Banks must verify the authenticity of signatures before honoring cheques. However, customers have a duty to exercise care over their accounts, failing which they may bear losses from forgeries.

Nallini Pathmanathan J:

[1]The plaintiff in this case, Malaysia Plastic Sdn Bhd (‘customer’) was a customer of the defendant, United Overseas Bank (Malaysia) Bhd (‘the bank’) and maintained with it, several accounts. It has brought this suit against the bank in relation to eight cheques amounting to RM1,608,000 (‘disputed cheques’) which the customer has alleged were wrongfully and without authority paid out from the customer’s current account with the bank.

[2]The bank had, both prior to and after the issuance of these eight cheques, honoured by payment on presentation, several tens of cheques, totaling several hundred thousand ringgit. The majority of these cheques were legitimate or valid cheques that were correctly paid out by the bank. However a problem arose in respect of the eight cheques above, which on their face appeared to have been drawn by the customer and to bear the signatures of one Christina Ang and Ivan Ang, the customer’s directors, who were the authorised signatories to its cheques. The bank in each of these eight instances, debited the company’s current account with the amount of the cheque. These cheques, however, the plaintiff maintains, were not the customer’s cheques. They were forgeries. On each the signature of Christina Ang and Ivan Ang are alleged to have been forged by an accounts clerk/manager employed by the customer, one Tan Mei Wan (TMW). The bank disputes that these eight cheques were in fact forged.

[3]The net result is that the customer complains that the bank paid out on these eight ‘forged’ cheques without its valid mandate and accordingly seeks recompense. The bank in turn denies that the cheques were forged and further maintains that the customer is precluded, by its conduct, from setting up the forgery or want of authority. The bank also relies on s 73A of the Bills of Exchange Act 1949 to maintain that the authorised signatories negligently contributed to the forgery, or making of the unauthorised signature, as a consequence of which, under s 73A, the signature is deemed to be that of the authorised signatories. The central issue in this case therefore is upon whom the loss arising from Tan Mei Wan’s forgeries (if forgery is established) is to fall, the customer or the bank.

BACKGROUND FACTS

[4]The customer had initially opened its current account with the then Overseas Union Bank Ltd (‘OUB’) on 23 November 1970. On 7 October 1993, the customer passed a directors’ resolution to amend its mandate to four authorised signatories ie: (1) Ang Guan Seng (2) Ang Pon Beng (3) Wong Aun Phui and (4) Christina Ang in respect of its bank accounts with various banks including OUB.

[5]OUB then merged with the bank in April 2002, and consequentially, the customer’s current account became the bank’s current account with the Account No 381-3-000189-4 (‘current account’).

[6]On 2 March 2007, one Tan Mei Wan (‘TMW’) was employed by the customer as an accounts executive. Her job specification and duties were listed in her letter of appointment and her duties encompassed the overseeing of accounts in the customer company and also one LGP Optoelectronics Sdn Bhd (‘LGP’). TMW very quickly gained the trust of the customer and took on all the responsibilities relating to the management of its accounts. She was authorised by the customer to give instructions in relation to money market transactions and foreign exchange transactions for the customer’s foreign currency account with the bank. The extent of her responsibilities included the manage