Negligence by a customer in securing cheque books leads to liability under Section 73A when fraud occurs; banks are protected if they act in good faith with checks on forged signatures.

Background Facts

[1] The appellant was a customer of the respondent and operated acurrent account bearing no 0291040000006519 ('the account') with the respondent's branch at Lot P3.4, Jalan Persiaran, Seksyen 14, 40000 Shah Alam. On or about 12 November 2003, the appellant's office was broken into and burgled. Six days after the burglary vide its letter dated 18 November 2003, the appellant instructed the respondent to stop payment on the cheques bearing nos 431138, 431139, 431140, 431141 and 431142 (see p 286 of the appellant's Record [vol 3]). The respondent only received this letter on the following day. By this time, the respondent had already made payment to one Karim bin Mohd Nasir, the payee of all the cheques. The particulars of the cheques including the amount and the date of payment are as follows:

a) Cheque no 431138 dated 11 November 2003 for the sum of RM9,800.00 paid on the 13th day of November 2003;

b) Cheque no 431141 dated 13 November 2003 for the sum of RM98,000.00 paid on the 17th day of November 2003;

c) Cheque no 431142 dated 17 November 2003 for the sum of RM280,000.00 paid on the 17th day of November 2003 and

d) Cheque no 431139 dated 18 November 2003 for the sum of RM200,000.00 paid on the 18th day of November 2003

(collectively referred to as 'the stolen cheques')

[2] Following the honouring of the stolen cheques, the appellant's account with the respondent was duly debited with the proceeds of the same. The appellant commenced this claim based on the tort of conversion. The appellant's claim is that to the extent the signatures of the mandatory signatories to the stolen cheques had been forged, the respondent had no right to debit its current account with the proceeds of the stolen cheques. The appellant sought a declaration that the respondent had wrongly debited its current account with the proceeds and a further order for the repayment of the proceeds amounting to RM 587,800.00 to the appellant.

Appellant's Case

[3] Relying on the pronouncements of Annuar J (as His Lordship then was) in the Supreme Court case of United Asian Bank Bhd v. Tai Soon Heng Construction Sdn Bhd , 1993 MarsdenLR 1379 at pp 720-721 to the following effect:

"Therefore, at common law a banker who pays out on a forged instrument drawn on his customer's account is absolutely liable to make good the loss. It is no answer for him to say that he was unaware of the forgery or that he took reasonable care. The forged instrument is a nullity and a banker has no authority, actual or implied, from his customer to act upon it. The common law has been codified in s 24 of the Bills of Exchange Act 1949 , which creates a limited exception in favour of a banker".

[4] Learned counsel for the appellant submitted that once forgery is established, then, the respondent is liable since "a banker who pays out on a forged instrument drawn on his customer's account is absolutely liable to make good the loss". Since the respondent had paid out on stolen cheques that were forged, counsel contended that the respondent bank must make good the loss and had no right to debit the appellant's current account.

[5] According to learned counsel for the appellant, the learned trial judge instead of applying the aforesaid principles of law pronounced by the Supreme Court, ruled that since the case of United Asian Bank Bhd v .Tai Soon Heng Construction Sdn Bhd (supra) was decided prior to the amendment to the Bills of Exchange Act 1949 , in the form of the new s 73A, the respondent was entitled to rely on the new defences contained in this section. This ruling was challenged on the grounds that the amended s 73A introduced no such new defences beyond those available t