and accompanying cheques or vouchers received from you and gave him some notice.
to inform you within seven (7) days from the receipt thereof of any
20
United Overseas Bank v Jiwani
The distinction btw forged and unauthorised signature is:
-a bank erroneously credited its customer’s acc twice with the amount of a (i) X dishonestly removes a blank cheque from the cheque book of Y and
single remittance. The amount involved was substantial and the customer w/o Y’s knowledge, X completes the cheque in his own favour for rm800
was not expecting any payment additional to the one genuinely received. and signs Y’s name. X then went to bank and obtains cash.
Despite this, he drew on the balance accrued as a result of this windfall, and cheque is a forgery and is a worthless instrument. Not capable of
thereafter disputed the bank’s right to reverse the undue credit entry. ratification by Y.
held that customer ought to have known that the unduly high balance
shown in his acc was incorrect. He was not expecting any additional (ii) Z is authorised to operate on B’s number 1 acc and to sign B’s name on
payment of a substantial amount to the credit of his acc and he was not cheques. B also maintains a number 2 acc but no authorised to sign. Z
entitled to shut his eyes to facts staring him in the face. prepares a cheque drawn on B’s number 2 acc for a purpose for which a
cheque on the number 1 acc would normally be issued and sign B’s name on
it.
although B’s name is signed w/o authority but B can ratified it.
CHAPTER 7---BILLS OF EXCHANGE ACT  Duty to inform asap??

 Section 24 of BEA Greenwood v Martins Bank Ltd

-Subject to the provisions of this Act, where a signature on a bill is forged or -husband was under a duty to inform the bank of the forgeries as soon as he
placed thereon without the authority of the person whose signature it discovered the same and by not doing so he had, in effect, represented to
purports to be, the forged or unauthorized signature is wholly inoperative, the bank that the forged cheques were genuine.
and no right to retain the bill or to give a discharge therefor or to enforce Husband was under a duty to inform the bank of the forgeries as soon as
payment thereof against any party thereto can be acquired through or he discovered the same and by not doing so he had, in effect, represented
under that signature, unless the party against whom it is sought to retain or to the bank that the forged cheques were genuine.
enforce payment of the bill is precluded from setting up the forgery or want
of authority: Syarikat Perkapalan Timor v United Malayan Banking Corporation Bhd
-Provided that nothing in this section shall affect the ratification of an
unauthorized signature not amounting to a forgery. -Plaintiff sued its banker, UMBC , for making payment on five cheques and
wrongly debiting from its account. These five cheques were made payable
section 24 deals with forged signatures and also with unauthorised to Syarikat Pun and were debited by the bank between July 4 and July 25 of
signatures. 1975. Plaintiff alleged that the cheque-book containing these five disputed
s24 applies to any forged or unauthorised signature to a cheque cheques was in fact never issued to them (but was issued to Mr. Tong Bit
irrespective of the capacity in which it is placed on the instrument. This Kin) and therefore, they could not possibly have drawn the said cheques.
includes the drawer, payee and indorser. Plaintiff discovered the erroneous debits which arose from the five disputed
s55 states that an indorser of a cheque is precluded from denying to a cheques on checking its July 1975 statement of account received on August
holder in due course the genuineness of the signature of the drawer on the 1975. The normal banking practice is that whenever a customer requires a
cheque. new cheque-book, the cheque application slip would be used and they
s60 protects a banker who pays a demand draft or cheque bearing a would send back the acknowledgement slip before using the cheques. The
forged or unauthorised indorsement. bank could neither produce any application for a new cheque-book by the
plaintiff nor any letter requesting the same or even an acknowledgement
21
slip to this effect. Government document examiner (the expert witness)  Customer’s duty to prevent forgeries?
gave evidence that the rubber stamp on the authority letter, for the
collection of the new cheque-book by a third party, and the five disputed -only 2 duties ie macmillan and greenwood duty.
cheques were forged.
There was no evidence of negligence or any other misconduct on the part United Asian Bank Bhd v Tai Soon Heng Construction Sdn Bhd
of the plaintiff firm of its servants or agents to warrant a ruling that the
plaintiff was estopped or precluded from setting up a forgery or want of A customer who alleges that his banker has honoured forged cheques
authority under s.24 BEA 1949. since the bank had issued a cheque-book drawn on his account need only establish the charge of forgery on a balance
meant for the plaintiff firm to an unauthorized person, and the signatures of probabilities.
on the cheques were forged to the detriment of the firm, then by virtue of A banker who pays out on such a forged instrument is absolutely liable to
s.24 BEA 1949, the cheques were wholly inoperative and the bank must be make good the loss. It is no answer for him to say that he was unaware of
held fully liable for debiting any sum from the plaintiff’s firm account, as it the forgery or that he took reasonable care. The forged instrument is a
had no authority to make such debit on the authority of the forged cheques. nullity and a banker has no authority, actual or impliedly from his customer
to act upon.
Syarikat Islamiyah v Bank Bumiputra Malaysia Bhd At common law, a customer owes his banker only two duties. The first is
to refrain from drawing a cheque in such a manner as may facilitate fraud or
-Plaintiff, which is the sole proprietor of a firm trading as Syarikat Islamiyah forgery and the second is duty to inform the bank of any forgery of a cheque
applied for leave to enter final judgment against Bank Bumiputra Malaysia purportedly drawn on the account as soon as the customer becomes aware
Bhd (defendant) for the recovery of RM 26 800. Plaintiff was a customer of of it.
the defendant and maintained a current account. The defendant paid out a no further duty on the part of the customer to take precautions in the
sum of RM 26 800 on six cheques purporting to have been drawn by the general course of his business to prevent forgeries on the part of his
plaintiff payable to bearer. Plaintiff’s account was debited for the said total servants or to inspect his periodical bank statements to ensure that his
sum of the six disputed cheques from September 4, 1984 till October 3, account is being properly maintained by the bank.
1984. Summary judgment was made against the defendant and the
defendant appealed stating that there were triable issues such as: Public Bank Bhd v Anuar Hong & Ong (per incuriam case)
(i) Plaintiff must prove that the cheques were forged
(ii) Defendant had paid the cheques in good faith and in the ordinary course -A financial clerk forged the signature of a partner on 34 cheques and ran
of business and therefore was protected under s.60 of the BEA 1949. off with RM 19 000 in cash. The managing partner testified, initially he used
to check the accounts weekly but subsequently reduced to once every 3 to 4
s.60 BEA 1949 is to protect banker against forged or unauthorized weeks. The employee confessed he had forged and convicted.
indorsements and this section does not apply to forged or unauthorized the signatures were forged but the respondent’s action against the bank
signatures. failed bcoz:
where a signature on a cheque is forged there was therefore no mandate I. The cheques were honoured by the bank in the ordinary course of
and if a banker pays such a cheque, he pays w/o mandate and cannot debit business and in good faith
his customer’s acc. II. In failing to notify the forgery, the respondent(anuar hong) had
breached the contractual obligations under cl 18 of the current acc
rules and regulations.
III. The respondent was negligent in failing to verify its monthly current
acc statements, monitor its cheque books and keep them in a safe
place and supervise its acc clerk.
22
thus the respondent had breached their contractual duty to prevent fraud. (i) the signatures on the cheques had been forged.
Their carelessness cause their loss and the bank was not negligent in from the evidence, the signatures on the cheques had been forged.
honouring the cheques.
(ii) P knowingly or negligently contributed to the forgery
***this case had been criticized as the decision was wrongly decided w/o on 13 nov P knew that the cheque book had been touched but did not
any reference to s24 and case law such as UAB and Tai Hing. informed immediately on that day. This showed P was negligent. P did not
check the status of the acc until 19 nov.
failed to offer any explanation why did not keep the cheque book in the
safe. P failed to take reasonable steps to ensure the safety of the cheques.
 Section 73A of BEA
(iii) D honoured the cheques in good faith
-Notwithstanding section 24, where a signature on a cheque is forged or the officers ahd compared the signatures on the stolen cheques with the
placed thereon without the authority of the person whose signature it specimen signatures and found that they were quite similar. Bank had in
purports to be, and that person whose signature it purports to be knowingly good faith honoured it. Hence, the forged signatures shall deemed to be
or negligently contributes to the forgery or the making of the unauthorized valid.
signature, the signature shall operate and shall be deemed to be the
signature of the person it purports to be in favour of any person who in Melewar Apex Sdn Bhd V Malayan Banking Bhd
good faith pays the cheque or takes the cheque for value.
-The sole and authorised signatory to P account was Tunku Soraya. P alleged
banker who can prove that ‘the person whose signature is purports to be that 69 cheques were forged by Affandi Mamat who was in charge of
knowingly or negligently contributes to the forgery or the making of the keeping and maintaining account.The bank disputed the forgery but made
unauthorized signature’ and who had paid in good faith or has taken the no attempt to challenge the specimen signature but instead relied on S.73A.
cheque for value, is entitled to treat such forged or unauthorized signature S.73A may be invoke after the bank has showed the drawer had
as genuine or authorized and accordingly is entitled to debit the customer’s knowingly or negligently contributed to the forgery or unauthorised
account accordingly. signature. The burden of prove is on banker to prove this, and it just to
prove on the balance of probability which means jus need to prove that is
Prima Nova Sdn Bhd V Affin Bank Berhad not the signature of the sole signatory.
there was no evidence adduced that P knew the finance manager was
-P had been a current acc customer of the bank. Bank was empowered to unreliable or had a bad record or that the recruitment was so negligently
honour all cheques drawn on behalf of P provided there are 2 stated conducted that the reliability of the manager was not addressed.
signatories. One 13 nov 2003, P’s premise was burgled and was instructed
by the police not to touch anything until the policed had finished the  Whether conclusive evidence clause can exclude S.24 BBEA?
investigations. They were only allowed to resume the sue of the premises
on 18 nov. Upon discovery of stolen cheques, they stopped the payment Anuar Hong case
from bank on 19 nov regarding 4 cheques but they ahd being paid out. Btw
13 nov and 18 nov, P never informed the bank about the break in. It is noteworthy to highlight that, Zaleha Zahari J in this case seems to
-bank sought to reply on s73A to defeat P’s claim. suggest with another type of duty rather than the 2 common law duty. The
-whether bank can rely on s73A? judge here, imposed another duty for customer to supervise their employee
in order to succeed bank must prove on the balance of probabilities. to prevent forgery.

23
The decision also leads to another mistake in interpreting S.24 when the CHAPTER 8---CREDIT CARDS
forgery was rectified in this case. The remedy granted was such ratified
made even though it can only be enforced in the case of unauthorised -CR has been classified as a ‘designated payment instrument’ in the PSA.
signature. -a ‘payment instrument’ means any instrument whether tangible or
intangible that enables a person to obtain money, goods or services or to
Appliction…. otherwise make payment.
 In every circumstances including the case of forged cheque, customers
are oblige to only 2 common law duty namely Macmillan and Greenwood  What is a designated payment instrument?
duty (United Asian Bank v Tai Soon Heng), thus a customer do not have any
other duty ie to check and report back on the discrepancies of their account. -it means a payment instrument prescribed as a designated payment
The attempts to exclude the strict liability of the bank under S.24 of BBEA instrument under s24(1) of PSA
with CEC in several cases are worth to be looked at. -S2 of FSA=a payment instrument prescribed as a designated payment
It was wrong in the per incuriam decision in Anuar Hong case when the instrument under s 31. (a credit card/ debit card/ charge card)
learned judge asserted another duty to supervise the employee to prevent
the forgery from committed and the mistake was further made when the  Criteria of designated payment instrument
judge not only in favour of the bank but also went on to ratify the forgery.
In Consmat case, despite the ambiguity of the clause together with the -section 24(1)(a) of PSA
unclear meaning of the wording in Clause 3 was accepted as binding to the
customers. i) That the payment instrument is of widespread use as a means of
Fortunately, in Principle Salute, Clause 18 was not wide enough to making payment and may affect the payment systems of Malaysia
encompass the forgery or fraud. The learned judge decided the clause only ii) It is necessary to protect the interest of the public or it is necessary
referred to error but not clear and unambiguous to cover the forged to maintain the integrity, efficiency and reliability of a payment
signature. Thus the bank cannot exclude the liability. instrument.
Nevertheless, the contract will definitely unfair for the customer because
the bank may exclude their liability despite the two well recognised duty of -s31 of FSA
customer. It’s noteworthy that the agreement is a unilateral agreement
because the bank that is in power and the customer may not have any other (a) a payment instrument may be of widespread use as a means of making
choice, but only to sign in order to have a transaction with the said bank. payment and may affect the payment systems in Malaysia; and
Cases in forgery should be decided on strict liability on S.24 which the
parent act situated at the highest hierarchy of the law as compared to (b) it is necessary to maintain the integrity, efficiency and reliability of the
exclude it from the minor clause in a contract between parties. payment instrument,
On the other note, the bank may exclude their liability under S.73A of
BBEA, if the forgery falls under this section. -s34 of FSA

-The Bank may issue directions in writing to any participant of a designated

payment system if the Bank is of the opinion that it is necessary for ensuring
the integrity and proper management of the designated payment system or
it is in the interest of the public to do so.

24
  Definition of credit card
 Unauthorized use?
-paragraph 2(b) of Payment System (Designated Payment Instruments)
Order 2003 stated that a CR is a payment instrument which indicates a line -The use of the credit card was not authorized by the cardholder
of credit or financing granted by the issuer (bank) to the user and where any -Not authorized- person other than the cardholder
amount of the credit utilized by the user (customer) has not been settled in -no actual, implied or apparent authority
full on or before a specified date, the unsettled amount may be subject to -cardholder receives no BENEFIT
interest, profit or other charges. (Can pay in installments but charged card -The various ways for Unauthorized Use are:
cant) (i) Cloning , counterfeiting & forgery of cards-local cases on magnetic strip
cards.
 Issuer? (ii) “Access code” (PIN) was stolen and original card used to withdraw cash
advances.
-means any person, acting alone or under an arrangement with another (iii) Using stolen credit card details (Identity theft)
person, who undertakes to be responsible for the payment obligation in (iv) Original card was removed, used and replaced without knowledge of
respect of a payment instrument resulting from a user being issued with or cardholder.
using the payment instrument;
-S278-=A issuer of designated payment instrument that has got approval  Identity theft?
under s 25(1) PSA 2003 shall be deemed to have been approved under s 11
of this Act. -it happens when someone steals your identity and impersonates you in
order to open credit accounts, rent apartments, even engage in criminal
 Cardholder? acts. You don't know when it happens. Then one day you are turned down
unexpectedly for a loan, you get a call from a collection agency about an
-a cardholder has been defined as the person whose identity is listed on the account you never opened, or worse yet, a call from the police about a
credit application made to the issuer. crime you didn't commit. Suddenly you are a victim of identity theft.

Re Charge Card Services Limited  How does identity theft happen?

there are 3 types of contract: -Stealing your mail

(i) btw issuer and the seller/merchant -Looking through your garbage
-seller agrees to accept payment by use of the card from anyone holding the -Stealing your wallet or purse
card and the issuer agrees to pay seller the price of the goods supplied less a -Posing as your employer, bank or utility company needing to "update their
discount. records"
(ii) btw issuer and cardholder -Grabbing information off internet sites that are not secure
-cardholder is provided with a card which enables him to pay the price and -Completing a "change of address'' form
in return agrees to pay the issuer the full amount charged by the merchant -Once the thief has access to this information, they may open a new credit
(iii) btw cardholder and the seller card account in your name providing a "new" billing address. Given that the
-payment by CR will be treated as absolute payment btw cardholder and the credit card bills will not go to your address, chances are, you will not be
seller. If the CR company went into liquidation before it pays the seller then aware of the new account. When the thief does not pay the bills, the credit
the cardholder will not be liable to the seller and he is still liable to the card company will report this to your credit file. The thief may also open up
issuer.
25
bank accounts in your name and write bad cheques, apply for services in the respondent of the loss and lodged a police report on the following day,
your name or request a "replacement" card to be sent to a new address. 8 September 2008. Respondent informed her that they are deducting a sum
of RM1859.01 being the charges incurred as a result of unauthorised use of
Ooi Chai Kat v PP her credit card. P’s solicitors wrote to the respondent and reminded them of
the limit of liability for a lost credit card is RM250. Bank’s solicitors replied
-a man fill up the petrol by using a CR. The officers conducted a body search that the bank had not disregarded the guidelines but had incorporated in
and they found a false CR and get the petrol receipt. The man was charged the agreement with some modifications and such a clause is not in
under s471 of penal code and was convicted. contravention of the Bank Negara Guidelines.
the HC held that msia has become a centre for producing false CR. Public CR guidelines had the force of law and according to cl 15.2 of the
interest demands that such crimes be given deterrent sentences and the guidelines, the cardholder’s maximum liability for unauthorised transactions
mitigating factors have to be considered with the background of public shall not exceed RM250 provided the cardholder has not acted fraudulently
interest that has to be executed. or has not failed to inform the issuer as soon as reasonably practicable after
having found that the credit card is lost or stolen.
 Redress for cardholder on unauthorized use The onus of proving fraud or unreasonable delay to report loss of the card
is upon the issuer of the credit card.
(i) BNM/GP 11(repealed)-consumer protection guidelines for electronic No evidence to show that the applicant has acted fraudulently or has
funds transfer. failed to inform the respondent as soon as reasonably practicable as her
(ii) Credit Card Guidelines (now recent known as BNM/RH/GL016-5)-April police report was made one day after discovering that her credit card was
2011; some of the security provision, implementation is staggered. stolen. R not entitled to deduct more than RM250.
(iii) Code of Good Banking Practice- issued by the Association of Banks, not a the terms and conditions of the credit card, it was stated that the limit of
law. liability of RM250 is only for any transaction effected for a period of “one
hour prior to the reporting of the loss of the card”. Court held that this was
A) Credit Card Guidelines BNM/RH/GL 016-5 unreasonable, ridiculous and contrary to cl 15.2 of the guidelines.
-Financial institutions are more familiar with these guidelines. Respondent cannot have the discretion to circumvent the Bank Negara
-Financial institution is to provide a consumer credit card service section – Guidelines with a view to limit its liability even though it is written in the
deals with all matters related to credit cards including Unauthorized Use. agreement.
-Clause 15.2 states that the cardholder’s liability for Unauthorized Use is the terms and conditions of the credit card agreement has to be read,
limited to RM250 provided: governed and construed in accordance with the Payment Systems Act 2003.
(i) He has not acted fraudulently or
(ii) He has not failed to give reasonable notice of any Unauthorized Use.( he B) Code Of Good Banking Practice
will not be liable after prompt notification, must give prompt notification,
notify banker or aeon) -A self regulating standard imposed by the Association of Banks in Malaysia.
***However if he fails either one of the above stated criteria- the financial -Sets out the standard procedure required of banks to facilitate handling of
institution can exceed the RM250 limit credit card operations.
-Priority-is not Consumer Protection
Diana Chee Vun Hsai v Citibank Berhad
C) Consumer Protection Amendment Act 2007
-P was a holder of a Mastercard credit card issued by the respondent,
Citibank. Her credit cards were stolen at the MATTA fair and she only -The recent amendment in 2007 includes trade transactions conducted
discovered it on the next day. On 7 September 2008, she promptly notified through electronic means.
26
-Useful if claim is against the merchant for defective goods/services
-Not useful for unauthorised use
-Not a banking legislation (Malaysia) and not under the purview of Bank
Negara.

D) Financial Mediation Bureau (FMB) ***See the slides

-limit of RM25000
 Duty of secrecy for payment instrument

1) section 73 of FSA
2) section 133 applied to CR

27