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2022 MarsdenLR 445
COURT OF APPEAL PUTRAJAYA
KOPERASI SAHABAT AMANAH IKHTIAR BERHAD – Appellant
Versus
RHB INVESTMENT BANK BERHAD – Respondent
[Civil Appeal No: W-02(NCvC)(W)-2084-10-2018]
An investment bank owes a duty of care to depositors, even if they are not direct customers, emphasizing the importance of verifying substantial fund transactions to prevent fraud.
Headnote:(A) Negligence – Duty of Care – Investment Bank – Plaintiff deposited RM10 million into a trading account held by D1, which was subsequently transferred to D3 without authority – Despite not being a customer, plaintiff was owed a duty of care as substantial sums confirmed must be treated with due diligence – (Para 175)
(B) Fraud and Forgery – Utilizing forged documents to influence transactions – D1 is vicariously liable for actions of its employees in processing unauthorized transfers – (Paras 10, 136)
Facts of the case: The plaintiff, a cooperative organization, deposited RM10 million into an investment account with D1. The transfer of these funds to D3 was made based on forged documents and without authorization from the plaintiff. (Paras 1-5)
Findings of Court: Investment bank D1 was negligent in processing a transaction involving a substantial deposit without verifying the identity and mandate related to the depositor, resulting in loss for the plaintiff. (Paras 191-192)
Issues: Whether a duty of care is owed to a non-customer by an investment bank and whether D1 acted with appropriate diligence in processing the transaction. (Paras 11, 27)
Ratio Decidendi: The court determined that a duty of care arises from the circumstances, highlighting that the bank must ensure proper verification despite having no contractual relationship with the depositor, emphasizing the risk of facilitating fraud. (Paras 61, 173)
Result: Appeal allowed; judgment entered for the plaintiff for RM9,927,000 plus interest. (Paras 191-192)
[1] The central issue in this appeal is whether the respondent, an investment bank, who is D1 in the High Court below, is liable for negligence to the plaintiff depositor when it allowed a sum of RM10 million deposited into its account with Maybank to be transferred to one Abhar Capital Holdings Sdn Bhd, D3, that has a trading account with D1 without the authority or instruction from the plaintiff. A trading account is used to inter alia purchase shares in the stock market.
[2] The cheque for RM10 million was that of the appellant/plaintiff who had made it payable to D1. The plaintiff is a cooperative established on 30 August 2012 under the Co-operative Societies Act 1993 , with the aim of inter alia carrying out investment and commercial ventures to generate returns for its members of roughly 133,843 members. It was satisfied with the investment proposal of mid-2013 of D2, Lotfi Bin Miskam, who held himself out as representing D1 as its officer and that D1 would invest the said sum with attractive returns on the investment.
[3] The plaintiff then received a letter dated 19 August 2013, purportedly from D1 which states that D1's Joint Committee was prepared to consider the plaintiff's involvement in the investment. The sum of RM10 million was to be invested for a period of 3 years commencing September 2013 and would end on September 2016. The investment was slated to achieve a 10.5% profit/dividend annually. The investment would be safe as it would be conducted by D1, a well-known investment bank in Malaysia. This letter turned out to be a forgery.
[4] It turned out that D2 is a fraudster and he was subsequently made a bankrupt and D3, in whose company his sons were directors, had been wound up. D1 does not have any representative or employee in D2 and that there was no such investment scheme with that yield of dividend payout annually.
[5] The plaintiff only found out that it had no investment with D1 after it was alerted by the Cooperative Commission and the Securities Commission. D1 said that the Cheque of RM10 million went into its pool account and D2, with the bank-in slip had instructed his remisier PW2 Encik Zainol Aswan to transfer the funds deposited to D3's account for the purpose of investing in equities.
[6] PW2 in turn instructed the Credit Control Department of D1 to process the instruction and the RM10 million went into D3's account. So as not to alert suspicion, one payment of dividend was made a few months later but not by D1 but by D3 using a bank draft of RHB Bank.
[7] The plaintiff, when it found out that it had been defrauded, sued D1, D2 and D3. The High Court found that D1 does not owe a duty of care to the plaintiff who was not its customer. This appeal concerns only D1 as a judgment in default had been obtained against D2 and D3 and D3 had gone into liquidation.
[8] The plaintiff had pleaded and argued that D2 was an agent or representative of D1 and as such D1 as the principal is liable for all the representations made by its agent. However, in evidence it was shown that D2 had never been an agent or representative or employee of D1 and that all the purported letters on D1's letterhead had been forged.
[9] D1's evidence above was not challenged by the plaintiff in cross-examination and is deemed to have been accepted in line with the principle of law set out in Ng Siew Lan v. John Lee Tsun Vui , , 180; [2017] 2 CLJ 245; [2017] 2 AMR 352.
[10] Moreover, the plaintiff had also acknowledged in para 25 (b) of its Amended Statement of Claim that D2 had used forged documents to influence the plaintiff. We accept the proposition of law that forged documents are void and not binding on the company unless the forger had acted within his ostensible scope of authority. See Ruben v. Great Fingall Consolidated [1906] AC 439, 444, HL; Negara Traders Ltd v. Pesuroh Jaya Ibu Kota, Kuala Lumpur, [1969] 1 MLJ 123.
[11] At the appeal before us the plaintiff had focused on the liability of D1 under the
