Issues on both suit
Facts of case regarding the first suit
Introduction
- Were the signatures on the eight disputed cheques forged?
- On the facts of this case, is the second part of the first limb of section 24 of the Bills of Exchange Act 1949 operative, such that the plaintiff is precluded from setting up the forgery or want of authority?
- On the facts of this case, does section 73A of the Bills of Exchange Act 1949 operate to afford a defence to the bank? In other words, can it be said that the customer knowingly or negligently contributed to the forgery or the unauthorized signature such that it operates and is deemed to be the signature of the person it purports to be in favour of the bank who in good faith pays the cheque?
- The issue arose when the bank had, both prior to and after the issuance of these eight cheques, honoured by payment on presentation, several tens of cheques, totalling several hundred thousand Ringgit but it was contended by the Plaintiff that it were not the customer’s cheque and it had been forged.
- On each of the cheques, 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.
- 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.
Facts of case regarding the second suit
- There were two different suit involving in this case.
- The first suit involved Malaysia Plastics Sdn Bhd ('MPSB') against United Overseas Bank (M) Bhd involving the forgery of eight cheques of a total sum of RM 1,608,000.00
- The second suit was filed by MPSB and jointly with Manhattan Marketing Sdn Bhd against Malayan Banking Berhad involving 37 forged cheques and three forged letter of instruction (‘LOIs’) for telegraphic transfers that amount RM 4,269,228.96.
The Law Applicable
DEFENDANT’S CONTENTION
- The second suit is in conjunction with the first suit according to the case above.
- The Plaintiffs bring this suit against the Defendant in relation to thirty-seven cheques and three letters of instruction for telegraphic transfers (disputed LOIs) amounting to a total of RM4,269,228.97.
- The Plaintiffs alleged that these monies were wrongly paid out by the Defendant as it had given no mandate to the Defendant in respect of these transactions.
- Section 24 of the Bills of Exchange Act 1949
- Section 73A of the Bills of Exchange Act 1949
- Section 45 of the Evidence Act 1950
- The bank who is the defendant in this case submitted in its defence to maintain that it should not be responsible for any loss or damage alleged suffered by the customer.
- The defence contended that the signatures on the subject cheques were not forged.
- Even in the course that the signatures on the subject cheques were forged, it is argued that the customer failed to take reasonable steps to prevent the forgery.
- In fact the customer conducted itself in a manner which contributed to the perpetration of forgery which breached its duty to UOB in failing to take reasonable steps to prevent the forgery.
- Beside that, the defendant also argued that it had only paid out on the disputed cheques after the verification have been made by the plaintiff.
- The defendant raised an estoppel under section 24 of the Bills of Exchange Act 1949 against the plaintiff from relying on the alleged forgery which stated as follows:
- “The Court went to explain section 24 as the section protects a banker by recourse to the doctrine of estoppel. A customer cannot recover if he has represented to his banker that the forged signature is effective and that the instrument is accordingly good for payment.”
- The plaintiff, contends that in the absence of any notification in writing by it to the bank that Tan Mei Wan was authorised to verify cheques on its current account, the bank could not and ought not to have accepted verification from Tan Mei Wan.
- Furthermore, verification given by the very person who it is believed perpetrated the forgery is no verification and the failure by the bank to insist on ascertaining or verifying the cheques with an authorised signatory amounts to a breach of its contractual duties as well as its duty of care.
The Cases Applicable
- Additionally the defendant also relies on section 73A of the Bills of Exchange Act 1949 which provides a statutory defence to it in the event where the customer negligently contributed to the forgery.
- In order to obtain statutory protection under section 73A of the Bills Exchange Act 1949, the bank is obliged to adduce evidence to establish that it has acted in good faith and the customer has knowingly or negligently facilitated the forgery.
- Thus, in this case the defendant contended that it carried out the transactions requested by the plaintiff in good faith and without negligence, and the examination and scrutiny conducted by the bank in carrying out those transactions are good, proper, reasonable which can be regarded as a norm in the banking industry or in the ordinary course of the bank business.
- Finally it is contended that the plaintiff breached the rule governing current accounts enforced from time to time and therefore was in breach of the same, including the failure to inform UOB irregularities in its statement of accounts within 30 days.
- The defendant has produced two set of rules which were the “Rules Governing Current Accounts” and the “Current Account Rules” issued by UOB.
- The defendant cited several rules from the Rules mentioned above that it was expressly contracted with plaintiff that they had to report any errors in their bank statement within a certain time and by failing to do so the customer is liable.
- The plaintiff argued that it is a common/ordinary act for a company to leave its account matters in the hands of an accounts executive. In fact Tan Mei Wan was hired to manage the company’s accounts. However, this does not mean that Tan Mei Wan was in charge of the company per se, and it did not mean that she could authorise or verify all cheques from the customer.
- The plaintiff contended that the position in law is that there is no duty on a customer to supervise its staff/employees in such a way to prevent forgery by them.
- The bank also failed to act in good faith in that it failed to update the plaintiff’s mandate in that Ivan Ang's specimen signature was not uploaded onto the central cheque clearance system and thus, it failed to abide by its own rules and regulations.
- Kepitigalla Rubber Estate Ltd v National Bank of India Ltd [1909] 2 KB 1010
- Tai Hing Ltd. v Liu Chong Hing Bank Ltd.[1986] 1 AC 80
- United Asian Bank Bhd. v Tai Soon Heng Construction Sdn. Bhd. [1993] 2 CLJ 31
- Marfani& Co. Ltd. v MidlandBank Ltd. [1968] 2 All ER 573
- National Australia Bank Ltd. v Hokit Pty. Ltd. [1996] 39 NSWLR 377).
JUDGEMENT
Plaintiff’s Arguments
- It appears to the court that although the customer has proven on a balance of probabilities that the disputed eight cheques were forged and although no defence is afforded to the bank by way of an estoppel under section 24 of the Bills of Exchange Act 1949, section 73A of the said Act has been established successfully as a statutory defence by the bank signatures on the eight disputed cheques had forged.
- Learned judge referred to few landmark cases in order to determine the issue of estoppels and statutory defence of the bank regarding to this matter.
- On the first issue regarding to whether the signatures on the eight disputed cheque are forged, the learned judge referred to Section 45 of the Evidence Act 1950 which stipulates that when the court has to form an opinion based on the identity or genuineness of handwriting (in this case, signatures), opinions of experts in that area are relevant facts in forming an opinion.
- The court is in opinion and satisfied that the signatures on the eight disputed cheques are indeed forged after having considered that the evidence of the two experts witnesses.
- Besides that, we are in opinion that the learned judge has explained thoroughly on the provision regarding to the statutory defence under Section 73A of the Bill of Exchange Act 1949 that raised by the defendant by making references to the cases in common law position as well.
- The common law position envisages that a customer is precluded from recovering from the bank monies paid out without a mandate, where the customer has been negligent in the actual transaction, in example the drawing of the cheque or has failed to alert the bank of a forgery or fraud after discovering the same.
- However, section 73A of the Bill of Exchange Act 1949 speaks specifically of a negligent contribution to forgery, which envisages that someone other than the customer has effect a forgery, and the customer has negligently contributed to that act of forgery.
- The learned judge has given a clear explanation regarding to the section 73A of the said Act does indeed statutorily alter or amend the position in common law to the extent that it provides a complete defence to any claim for monies from the paying institution or bank under a forged instrument where that same customer knowing that the instrument was forged, contributed to it, or negligently allowed the forgery to be perpetrated.
- In a nutshell, we indeed have nothing to argue on but to agree exclusively on the judgments pointed out by Nallini Pathmanathan J.
- All the eight disputed cheques were allegedly signed by Christina Ang and Ivan Ang. Both signatories testified that they did not sign the disputed cheques and testified that their signatures had been forged. In addition, the plaintiff engaged the expert witness to render their respective opinions on the signatures.
- Based on the 'signature verification report' and the expert witness testimony in court, it was his opinion that the alleged signatures on the disputed cheques were of different authorship from the specimen signatures of Christina Ang and Ivan Ang. He testified that seven of the eight disputed cheques were traced forgeries and the reason for this was: '... the detection of the presence of indentation lines which ran parallel with or in close proximity of the inked strokes of the disputed signatures’.
COMMENTS AND OPINION
- Regarding the second issue whether the customer precluded from making claim from the Bank by reason of its representation to the Bank that the disputed cheques were good for payment or had to be honoured based on Section 24 of Bill of Exchange Act 1949, the court relied on the case of Brown v Westminster Bank Ltd and Tina Motors Pty Ltd v Australia & New Zealand Banking Group Ltd which both of the cases stated that if there were direct representations made by the customer to the bank, and then the doctrine of estoppels can be applied.
- Thus, the learned judge comes into decision that a defence of estoppels under the second limb of Section 24 of Bill of Exchange Act 1949 did not operate to alleviate the liability of the banks for paying out on the forged and Letter of Instructions because the plaintiff did not authorize the banks to deal with Tan Mei Wan on the verification of the cheques.
- If representation by Tan Mei Wan was authorized to verify cheques on the behalf of plaintiff had to be inferred from the plaintiffs’ conduct, then it was not direct representation by the plaintiffs that was communicated directly to the bank.
- If Christina Ang had advised the bank in writing or orally that all verification of cheques was to be carried out by Tan Mei Wan or the bank's employees had spoken directly to Christina Ang and she had confirmed that Tan Mei Wan's verification was to be accepted and the cheques honoured, then an estoppels may have arisen.
- We totally agree with the opinion and the judgement of the learned judge based on the argument of the parties especially the contention of the plaintiff’s counsel.
- As in our stand, the rules and principles laid down by the learned judge in order to conclude this case is accurate.
- The Bill of Exchange Act 1949 provide effective provision that can be used by the victim to get compensation and for the bank to has a statutory defence regarding to the cheque fraud.
- In this case, section 45 of Evidence Act 1950 provided a good solution for the court to identify the genuineness of signatures of the eight disputed cheques where it is stated that the opinions of the experts in this area are relevant in forming a court opinion.
- Besides that, the learned judge also gives a good arguments regarding to Section 24 of the Bill of Exchange Act 1949.
- The above provision defined the doctrine of estoppels where the customer cannot recover if he has represented to his banker that the forged signature is effective and that the instrument is accordingly good for payment.
Malaysia Plastics Sdn Bhd v United Overseas Bank (M) Bhd and another suit
[2012] 9 MLJ 336
NALLINI PATHMANATHAN J
HIGH COURT (KUALA LUMPUR)
26 March 2012
- Moreover, the learned judge also stated that the plaintiff had facilitated the forgery by, inter alia, allowing Tan Mei Wan full custody and control of all their accounts documentation.
- This, together with a failure to check, audit or supervise the cheque books and bank statements, contributed directly to the forgery.
- Then, the indirect authorisation of Tan Mei Wan in verifying the company's cheques comprised a combination of factors that fell within the purview of negligent contribution to the forgery as envisaged by Section 73A of Bill of Exchange Act 1949 .
- Moving on to the last issue which is does section 73A of the Bills of Exchange Act 1949 operate to afford a defence to the Bank?
- The learned judge stated that there was no evidence the banks were complicit with the perpetrator of the forgery or that they had failed to act in good faith.
- The learned judge also stated that section 73A of the Act makes it clear that the requirement of good faith must have a nexus with the payment out on the cheque.
- It envisages that the bank acted in accordance with prescribed procedure and with bona fides in honouring the cheque, such that it was in no way complicit in the act of forgery.
- Even though the bank failed to update Ivan Ang’s specimen mandate lodged with the branch into its central operations centre computer, such a failure did not cause or contribute to the forgery in any manner whatsoever.
- In addition, the bank then on each occasion did refer the cheque back to the branch for verification and such verification or confirmation was carried out.
- Through a thorough examination of these facts, the court satisfied that the bank acted in good faith.
- In our opinion, the learned judge has explained well regarding to the doctrine of estoppels and why it cannot be applied by the defendant bank to escape from its liability.
- We strongly agree with the learned judge wise decision that a defence of estoppels under the second limb of Section 24 of Bill of Exchange Act 1949 did not operate to alleviate the liability of the banks for paying out on the forged and Letter of Instructions.
- It is because in order for estoppels in Section 24 to arise, there had to be clear and direct representation from the plaintiff’s to the banks to the effect that the impugned documents were good to be honoured.
- In this instant case there is no direct representation from the plaintiff stating that the cheques and LOI are good to be honoured neither the plaintiff authorize the bank to deal with Tan Mei Wan on the verification of the cheques.