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Malaysian Banking Law — Comprehensive Study Notes
1. Meaning and Definition of a Banker / Bank
One of the central issues in banking law is:
who is legally considered a “banker” or “bank”.
Neither English common law nor early Malaysian law gave a complete statutory definition of a banker. Because of this, courts developed judicial principles to identify the essential characteristics of banking business.
2. Traditional English Definition of Banking Business
The leading case is:
United Dominions Trust Ltd v Kirkwood
Lord Denning explained that modern banking generally contains three essential characteristics:
3. Malaysian Definition of Banking Business
Under Malaysian law, banking business is defined statutorily.
Under:
Financial Services Act 2013
“banking business” generally includes:
✔ conjunctively.
Meaning:
all essential characteristics generally must exist together.
Thus:
✔ merely lending money alone does not automatically amount to banking business.
4. Can Non-Banks Give Loans?
Yes.
A person or institution may provide loans or financing without necessarily carrying on “banking business”.
The courts repeatedly held:
✔ making advances alone is insufficient.
5. Important Malaysian Cases on Banking Business
Bank of China v Lee Kee Pin
Held:
✔ recovering debts does not amount to carrying on banking business.
A bank without a licence could still sue to recover existing loans.
Koh Kim Chai v Asia Commercial Banking Corporation
Held:
✔ foreign bank taking Malaysian land as security did not amount to carrying on banking business in Malaysia.
The Privy Council emphasised:
✔ making advances does not include taking security or enforcing security.
Vernes Asia Ltd v Trendale Investment Pte Ltd
Held:
✔ banking business requires all essential banking functions collectively.
Merely making advances alone is insufficient.
Sabah Development Bank Bhd v SKBS Sabah Sdn Bhd
Held:
✔ development finance institutions are not automatically banks.
The court repeated:
✔ banker must usually:
Light Style Sdn Bhd v KFH Ijarah House
Held:
✔ providing financing alone is not banking business.
The court interpreted banking business conjunctively.
6. Section 125 BAFIA and FSA 2013
Previously:
Banking and Financial Institutions Act 1989
section 125 stated:
✔ contracts are not automatically void merely because they contravene BAFIA.
This principle continues under:
Financial Services Act 2013
The law aims:
✔ to preserve commercial certainty.
7. Definition of Customer
The term “customer” is not statutorily defined in:
✔ a person with an account or collection arrangement with a bank.
8. Judicial Meaning of Customer
Great Western Railway Co v London and County Banking Co Ltd
Held:
✔ casual cheque cashing alone does not make a person a customer.
There must usually be:
✔ some form of account relationship.
Commissioners of Taxation v English Scottish and Australian Bank Ltd
Held:
✔ duration is not essential.
A person may become customer immediately once the bank accepts money for collection.
Ladbroke & Co v Todd
Held:
✔ a person became customer even before drawing money.
Woods v Martins Bank Ltd
Held:
✔ banker–customer relationship may arise during negotiations before formal account opening.
Oriental Bank of Malaya v Rubber Industry Replanting Board
Held:
✔ even fraudster opening account could technically become customer.
9. Casual Service vs Customer Relationship
Casual service means:
✔ isolated banking service without account relationship.
Example:
✔ genuine banker–customer relationship involving ongoing contractual dealings.
10. Nature of Banker–Customer Relationship
The relationship is mainly:
✔ contractual.
Leading authority:
Joachimson v Swiss Bank Corporation
Atkin LJ explained:
11. Debtor–Creditor Relationship
Leading case:
Foley v Hill
Held:
✔ banker–customer relationship is debtor–creditor, not trustee.
When customer deposits money:
12. Agent–Principal Relationship
Sometimes bank acts:
✔ as agent.
Example:
13. Fiduciary Relationship
Ordinarily:
✔ banks do NOT owe fiduciary duties.
However fiduciary duties arise where:
Woods v Martins Bank Ltd
Bank advised investment benefiting itself.
Held:
✔ fiduciary duty breached.
14. Duty of Care vs Fiduciary Duty
Duty of Care
Requires:
✔ reasonable skill and care.
Focus:
✔ negligence.
Fiduciary Duty
Requires:
✔ loyalty;
✔ honesty;
✔ avoidance of conflicts.
Focus:
✔ trust and confidence.
15. Banks Generally Owe No Duty to Advise on Investments
Lee Cheong Chee v HSBC Bank Malaysia Bhd
Customer lost money to scam brokers.
Held:
✔ bank owed no general duty to investigate investment wisdom.
Relationship was:
✔ contractual only.
No fiduciary duty existed.
16. Quincecare Duty
Customer relied on:
Barclays Bank plc v Quincecare Ltd
But Malaysian High Court refused broad application.
Reason:
✔ banking business would become commercially impractical.
17. Constructive Trustee Relationship
Although relationship is mainly debtor–creditor:
✔ bank may become constructive trustee.
This happens where:
18. Barnes v Addy Principles
Barnes v Addy
Requirements:
19. Lipkin Gorman Principle
Lipkin Gorman v Karpnale Ltd
Bank not liable because:
✔ no knowing assistance proven.
20. Royal Brunei Airlines Principle
Royal Brunei Airlines v Tan Kok Ming
Focus shifted from:
✔ knowledge
to
✔ dishonesty.
21. United Merchant Finance Case
United Merchant Finance Bhd v Majlis Agama Islam Negeri Johor
Held:
✔ constructive trustee allegations against banks are highly technical;
✔ full trial usually required;
✔ strict proof necessary.
22. Banker–Customer Rights and Duties
Banks owe duties:
23. Express Terms Govern Banking Contracts
Bank Pertanian Malaysia v Mohd Gazzali Mohd Ismail
Held:
✔ express “on demand” clauses must be complied with.
Demand became necessary before limitation period started.
24. Restructuring Loans and Banking Rights
Bekalan Sains P & C Sdn Bhd v Bank Bumiputra Malaysia Bhd
Held:
✔ banks may withhold further drawdown if borrower breaches obligations.
Relationship creates:
✔ contractual rights and duties.
25. Fixed Deposit Relationship
Standard Chartered Bank v Tiong Ngit Ting
Held:
✔ fixed deposits require agreed terms:
✔ no proper fixed deposit contract exists.
26. Banking Relationship Is Usually NOT Fiduciary
Kian Lup Construction v Hong Kong Bank Malaysia Bhd
Held:
✔ ordinary banking relationship is contractual only.
Aseambankers Malaysia Bhd v Shencourt Sdn Bhd
Held:
✔ banker–customer relationship is commercial, not fiduciary.
27. Modern Banking Services
Modern banks now provide:
✔ definition of banking has expanded commercially.
28. Overall Legal Position
The banker–customer relationship is primarily:
✔ contractual;
✔ commercial;
✔ debtor–creditor.
However:
special relationships may arise:
✔ commercial practicality;
with
✔ equitable fairness.
Final Examination Summary
A bank is generally defined by its conduct of core banking activities such as receiving deposits, operating accounts, paying and collecting cheques, and providing finance. The banker–customer relationship is mainly contractual and debtor–creditor in nature, though banks may sometimes act as agents, fiduciaries, or constructive trustees depending on the circumstances. Malaysian courts generally avoid imposing fiduciary or constructive trustee liability unless strong evidence of advisory responsibility, dishonesty, breach of trust, or knowing assistance exists.
1. Meaning and Definition of a Banker / Bank
One of the central issues in banking law is:
who is legally considered a “banker” or “bank”.
Neither English common law nor early Malaysian law gave a complete statutory definition of a banker. Because of this, courts developed judicial principles to identify the essential characteristics of banking business.
2. Traditional English Definition of Banking Business
The leading case is:
United Dominions Trust Ltd v Kirkwood
Lord Denning explained that modern banking generally contains three essential characteristics:
- accepting money and collecting cheques for customers;
- honouring cheques drawn by customers;
- maintaining current accounts with debits and credits.
- takes current accounts;
- pays cheques drawn on himself;
- collects cheques for customers.
3. Malaysian Definition of Banking Business
Under Malaysian law, banking business is defined statutorily.
Under:
Financial Services Act 2013
“banking business” generally includes:
- receiving deposits;
- paying and collecting cheques;
- provision of finance.
✔ conjunctively.
Meaning:
all essential characteristics generally must exist together.
Thus:
✔ merely lending money alone does not automatically amount to banking business.
4. Can Non-Banks Give Loans?
Yes.
A person or institution may provide loans or financing without necessarily carrying on “banking business”.
The courts repeatedly held:
✔ making advances alone is insufficient.
5. Important Malaysian Cases on Banking Business
Bank of China v Lee Kee Pin
Held:
✔ recovering debts does not amount to carrying on banking business.
A bank without a licence could still sue to recover existing loans.
Koh Kim Chai v Asia Commercial Banking Corporation
Held:
✔ foreign bank taking Malaysian land as security did not amount to carrying on banking business in Malaysia.
The Privy Council emphasised:
✔ making advances does not include taking security or enforcing security.
Vernes Asia Ltd v Trendale Investment Pte Ltd
Held:
✔ banking business requires all essential banking functions collectively.
Merely making advances alone is insufficient.
Sabah Development Bank Bhd v SKBS Sabah Sdn Bhd
Held:
✔ development finance institutions are not automatically banks.
The court repeated:
✔ banker must usually:
- take current accounts;
- pay cheques;
- collect cheques.
Light Style Sdn Bhd v KFH Ijarah House
Held:
✔ providing financing alone is not banking business.
The court interpreted banking business conjunctively.
6. Section 125 BAFIA and FSA 2013
Previously:
Banking and Financial Institutions Act 1989
section 125 stated:
✔ contracts are not automatically void merely because they contravene BAFIA.
This principle continues under:
Financial Services Act 2013
The law aims:
✔ to preserve commercial certainty.
7. Definition of Customer
The term “customer” is not statutorily defined in:
- Malaysian FSA 2013;
- Bills of Exchange Act 1949;
- English Bills of Exchange Act 1882.
✔ a person with an account or collection arrangement with a bank.
8. Judicial Meaning of Customer
Great Western Railway Co v London and County Banking Co Ltd
Held:
✔ casual cheque cashing alone does not make a person a customer.
There must usually be:
✔ some form of account relationship.
Commissioners of Taxation v English Scottish and Australian Bank Ltd
Held:
✔ duration is not essential.
A person may become customer immediately once the bank accepts money for collection.
Ladbroke & Co v Todd
Held:
✔ a person became customer even before drawing money.
Woods v Martins Bank Ltd
Held:
✔ banker–customer relationship may arise during negotiations before formal account opening.
Oriental Bank of Malaya v Rubber Industry Replanting Board
Held:
✔ even fraudster opening account could technically become customer.
9. Casual Service vs Customer Relationship
Casual service means:
✔ isolated banking service without account relationship.
Example:
- cashing cheque for stranger;
- exchanging currency once.
✔ genuine banker–customer relationship involving ongoing contractual dealings.
10. Nature of Banker–Customer Relationship
The relationship is mainly:
✔ contractual.
Leading authority:
Joachimson v Swiss Bank Corporation
Atkin LJ explained:
- bank receives deposits;
- bank becomes debtor;
- bank promises repayment upon demand.
11. Debtor–Creditor Relationship
Leading case:
Foley v Hill
Held:
✔ banker–customer relationship is debtor–creditor, not trustee.
When customer deposits money:
- bank = debtor;
- customer = creditor.
- bank = creditor;
- customer = debtor.
12. Agent–Principal Relationship
Sometimes bank acts:
✔ as agent.
Example:
- remittances;
- cheque collection;
- standing instructions.
- customer = principal;
- bank = agent.
13. Fiduciary Relationship
Ordinarily:
✔ banks do NOT owe fiduciary duties.
However fiduciary duties arise where:
- bank gives investment advice;
- customer relies on bank expertise;
- trust and confidence exist.
Woods v Martins Bank Ltd
Bank advised investment benefiting itself.
Held:
✔ fiduciary duty breached.
14. Duty of Care vs Fiduciary Duty
Duty of Care
Requires:
✔ reasonable skill and care.
Focus:
✔ negligence.
Fiduciary Duty
Requires:
✔ loyalty;
✔ honesty;
✔ avoidance of conflicts.
Focus:
✔ trust and confidence.
15. Banks Generally Owe No Duty to Advise on Investments
Lee Cheong Chee v HSBC Bank Malaysia Bhd
Customer lost money to scam brokers.
Held:
✔ bank owed no general duty to investigate investment wisdom.
Relationship was:
✔ contractual only.
No fiduciary duty existed.
16. Quincecare Duty
Customer relied on:
Barclays Bank plc v Quincecare Ltd
But Malaysian High Court refused broad application.
Reason:
✔ banking business would become commercially impractical.
17. Constructive Trustee Relationship
Although relationship is mainly debtor–creditor:
✔ bank may become constructive trustee.
This happens where:
- bank knowingly assists breach of trust;
- bank dishonestly handles trust property.
18. Barnes v Addy Principles
Barnes v Addy
Requirements:
- existence of trust;
- dishonest design;
- assistance by stranger;
- knowledge/dishonesty.
19. Lipkin Gorman Principle
Lipkin Gorman v Karpnale Ltd
Bank not liable because:
✔ no knowing assistance proven.
20. Royal Brunei Airlines Principle
Royal Brunei Airlines v Tan Kok Ming
Focus shifted from:
✔ knowledge
to
✔ dishonesty.
21. United Merchant Finance Case
United Merchant Finance Bhd v Majlis Agama Islam Negeri Johor
Held:
✔ constructive trustee allegations against banks are highly technical;
✔ full trial usually required;
✔ strict proof necessary.
22. Banker–Customer Rights and Duties
Banks owe duties:
- honour valid instructions;
- maintain confidentiality;
- exercise reasonable care.
- act honestly;
- avoid facilitating forgery;
- comply with banking terms.
23. Express Terms Govern Banking Contracts
Bank Pertanian Malaysia v Mohd Gazzali Mohd Ismail
Held:
✔ express “on demand” clauses must be complied with.
Demand became necessary before limitation period started.
24. Restructuring Loans and Banking Rights
Bekalan Sains P & C Sdn Bhd v Bank Bumiputra Malaysia Bhd
Held:
✔ banks may withhold further drawdown if borrower breaches obligations.
Relationship creates:
✔ contractual rights and duties.
25. Fixed Deposit Relationship
Standard Chartered Bank v Tiong Ngit Ting
Held:
✔ fixed deposits require agreed terms:
- period;
- interest rate;
- maturity.
✔ no proper fixed deposit contract exists.
26. Banking Relationship Is Usually NOT Fiduciary
Kian Lup Construction v Hong Kong Bank Malaysia Bhd
Held:
✔ ordinary banking relationship is contractual only.
Aseambankers Malaysia Bhd v Shencourt Sdn Bhd
Held:
✔ banker–customer relationship is commercial, not fiduciary.
27. Modern Banking Services
Modern banks now provide:
- internet banking;
- trade finance;
- electronic transfers;
- credit cards;
- syndicated loans;
- investment services.
✔ definition of banking has expanded commercially.
28. Overall Legal Position
The banker–customer relationship is primarily:
✔ contractual;
✔ commercial;
✔ debtor–creditor.
However:
special relationships may arise:
- agent–principal;
- fiduciary;
- constructive trustee.
✔ commercial practicality;
with
✔ equitable fairness.
Final Examination Summary
A bank is generally defined by its conduct of core banking activities such as receiving deposits, operating accounts, paying and collecting cheques, and providing finance. The banker–customer relationship is mainly contractual and debtor–creditor in nature, though banks may sometimes act as agents, fiduciaries, or constructive trustees depending on the circumstances. Malaysian courts generally avoid imposing fiduciary or constructive trustee liability unless strong evidence of advisory responsibility, dishonesty, breach of trust, or knowing assistance exists.
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