A bank must act with reasonable care and may freeze an account if reasonable grounds arise to suspect fraud, aligning with established banking principles.

[1] This is an appeal against the decision of the learned Judicial Commissioner (JC) of the High Court at Kota Kinabalu dated 29 October 2010, where it was held that the 1st and 2nd appellants, were negligent in freezing the respondent's account with the 1st appellant (Account No 3134351226) and entered judgment against the appellants for damages in the sum of RM250,000.00.

Factual background

[2] The respondent, who was the plaintiff at the High Court, was at all material times a customer of the 1st appellant bank, who was the 1st defendant at the High Court. The respondent opened its current account No 3134351226 on 6 October 2005 at its branch at Taman Che Mei, Jalan Penampang, Kota Kinabalu. The 2nd appellant, who was the 2nd defendant at the High Court, was the 1st appellant's branch manager at the said branch.

[3] On 3 August 2007, the respondent applied to change the mandate or signatories in respect of the operation of the said account based on the Minutes of Directors Meeting dated 31 July 2007 where it was resolved that "fresh authority authorising ANY TWO of the following persons to jointly operate Company's Bank Account presently maintained at Lido Branch of Public Bank Berhad Sabah BE and IS HEREBY APPROVED:

(i) Adjes bin Bunya

(ii) Pang Fook Ken @ Peter

(iii) Lee Nyet Yin."

[4]As stated in the said minutes of meeting it was also resolved that "all previous written authorities to operate Company's Bank Account be forthwith superceded by the aforesaid fresh authority Be and Is Hereby Approved".

[5]On 30 August 2007, the appellant bank received a letter dated 27 August 2007, written on the respondent's letter head and signed by Adjes bin Bunya (Adjes) and Musa bin Bunya (Musa) who claimed to be the directors and shareholders of the respondent. The said letter, addressed to the Manager, Public Bank Berhad, Lido Branch, Kota Kinabalu, Sabah reads as follows:

"Dear Sir,

ACCOUNT NO 3134351226

EXPORAYA SDN BHD

We refer to the above.

We the undersigned being the directors and shareholders of Exporaya Sdn Bhd hereby write to notify your esteemed institution of the following matters:

1. We understand from reliable source that third parties known as Pang Fook Ken @ Peter and Lee Nyet Yin have claimed and hold themselves as the directors of Exporaya Sdn Bhd;

2. That the said Pang Fook Ken @ Peter and/or Lee Nyet Yin have purportedly submitted to you the company's board of directors' resolution in connection with the purported resignation and appointment of directors and the conduct of the current account with your esteemed institution.

We further wish to notify you as follows:

3. That we categorically deny having resigned nor tendered our resignation as directors of the company nor sold or transferred our shares in the said company to any other party under any circumstances;

4. That we have not executed any board of directors' resolution dated 30 July 2007 in connection with the purported resignation of Musa Bin Bunya and/or the purported appointment of Pang Fook Ken @ Peter and Lee Nyet Yin as directors of the company;

5. That any board of directors' resolution purportedly signed by any of the undersigned in relation to the resignation of any of the undersigned and/or the appointment of the said Pang Fook Ken @ Peter and/or Lee Nyet Yin as director was created without our knowledge and/or fraudulently;

6. That we have not called nor authorised nor attended any board of directors' meeting of the company on 30 July 2007 and that no board of directors' meeting of the company has ever taken place on the 30 July 2007;

7. That any instruction or authority given to your esteemed institution in relation to the resignation of any of the undersigned as directors and/ or the appointment of Pang Fook Ken @ Peter and/or