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​Malaysian Banking Law – Debtor–Creditor Relationship, Banker–Customer Duties and the Absence of a General Investment Advisory Duty


Definition of Debtor and Creditor in Banking Law
Debtor
A debtor is a person who owes money or is under an obligation to repay money to another party.
In banking law:
  • where a customer deposits money into a bank account,
    the bank becomes the debtor because it owes repayment to the customer;
  • where the bank grants a loan or financing facility,
    the customer becomes the debtor because the customer owes repayment to the bank.


Creditor
A creditor is a person who is legally entitled to receive repayment of money owed by another party.
In banking law:
  • for deposit accounts:
    • the customer is the creditor;
    • the bank is the debtor.
  • for loans and financing:
    • the bank is the creditor;
    • the customer is the debtor.
This debtor-creditor relationship forms the legal foundation of the ordinary banker-customer relationship.


Foley v Hill
Foley v Hill
This landmark House of Lords decision established that:
  • money deposited with a bank becomes part of the bank’s general assets;
  • the bank is not a trustee of the money;
  • the bank merely owes repayment as debtor.
Lord Brougham explained that the business of banking involves receiving money and using it as the bank’s own money subject to repayment obligations.
Thus:
the banker-customer relationship is generally one of debtor and creditor, not trustee and beneficiary.


Definition of Customer
A customer is generally:
A person who enters into a recognised banking relationship with a bank.
A customer may:
  • open an account;
  • deposit money;
  • obtain financing facilities;
  • obtain overdrafts;
  • use remittance services;
  • use letters of credit;
  • use trust receipts;
  • use banker’s guarantees.
The relationship arises once the bank accepts the customer and banking transactions commence.


Nature of the Banker–Customer Relationship
The banker-customer relationship is fundamentally contractual.
The essence of the contract is:
  • the bank may use the money deposited for its own purposes;
  • the bank undertakes to repay an equivalent amount;
  • repayment may be:
    • on demand;
    • at a fixed time;
    • with or without interest.
This principle was reaffirmed in:
  • Standard Chartered Bank v Tiong Ngit Ting (f).


Standard Chartered Bank v Tiong Ngit Ting (f)
Standard Chartered Bank v Tiong Ngit Ting (f)
Facts
The customer claimed RM10,000 together with interest based on a letter allegedly acknowledging a fixed deposit.
The bank denied liability and argued that:
  • the alleged deposit did not appear in its records;
  • the document lacked essential fixed deposit particulars;
  • the alleged deposit was not reflected under the Unclaimed Monies Act 1965.
The Sessions Court allowed the customer’s claim, but the bank appealed.


Held
The High Court allowed the appeal.
The court held that the document was not a valid fixed deposit receipt because it omitted essential contractual terms such as:
  • the period of deposit;
  • the maturity date;
  • the interest rate.
The court emphasised that a fixed deposit contract requires certainty of terms.
Without such terms, no proper fixed deposit agreement exists.


Abdul Kadir Sulaiman J
The learned judge explained that:
  • the relationship of banker and customer is contractual;
  • the bank’s right is to use the money for its own purposes;
  • the bank’s obligation is to repay an equivalent amount.
The court further explained that:
  • current account funds are generally repayable on demand;
  • fixed deposits are repayable at a fixed date or upon agreed terms together with interest.


Fiduciary Relationship vs Contractual Relationship
The courts distinguish between:
  1. ordinary contractual banking relationships; and
  2. exceptional fiduciary advisory relationships.


Kian Lup Construction v Hong Kong Bank Malaysia Bhd
Kian Lup Construction v Hong Kong Bank Malaysia Bhd
Justice Ramly Ali identified three categories of banking relationships:
1. Traditional Banking Relationship
Where the customer deposits money into accounts.
This creates:
  • a debtor-creditor relationship;
  • not a fiduciary relationship.


2. Advisory Relationship
Where the bank acts as financial advisor.
Here, fiduciary obligations may arise.
The court referred to:
  • Hedley Byrne & Co Ltd v Heller & Partners Ltd.
A fiduciary or advisory duty may arise where:
  • the customer seeks advice;
  • the bank knows the advice will be relied upon;
  • the customer relies upon it;
  • loss results.


3. Lending Relationship
Where the bank grants loans or financing.
Again, this relationship is ordinarily contractual and based on debtor-creditor principles.


Lee Cheong Chee v HSBC Bank Malaysia Bhd
Lee Cheong Chee v HSBC Bank Malaysia Bhd
Facts
The customer held two credit cards issued by HSBC Bank Malaysia Bhd and entered into cardholder agreements with the bank.
Over approximately ten months, the customer used the credit cards to make payments exceeding RM1 million to four purported foreign brokerage companies.
The customer authorised all the transactions himself after relying on promises of high investment returns made by the merchants.
The customer also fully repaid the bank for all transactions made.
Subsequently:
  • the customer did not receive the promised profits;
  • the customer lost access to the brokerage accounts;
  • the customer alleged that the merchants were scammers.
The customer then claimed that the bank negligently failed to protect him from the scam.


Customer’s Allegations
The customer argued that the bank owed a duty of care to:
  1. conduct due diligence on the merchants;
  2. warn him about suspicious accounts;
  3. suspend suspicious transactions;
  4. investigate whether the merchants were licensed by:
    • Bank Negara Malaysia;
    • Securities Commission Malaysia;
  5. protect him from financial scams.
The customer relied on:
  • Barclays Bank plc v Quincecare Ltd
and argued that the bank owed a “Quincecare duty of care”.


Bank’s Arguments
The bank argued that:
  • the banker-customer relationship was purely contractual;
  • the customer himself authorised all the transactions;
  • the cardholder agreement imposed no such duty on the bank;
  • the bank was not involved in the investment arrangements;
  • the bank had no obligation to investigate the customer’s commercial decisions.


Held
The High Court struck out the customer’s claim.
The court held that:
  • the banker-customer relationship was contractual;
  • the bank owed no general duty to investigate the investment transactions;
  • there was no duty to assess licensing status or investment risks;
  • the bank was not required to suspend the authorised transactions.


Contractual Terms Relied Upon by the Court
The cardholder agreement provided that:
  • the customer must verify transactions;
  • disputes with merchants must be resolved directly with the merchants;
  • the bank was not liable for acts or omissions of merchants;
  • disputes with merchants do not excuse repayment obligations;
  • the bank was not liable for circumstances beyond its control.
The court held that these contractual terms excluded the alleged duties claimed by the customer.


Distinction Between Advisory Banks and Financing Banks
The High Court drew an important distinction between:
  • banks acting merely as financing/payment institutions; and
  • banks acting as financial advisors.
The customer did not seek investment advice from the bank.
Therefore:
the bank was not responsible for ensuring that the customer made a wise investment decision.


Rejection of General Investment Advisory Duty
The court refused to impose a general duty requiring banks to:
  • investigate every investment transaction;
  • verify every merchant;
  • assess legality of investment schemes;
  • warn customers about commercial risks.
The court held that imposing such duties would make banking operations commercially impracticable.


Wan Muhammad Amin Wan Yahya JC
The learned judge stated:
“It would be incredibly unfair if the Defendant is made to pay for the sums the Plaintiff had paid the Merchants when the Defendant is not privy to the Transactions.”
The court emphasised that:
  • the alleged fraud was committed by the merchants;
  • the bank neither committed nor participated in the fraud;
  • the bank was not privy to the investment arrangements.


Commercial Practicality
The court further held that requiring banks to investigate every customer transaction would:
  • disrupt banking operations;
  • impede commercial activity;
  • create unreasonable burdens on banks.
The court referred to:
  • Co-operative Central Bank Ltd (In Receivership) v Feyen Development Sdn Bhd
where Edgar Joseph Jr FCJ warned that courts must consider the impact of decisions on the commercial community.


Chang Yun Tai v HSBC Bank (M) Bhd
Chang Yun Tai v HSBC Bank (M) Bhd
The Federal Court similarly held that the banker-customer relationship is contractual.
The court explained that:
  • it is generally the customer’s responsibility to ensure the validity of transactions entered into by the customer;
  • banks are not automatically responsible for the customer’s commercial decisions.
The court referred approvingly to:
  • Redmond v Allied Irish Banks Plc
where the court stated:
“I can see no basis for a duty to advise or warn a customer that there are risks attendant upon something which the customer wishes to do.”


Principle Established by Lee Cheong Chee
The case establishes that:
  • ordinary banker-customer relationships are contractual, not fiduciary;
  • banks generally owe no broad investment advisory duty;
  • banks are not automatically liable for scams entered into by customers;
  • Quincecare-type duties will not automatically apply in ordinary customer-authorised transactions;
  • customers remain responsible for their own investment decisions unless the bank expressly undertakes an advisory role.


Practical Application
Suppose a customer transfers money to an online investment platform promising unusually high returns.
If:
  • the customer authorised the transaction;
  • the bank merely processed payment instructions;
  • the bank did not provide investment advice,
the bank will generally not be liable merely because the investment later turns out to be fraudulent.
However, different considerations may arise where:
  • the bank itself acts as financial advisor;
  • the bank knowingly participates in fraud;
  • the bank dishonestly assists wrongdoing;
  • the bank ignores clear evidence of misappropriation.


Critical Analysis
The decision reflects judicial concern about imposing excessive duties upon banks.
Modern banking processes millions of transactions daily. Requiring banks to independently investigate every customer-authorised transaction would:
  • delay commerce;
  • increase operational burdens;
  • undermine banking efficiency.
The courts therefore continue to treat ordinary banking relationships primarily as:
contractual and commercial relationships rather than fiduciary relationships.
At the same time, banks still owe important duties including:
  • confidentiality;
  • reasonable care in executing instructions;
  • compliance with customer mandates.
The law therefore seeks to balance:
  • customer protection;
  • commercial practicality;
  • financial stability;
  • efficient banking operations.


Conclusion
The banker-customer relationship under Malaysian banking law is generally contractual and based on debtor-creditor principles.
Cases such as:
  • Foley v Hill;
  • Joachimson v Swiss Bank Corporation;
  • Standard Chartered Bank v Tiong Ngit Ting (f);
  • Kian Lup Construction v Hong Kong Bank Malaysia Bhd;
  • Lee Cheong Chee v HSBC Bank Malaysia Bhd;
confirm that:
  • banks are generally debtors to depositors and creditors to borrowers;
  • ordinary banking relationships are contractual, not fiduciary;
  • fiduciary duties arise only in exceptional advisory relationships;
  • banks owe duties of care in carrying out instructions, but not a general duty to advise customers on investment wisdom or commercial risks;
  • customers remain responsible for their own investment decisions unless the bank expressly assumes an advisory role.

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