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KembaraXtra – Legal Terms – Notice of Discontinuance
A notice of discontinuance is a formal notice used in civil proceedings when a claimant voluntarily decides to abandon all or part of a legal claim.
Under Part 38 of the Civil Procedure Rules, the claimant may discontinue proceedings at almost any stage by filing the notice with the court and serving copies on the other parties involved.
Where there is more than one defendant, the claimant may discontinue the claim against some defendants while continuing against others.
However, court permission may be required in certain situations, such as where an interim injunction has already been granted, where the claimant has received an interim payment, or where multiple claimants are involved in the proceedings.
A notice of discontinuance is a formal notice used in civil proceedings when a claimant voluntarily decides to abandon all or part of a legal claim.
Under Part 38 of the Civil Procedure Rules, the claimant may discontinue proceedings at almost any stage by filing the notice with the court and serving copies on the other parties involved.
Where there is more than one defendant, the claimant may discontinue the claim against some defendants while continuing against others.
However, court permission may be required in certain situations, such as where an interim injunction has already been granted, where the claimant has received an interim payment, or where multiple claimants are involved in the proceedings.
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KembaraXtra – Legal Terms – Not Negotiable
The words “not negotiable” written on a crossed cheque indicate that a person receiving the cheque cannot obtain a better title to it than the person who transferred it.
This means that if the transferor had defective title, the transferee will also suffer from that defect.
Most banks now issue cheques marked “not negotiable” following the Cheques Act 1992.
A bill of exchange carrying these words is also not transferable in the ordinary negotiable sense.
The words “not negotiable” written on a crossed cheque indicate that a person receiving the cheque cannot obtain a better title to it than the person who transferred it.
This means that if the transferor had defective title, the transferee will also suffer from that defect.
Most banks now issue cheques marked “not negotiable” following the Cheques Act 1992.
A bill of exchange carrying these words is also not transferable in the ordinary negotiable sense.
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KembaraXtra – Legal Terms – Noting a Bill
Noting a bill refers to a formal step connected with the protest of a dishonoured *bill of exchange.
It is a preliminary certification by a notary public confirming that the bill has been dishonoured.
This process provides official evidence of non-acceptance or non-payment and may later support a formal protest.
Noting a bill refers to a formal step connected with the protest of a dishonoured *bill of exchange.
It is a preliminary certification by a notary public confirming that the bill has been dishonoured.
This process provides official evidence of non-acceptance or non-payment and may later support a formal protest.
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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:
✔ 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:
Example
Suppose:
✔ 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:
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:
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:
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:
✔ 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.
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.
✔ 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 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.
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.
✔ 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.
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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:
✔ the council asks for repayment.
However:
✔ the finance company refuses to pay.
The council then sues the finance company and argues:
✔ 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:
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:
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:
✔ 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:
✔ banks should not automatically become insurers against every disputed transaction.
Practical Application
Banks today use:
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:
✔ to full trial.
Questions for Further Research
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.
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.
✔ the council asks for repayment.
However:
✔ the finance company refuses to pay.
The council then sues the finance company and argues:
- the fixed deposit receipts prove the finance company owes the money; and
- alternatively, the finance company became a constructive trustee of the RM1 million.
✔ 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.
✔ 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;
✔ 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.
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.
✔ to full trial.
Questions for Further Research
- Should banks owe stronger obligations regarding suspicious fixed deposits?
- Should constructive trustee liability be easier to establish against financial institutions?
- How far should banks investigate internal fraud involving depositors?
- Can negligence alone make a bank constructive trustee?
- 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.
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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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KembaraXtra – Bharatiya Sakshya Adhiniyam (BSA) – Changes in the Definition of Evidence
Introduction
The Bharatiya Sakshya Adhiniyam has introduced important changes in the definition of “evidence” to make the law compatible with modern technological developments. These amendments recognize the growing importance of electronic communication and digital technology in judicial proceedings.
The revised definition expands the scope of both oral and documentary evidence and ensures that electronic and digital materials are properly recognized within the legal framework of evidence law.
Inclusion of Statements Given Electronically
One major change introduced by the BSA is the inclusion of statements given electronically within the scope of oral evidence.
Traditionally, oral evidence referred only to statements made verbally before the Court by witnesses. Under the new provision, statements communicated through electronic means are also recognized as oral evidence.
This change broadens the concept of oral testimony and reflects the realities of modern communication methods such as video conferencing, electronic communication platforms, and other digital modes through which statements may be made.
The amendment therefore ensures that technological methods of communication receive legal recognition in judicial proceedings.
Inclusion of Electronic and Digital Records
The second important change is the express inclusion of electronic and digital records within the category of documentary evidence.
Under the earlier framework, documentary evidence mainly referred to documents in physical form. The BSA now clearly recognizes electronic records, digital files, emails, computer-generated documents, audio recordings, video recordings, and other digital materials as documentary evidence.
This change removes ambiguity and adapts the law of evidence to contemporary technological realities where most transactions, communications, and records exist in electronic form.
Purpose and Significance of These Changes
These amendments enhance clarity, efficiency, and adaptability in the legal system. They ensure that courts can effectively deal with modern forms of evidence generated through digital technology.
The inclusion of electronic and digital evidence strengthens the ability of courts to examine technologically advanced forms of proof and prevents important evidence from being excluded merely because it exists in electronic form.
The changes also promote uniformity and certainty in the treatment of digital evidence.
Connection with Arjun Panditrao v Kailash Kushanrao
The amendments incorporated in the BSA are significant because they reflect and incorporate the interpretation given by the Supreme Court in Arjun Panditrao v Kailash Kushanrao.
In that case, the Supreme Court clarified the legal position regarding admissibility of electronic evidence under Section 65B of the Indian Evidence Act, 1872. The Court emphasized the importance of proper certification and legal recognition of electronic records.
The BSA incorporates this judicial interpretation and modernizes the statutory framework to expressly recognize electronic and digital evidence.
Conclusion
The Bharatiya Sakshya Adhiniyam modernizes the law of evidence by expressly including electronic statements and digital records within the definition of evidence. These changes ensure that the legal system remains effective in dealing with technological advancements and contemporary methods of communication and record-keeping. By incorporating the principles recognized in Arjun Panditrao v Kailash Kushanrao, the BSA strengthens the legal framework governing electronic evidence in India.
Introduction
The Bharatiya Sakshya Adhiniyam has introduced important changes in the definition of “evidence” to make the law compatible with modern technological developments. These amendments recognize the growing importance of electronic communication and digital technology in judicial proceedings.
The revised definition expands the scope of both oral and documentary evidence and ensures that electronic and digital materials are properly recognized within the legal framework of evidence law.
Inclusion of Statements Given Electronically
One major change introduced by the BSA is the inclusion of statements given electronically within the scope of oral evidence.
Traditionally, oral evidence referred only to statements made verbally before the Court by witnesses. Under the new provision, statements communicated through electronic means are also recognized as oral evidence.
This change broadens the concept of oral testimony and reflects the realities of modern communication methods such as video conferencing, electronic communication platforms, and other digital modes through which statements may be made.
The amendment therefore ensures that technological methods of communication receive legal recognition in judicial proceedings.
Inclusion of Electronic and Digital Records
The second important change is the express inclusion of electronic and digital records within the category of documentary evidence.
Under the earlier framework, documentary evidence mainly referred to documents in physical form. The BSA now clearly recognizes electronic records, digital files, emails, computer-generated documents, audio recordings, video recordings, and other digital materials as documentary evidence.
This change removes ambiguity and adapts the law of evidence to contemporary technological realities where most transactions, communications, and records exist in electronic form.
Purpose and Significance of These Changes
These amendments enhance clarity, efficiency, and adaptability in the legal system. They ensure that courts can effectively deal with modern forms of evidence generated through digital technology.
The inclusion of electronic and digital evidence strengthens the ability of courts to examine technologically advanced forms of proof and prevents important evidence from being excluded merely because it exists in electronic form.
The changes also promote uniformity and certainty in the treatment of digital evidence.
Connection with Arjun Panditrao v Kailash Kushanrao
The amendments incorporated in the BSA are significant because they reflect and incorporate the interpretation given by the Supreme Court in Arjun Panditrao v Kailash Kushanrao.
In that case, the Supreme Court clarified the legal position regarding admissibility of electronic evidence under Section 65B of the Indian Evidence Act, 1872. The Court emphasized the importance of proper certification and legal recognition of electronic records.
The BSA incorporates this judicial interpretation and modernizes the statutory framework to expressly recognize electronic and digital evidence.
Conclusion
The Bharatiya Sakshya Adhiniyam modernizes the law of evidence by expressly including electronic statements and digital records within the definition of evidence. These changes ensure that the legal system remains effective in dealing with technological advancements and contemporary methods of communication and record-keeping. By incorporating the principles recognized in Arjun Panditrao v Kailash Kushanrao, the BSA strengthens the legal framework governing electronic evidence in India.
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Malaysian Banking Law: Definition of Banker, Banking Business and Customer
Introduction
Banking law is fundamentally concerned with regulating the legal relationship between financial institutions and the persons who deal with them. In modern society, banks play an essential role in trade, commerce, investment, economic development, and the circulation of money. As a result, banking law has developed into a specialised branch of commercial law governing matters such as deposits, loans, payment systems, negotiable instruments, financing arrangements, banker–customer relationships, confidentiality obligations, and financial regulation.
Traditionally, banks were primarily involved in receiving deposits, honouring cheques, and granting loans. However, the modern banking industry has evolved significantly. Today, banks engage in a wide range of activities including internet banking, mobile and digital payments, credit and charge cards, foreign exchange transactions, investment banking, Islamic finance, trade financing, insurance services, and financial advisory services. Because of this evolution, defining the terms “bank,” “banker,” “banking business,” and “customer” has become increasingly difficult.
The courts and legislatures have therefore adopted flexible approaches when interpreting banking law. Rather than relying solely on rigid definitions, the law examines the substance, functions, and nature of the relationship between the parties.
Definition of a Banker at Common Law
At common law, there is no exhaustive or universally accepted definition of the word “banker” or “bank.” The courts have repeatedly recognised that banking is a dynamic commercial activity that changes according to economic conditions, technology, and social practices.
In Bank of Chettinad Ltd of Colombo v IT Commissioners of Colombo, the Privy Council observed that the words “bank” and “banking” may carry different meanings depending on the historical period and the economic development of a country. The court acknowledged that banking practices differ across jurisdictions and therefore cannot be confined within a narrow legal formula.
Similarly, in Bank of New South Wales v Commonwealth, Dixon J emphasised that banking should be given a broad meaning because it forms part of the commercial, economic, and social organisation of society. His Lordship further stated that it is impossible to formulate a completely inclusive definition of banking because banking practices evolve continuously.
These decisions establish an important principle: banking law must remain flexible to accommodate changes in commerce and financial technology. The legal meaning of a banker cannot be frozen in time.
Traditional Characteristics of Banking
Historically, courts identified certain characteristics commonly associated with banking.
In State Savings Bank of Victoria, Commissioners v Permewan, Wright & Co Ltd, Isaac J described the essential business of banking as:
Later, in United Dominions Trust Ltd v Kirkwood, the Court of Appeal identified three traditional characteristics of banking:
Thus, common law does not impose a rigid checklist but instead adopts a functional and practical approach.
Modern Banking and the Decline of Traditional Cheque-Based Banking
Modern banking has moved far beyond traditional cheque-based transactions. Electronic fund transfers, online banking, digital wallets, QR payments, and mobile banking have replaced many traditional cheque functions.
This evolution caused courts to reconsider whether cheque handling is truly essential to banking. In R v Industrial Disputes Tribunal, ex parte East Anglian Trustee Savings Bank, the court held that an institution could still be regarded as a bank even though it did not issue cheque books to customers.
Other cases such as Re Bottomgate Industrial Co-operative Society and State Savings Bank of Victoria, Commissioners v Permewan, Wright & Co Ltd also supported the view that cheque services are not absolutely essential.
The modern legal approach therefore focuses on the broader financial intermediation function of banking rather than specific traditional methods.
Statutory Definition under Malaysian Law
Under the Financial Services Act 2013 (“FSA 2013”), there is no direct statutory definition of the word “bank.” Instead, the legislation defines:
The same section defines “banking business” as:
Importantly, Malaysian courts interpret these requirements conjunctively rather than disjunctively. This means the elements of banking business must be viewed collectively as part of a continuous financial system.
In Light Style Sdn Bhd v KFH Ijarah House (Malaysia) Sdn Bhd, the court held that merely providing financing does not amount to banking business because the institution did not perform other core banking functions such as accepting deposits or handling payment accounts.
The court stressed that banking business is not established by isolated activities alone. Instead, there must exist a substantial and integrated banking operation.
Activities That Do Not Amount to Banking Business
The courts consistently distinguish between true banking business and incidental financial activities.
In Bank of China v Lee Kee Pin, the court held that taking legal proceedings to recover debts does not amount to carrying on banking business. The bank was merely winding up existing transactions rather than conducting ongoing banking operations.
Similarly, in Koh Kim Chai v Asia Commercial Banking Corporation Limited, the Privy Council ruled that taking security over land in Malaysia and enforcing that security did not constitute banking business in Malaysia.
The court emphasised that:
Similarly, Sabah Development Bank Bhd v SKBS (Sabah) Sdn Bhd established that development finance institutions are not necessarily banks merely because they provide financing facilities.
These decisions collectively demonstrate that not every financial institution or lender is legally considered a banker.
Development Finance Institutions and Banking
Development finance institutions (“DFIs”) occupy a special position within the financial system. Their primary role is to promote economic development through medium-term and long-term financing.
In Bank Industri (M) Bhd v Technopro Corp (M) Bhd, the court recognised that development finance institutions are specialised financial institutions authorised to support industrial, agricultural, and commercial development.
Although such institutions provide financing and loans, they are not necessarily banks because they may not perform all core banking functions such as deposit-taking and payment handling.
This distinction is important because Malaysian law recognises that financial intermediation may occur outside traditional commercial banking structures.
Section 125 BAFIA and Preservation of Contracts
Section 125 of the repealed Banking and Financial Institutions Act 1989 (“BAFIA”) provided that contracts entered into in contravention of the Act are not automatically void unless expressly declared so by legislation.
In Light Style Sdn Bhd v KFH Ijarah House (Malaysia) Sdn Bhd, the court held that even if there had been a technical breach of BAFIA, the financing agreement would remain enforceable because section 125 preserved the validity of the contract.
This principle reflects the policy of preserving commercial certainty and preventing borrowers from escaping repayment obligations merely by alleging regulatory non-compliance.
The same approach continues under the Financial Services Act 2013, where regulatory breaches are generally addressed through enforcement actions rather than automatic invalidation of contracts.
Definition of “Customer”
Unlike the word “banker,” the term “customer” is not statutorily defined under either Malaysian or English banking legislation.
The following statutes do not define the term:
This broader and functional definition influenced judicial thinking regarding banker–customer relationships.
Judicial Principles Governing Banker–Customer Relationship
The existence of a banker–customer relationship depends on mutual intention.
In Robinson v Midland Bank Ltd, the court held that no banker–customer relationship exists unless both parties intend to create one.
In Great Western Railway Co v London and County Banking Co Ltd, a man who regularly cashed cheques at a bank without maintaining an account was held not to be a customer. Lord Davey stated that some form of account or similar banking relationship is necessary.
However, the law later evolved. In Commissioners of Taxation v English, Scottish and Australian Bank Ltd, the House of Lords held that duration is not essential. A person becomes a customer immediately once the bank accepts money and establishes an account relationship, even if the relationship is brief or involves a single cheque transaction.
Thus, the decisive factor is not the length of the relationship but the existence of a genuine banking relationship.
Casual Services
The courts distinguish between a genuine customer relationship and a casual service.
A casual service refers to isolated or occasional assistance provided by a bank without establishing a continuing banking relationship. Examples include:
Formation of Banker–Customer Relationship Through Negotiations
The banker–customer relationship may begin even before a formal contract is executed.
In Abdul Rahim Abdul Hamid v Perdana Merchant Bankers Bhd, the Court of Appeal held that a banker–customer relationship can arise once negotiations become part of the process leading directly to an agreement.
Where draft agreements, negotiations, and intended contractual terms exist, legal duties may arise even before the final agreement is signed.
This modern approach recognises the commercial realities of banking transactions.
Modern Concept of a Banker
Today, the banker is best understood as:
Consequently, the modern legal definition of a banker focuses on the substance of financial intermediation rather than rigid traditional formalities.
Conclusion
The concepts of banker, banking business, and customer have evolved considerably through judicial interpretation and statutory development. Modern banking law adopts a flexible and functional approach that reflects contemporary financial realities.
A banker is essentially a licensed financial institution carrying on a substantial and continuous banking system involving deposit-taking, payment services, and financing activities. Banking business requires a combination of integrated functions rather than isolated financial acts such as lending or debt recovery.
Similarly, a customer relationship depends on the existence of a genuine banking relationship based on mutual intention and account-based dealings rather than duration alone.
These principles collectively ensure that banking law remains commercially practical, legally coherent, and adaptable to the changing financial environment.
Introduction
Banking law is fundamentally concerned with regulating the legal relationship between financial institutions and the persons who deal with them. In modern society, banks play an essential role in trade, commerce, investment, economic development, and the circulation of money. As a result, banking law has developed into a specialised branch of commercial law governing matters such as deposits, loans, payment systems, negotiable instruments, financing arrangements, banker–customer relationships, confidentiality obligations, and financial regulation.
Traditionally, banks were primarily involved in receiving deposits, honouring cheques, and granting loans. However, the modern banking industry has evolved significantly. Today, banks engage in a wide range of activities including internet banking, mobile and digital payments, credit and charge cards, foreign exchange transactions, investment banking, Islamic finance, trade financing, insurance services, and financial advisory services. Because of this evolution, defining the terms “bank,” “banker,” “banking business,” and “customer” has become increasingly difficult.
The courts and legislatures have therefore adopted flexible approaches when interpreting banking law. Rather than relying solely on rigid definitions, the law examines the substance, functions, and nature of the relationship between the parties.
Definition of a Banker at Common Law
At common law, there is no exhaustive or universally accepted definition of the word “banker” or “bank.” The courts have repeatedly recognised that banking is a dynamic commercial activity that changes according to economic conditions, technology, and social practices.
In Bank of Chettinad Ltd of Colombo v IT Commissioners of Colombo, the Privy Council observed that the words “bank” and “banking” may carry different meanings depending on the historical period and the economic development of a country. The court acknowledged that banking practices differ across jurisdictions and therefore cannot be confined within a narrow legal formula.
Similarly, in Bank of New South Wales v Commonwealth, Dixon J emphasised that banking should be given a broad meaning because it forms part of the commercial, economic, and social organisation of society. His Lordship further stated that it is impossible to formulate a completely inclusive definition of banking because banking practices evolve continuously.
These decisions establish an important principle: banking law must remain flexible to accommodate changes in commerce and financial technology. The legal meaning of a banker cannot be frozen in time.
Traditional Characteristics of Banking
Historically, courts identified certain characteristics commonly associated with banking.
In State Savings Bank of Victoria, Commissioners v Permewan, Wright & Co Ltd, Isaac J described the essential business of banking as:
- collecting money through deposits;
- holding those deposits repayable upon demand or agreement; and
- utilising the funds by lending or financing activities.
Later, in United Dominions Trust Ltd v Kirkwood, the Court of Appeal identified three traditional characteristics of banking:
- The maintenance of current accounts;
- The payment of cheques drawn by customers; and
- The collection of cheques for customers.
Thus, common law does not impose a rigid checklist but instead adopts a functional and practical approach.
Modern Banking and the Decline of Traditional Cheque-Based Banking
Modern banking has moved far beyond traditional cheque-based transactions. Electronic fund transfers, online banking, digital wallets, QR payments, and mobile banking have replaced many traditional cheque functions.
This evolution caused courts to reconsider whether cheque handling is truly essential to banking. In R v Industrial Disputes Tribunal, ex parte East Anglian Trustee Savings Bank, the court held that an institution could still be regarded as a bank even though it did not issue cheque books to customers.
Other cases such as Re Bottomgate Industrial Co-operative Society and State Savings Bank of Victoria, Commissioners v Permewan, Wright & Co Ltd also supported the view that cheque services are not absolutely essential.
The modern legal approach therefore focuses on the broader financial intermediation function of banking rather than specific traditional methods.
Statutory Definition under Malaysian Law
Under the Financial Services Act 2013 (“FSA 2013”), there is no direct statutory definition of the word “bank.” Instead, the legislation defines:
- “licensed bank”; and
- “banking business.”
The same section defines “banking business” as:
- accepting deposits;
- paying and collecting cheques or payment instructions;
- providing finance; and
- any prescribed banking activity.
Importantly, Malaysian courts interpret these requirements conjunctively rather than disjunctively. This means the elements of banking business must be viewed collectively as part of a continuous financial system.
In Light Style Sdn Bhd v KFH Ijarah House (Malaysia) Sdn Bhd, the court held that merely providing financing does not amount to banking business because the institution did not perform other core banking functions such as accepting deposits or handling payment accounts.
The court stressed that banking business is not established by isolated activities alone. Instead, there must exist a substantial and integrated banking operation.
Activities That Do Not Amount to Banking Business
The courts consistently distinguish between true banking business and incidental financial activities.
In Bank of China v Lee Kee Pin, the court held that taking legal proceedings to recover debts does not amount to carrying on banking business. The bank was merely winding up existing transactions rather than conducting ongoing banking operations.
Similarly, in Koh Kim Chai v Asia Commercial Banking Corporation Limited, the Privy Council ruled that taking security over land in Malaysia and enforcing that security did not constitute banking business in Malaysia.
The court emphasised that:
- taking security;
- enforcing guarantees; and
- debt recovery
are merely incidental or ancillary activities rather than the essence of banking.
Similarly, Sabah Development Bank Bhd v SKBS (Sabah) Sdn Bhd established that development finance institutions are not necessarily banks merely because they provide financing facilities.
These decisions collectively demonstrate that not every financial institution or lender is legally considered a banker.
Development Finance Institutions and Banking
Development finance institutions (“DFIs”) occupy a special position within the financial system. Their primary role is to promote economic development through medium-term and long-term financing.
In Bank Industri (M) Bhd v Technopro Corp (M) Bhd, the court recognised that development finance institutions are specialised financial institutions authorised to support industrial, agricultural, and commercial development.
Although such institutions provide financing and loans, they are not necessarily banks because they may not perform all core banking functions such as deposit-taking and payment handling.
This distinction is important because Malaysian law recognises that financial intermediation may occur outside traditional commercial banking structures.
Section 125 BAFIA and Preservation of Contracts
Section 125 of the repealed Banking and Financial Institutions Act 1989 (“BAFIA”) provided that contracts entered into in contravention of the Act are not automatically void unless expressly declared so by legislation.
In Light Style Sdn Bhd v KFH Ijarah House (Malaysia) Sdn Bhd, the court held that even if there had been a technical breach of BAFIA, the financing agreement would remain enforceable because section 125 preserved the validity of the contract.
This principle reflects the policy of preserving commercial certainty and preventing borrowers from escaping repayment obligations merely by alleging regulatory non-compliance.
The same approach continues under the Financial Services Act 2013, where regulatory breaches are generally addressed through enforcement actions rather than automatic invalidation of contracts.
Definition of “Customer”
Unlike the word “banker,” the term “customer” is not statutorily defined under either Malaysian or English banking legislation.
The following statutes do not define the term:
- Bills of Exchange Act 1882;
- Bills of Exchange Act 1949;
- Financial Services Act 2013.
This broader and functional definition influenced judicial thinking regarding banker–customer relationships.
Judicial Principles Governing Banker–Customer Relationship
The existence of a banker–customer relationship depends on mutual intention.
In Robinson v Midland Bank Ltd, the court held that no banker–customer relationship exists unless both parties intend to create one.
In Great Western Railway Co v London and County Banking Co Ltd, a man who regularly cashed cheques at a bank without maintaining an account was held not to be a customer. Lord Davey stated that some form of account or similar banking relationship is necessary.
However, the law later evolved. In Commissioners of Taxation v English, Scottish and Australian Bank Ltd, the House of Lords held that duration is not essential. A person becomes a customer immediately once the bank accepts money and establishes an account relationship, even if the relationship is brief or involves a single cheque transaction.
Thus, the decisive factor is not the length of the relationship but the existence of a genuine banking relationship.
Casual Services
The courts distinguish between a genuine customer relationship and a casual service.
A casual service refers to isolated or occasional assistance provided by a bank without establishing a continuing banking relationship. Examples include:
- cashing cheques for non-customers;
- providing one-time assistance; or
- exchanging cheques for cash.
Formation of Banker–Customer Relationship Through Negotiations
The banker–customer relationship may begin even before a formal contract is executed.
In Abdul Rahim Abdul Hamid v Perdana Merchant Bankers Bhd, the Court of Appeal held that a banker–customer relationship can arise once negotiations become part of the process leading directly to an agreement.
Where draft agreements, negotiations, and intended contractual terms exist, legal duties may arise even before the final agreement is signed.
This modern approach recognises the commercial realities of banking transactions.
Modern Concept of a Banker
Today, the banker is best understood as:
- a regulated financial intermediary;
- a deposit-taking institution;
- a provider of financial services; and
- an entity authorised to carry on banking business.
Consequently, the modern legal definition of a banker focuses on the substance of financial intermediation rather than rigid traditional formalities.
Conclusion
The concepts of banker, banking business, and customer have evolved considerably through judicial interpretation and statutory development. Modern banking law adopts a flexible and functional approach that reflects contemporary financial realities.
A banker is essentially a licensed financial institution carrying on a substantial and continuous banking system involving deposit-taking, payment services, and financing activities. Banking business requires a combination of integrated functions rather than isolated financial acts such as lending or debt recovery.
Similarly, a customer relationship depends on the existence of a genuine banking relationship based on mutual intention and account-based dealings rather than duration alone.
These principles collectively ensure that banking law remains commercially practical, legally coherent, and adaptable to the changing financial environment.
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KembaraXtra – Bharatiya Sakshya Adhiniyam (BSA) – Tracker Dog Evidence
Tracker Dog as Scientific Evidence
The discovery of facts with the help of a tracker dog or sniffer dog is regarded as a form of scientific evidence used during criminal investigation. Investigating agencies often employ trained dogs to trace criminals, detect objects, or connect suspects with places or articles related to the offence.
However, Indian courts have consistently maintained that such evidence has limited evidentiary value and cannot by itself form the basis of conviction.
Judicial View on Tracker Dog Evidence
In Gade Lakshmi Mangraju v State of Andhra Pradesh, the Supreme Court observed that criminal courts should exercise caution while relying on evidence based on sniffer dogs because of its inherent frailties and uncertainties. Although the Court did not disapprove the use of tracker dogs in criminal investigations, it emphasized that such evidence is not wholly reliable for proving guilt.
The Court recognized that sniffer dogs may assist investigating agencies in tracing suspects or collecting clues, but the behavior of animals cannot be treated as conclusive proof against an accused person.
Position in Dinesh Borthakave v State of Assam
In Dinesh Borthakave v State of Assam, the Supreme Court further clarified that the services of tracker or sniffer dogs may certainly be used during investigation, but the results obtained through such methods cannot independently establish the guilt of the accused.
The Court held that tracker dog evidence may be relevant, but it is not sufficient by itself for conviction. Such evidence must always be supported and corroborated by other reliable evidence such as eyewitness testimony, forensic material, circumstantial evidence, or documentary proof.
Evidentiary Value of Tracker Dog Evidence
Tracker dog evidence is therefore considered only corroborative in nature. It may help investigators in discovering clues or guiding the investigation in a particular direction, but courts do not treat it as substantive evidence.
The limited reliability of such evidence arises from several factors, including the possibility of error, inability to cross-examine the animal, dependence on the handler, and lack of complete scientific certainty regarding the dog’s reactions.
Conclusion
Under the Bharatiya Sakshya Adhiniyam, evidence obtained through tracker or sniffer dogs may be relevant in criminal investigations, but courts treat it with caution. Judicial decisions have consistently held that such evidence cannot independently prove guilt and must be corroborated by other trustworthy evidence before it can be relied upon for conviction.
Tracker Dog as Scientific Evidence
The discovery of facts with the help of a tracker dog or sniffer dog is regarded as a form of scientific evidence used during criminal investigation. Investigating agencies often employ trained dogs to trace criminals, detect objects, or connect suspects with places or articles related to the offence.
However, Indian courts have consistently maintained that such evidence has limited evidentiary value and cannot by itself form the basis of conviction.
Judicial View on Tracker Dog Evidence
In Gade Lakshmi Mangraju v State of Andhra Pradesh, the Supreme Court observed that criminal courts should exercise caution while relying on evidence based on sniffer dogs because of its inherent frailties and uncertainties. Although the Court did not disapprove the use of tracker dogs in criminal investigations, it emphasized that such evidence is not wholly reliable for proving guilt.
The Court recognized that sniffer dogs may assist investigating agencies in tracing suspects or collecting clues, but the behavior of animals cannot be treated as conclusive proof against an accused person.
Position in Dinesh Borthakave v State of Assam
In Dinesh Borthakave v State of Assam, the Supreme Court further clarified that the services of tracker or sniffer dogs may certainly be used during investigation, but the results obtained through such methods cannot independently establish the guilt of the accused.
The Court held that tracker dog evidence may be relevant, but it is not sufficient by itself for conviction. Such evidence must always be supported and corroborated by other reliable evidence such as eyewitness testimony, forensic material, circumstantial evidence, or documentary proof.
Evidentiary Value of Tracker Dog Evidence
Tracker dog evidence is therefore considered only corroborative in nature. It may help investigators in discovering clues or guiding the investigation in a particular direction, but courts do not treat it as substantive evidence.
The limited reliability of such evidence arises from several factors, including the possibility of error, inability to cross-examine the animal, dependence on the handler, and lack of complete scientific certainty regarding the dog’s reactions.
Conclusion
Under the Bharatiya Sakshya Adhiniyam, evidence obtained through tracker or sniffer dogs may be relevant in criminal investigations, but courts treat it with caution. Judicial decisions have consistently held that such evidence cannot independently prove guilt and must be corroborated by other trustworthy evidence before it can be relied upon for conviction.
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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:
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:
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:
Q7: Why did the bank owe duties even though the person had no account?
👉 Because:
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:
✔ There was an actual banking contract involving the purchase of a bank draft.
Compared with Woods v Martins Bank Ltd
✔ Both cases recognise:
Compared with Commissioners of Taxation v English, Scottish and Australian Bank Ltd
✔ Both cases support the idea that:
Application (Note Form)
✔ Customer relationship may exist:
✔ 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:
The recognition of:
Resolution of the Case Scenario
First Scenario — Bank-to-Bank Relationship
The foreign bank WAS a customer.
Second Scenario — Walk-In Customer
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.
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.
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.
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.
✔ 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.
✔ 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.
- whether banking services were provided;
- whether contractual obligations arose; and
- whether the bank undertook responsibilities toward the person.
The recognition of:
- banks as customers; and
- walk-in customers as protected persons
Resolution of the Case Scenario
First Scenario — Bank-to-Bank Relationship
- Regular cheque collection ✔
- Continuous banking arrangement ✔
- Banking services provided ✔
The foreign bank WAS a customer.
Second Scenario — Walk-In Customer
- Bank draft purchased ✔
- Banking contract existed ✔
- Bank undertook responsibilities ✔
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.