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  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.
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 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  3 All ER 577
If C is not a trader: substantial damage if he can prove actual loss
Duty to produce documents in court
There is also duty to produce documents in court under subpeona
Robertson v Canadian Imperial Bank of Commerce
 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  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)  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  3 MLJ 480 Hight Court
Attorney General of Hong Kong v Zauyah Wan Chik 7 Ors
and another appeal  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  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)  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.
Right to repayment- Foley v Hill  2 HL Cas 28
Right to draw cheques
Right to interest
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  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  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  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  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
Ng Cheng Kiat v Overseas Union Bank  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