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2021 MarsdenLR 3970
HIGH COURT MALAYA KUALA LUMPUR
ALLIANCE BANK MALAYSIA BERHAD – Appellant
Versus
KHEE SAN FOOD INDUSTRIES SDN BHD & ANOR (ENCLS 9 & 12) – Respondent
[Civil Suit No: WA-22NCC-215-06/2020]
The Quincecare duty does not obligate banks to investigate the authenticity of commercial documents unless clear fraud is present.
Headnote:(A) Rules of Court, 2012 – Order 14, Order 18 – Summary Judgment Application – Plaintiff's claim arose from the Defendants' default under a banking facility, with the Defendants counterclaiming for negligence. The court affirmed that the Quincecare duty does not apply as it does not create a duty for banks to investigate commercial documents unless fraud is apparent. The court determined that the Defendants failed to establish a justifiable cause for their counterclaim, resulting in the applications being allowed with costs awarded. (Paras 146-151)
Facts of the case: The Plaintiff, a banking institution, provided substantial facilities to the 1st Defendant, secured by a guarantee from the 2nd Defendant. Allegations of negligence arose when the Defendants claimed the banking transactions were based on fictitious documents.
Findings of Court: The court ruled that the Quincecare duty does not apply, reinforcing the idea that banks need only check the authenticity of documents on the face of the documentation provided.
Issues: The primary question was whether the Quincecare duty existed, obligating the Plaintiff to investigate the validity of transactions purportedly based on fraudulent documents.
Ratio Decidendi: The court ruled that without evident fraud or wrongdoing, a bank is not required to investigate commercial documents' authenticity beyond their face value.
Result: Applications allowed. (Paras 50-51, 70-80, 102-113, 146-151)
JUDGMENT
(Enclosures 9 And 12)
[1] By a Notice of Application dated 29 July 2020 (Enclosure 9) the Plaintiff applied to enter summary judgment under O 14 r 2 of the Rules of , 2012 ("ROC") against the Defendants ("the Plaintiff's O 14 Application").
[2] By a Notice of Application dated 17 August 2020 (Enclosure 12) the Plaintiff also applied to strike out the Defendants' Counterclaim dated 14 July 2020 pursuant to O 18 r 19(1)(a) and/or (b) and/or (d) ROC and/or under the inherent jurisdiction of the Court ("the Plaintiff's O 18 Application").
[3] Both Enclosures 9 and 12 (collectively "the applications") were heard and decided together. It was appropriate to do so as the Defendants' cause of action against the Plaintiff in their Counterclaim is closely tied to their Defence. Thus, if there is not merit in the Defendants' Defence the Plaintiff would succeed in both the Applications thereby entitling it to summary judgment while the Defendants' Counterclaim would fail.
[4] After hearing parties for two days, as they were not able to complete their submissions in one sitting, I had reserved my decision and thereafter allowed both the Applications. I set out below the reasons for my decision.
[A] Salient Background Facts
[5] The Plaintiff, a banking institution, granted the following banking facilities ("Facilities") to the 1st Defendant subject to the terms and conditions contained in the Letter of Offer dated 19 April 2013 and Facility Agreement dated 31 May 2013 (collectively "the Agreement"):
i) the "Omnibus Trade Facilities" consisting Letter of Credit, Trust Receipt, Bankers' Acceptance ("BA"), Foreign Currency Trade Loan, Shipping Guarantee and Bank Guarantee of RM10,000,000.00; and
ii) the "Forward Foreign Exchange" of RM1,000,000.00.
[6] The Facilities are secured by, inter alia, the Letter of Guarantee dated 31 May 2013 executed by the 2nd Defendant (a public listed company) to guarantee payment under the Agreement subject to a principal limit of RM11,000,000.00 together with interest.
[7] Dato' Sri Liew Yew Chung ("DSL") and Dato' Sri Liew Kuek Hin are the authorised signatories of both Defendants at the material time.
[8] The manner in which the BA transactions operate under the Facilities are summarised as follows:
i) funds are paid out by the Plaintiff under the Facilities upon the application of the 1st Defendant which application must be properly supported by third party trade documents.
ii) the Plaintiff then pays the third party and debits the 1st Defendant account who then has the agreed number of days by which repayment must be made to the Plaintiff ("Maturity Date").
[9] The subject matter of this action involves a series of 21 BA transactions where the earliest BA was issued on 21 December 2018 and the last on 12 April 2019 as follows:
[10] Out of the above 21 BA transactions, the Defendants have only specifically disputed 3 BA transactions, namely those listed as items 3, 6 and 11 in the above table amounting to a principal amount of RM892,000.00 ("Impugned BA"). There is no specific issue raised by the Defendants in respect of the remaining 18 BA transactions amounting to RM3,385,000.00.
[11] All 3 Impugned BA transactions were supported by commercial documents namely invoices and delivery orders from a third company known as Secret Ingredients Sdn Bhd ("Secret Ingredients").
[12] The subsequent paragraphs deal with facts pertaining to, inter alia, the background of the Defendants. They are material as they form the basis of the Defendants' Defence and Counterclaim. However, so as to ensure a complete context is provided, the timing of the Impugned BA transactions have also been inserted according to the proper sequence in the chronology of events leading to the filing of this action and events that took place immediately thereafter.
[13] The 1st Defendant is a wholly owned subsidiary of the 2nd Defendant.
[14] Both the Defendant companies were part of the London Biscuits Berhad Group of Compani
