Bankers rights and Duties - Banking Law and Security - Lecture Slides, Slides for Banking Law and Practice. A.P. University of Law
dhanapati9 November 2012

Bankers rights and Duties - Banking Law and Security - Lecture Slides, Slides for Banking Law and Practice. A.P. University of Law

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Banker Customer Relationship, Law of Banking and Security, Common law, Judicial Interpretation, Bank of Chettinad v Commissioner of Income Tax, Paget’s Law of Banking and few other points are also part of this lecture on...
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Microsoft PowerPoint - Week 4 Banker's Rights and Duties.ppt

Law of Banking and Security


 Banker’s Rights and Duties

 Customer’s Rights and Duties

 Termination of Banker-Customer Relationship

Banker’s rights and duties

 1. Right to commission/service charge

 2. Right to interest

 3. Right to set-off

Right to commission/service charge

 -right to charge a customer commission & service charges for keeping the account, clearing cheques and etc.

 fixed by Association of Bankers. For deposit account, no service charge/commission

Right to interest

 express agreement between the banker and the customer/

 Sometimes through an agreement implied from the usual course of dealings between the B and C.

Right to set-off

 the bankers may only exercise the right of set- off when all the relevant accounts are held in the same right.

Right to set-off

 Rahimah bte Abdullah v Bank Bumiputra Malaysia Bhd [1994] 1 MLJ 477

 The plaintiff deposited RM300,00 on fixed deposit with BBMB partially to secure an overdraft facility granted to Malrich Holdings. Upon default by Malrich, BBMB exercised its rights under a Letter of Set-off signed by Rahimah.

 Issues: whether the fixed deposit receipt by BBMB created a valid lien in favour of BBMB as security for an overdraft facility? Whether the lien was bad in law?

Held: (High Court)

 Any money credited into the account of a customer in a bank represents indebtness by the bank of the customer.

 The bank however, has a general lien on all securities deposited with the bank by a customer. The bank’s action was valid.

Banker’s duties

 Duty to receive money and to collect cheques for his customer’s account

 Duty to honour his customer’s cheques and not to pay without a valid authority

 Duty of secrecy- customer’s accounts

 Duty with regards garnishee orders

Implied duty

 Implied duty to honour his customer’s cheques provided that:

 i) Drawn in the proper form

 Ii) Credit to an amount sufficient to pay them

 Iii) No legal cause (service of a garnishee order) which makes the credit balance or the agreed overdraft limit unavailable

 Iv) Presented during banking hours

Dishonour customer’s cheques

 The customer may be able to sue him for damages in breach of contract

 Customer is a trader- he may be able to recover substantial damages for injury to his commercial credit without having to prove any actual loss

 Rolin v Steward (1854) 14 CB 595: C is trader: Substantial Damages for injury to his commercial credit without having to prove any actual loss

 Gibbons v Westminster Bank [1939] 3 All ER 577

 If C is not a trader: substantial damage if he can prove actual loss

Duty to produce documents in court

 AntonPillar Order

 There is also duty to produce documents in court under subpeona

 Robertson v Canadian Imperial Bank of Commerce

[1995] 1 All ER 824

 Facts: Dispute over loan btn R and Dennie. Subpoena duces tecum against the B to give evidence. B disclosed information of R without his consent. R sued the B for breach of contract and negligent.

 Held: Duty of the B to produce documents in court under subpoena.

Banking secrecy in Malaysia

 Section 97- Secrecy (1) (2) (3)

 Any information or document relating

 1. to the affairs of customer

 2. Account of customer

 Section 99: other permitted disclosures

 Section 100: Disclosure under Banker’s Books (Evidence) Act 1949

May disclose information

 Tournier v National Provincial Bank [1924] 1 KB 461

 Only entitle to disclose information if:-

 1. compelled by law

 2. owes duty of disclosure to the public

 3. in the interest of the banks

 4. the customer consents

Privilege of Confidentiality

 Tan Lay Soon v Kam Mah Theathre Sdn Bhd (Malayan

United Finance Bhd, Intervener) [1990] 2 MLJ 482

 The privelege of confidentiality was that of the

customer who was the Dt and who by his letter had

expressly authorised utilisation of the proceeds of sale

to discharge its liability to the intervener. This would

amount to the required consent.

No extra-territorial effect

 Attorney General of Hong Kong v Lorrain Esme Osman &

Ors [1994] 3 MLJ 480 Hight Court

 Attorney General of Hong Kong v Zauyah Wan Chik 7 Ors

and another appeal [1995] 2 MLJ 620 Court of Appeal

 Orders to give evidence in Hong Kong

 Issue: Whether the Bank would be in breach of

obligation of confidentiality s 97 BAFIA?

 Held: No extra territorial effect. No criminal liability in


Information relating to Bank Accounts

 Wako Merchant Bank (Singapore) Ltd v Lim Lean

Heng 7 Ors [2000] 3 MLJ 401, High Court

 Lim Lean Heng v Wako Merchant Bank (Singapore) Ltd 7 Other Appeals 3 CLJ 9, Court of Appeal

 Mareva injunction. Information on account

 Held: Account information obtained in breach of s97 is still admissible as evidence.

Restate information as per court


 Hj Salleh Hj Janan v Financial Information Services Sdn Bhd, Affin-ACF Finance Bhd (Third Party) [2005] 1 CLJ 241, High Court

 The Pt-bankrupt twice. The Financial Information Services did not include the information that the 2 adjudication orders were rescinded. Brought an action for libel.

 Held: It was a public fact which everybody is entitled to state. Dismissed the claim.

Customer’s rights

 Right to repayment- Foley v Hill [1848] 2 HL Cas 28

 Right to draw cheques

 Right to interest

Customer’s duties

 Duty to take reasonable care in drawing cheques

 Duty to disclose forgeries once he is aware of it.

Not to mislead the bank

 Joachimson v Swiss Bank Corporation [1921] 3 KB 110-

not to mislead the bank or facilitate forgery

Clear and free from ambiguity

 London Joint Stock Bank v Macmillan and Arthur (1918)

AC 777: Cheques must be clear and free from


Implied duty to inform

 Greenwood v Martin Bank [1933] AC 51

 The C has an implied duty to inform the bank if he discovers that cheques purporting to have been signed by him have been forged.

Macmillan duty and Greenwood duty

 United Asian Bank Bhd v Tai Soon Heng Construction Sdn Bhd [1993] 1 MLJ 182, Supreme Court-

 Forged cheques and the respondent’s account was debited.

 Held: Judgment for the Respondent

 Establish charge of forgery on a balance of probabilities

 C owes two duties:

 (1) Macmillan Duty=to refrain from drawing a cheque in such a manner as may facilitate fraud

 (2) Greenwood Duty=to inform the bank of any forgery of a cheque.

 No further duty

 Obiter: signature on a document has been forged is a question of fact, credibility of witnesses


 Proven Development Sdn Bhd v Hongkong and Shanghai Banking Corp [1998] 6 MLJ 150 HC

 Instruction to debit the account by one of the BOD. The Pt disputed this and alleging the B that they were done so without proper authority.

 Held:  It is incumbent upon the company to inform the bank

of any irregularities in the company’s account as soon as the company became aware of it.

 The company should be estopped from claiming against the bank for the loss arising therefrom.

Termination of B-C R/Ship

 Termination by the Parties

 By operation of law

Termination By the Parties

 By mutual agreement

 By unilateral contract

 Must give reasonable notice

 Eg demanding repayment of the balance due

 Eg if the account is overdrawn by repaying the


Written Notice

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

 Bank did not give written notice to close the customer’s current account.

 Held: the Bank had the duty to honour cheques and must give written notice.

Termination by Law

 By notice of death

 Notice of bankruptcy

 Notice of winding up

 Notice of mental incapacity

 The account will be frozen until it is operated by an executor or administrator

 Verification of the Grant of Probate or Letters of Administration

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