THE UPDATE SCOOP (#9/2024)
Bank Not Liable for Forged Cheques; Customer’s Own Negligence │ Bank / Contract
By TAY & HELEN WONG – July 3, 2024
Claim by customer against its bank for allowing forged cheques to be paid out was not allowed in the Court of Appeal case of Starfish Holdings Sdn Bhd v Hong Leong Bank Berhad and Anor [2024] CLJU 747. The plaintiff (P) maintained a current account with the 1st defendant bank (D1). There was a sole authorized signatory of the account, namely SP1 but the 2nd defendant (D2) as P’s accounts clerk also handled P’s cheque books. There was a total of 37 cheques which were forgeries and presented by D2 to D1 without P’s authority or knowledge, out of which 34 cheques were cash cheques. P filed a suit for declaration and repayment of the sum involved.
The COA affirmed the decision of the High Court which dismissed P’s claim. Whilst a bank has no mandate to pay on cheques that were forged and is strictly liable for conversion and pursuant to s.24 of the Bills of Exchange Act 1949 (BEA), the bank’s duty is now qualified by s.73A of BEA. The customer and authorized signatory are required to ensure that they do not knowingly or negligently facilitate or make it easier for a person who is not the authorized signatory to commit forgery.
In the instant case, SP1 had negligently contributed to the forgery or making of the unauthorized signature by entrusting the cheque books with D2; and the cheque books were kept in a steel cabinet under the possession of D2. P had also failed to check the monthly bank statements against the cheque buds which would have revealed the fraud of D2. The forgeries of the 37 disputed cheques took place over a prolonged period of more than three years in respect of which P had been lackadaisical in failing to detect the missing funds. There was also no breach by D1 of its SOP to check specimen signature and call customer for verification if the sum exceeded the threshold of RM30,000.00 as the impugned cheques were all below the threshold amount.
The COA therefore did not intervene to set aside the High Court’s decision and P’s claim stood dismissed.
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Tags: [Section 24 Bills of Exchange 1949] [Section 73A Bills of Exchange Act 1949] [conversion of cheques] [forgeries] [negligence of customer]