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Malaysian Banking Law - Difference Between Fiduciary Duty and Duty of Care in Banking Law
Although both duties involve obligations owed by a bank to its customer, they are NOT the same. A fiduciary duty is much stricter and wider than a duty of care.
1. Duty of Care
A duty of care means:
The bank must act carefully, competently and reasonably when carrying out banking services or customer instructions.
This duty arises from:
✔ the bank is still allowed to protect its own interests and make profits.
The bank does NOT have to place the customer’s interests above its own.
Examples of Duty of Care
A bank owes a duty of care when:
Example
If a customer instructs the bank to transfer RM50,000 to Company A, but the bank carelessly transfers the money to the wrong account:
✔ the bank may be liable for breach of duty of care.
The problem is:
👉 negligence or carelessness.
Cases on Duty of Care
Bekalan Sains P & C Sdn Bhd v Bank Bumiputra Malaysia Bhd
The court recognised that:
✔ banks owe customers a duty to exercise reasonable care in carrying out banking obligations.
Redmond v Allied Irish Banks Plc
The court stated:
✔ banks must exercise reasonable care and skill in interpreting and acting upon customer instructions.
2. Fiduciary Duty
A fiduciary duty is much higher and stricter.
It means:
The bank must act loyally, honestly and in the best interests of the customer.
Under fiduciary duty:
✔ the customer places trust and confidence in the bank;
✔ the bank must not abuse that trust;
✔ the bank must avoid conflicts of interest.
The bank may have to place the customer’s interests ahead of its own interests.
Characteristics of Fiduciary Duty
A fiduciary relationship usually involves:
Examples of Fiduciary Duty
A fiduciary duty may arise where:
Example
Suppose:
✔ breach of fiduciary duty.
Because:
👉 the bank abused the customer’s trust and confidence.
Leading Case on Fiduciary Relationship
Hedley Byrne v Heller
This case explained that a special relationship may arise where:
✔ fiduciary or special advisory duties may arise.
Malaysian Position
Malaysian courts generally hold that:
Ordinary banker–customer relationships are contractual, NOT fiduciary.
Kian Lup Construction v Hong Kong Bank Malaysia Bhd
The court explained:
Deposit account:
✔ contractual relationships only.
However:
✔ fiduciary duty may arise where the bank gives financial advice and the customer relies on it.
Aseambankers Malaysia Bhd v Shencourt Sdn Bhd
The court confirmed:
✔ banker–customer relationships are generally commercial and contractual;
✔ banks are profit-making institutions;
✔ fiduciary duties do not automatically arise.
Main Differences
A. Nature of the Obligation
Duty of Care
B. Focus
Duty of Care
Focuses on:
✔ negligence;
✔ competence;
✔ reasonable skill.
Fiduciary Duty
Focuses on:
✔ loyalty;
✔ honesty;
✔ trust;
✔ conflicts of interest.
C. Bank’s Own Interest
Duty of Care
✔ bank may still protect its own commercial interests.
Fiduciary Duty
✔ bank may have to prioritise customer’s interests.
D. When It Arises
Duty of Care
Arises in:
✔ ordinary banking operations.
Fiduciary Duty
Arises only in:
✔ special advisory or trust relationships.
Simple Analogy
Duty of Care = “Do your job carefully.”
Example:
A driver must drive carefully to avoid accidents.
Fiduciary Duty = “Protect the other person’s interests loyally.”
Example:
A trustee managing money for a beneficiary.
Application to Banking
Normal Banking Relationship
When:
✔ contractual;
✔ debtor–creditor;
✔ duty of care only.
Special Advisory Relationship
When:
✔ fiduciary duty may arise.
Case Scenario
Daniel opens a savings account with a bank. The bank accidentally transfers money from his account into another customer’s account.
This is:
✔ breach of duty of care.
Why?
Because the bank acted negligently.
Now suppose:
✔ breach of fiduciary duty.
Why?
Because the adviser abused Daniel’s trust and failed to act loyally.
Final Exam Rule
A duty of care requires a bank to act reasonably and carefully, while a fiduciary duty requires the bank to act loyally and in the customer’s best interests. Ordinary banker–customer relationships usually create contractual duties and duties of care, but not fiduciary duties unless a special advisory or trust relationship exists.
Although both duties involve obligations owed by a bank to its customer, they are NOT the same. A fiduciary duty is much stricter and wider than a duty of care.
1. Duty of Care
A duty of care means:
The bank must act carefully, competently and reasonably when carrying out banking services or customer instructions.
This duty arises from:
- negligence law;
- contractual obligations;
- ordinary banking practice.
- use reasonable skill;
- avoid careless mistakes;
- follow customer instructions properly.
✔ the bank is still allowed to protect its own interests and make profits.
The bank does NOT have to place the customer’s interests above its own.
Examples of Duty of Care
A bank owes a duty of care when:
- processing cheques;
- transferring funds;
- disbursing loans;
- handling customer instructions;
- managing banking transactions.
Example
If a customer instructs the bank to transfer RM50,000 to Company A, but the bank carelessly transfers the money to the wrong account:
✔ the bank may be liable for breach of duty of care.
The problem is:
👉 negligence or carelessness.
Cases on Duty of Care
Bekalan Sains P & C Sdn Bhd v Bank Bumiputra Malaysia Bhd
The court recognised that:
✔ banks owe customers a duty to exercise reasonable care in carrying out banking obligations.
Redmond v Allied Irish Banks Plc
The court stated:
✔ banks must exercise reasonable care and skill in interpreting and acting upon customer instructions.
2. Fiduciary Duty
A fiduciary duty is much higher and stricter.
It means:
The bank must act loyally, honestly and in the best interests of the customer.
Under fiduciary duty:
✔ the customer places trust and confidence in the bank;
✔ the bank must not abuse that trust;
✔ the bank must avoid conflicts of interest.
The bank may have to place the customer’s interests ahead of its own interests.
Characteristics of Fiduciary Duty
A fiduciary relationship usually involves:
- trust;
- confidence;
- reliance;
- advisory relationship;
- vulnerability.
- act in good faith;
- avoid secret profits;
- avoid conflicts;
- disclose material information honestly.
Examples of Fiduciary Duty
A fiduciary duty may arise where:
- the bank acts as financial adviser;
- the customer relies heavily on the bank’s advice;
- the bank manages investments for the customer.
Example
Suppose:
- a bank adviser recommends investments;
- the customer fully relies on that advice;
- the adviser secretly benefits from recommending risky products.
✔ breach of fiduciary duty.
Because:
👉 the bank abused the customer’s trust and confidence.
Leading Case on Fiduciary Relationship
Hedley Byrne v Heller
This case explained that a special relationship may arise where:
- advice is given;
- reliance is expected;
- the adviser knows the customer will rely on it.
✔ fiduciary or special advisory duties may arise.
Malaysian Position
Malaysian courts generally hold that:
Ordinary banker–customer relationships are contractual, NOT fiduciary.
Kian Lup Construction v Hong Kong Bank Malaysia Bhd
The court explained:
Deposit account:
- bank = debtor
- customer = creditor
- bank = creditor
- customer = debtor
✔ contractual relationships only.
However:
✔ fiduciary duty may arise where the bank gives financial advice and the customer relies on it.
Aseambankers Malaysia Bhd v Shencourt Sdn Bhd
The court confirmed:
✔ banker–customer relationships are generally commercial and contractual;
✔ banks are profit-making institutions;
✔ fiduciary duties do not automatically arise.
Main Differences
A. Nature of the Obligation
Duty of Care
- obligation to act carefully and reasonably.
- obligation to act loyally and in customer’s best interests.
B. Focus
Duty of Care
Focuses on:
✔ negligence;
✔ competence;
✔ reasonable skill.
Fiduciary Duty
Focuses on:
✔ loyalty;
✔ honesty;
✔ trust;
✔ conflicts of interest.
C. Bank’s Own Interest
Duty of Care
✔ bank may still protect its own commercial interests.
Fiduciary Duty
✔ bank may have to prioritise customer’s interests.
D. When It Arises
Duty of Care
Arises in:
✔ ordinary banking operations.
Fiduciary Duty
Arises only in:
✔ special advisory or trust relationships.
Simple Analogy
Duty of Care = “Do your job carefully.”
Example:
A driver must drive carefully to avoid accidents.
Fiduciary Duty = “Protect the other person’s interests loyally.”
Example:
A trustee managing money for a beneficiary.
Application to Banking
Normal Banking Relationship
When:
- customer deposits money;
- takes a loan;
- opens an account;
✔ contractual;
✔ debtor–creditor;
✔ duty of care only.
Special Advisory Relationship
When:
- bank gives investment advice;
- customer relies on the advice;
- trust and confidence exist;
✔ fiduciary duty may arise.
Case Scenario
Daniel opens a savings account with a bank. The bank accidentally transfers money from his account into another customer’s account.
This is:
✔ breach of duty of care.
Why?
Because the bank acted negligently.
Now suppose:
- the bank adviser tells Daniel to invest in a certain company;
- the adviser secretly receives commission from that company;
- Daniel loses money relying on the advice.
✔ breach of fiduciary duty.
Why?
Because the adviser abused Daniel’s trust and failed to act loyally.
Final Exam Rule
A duty of care requires a bank to act reasonably and carefully, while a fiduciary duty requires the bank to act loyally and in the customer’s best interests. Ordinary banker–customer relationships usually create contractual duties and duties of care, but not fiduciary duties unless a special advisory or trust relationship exists.
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