Liability for unauthorized share transactions requires proven loss; mere delay in complaint does not establish estoppel without showing reliance or modification of position.

[1] This is an appeal by the appellants against the decision of the Court of Appeal on the 16 November 2010, in allowing the respondent's appeal against the High Court decision. Leave to appeal was granted by this Court on 2 November 2011 and the questions of law framed for determination in this appeal are:

Question 1

Whether an inference based on policy can properly be drawn to hold a customer liable for an admittedly unauthorised share transaction, because he did not immediately lodge a complaint with the firm of stock-brokers;

Question 2

Whether estoppel can properly be applied to create liability, on the ground it was not immediately notified, for a transaction that is admittedly unauthorised although no inducement, reliance or alteration of position by the delay is shown;

Question 3

Whether a customer can properly be held liable on his indemnity for losses alleged to have resulted from a transaction, although the loss claimed has not been proved. The appellants are the defendants and the respondent is the plaintiff. For convenience, parties will be referred to as the plaintiff and defendants as in the trial Court.

Background Facts

[2] The facts which form the background of this appeal can be briefly set out as follows.

The plaintiff in this action is a stock broking company and a member of the Kuala Lumpur Stock Exchange. In November 1993 and February 1994, the 1st and 2nd defendants opened trading accounts (Accounts) respectively with the plaintiff to trade shares on the Kuala Lumpur Stock Exchange. The 1st defendant as an individual and the Director for the 2nd defendant company was the person authorised to deal with his and the 2nd defendant's account.

[3] The accounts are governed by the terms set out in the plaintiff 's standard account application form which include inter aliaas follows:

(a) The defendants undertake to abide by the Rules and Regulations of the Kuala Lumpur Stock Exchange relating to purchase and sale of share listed with the bourse;

(b) The defendants undertake to make immediate payment for the delivery of stocks and/or shares purchased on their behalf;

(c) The defendants undertake to promptly deliver to the plaintiff any of the shares sold on their behalf;

(d) The defendants authorise the plaintiff to deal with the share purchased for the account of the defendants, which has not been paid for, in any way deemed fit by the plaintiff;

(e) The defendants undertake to indemnify the plaintiff against all losses resulting from the failure of the defendants in complying with the covenant as stipulated in the agreement

[4] The initial dealer assigned by the plaintiff for the defendants' Accounts was Baharum Mohd Amin. In or around October 1995, the plaintiff assigned another employee known as Megat Maktitar ("Megat") as the dealer for the accounts.

[5] In November 1996, the defendants received contra statements issued by the plaintiff. The 1st defendant found that shares were being traded in the accounts in an unauthorised manner. The 1st defendant contacted Megat, to which Megat promised to regularise the accounts. However by a notice dated January 1997 the plaintiff 's Credit Control Department had issued a notice to the defendants concerning the outstanding sums. The statement showed the accounts had not been regularised and losses were incurred. As a result of this, the plaintiff in turn had force sold the shares that were purchased and used the proceeds to set off the losses.

[6] The 1st defendant on 24 February 1997 met with the Executive Director of the plaintiff complaining on the unauthorised transactions. On 27 February 1997 the 1st defendant made a written complain stating its position as to the unauthorised transactions in its accounts and requested for suspension of the accounts.

[7] The plaintiff replied through their solicitors vide two lett