Malaysian Banking Law – Characteristics of Banking in
United Dominions Trust Ltd v Kirkwood
General Overview
In England, the Court of Appeal in United Dominions Trust Ltd v Kirkwood discussed the essential characteristics of banking business. The court attempted to identify the features commonly associated with a banker and the business of banking.
The case is important because it explains that although banking may be difficult to define precisely, certain core characteristics are commonly found in banking activities. The court also recognised that reputation within banking and commercial circles may help determine whether a person or institution is regarded as a banker.


Essential Characteristics of Banking
According to the Court of Appeal in United Dominions Trust Ltd v Kirkwood, the usual characteristics of banking include:
1. Conduct of Current Accounts
A banker usually maintains current accounts for customers. Customers may deposit money into these accounts and withdraw funds when needed.
Current accounts generally allow:

• Frequent transactions,
• Deposits and withdrawals,
• Payment instructions, and
• Business and commercial banking activities.

Diplock LJ explained that it is essential for banking business that money is accepted into a running account where customers may continuously deposit and withdraw funds.


2. Payment of Cheques
Another important characteristic of banking is the payment of cheques drawn by customers.
Banks usually:

• Honour customer cheques,
• Process payment instructions, and
• Facilitate commercial transactions through cheque payments.

This function reflects the bank’s role in the payment system and commercial activities.


3. Collection of Cheques
Banks also collect cheques on behalf of customers.
This includes:

• Receiving cheques from customers,
• Processing cheque payments,
• Crediting customer accounts after collection.

Cheque collection services support business and commercial transactions within the financial system.


Reputation as a Banker
The court also recognised that reputation may help determine whether a person or institution is considered a banker.
Diplock LJ stated that where there is insufficient evidence regarding banking characteristics, the court may consider whether the institution is recognised in banking and commercial circles as a banker.
This means that:

• Public reputation,
• Commercial recognition, and
• Industry perception

may assist in identifying banking status.


Difference Between “Usual” and “Essential” Characteristics
Lord Denning MR explained that the usual characteristics of banking are not necessarily the only characteristics of a banker. A list of usual features does not provide a complete legal definition.
He stated that other important qualities include:

• Stability,
• Soundness,
• Honesty,
• Financial reliability, and
• Commercial trustworthiness.

Lord Denning famously observed that a banker is often easier to recognise than to define.
This means the courts may examine the overall nature and reputation of the institution rather than relying solely on strict technical definitions.


Note Form – Characteristics of Banking
Essential Characteristics Mentioned in the Case

• Conducting current accounts.
• Paying customer cheques.
• Collecting cheques for customers.
• Accepting money into running accounts.
• Allowing deposits and withdrawals.

Additional Qualities of a Banker

• Stability.
• Soundness.
• Probity (honesty and integrity).
• Commercial reputation.
• Public confidence.

Important Legal Principle
A strict definition of banking is difficult. Courts may examine:

• The actual activities performed,
• The reputation of the institution,
• Commercial understanding within the industry.

Application in a Case Scenario
Scenario
A company called QuickFinance accepts customer funds through digital accounts and allows customers to make electronic payments. However, it does not maintain traditional current accounts or provide cheque collection services.
A dispute arises regarding whether QuickFinance should legally be regarded as a bank. The court may apply the principles from United Dominions Trust Ltd v Kirkwood to examine:

• Whether the company performs essential banking functions,
• Whether it conducts running accounts,
• Whether it is recognised commercially as a banker.

Even if certain traditional banking characteristics are absent, the company’s reputation and overall business activities may still be relevant.


Critical Analysis
The decision in United Dominions Trust Ltd v Kirkwood highlights the difficulty of defining banking in precise legal terms. Banking evolves continuously, and strict definitions may not suit modern financial systems.
The case also demonstrates the importance of commercial reputation. A company may be recognised as a banker because of how it operates and how it is viewed within the financial industry.
However, modern technology raises new challenges. Digital banks and financial technology companies may not provide traditional cheque services or current accounts, yet they perform banking-like functions through electronic systems.
This creates uncertainty regarding:

• Licensing requirements,
• Consumer protection,
• Regulatory supervision,
• Legal classification of digital financial institutions.

The case therefore remains relevant because it supports a flexible and practical approach in determining whether a business carries on banking activities.


Unresolved Issues
Digital Banking Services
Modern online banks may not use traditional cheque systems, raising questions about whether cheque-related functions remain essential characteristics of banking.


FinTech and E-Wallet Platforms
Digital payment platforms may provide banking-like services without formally operating as banks.


Reputation Versus Legal Status
An institution may appear to function like a bank commercially but may not legally qualify as a bank under statutory regulations.


Conclusion
The case of United Dominions Trust Ltd v Kirkwood identifies important characteristics commonly associated with banking, including the conduct of current accounts, payment of cheques, and collection of cheques for customers. However, the court recognised that these are not the only factors relevant in defining a banker. Reputation, stability, and commercial recognition may also assist in determining whether an institution carries on banking business. The case continues to influence modern banking law, especially in dealing with new financial technologies and evolving banking practices.

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Malaysian Banking Law – Essential Characteristics of Banking Business
General Overview
The courts have recognised that banking is not limited to traditional activities such as collecting cheques or operating current accounts. Instead, the true nature of banking depends on the essential functions carried out by the institution. One important case explaining this principle is State Savings Bank of Victoria, Commissioners v Permewan, Wright & Co Ltd.
In this case, the High Court of Australia explained that a bank acts as a “financial reservoir.” A bank receives money from customers and uses those funds to support commercial, industrial, and other economic activities through lending and financing.
The court further stated that the essential business of banking involves:

• Receiving money through deposits,
• Holding money repayable according to agreement, and
• Using the collected funds by lending them to others.

Therefore, the core function of banking is the collection and utilisation of money rather than the specific methods used to conduct banking transactions.


Essential Characteristics of Banking
Collection of Money Through Deposits
One of the main characteristics of banking is the acceptance of deposits from customers. Customers place money with the bank either for safekeeping or investment purposes.
These deposits may include:

• Savings accounts,
• Fixed deposit accounts,
• Deposit accounts repayable at call, or
• Other agreed forms of deposits.

The court emphasised that banks are not legally required to maintain current accounts only. Banks may operate using various types of deposit arrangements.


Repayment of Deposits
Banks receive money on the understanding that the funds will be repaid according to the agreement between the bank and customer. Repayment may occur:

• On demand,
• At a fixed date,
• In part, or
• According to agreed conditions.

This repayment obligation forms an important legal aspect of the banker–customer relationship.


Utilisation of Deposits Through Lending
Banks do not merely store money. They also utilise deposited funds by lending money to businesses, individuals, and commercial enterprises.
Examples include:

• Housing loans,
• Business financing,
• Personal loans,
• Trade financing, and
• Investment financing.

The court recognised lending as a fundamental banking activity because it supports economic and commercial growth.


Methods of Banking Are Auxiliary
The court explained that many banking methods are merely auxiliary or incidental to the banking business. These methods may differ depending on business needs and technological developments.
Examples include:

• Current accounts,
• Cheques,
• Deposit accounts,
• Secured loans,
• Discounting bills,
• Letters of credit,
• Telegraphic transfers,
• Internet banking,
• Mobile banking,
• Digital payments.

The court stated that the existence or absence of these services does not necessarily determine whether an institution is legally carrying on banking business.


Meaning of “Financial Reservoir”
The court described a bank as a “financial reservoir” because banks collect money from many customers and redistribute those funds into the economy through lending and financing activities.
This process:

• Supports trade and commerce,
• Encourages industrial development,
• Promotes investments, and
• Contributes to economic growth.

Banks therefore play an essential role in the modern financial system.


Note Form – Essential Characteristics of Banking
Banking Business Includes:

• Receiving deposits from customers.
• Holding money repayable under agreement.
• Lending money to individuals and businesses.
• Supporting economic and commercial activities.
• Acting as a financial intermediary.

Banking Methods May Include:

• Current accounts.
• Savings accounts.
• Fixed deposits.
• Cheques.
• Loans and financing.
• Letters of credit.
• Telegraphic transfers.
• Internet banking.
• Digital and mobile payments.

Important Principle
The method used by the institution is not the most important factor. The real test is whether the institution substantially carries on the business of receiving deposits and utilising those funds through lending activities.


Application in a Case Scenario
Scenario
A company called FinServe accepts deposits from customers through digital accounts and later uses the money to provide financing to small businesses. However, the company does not issue cheques or maintain traditional current accounts.
A legal dispute arises regarding whether FinServe is carrying on banking business. The court may apply the principles from State Savings Bank of Victoria, Commissioners v Permewan, Wright & Co Ltd to determine whether the company’s essential activities amount to banking.
Even though FinServe does not provide traditional banking methods such as cheques, it may still legally qualify as carrying on banking business because it receives deposits and lends money.


Critical Analysis
The case demonstrates that banking law focuses on the substance of banking activities rather than the form or method used. This flexible approach allows courts to adapt banking law to changing financial practices and technological developments.
However, modern financial technology creates new legal challenges. Many digital platforms now perform functions similar to banks without operating as traditional banking institutions. This creates uncertainty regarding licensing, regulation, and customer protection.
Another issue is that financial companies may attempt to avoid strict banking regulations by arguing that they do not provide traditional banking services such as current accounts or cheque facilities. Courts must therefore examine the true nature of the business activities carried out.
The decision also highlights the importance of regulation by Bank Negara Malaysia to ensure that institutions engaging in banking-like activities comply with legal and financial requirements.


Unresolved Issues
Digital Banking and FinTech
Modern digital finance companies may perform deposit-taking and lending activities without clearly falling within traditional banking definitions.


Regulatory Gaps
Some financial institutions may carry on banking-like activities without being subject to the same strict regulations imposed on licensed banks.


Consumer Protection
Customers may not fully understand whether their funds are protected when dealing with digital financial institutions that are not licensed banks.


Conclusion
The case of State Savings Bank of Victoria, Commissioners v Permewan, Wright & Co Ltd establishes that the essential characteristics of banking are the receipt of deposits and the utilisation of those funds through lending and financing activities. The methods used by banks, such as cheques or current accounts, are only auxiliary features. This flexible interpretation allows banking law to adapt to changing financial systems while ensuring that institutions performing true banking functions are properly recognised and regulated.

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Malaysian Banking Law – Difference Between a Bank and a Financial Service Provider
General Overview
Modern financial systems include both banks and financial service providers. Although both offer financial-related services, they are not legally the same. A bank performs core banking activities such as accepting deposits and granting loans, while a financial service provider usually offers specialised financial services without operating fully as a licensed bank.
Technological development and digital finance have blurred the distinction between these institutions. Therefore, understanding the differences between a bank and a financial service provider is important in Malaysian banking law.


Bank
Definition
A bank is a licensed financial institution that carries on banking business. Its traditional functions include accepting deposits, honouring cheques, and granting loans.


Main Functions

• Accepts deposits from the public.
• Provides loans and financing facilities.
• Operates savings and current accounts.
• Facilitates payments and money transfers.
• Provides trade finance and investment services.

Legal Status
A bank is legally recognised as carrying on banking business and is subject to strict banking laws and financial regulations.


Regulation
Banks in Malaysia are supervised and regulated by Bank Negara Malaysia under laws such as the Financial Services Act 2013.


Examples of Banks
Examples of banks in Malaysia include:

• Malayan Banking Berhad
• CIMB Bank Berhad
• Public Bank Berhad
• RHB Bank Berhad

Financial Service Provider
Definition
A financial service provider is a company that offers financial-related services but may not legally qualify as a bank because it does not perform the full range of banking activities.


Main Functions

• Provides specialised financial services.
• May offer insurance, investments, remittance, or digital payment services.
• Usually does not accept public deposits like traditional banks.
• May provide electronic wallets or online financial platforms.

Legal Status
A financial service provider may carry out financial activities without being legally classified as a bank.


Regulation
These institutions are regulated according to the type of financial service they provide. Some may still fall under the supervision of Bank Negara Malaysia or other regulatory authorities.


Examples of Financial Service Providers
Examples include:

• Boost – digital wallet and e-payment services.
• Touch ’n Go eWallet – mobile and digital payment services.
• AIA Malaysia – insurance and financial protection services.
• Western Union – remittance and money transfer services.
• Rakuten Trade – investment and share trading services.

Key Differences in Note Form
Bank

• Accepts public deposits.
• Provides loans and financing.
• Maintains customer savings and current accounts.
• Forms part of the official banking system.
• Subject to strict banking regulation.
• Provides full banking services.

Financial Service Provider

• Provides selected financial services only.
• Usually does not accept deposits from the public.
• May focus on digital payments, insurance, investments, or remittance.
• May not legally qualify as a bank.
• Regulation depends on the type of service provided.
• Often operates through financial technology platforms.

Application in a Case Scenario
Scenario
A company called PayLink offers mobile payment services, online money transfers, and digital wallets through a smartphone application. Customers can store electronic money and make digital payments using the application. However, PayLink does not accept savings deposits or provide traditional banking accounts.
A legal issue arises regarding whether PayLink should legally be considered a bank. The court may examine whether the company performs core banking activities such as accepting public deposits and lending money. Even though PayLink provides financial services, it may still be classified only as a financial service provider rather than a bank.
This situation shows that not all financial institutions automatically qualify as banks under banking law.


Critical Analysis
The distinction between banks and financial service providers has become increasingly unclear because of technological advancements. Many financial technology companies now provide services similar to banks, including digital payments and financing facilities.
This creates regulatory challenges because some companies may perform banking-like activities without being subject to the same strict legal requirements as licensed banks. As a result, customers may face greater risks when using unregulated or lightly regulated financial platforms.
Another concern is customer confusion. Consumers may assume that all financial institutions provide equal legal protection, even though licensed banks generally offer stronger financial safeguards and regulatory supervision.
The law must therefore balance innovation with consumer protection. Regulators such as Bank Negara Malaysia play an important role in ensuring that financial institutions operate safely and responsibly.


Unresolved Issues
Regulation of FinTech Companies
Many digital financial companies provide banking-like services, but uncertainty remains regarding whether they should legally be treated as banks.


Consumer Protection
Customers may not fully understand the legal differences between banks and financial service providers, especially concerning deposit protection and financial security.


Cryptocurrency and Digital Finance
Cryptocurrency platforms and decentralised finance systems continue to challenge traditional banking concepts and legal regulations.


Conclusion
Banks and financial service providers both contribute to the financial system, but they are legally different institutions. Banks perform core banking activities such as deposit-taking and lending, while financial service providers usually focus on specialised financial services. As technology continues to transform the financial industry, the distinction between these institutions becomes increasingly complex, making legal regulation and interpretation essential in Malaysian banking law.

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Malaysian Banking Law – Nature and Business of Banking
Banking as Part of Modern Society
Banking plays an important role in modern trade, commerce, and economic activities. It is an essential part of society because businesses, governments, and individuals depend on banking services for financial transactions, savings, investments, and credit facilities. Without banks, commercial activities and economic growth would be difficult to sustain.
Courts have recognised the importance of banking in supporting economic and social development. Because banking activities are closely connected to trade and commerce, the law treats banking as a significant commercial activity that affects the entire financial system.


Judicial Definitions of Banking Business
Commonwealth of Australia v Bank of New South Wales
In Commonwealth of Australia v Bank of New South Wales, the court stated that the business of banking includes:

• The creation and transfer of credit,
• The granting of loans,
• The purchase and disposal of investments, and
• Other related financial activities.

This definition shows that banking is not limited to accepting deposits. Banks also create financial credit, provide financing facilities, and engage in investment-related activities. Therefore, banking involves a broad range of commercial and financial services.


Commercial Banking Co of Sydney Ltd v Federal Commissioner of Taxation
In Commercial Banking Co of Sydney Ltd v Federal Commissioner of Taxation, the High Court held that the principal business of a bank is the lending of money.
This case highlights the importance of loans and credit facilities in banking operations. Lending money allows banks to support businesses, investments, housing, and consumer spending, which are important for economic development.


Re Securitibank (in liquidation)
In the New Zealand case of Re Securitibank (in liquidation), certain companies described themselves as merchant bankers and were involved in short-term money market activities, bills markets, and various financial services. However, the court decided that these companies were not “carrying on the business of banking” for the purpose of exemption under the Moneylenders Act 1908.
This case demonstrates that not every financial activity automatically amounts to banking business. Even if a company provides financial services or uses the word “banker,” the court may still decide that the company is not legally operating as a bank.


Characteristics of Banking Business
Creation and Transfer of Credit
Banks create credit by lending money to customers. When banks approve loans or financing facilities, they increase the flow of money within the economy. Banks also transfer credit through payment systems, electronic banking, and financial transactions.


Lending of Money
One of the main functions of banks is lending money to individuals and businesses. Loans may include personal loans, housing loans, business financing, and credit card facilities. Lending activities generate profit for banks through interest or financing charges.


Investment Activities
Banks also engage in investment-related activities, including the buying and selling of securities, shares, bonds, and financial instruments. Modern banks may provide investment advice and wealth management services to customers.


Other Related Financial Activities
Modern banks perform many additional activities such as internet banking, mobile payments, foreign exchange transactions, insurance services, and trade financing. These activities show that banking is broader than traditional deposit-taking functions.


Application in a Case Scenario
Scenario
Daniel establishes a financial company that provides short-term financing, investment advice, and foreign exchange services. The company also advertises itself as a “merchant bank.” However, it does not accept public deposits like traditional banks.
A legal dispute arises regarding whether Daniel’s company should legally be classified as a bank. The court may examine the principles established in Re Securitibank (in liquidation) to determine whether the company is truly carrying on banking business or merely engaging in financial activities.
This scenario shows that the legal definition of banking depends on the actual nature of the activities carried out rather than the title used by the company.


Critical Analysis
The cases show that banking is a broad and evolving concept. Modern banks perform many functions beyond accepting deposits and granting loans. Technological advancements and financial innovations continue to expand the meaning of banking business.
However, the absence of a precise definition may create uncertainty. Some financial institutions perform banking-like activities without being fully regulated as banks. This may expose customers to financial risks if such institutions are not properly supervised.
Another issue is the growth of financial technology companies and digital finance platforms. Many of these companies provide services similar to banks, such as electronic payments and lending facilities, but they may not fall clearly within traditional banking definitions.
The courts therefore play an important role in determining whether certain financial activities amount to banking business. At the same time, regulators such as Bank Negara Malaysia must ensure that financial institutions operate safely and comply with banking laws.


Unresolved Issues
One unresolved issue concerns the distinction between banks and financial service providers. Modern financial institutions often provide similar services, making it difficult to determine whether they should legally be treated as banks.
Another issue relates to digital banking and financial technology. Online platforms, digital wallets, and cryptocurrency businesses continue to challenge traditional banking concepts and legal regulations.
There is also concern regarding regulatory gaps. Some companies may perform banking-related activities without being subject to the same strict regulations imposed on licensed banks, potentially creating risks for consumers and the financial system.


Conclusion
Banking is an essential part of modern trade, commerce, and economic development. Courts have recognised that banking includes the creation of credit, lending of money, investment activities, and other related financial services. Cases such as Commonwealth of Australia v Bank of New South Wales, Commercial Banking Co of Sydney Ltd v Federal Commissioner of Taxation, and Re Securitibank (in liquidation) demonstrate that the definition of banking depends on the actual nature of the activities carried out. As financial services continue to evolve, banking law must also adapt to modern economic and technological developments.

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Malaysian Banking Law – Definition of a Bank at Common Law
General Explanation
At common law, there is no complete or fixed definition of the word “bank.” Courts have recognised that banking activities change over time and differ from one country to another. Because banking develops together with economic and social changes, it is difficult to create one universal definition that covers every banking activity.
In the case of Bank of Chettinad Ltd of Colombo v IT Commissioners of Colombo, the Privy Council explained that the meanings of the words “bank” and “banking” may vary depending on the historical period, the country involved, and the level of economic and social development in that society. This means that what is considered banking in one country or era may not necessarily be regarded the same way elsewhere.
Similarly, in Bank of New South Wales v Commonwealth, Dixon J stated that banking should be given a broad meaning because it forms part of the commercial, economic, and social structure of society. He further explained that it is impossible to provide a complete and inclusive definition of banking because banking practices constantly evolve and differ across countries.


Why There Is No Exhaustive Definition of a Bank
Banking Changes Over Time
Banking activities have developed significantly throughout history. In the past, banks mainly accepted deposits, honoured cheques, and provided loans. Today, banks also provide internet banking, digital payments, investment services, insurance products, and international financial transactions. Because banking services continue to expand, a strict definition may become outdated quickly.


Banking Differs Between Countries
Different countries have different financial systems, laws, and economic conditions. As a result, the meaning of banking may not be identical everywhere. For example, Islamic banking in Malaysia operates according to Shariah principles, while conventional banking systems in other countries may follow different financial practices.


Banking Is Connected to Society and Economy
Banking is closely linked to trade, business, investment, and economic growth. Since economic systems change over time, banking institutions must also adapt to new technologies and financial practices. Therefore, courts prefer to interpret the meaning of banking broadly rather than restrictively.


Application in a Case Scenario
Scenario
Jason establishes a digital financial platform that allows customers to store money electronically, transfer funds internationally, and make online payments through mobile applications. Although the company does not operate like a traditional bank branch, it performs many banking-related services.
A legal issue arises regarding whether Jason’s company should legally be treated as a bank under financial regulations. The court may apply the principles from Bank of Chettinad Ltd of Colombo v IT Commissioners of Colombo and Bank of New South Wales v Commonwealth to determine whether the activities carried out by the company fall within the broad meaning of banking.
This scenario demonstrates why courts avoid giving a narrow definition of banking. Modern financial services continue to evolve, and legal interpretations must remain flexible.


Critical Analysis
The absence of a fixed definition of “bank” provides flexibility and allows the law to adapt to technological and financial developments. Courts can interpret banking broadly to include new financial services such as digital banking, mobile payments, and financial technology platforms.
However, this flexibility may also create legal uncertainty. Businesses may be unsure whether their activities fall within banking regulations. Consumers may also face confusion regarding which institutions are legally recognised and protected as banks.
Another concern is regulatory supervision. As financial technology companies increasingly provide banking-like services, governments and regulators must decide whether these companies should be subject to the same laws and responsibilities as traditional banks.
The broad interpretation of banking also increases the importance of financial regulation. In Malaysia, Bank Negara Malaysia plays a key role in determining which institutions may lawfully conduct banking business and provide financial services.


Unresolved Issues
One unresolved issue is whether modern financial technology companies should legally be classified as banks. Many digital platforms provide services similar to banks but may not fall clearly within traditional legal definitions.
Another unresolved issue concerns cryptocurrency and digital assets. Courts and regulators continue to debate whether activities involving digital currencies should be treated as banking activities under existing laws.
There is also uncertainty regarding future banking technologies. Artificial intelligence, virtual banking platforms, and decentralised finance systems continue to challenge traditional banking concepts and legal frameworks.


Conclusion
At common law, there is no exhaustive or universal definition of the word “bank.” Courts recognise that banking evolves according to historical, economic, and social developments. Cases such as Bank of Chettinad Ltd of Colombo v IT Commissioners of Colombo and Bank of New South Wales v Commonwealth show that banking should be interpreted broadly and flexibly. This approach allows the law to adapt to modern financial developments while ensuring that banking continues to serve the needs of society and the economy.

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​Malaysian Banking Law – The Legal Relationship Between Banker and Customer

Introduction
Banking is an important service industry that provides financial services to individuals and businesses. A bank’s main concern is to maintain a strong and positive relationship with its customers. To achieve this, banks try to satisfy the many different needs of customers by providing efficient and reliable services. When a bank cannot fulfil a customer’s request, it should handle the matter professionally and carefully in order to preserve trust and confidence.

Before studying banking law, it is necessary to understand the legal relationship between a banker and a customer. This relationship forms the foundation of banking transactions and determines the legal rights, duties, and obligations of both parties. Banking law explains the responsibilities owed by banks to customers and the obligations customers owe to banks.
To understand this relationship clearly, the legal meaning of the words “bank” and “customer” must first be examined. Courts and legal authorities have interpreted these terms through various cases and legal materials, helping to explain how the banker–customer relationship operates in practice.

Definition of a Banker
General Meaning of a Banker
Traditionally, banks mainly accepted deposits, honoured cheques, and granted loans. However, the role of banks has expanded significantly in modern times. Today, banks provide a wide variety of financial and investment services. Because of this development, it is now difficult to define the term “banker” narrowly. Modern bankers are more commonly regarded as financial service providers because they offer numerous banking and financial facilities beyond traditional banking activities.

The definition of a banker is important for two reasons. First, the relationship between a bank and its customer contains special legal characteristics that distinguish it from ordinary commercial relationships. Secondly, many laws and statutes specifically refer to banks, bankers, and banking businesses. Therefore, identifying who qualifies as a banker is important in determining legal rights, liabilities, and regulatory obligations.

Modern Banking Services
Credit Cards and Charge Cards
Modern banks provide credit card and charge card facilities to customers. A credit card allows customers to purchase goods and services using money borrowed from the bank, which is repaid later, often with interest if payment is delayed. A charge card is similar, except the outstanding balance usually must be paid in full within a fixed period. These facilities encourage convenient and cashless transactions.

Foreign Exchange and Money Market Transactions
Banks also provide foreign exchange services involving the buying and selling of currencies. These services are important for international trade, overseas travel, and cross-border investments. In addition, banks participate in money market transactions involving short-term financial instruments that help businesses and financial institutions manage liquidity and financing needs.

Telegraphic and Electronic Transfers
Telegraphic and electronic transfer services allow customers to transfer funds quickly between accounts locally and internationally. These services improve banking efficiency and reduce reliance on physical cash transactions. Electronic transfers are commonly used for salaries, business payments, and remittances.

Internet Banking
Internet banking enables customers to access banking services through online platforms. Customers may check balances, transfer money, pay bills, and manage accounts without visiting a bank branch physically. This service has become increasingly important due to advancements in technology and customer demand for convenience.

Mobile and Digital Payments
Banks now provide mobile banking and digital payment services through smartphones and electronic applications. Customers may conduct banking activities, make purchases, and transfer funds using mobile applications and digital wallets. These services contribute to the growth of a cashless society and improve financial accessibility.

Bills and Trade Finance Facilities
Banks assist businesses by providing trade finance facilities such as letters of credit, guarantees, and bill financing. These facilities support domestic and international trade by reducing payment risks and facilitating commercial transactions between buyers and sellers.

Share Financing and Investment Services
Modern banks also offer investment and wealth management services. Share financing allows customers to borrow funds for investment in shares and securities. Banks may additionally provide investment advice, unit trust services, portfolio management, and other financial planning services to help customers increase their wealth.

Auto-Financing
Banks provide vehicle financing facilities that enable customers to purchase vehicles through instalment payments. Under auto-financing arrangements, the customer repays the financing amount together with interest or profit charges over an agreed period.

Insurance Services
Many banks now cooperate with insurance companies to offer insurance products to customers. This practice is commonly known as bancassurance. Customers may obtain life insurance, medical insurance, and other protection plans through banking institutions.

Custodian and Trust Businesses
Banks may also provide custodian and trust services. Custodian services involve safeguarding valuable documents, securities, or assets on behalf of customers. Trust services involve managing property or assets for the benefit of another party according to legal obligations and trust arrangements.

Application in a Case Scenario
Scenario
Farah opens a savings account with RHB Bank Berhad and later applies for a credit card and auto-financing facility. She also uses internet banking and mobile applications to pay bills and transfer money to family members overseas.
This situation demonstrates that modern banking services extend beyond merely accepting deposits and granting loans. The relationship between Farah and the bank involves various legal duties concerning financing, electronic banking, confidentiality, and consumer protection. The bank is required to manage her funds responsibly, protect her personal information, and ensure secure transactions.

Critical Analysis
The expansion of banking services has transformed banks into comprehensive financial institutions. While this development increases convenience and efficiency for customers, it also creates legal and regulatory challenges.
One major concern is cybersecurity. Internet banking and digital payment systems expose customers to online fraud, hacking, phishing scams, and identity theft. Banks therefore have a responsibility to strengthen security systems and protect customer information from unauthorised access.

Another concern is the imbalance of bargaining power between banks and customers. Banking contracts are often lengthy and complicated, and customers may accept terms without fully understanding their legal consequences. This raises questions regarding fairness, transparency, and consumer protection.

The increasing complexity of financial products also means that customers may face risks they do not fully understand, especially in investment and financing services. Therefore, stricter regulation and greater financial literacy are necessary to ensure responsible banking practices.
In Malaysia, Bank Negara Malaysia plays an important role in regulating financial institutions and ensuring financial stability and consumer confidence.

Unresolved Issues
Despite developments in banking law and technology, several unresolved issues remain in the banker–customer relationship.

One unresolved issue concerns liability for unauthorised online transactions. Customers who become victims of phishing or cyber fraud often dispute whether the loss should be borne by the customer or the bank. Determining responsibility may be difficult because both parties may have contributed to the security failure.

Another issue relates to customer privacy and data protection. Modern banks collect and store large amounts of personal and financial information, increasing the risk of data breaches and misuse of customer information.

There are also ongoing concerns regarding unfair terms in banking contracts. Customers may not fully understand complicated legal clauses contained in financing agreements, credit card contracts, or investment documents.

Furthermore, technological developments such as cryptocurrency, artificial intelligence, and digital banking platforms continue to challenge existing banking laws and regulatory frameworks. Legislators and courts may struggle to keep pace with these rapid changes.

Further Points to Consider
Definition of a Customer
A person generally becomes a customer once the bank agrees to provide banking services, such as opening an account or granting financing facilities.

Duty of Care
Banks owe customers a duty to exercise reasonable care and skill when handling customer transactions and financial matters.

Confidentiality Obligations
Banks are expected to keep customer information confidential unless disclosure is required by law or permitted by the customer.

Statutory Regulation
In Malaysia, banking activities are regulated by legislation such as the Financial Services Act 2013 and supervised by Bank Negara Malaysia.

Consumer Protection
Modern banking law increasingly emphasises consumer protection against fraud, unfair banking practices, and misuse of customer data.

Islamic Banking Principles
Malaysia’s dual banking system includes Islamic banking, which operates according to Shariah principles. Islamic banking may involve different legal concepts and obligations compared to conventional banking.

Conclusion
The banker–customer relationship forms the foundation of banking law. Modern banks no longer perform only traditional functions such as accepting deposits and granting loans. Instead, they now provide a wide range of financial, investment, and digital services. As banking services continue to evolve, the legal relationship between banks and customers becomes increasingly important and complex. Understanding the role of modern bankers, the services they provide, and the legal duties involved is essential for understanding Malayan banking law.

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:

1. accepting money and collecting cheques for customers;
2. honouring cheques drawn by customers;
3. maintaining current accounts with debits and credits.

Paget’s Law of Banking similarly stated that no person can truly be a banker unless he:

• 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.

The Malaysian approach traditionally interpreted these elements:
✔ 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.

However, US law defines customer as:
✔ 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.

This differs from:
✔ 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.

When bank lends money:

• bank = creditor;
• customer = debtor.

12. Agent–Principal Relationship
Sometimes bank acts:
✔ as agent.
Example:

• remittances;
• cheque collection;
• standing instructions.

Here:

• 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:

1. existence of trust;
2. dishonest design;
3. assistance by stranger;
4. 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.

Customers owe duties:

• 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.

Without these:
✔ 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.

Thus:
✔ 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.

Courts balance:
✔ 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.

​

Malaysian Banking Law — United Merchant Finance Bhd v Majlis Agama Islam Negeri Johor [1999] 1 MLJ 657 (Federal Court)
Case Scenario
Suppose:
A religious council deposits RM1 million into a finance company as fixed deposits.
The finance company issues:

• two fixed deposit receipts of RM500,000 each.

Later:
✔ the council asks for repayment.
However:
✔ the finance company refuses to pay.
The council then sues the finance company and argues:

1. the fixed deposit receipts prove the finance company owes the money; and
2. alternatively, the finance company became a constructive trustee of the RM1 million.

At the same time:
✔ criminal proceedings reveal possible irregularities involving the council’s former president and the fixed deposit receipts.
The question becomes:
Can the finance company immediately be held liable?
or
Must there first be a full trial?


Facts of the Case
United Merchant Finance Bhd v Majlis Agama Islam Negeri Johor
The plaintiffs deposited:
✔ RM1 million
with the defendants’ branch as fixed deposits.
The defendants issued:
✔ two fixed deposit receipts of RM500,000 each.
Later:
✔ the plaintiffs demanded repayment together with interest.
The defendants failed to repay.


Plaintiffs’ Arguments
The plaintiffs argued:
1. Contractual Claim
The fixed deposit receipts were evidence that:
✔ the defendants owed RM1 million.
The plaintiffs claimed they were entitled to assume:
✔ all transactions were properly and validly conducted.


2. Constructive Trustee Claim
Alternatively, the plaintiffs argued:
✔ the defendants held the money as constructive trustees.
Meaning:
✔ the defendants were under equitable obligations regarding the deposited funds.


Defendants’ Defence
The defendants denied liability.
The case initially involved:
✔ an application for summary judgment.
Meaning:
✔ the plaintiffs wanted immediate judgment without a full trial.


High Court Decision
The High Court refused summary judgment.
The judge held:
✔ there were bona fide triable issues.
Meaning:
✔ important factual and legal disputes existed.
Therefore:
✔ a full trial was necessary.


Court of Appeal Decision
The Court of Appeal reversed the High Court.
The Court of Appeal held:
✔ the defendants had no credible defence.
Therefore:
✔ summary judgment was entered in favour of the plaintiffs.


Federal Court Appeal
The defendants appealed to the Federal Court.
At the Federal Court:
✔ new information emerged.
A criminal case involving:
✔ the plaintiffs’ former president
revealed evidence concerning:
✔ the fixed deposit receipts.
The defendants argued:
✔ they should be allowed to investigate this further and possibly amend their defence.


Federal Court Decision
The Federal Court allowed the appeal.
The court restored:
✔ the High Court’s order.
Meaning:
✔ the defendants were granted unconditional leave to defend the action.
Thus:
✔ the matter had to proceed to full trial.


Key Legal Principles
1. Constructive Trustee Claims Require Full Investigation
The Federal Court emphasised:
✔ constructive trustee allegations are serious and complex.
Such claims:
✔ cannot usually be decided summarily.
Instead:
✔ oral evidence;
✔ detailed factual inquiry;
✔ full examination of conduct
are often necessary.


2. Constructive Trustee Liability in Banking Is Technically Complex
The court recognised:
✔ banking constructive trust law is highly technical.
The court referred to:
Lipkin Gorman v Karpnale Ltd
This case established:
✔ banks are not easily liable as constructive trustees.


3. Breach of Contractual Duty May Be Required
The Federal Court referred to the principle in Lipkin Gorman that:
a bank may not become liable as constructive trustee unless it first breached its contractual duty of care.
This is extremely important.
It means:
✔ constructive trustee liability is not automatic.
The plaintiff must prove:

• breach of duty;
• improper conduct;
• involvement in wrongdoing.

4. Burden of Proof Lies on Plaintiff
The plaintiffs had the burden to prove:
✔ constructive trustee liability.
The court held:
✔ strict proof was required.


5. Criminal Proceedings May Affect Civil Banking Claims
The criminal proceedings involving the former president could affect:
✔ authenticity;
✔ validity;
✔ surrounding circumstances of the fixed deposit receipts.
Therefore:
✔ justice required a full trial.


Important Judicial Observation
The Federal Court observed:
constructive trustee claims against banks require careful examination and proper pleadings.
The court even referred to:
✔ Bullen & Leake & Jacob’s Precedents of Pleadings
showing:
✔ constructive trustee allegations must be pleaded precisely and specifically.


Relationship Between Contract and Constructive Trust
This case shows an important principle:
Ordinary Banking Relationship
Normally:
✔ banker–customer relationship is contractual.
The bank:

• owes contractual duties;
• acts as debtor.

Constructive Trustee Liability
However:
✔ if the bank becomes improperly involved in wrongdoing,
equity may impose:
✔ constructive trustee liability.
But:
✔ courts impose this cautiously.


Why Courts Are Careful
Banks process:

• massive transactions daily;
• thousands of deposits;
• commercial dealings rapidly.

If constructive trustee liability were imposed too easily:
✔ banking operations would become commercially dangerous and impractical.
Therefore:
✔ courts require strong proof.


Practical Banking Importance
This case is important because it shows:
Banks are NOT automatically constructive trustees merely because:
✔ money was deposited;
✔ disputes arise;
✔ fraud later occurs.
Instead:
✔ actual involvement,
✔ breach of duty,
✔ dishonesty,
✔ knowledge,
✔ suspicious conduct
must usually be proven.


Critical Analysis
This decision balances:
✔ protection of depositors;
with
✔ protection of banking institutions from excessive liability.
The Federal Court recognised that:

• equitable doctrines are important;
• trust law protects beneficiaries;

BUT:
✔ banks should not automatically become insurers against every disputed transaction.


Practical Application
Banks today use:

• compliance procedures;
• anti-fraud systems;
• due diligence;
• internal verification;
• suspicious transaction monitoring.

Why?
To avoid:
✔ claims of constructive trusteeship;
✔ allegations of dishonest assistance.


Difference Between Contractual Claim and Constructive Trustee Claim
Contractual Claim
The plaintiff says:
“You owe me money under our banking contract.”


Constructive Trustee Claim
The plaintiff says:
“You became involved in wrongful handling of trust property.”
This second claim:
✔ is more serious;
✔ requires stronger proof.


Solved Case Scenario
Scenario
A charity deposits RM5 million with a finance company.
The finance company issues deposit receipts.
Later:
✔ repayment is refused.
The charity discovers:
✔ its former treasurer may have manipulated documents.
The charity immediately seeks summary judgment and alleges:
✔ the finance company is constructive trustee.


Legal Solution
The court will likely:
✔ refuse immediate summary judgment.
Why?
Because:

• factual disputes exist;
• dishonesty must be examined;
• trust issues require oral evidence;
• authenticity of documents may be disputed.

The matter should proceed:
✔ to full trial.


Questions for Further Research

1. Should banks owe stronger obligations regarding suspicious fixed deposits?
2. Should constructive trustee liability be easier to establish against financial institutions?
3. How far should banks investigate internal fraud involving depositors?
4. Can negligence alone make a bank constructive trustee?
5. How should courts balance commercial practicality against equitable fairness?

Final Examination Rule
A bank is not automatically liable as a constructive trustee merely because disputed funds were deposited with it. Constructive trustee liability in banking requires careful proof of breach of duty, knowledge, dishonesty, or improper involvement. In United Merchant Finance Bhd v Majlis Agama Islam Negeri Johor, the Federal Court held that such allegations are technically complex and generally require a full trial with strict proof rather than summary judgment.

​

Malaysian Banking Law — Is Being a Constructive Trustee a “Bad Thing”?
Generally:
✔ yes.
In banking law and equity,
being labelled a constructive trustee usually means:
the court believes the person became involved in wrongdoing, unfair conduct, breach of trust, or dishonest handling of property.
So unlike an ordinary trustee:
✔ a constructive trustee is usually imposed by the court because something went wrong.


Difference Between Ordinary Trustee and Constructive Trustee
1. Express Trustee (Normal Trustee)
This is:
✔ voluntary;
✔ lawful;
✔ intended.
Example:

• a trustee managing family trust assets;
• executor managing estate property.

The trustee knowingly accepts:
✔ fiduciary duties.
This is NOT bad.


2. Constructive Trustee
This is imposed:
✔ by operation of law;
✔ by equity;
✔ often because of misconduct or improper involvement.
The person:
✔ never intended to become trustee.
But the court says:
“Because of your conduct, equity will treat you as trustee.”


Why Courts Impose Constructive Trusteeship
The purpose is:
✔ to prevent injustice;
✔ to prevent dishonest enrichment;
✔ to protect beneficiaries;
✔ to recover misused property.


In Banking Law
For banks:
being held liable as constructive trustee is serious because it means:
✔ the bank improperly became involved in misuse of trust money.
Usually this involves:

• dishonest assistance;
• knowing receipt;
• breach of trust;
• suspicious transactions.

Example
Suppose:

• a company director steals company money;
• transfers it through the bank;
• the bank knows the transactions are suspicious;
• the bank still helps process the transfers.

The court may hold:
✔ the bank became a constructive trustee.
This is effectively the court saying:
“You should not have participated in this wrongdoing.”


Consequences of Being a Constructive Trustee
The constructive trustee may have to:
✔ return money;
✔ compensate losses;
✔ account for profits;
✔ restore trust assets.
This can involve:

• huge financial liability;
• reputational damage;
• legal penalties.

But Constructive Trustee Does NOT Always Mean Fraud
Sometimes:
✔ the person did not personally steal anything.
However:
✔ their conduct was sufficiently dishonest, reckless, or improper.
Equity therefore imposes liability.


Constructive Trustee vs Criminal Liability
Being constructive trustee:
✔ is mainly civil/equitable liability.
It does NOT automatically mean:
✔ criminal guilt.
However:
sometimes the facts may also involve:

• fraud;
• money laundering;
• criminal breach of trust.

Simple Analogy
Express Trustee
A parent voluntarily manages money for a child.
✔ lawful;
✔ proper;
✔ intended.


Constructive Trustee
A person improperly helps someone misuse another person’s money.
The court says:
“You must now hold or repay the money as trustee.”
✔ imposed by court;
✔ usually connected to wrongdoing.


Important Principle
A constructive trustee is not created because the court wants to punish someone.
Instead:
✔ equity imposes the obligation to achieve fairness and justice.


Case Scenario
A law firm keeps client money in a trust account.
A bank officer notices:

• unusual transfers;
• large withdrawals to private accounts;
• forged signatures.

But the bank ignores obvious warning signs and processes the transactions anyway.
The client money disappears.
The court may hold:
✔ the bank liable as constructive trustee.
Why?
Because:
✔ the bank may have dishonestly assisted breach of trust.


Critical Analysis
Courts are careful before imposing constructive trustee liability on banks because:
banks process:

• thousands of transactions;
• millions of payments;
• huge volumes daily.

If banks became liable too easily:
✔ banking business would become impossible.
Therefore courts usually require:
✔ strong evidence of dishonesty or knowing involvement.


Final Examination Rule
A constructive trustee is generally not a “good” status because it usually arises when equity finds that a person or bank became improperly involved in breach of trust, dishonest assistance, or misuse of trust property. The court then imposes trustee-like liability to prevent injustice and protect beneficiaries.

​

Malaysian Banking Law: Expansion of the Meaning of “Customer” — Banks as Customers and Walk-In Customers


Case Scenario
A foreign bank regularly sends cheques to an English bank for collection. The English bank acts as collecting agent and credits the proceeds to the foreign bank. A dispute later arises as to whether the foreign bank qualifies as a “customer.”
In another situation in Malaysia, a person who does not hold a bank account walks into a bank and purchases a bank draft. While handling the draft at the counter, the draft goes missing. The issue arises whether the bank owes legal duties to someone who is merely a “walk-in” customer.
 Explanation


Q1: What happened in Importers Co Ltd v Westminster Bank Ltd?
An English bank regularly collected cheques on behalf of a foreign bank. The English bank acted as the foreign bank’s agent for cheque collection and credited the proceeds accordingly.
The legal issue was whether the foreign bank could be regarded as a “customer” under section 82 of the Bills of Exchange Act 1882.


Q2: What did the court decide?
👉 The court held:
✔ The foreign bank WAS a customer.
The English bank, when collecting crossed cheques for the foreign bank, was acting for a customer within the meaning of the statute.


Q3: Why was the foreign bank considered a customer?
👉 Because:

• There was an ongoing banking arrangement;
• The English bank regularly performed banking services for the foreign bank;
• The relationship involved continuous cheque collection transactions.

Bankes LJ explained that where one bank continuously performs banking services for another bank, it is impossible to deny that a banker–customer relationship exists between them.


Q4: What important principle does this case establish?
👉 A bank itself may become a customer of another bank.
✔ Therefore:
The term “customer” is not limited only to ordinary individuals or account holders.
It may also include:

• banks;
• corporations; and
• financial institutions engaged in banking transactions.

Walk-In Customers and Banker’s Duty of Care


Q5: What happened in Kehar Singh all Jasa Singh v Standard Chartered Bank?
A person who did not hold an account with the bank entered the bank as a walk-in customer and purchased a bank draft.
While placing the draft on the counter, the draft was lost. The customer claimed compensation from the bank.


Q6: What did the court decide?
👉 The Supreme Court held:
✔ The bank owed the walk-in customer a duty of care.
However:
✔ The customer himself was also negligent.
👉 Therefore:
The loss was apportioned equally between:

• the bank; and
• the customer.

Q7: Why did the bank owe duties even though the person had no account?
👉 Because:

• A banking transaction had already taken place;
• The customer entered into a contractual arrangement with the bank;
• The bank undertook responsibilities toward him.

✔ Thus:
A formal account is not always necessary before banking duties arise.


Connection with Earlier Cases


Compared with Great Western Railway Co v London and County Banking Co Ltd
✔ Great Western held:

• Casual cheque cashing without account does not create customer status.

👉 Kehar Singh differs because:
✔ There was an actual banking contract involving the purchase of a bank draft.


Compared with Woods v Martins Bank Ltd
✔ Both cases recognise:

• Banking obligations may arise before or without formal account opening;
• Contractual dealings are sufficient to impose duties.

Compared with Commissioners of Taxation v English, Scottish and Australian Bank Ltd
✔ Both cases support the idea that:

• formal duration is not essential;
• banking relationships may arise immediately.

Application (Note Form)
✔ Customer relationship may exist:

• Between bank and individual;
• Between bank and another bank;
• Through banking contracts and services.

✔ Formal account opening is not always necessary.
✔ Walk-in customers may still receive legal protection.
✔ Banks owe duties once banking services are undertaken.
👉 Key idea:
Modern banking law focuses on banking relationships and obligations rather than strict account ownership alone.


Critical Analysis
These cases demonstrate the gradual expansion of the legal meaning of “customer.”
Traditionally, customer status depended heavily on:

• maintaining a current account;
• cheque facilities; and
• formal account relationships.

Modern courts now adopt a broader commercial approach. They examine:

• whether banking services were provided;
• whether contractual obligations arose; and
• whether the bank undertook responsibilities toward the person.

As banking transactions become increasingly sophisticated, the law recognises that banking duties may arise in many commercial situations beyond traditional account relationships.
The recognition of:

• banks as customers; and
• walk-in customers as protected persons

shows the modern flexibility of banking law.


Resolution of the Case Scenario
First Scenario — Bank-to-Bank Relationship

• Regular cheque collection ✔
• Continuous banking arrangement ✔
• Banking services provided ✔

👉 Therefore:
The foreign bank WAS a customer.


Second Scenario — Walk-In Customer

• Bank draft purchased ✔
• Banking contract existed ✔
• Bank undertook responsibilities ✔

👉 Therefore:
The walk-in customer was owed a duty of care by the bank, although liability was shared due to contributory negligence.


Final Exam Rule (Very Important)
A banker–customer relationship may arise not only with account holders, but also between banks themselves or with walk-in customers where banking services and contractual obligations are undertaken by the bank.